YOU DOWN WITH OPP?
Real Estate, both commercial and residential, for thousands of years has in some form or another been an Opaque People and Paper business. In a time when technology is drastically changing the transactional process in nearly every industry and often eliminating the need for brick and mortar marketplaces, real estate continues to lag behind the progressive landscape technology is creating. Tech insiders believe the real estate industry is 8-10 years behind other industries in terms of the technology being used and how it’s being used to facilitate the transaction process. CREXi, or Commercial Real Estate Exchange, with backing from high octane VCs including Lerer Hippeau Ventures, Freestyle Capital, and Founder Collective, is looking to modernize the listing and transaction process and help bring the real estate transaction out of the feudal dark ages.
Commercial Real Estate can be an opaque and inefficient asset class. Owners usually hide behind limited liability corporations and contact information is hard to locate. Property information – specifically rent rolls and income statements – are closely guarded, and market availability is usually only made public to a limited audience. Information is cryptic and hard to obtain and supply, and demand have a hard time meeting resulting in pricing inefficiencies which can limit liquidity as buyers and sellers often have different value beliefs (typically in commercial real estate there is a disconnect between price and value). While privacy can be important and is valued by some investors, information can and will lead to a more efficient marketplace. Buyers thrive on inefficiencies and love off-market or under-marketed deals because they believe they can underpay for an asset with limited competition. However, those same buyers often miss deals they are unaware of and have problems entering new markets because there is a steep learning curve that must be overcome to ensure they have access to every opportunity (and countless broker lunches to help accomplish this goal). On the other side of the transaction, sellers want to protect their information and expose financials to a limited audience, however, the smaller the buyer pool, the less competitive the sale environment which can often result in lower or diluted pricing resulting in an opportunity cost associated with secrecy. With a younger generation of professionals inheriting the business and recognizing that information transparency is a benefit and competitive advantage for both sides, the real estate industry is already beginning to see the light. Information wants to be set free.
CREXi is an aggregated and secure exchange or marketplace where buyers can find deals in any given market (currently 450+ deals priced at $2B+) from their phone, tablet or computer. General property information (address, size, year built, etc…) can be viewed by anyone while more sensitive information is protected and then accessed following the execution of an electronic non-disclosure agreement (“NDA”). As much or as little information as desired can be placed in the vault at brokers discretion and access can be layered so that only a select group can see certain items (perhaps during a best and final process). The vaults are clean, easy to use, and documents can be downloaded directly to your computer or printed. Brokers see who is accessing the vault, how often, and when, giving them an indication of buyer interest level and creating a transparent paper trail for seller reporting. An off-market portal exists for deals with exposure sensitivity in which property description can be teased and access and information granted only to those the broker and seller choose allowing the broker the ability to vet buyers before releasing information.
It doesn’t take a degree from MIT to recognize that much of the paper still being printed, scanned, and faxed in the commercial real estate industry is unnecessary and antiquated (and damaging to the environment). NDAs, leases, Purchase and Sale agreements, and other documents can be electronically viewed and executed for speed and more efficient (and secure) data management and storage. Stacking and floor plans can now be virtually viewed in video game environments, yet the transaction is still too often managed with a pen and paper often slowing down deals and creating unnecessary waste.
CREXi’s transaction management software provides brokers with tools including electronic due diligence vaults (accessed following the execution of electronic NDAs), deal trackers and analytics creating activity trails, note features which will eventually be synched with most CRM programs, one-touch excel reporting, and closing trackers. These programs are designed by experienced brokers and transactional facilitators in addition to a former Apple executive who all recognize these tools need to be simple and intuitive to support a broker’s busy lifestyle and unique wiring. The transaction management features can all be easily accessed from a desktop, tablet, or phone.
The People element in commercial real estate is part of the charm of the industry as any relationship driven person with an idea and vision, ability to promote a deal, and some sliver startup capital can raise equity and debt and generate tremendous multiples of their investment and sums of wealth without a college or even high school diploma. Street smart and entrepreneurial investors often gravitate to the industry as it is intuitive and relatable (everyone lives and shops somewhere), and while many barriers to entry exist, many do not (licensing, degrees, dress codes, manners). Some capital is required to acquire a property, but creative investors have always found ways to create wealth using other people’s money in exchange for their knowledge, access to deals, expertise, and vision. Given the somewhat simple, intuitive, and straight forward math at an entrepreneurial capital level, understanding and determining asset value is easy for most. The people element will probably never exit the real estate industry, and I think most are happy that it won’t. I believe the most colorful, entrepreneurial, visionary, courageous, and talented deal makers in business reside within the real estate community.
None. We like the people element of the business and not only are not trying to displace anyone, we are encouraging a more collaborative and colorful marketplace where the friction points of a transaction are virtually eliminated and more time can be spent meeting with prospective clients and touring properties. Time and deal velocity are wasted on jammed fax machines, phone tag, scanned NDAs and other unnecessary friction points. Refining the process allows either more deals to be done or more time to spent with family.
Out From The Dark Ages. Guest Post CREXI.