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A Real Estate Approach to Corporate Venture Capital: From Gift Boxing to Pilot-as-a-Service

The growth in the real estate technology space has swelled immensely in the past two years, which makes the process of keeping pace with the industry difficult for many real estate companies whose core function is not investing in new ventures. At the MIPIM PropTech New York conference, panelists discussed their firms’ strategy for institutionalizing the approach to communicating with internal business units, managing leads, and partnering with startups.

The panel was moderated by Dan Fasulo who serves as Senior Managing Director of Data and Tech at Newmark Knight Frank. He is joined by Karen Hollinger, Vice President of Corporate Initiatives at AvalonBay Communities, who leads the firm’s innovation initiatives in their development, construction, and property operations. Sharing the stage with Hollinger is Melanie Kirkwood Ruiz, Chief Information Officer, Americas of Cushman & Wakefield. Ruiz is responsible for coming up with tech-related firm-wide change strategies, including back-office tasks to revenue-generating activities. Swire Properties Limited’s Anthony Liu, the final panelist, leads the New Ventures division, which is the firm’s tech-sourcing team tasked to find experimental solutions.

When it comes to working with startups, Hollinger noted that at AvalonBay her job is primarily focused on creating partnerships that are revenue-producing. Ruiz left the door open a little wider when she indicated that at Cushman, her role demands that she should be more open-minded to the cross-pollination of technology from other sectors, including financial, insurance, and energy industries. Similar to Ruiz, Liu does not only look at PropTech, but also looks at other solutions that are adjacent to the everyday business operations such as human resource and legal.

Swire Properties Uses Radar

Before scouting for technology, Liu stressed that it is important to know what each of the business units in your corporation wants. If you are clueless about the needs of the business units, you will not know what to look for, said Liu. At Swire, the organization uses “Radar,” which is their new technology assessment tool. Part of the process of using Radar is to hold workshops and focus groups with the various business units, discussing the business challenges and identifying creative technological solutions. Radar is a four-part process: studying the problem, sourcing the solution, piloting a trial, and adopting the technology.

With Radar, Swire streamlines the process for evaluating the usefulness of a new technology initiative. Liu said that in his position the biggest bottleneck is not finding tech solutions but convincing the firm’s decision makers to open their minds to new ways of doing things. “Learning how to introduce an idea is a challenge,” said Liu. He added, “If they feel like the business units are the ones driving the vision, they will take ownership.” Buy-ins from the business units are essential. In his everyday role, Liu has to build a case why a tech solution that he has scouted is worth the risk.

Cushman & Wakefield Introduces Pilot-as-a-Service

Echoing what Liu said, Ruiz recalled when Cushman used to source tech solutions without first identifying the problem. Now it is more structured. Ruiz introduced the concept of “pilot-as-a-service,” which is Cushman’s strategy for testing out new technological solutions without the full commitment typically required in a joint-venture partnership or a financial investment into a startup. Cushman is also opting to work with startups with a “lite master agreement” rather than a “full master agreement” approach, which requires less legal work and approval of the firm’s full leadership team. Thereby, it allows Cushman to quickly engage with the startups before they get buried in the administrative paperwork.

AvalonBay Delivers Gift boxes

At AvalonBay, Hollinger follows the “gift box approach.” In the company, there is a division that is solely focused on new venture initiatives, which is also the company’s research and development arm. Hollinger who leads the division explained that at the start of each fiscal quarter they receive a known amount of budget, but what is unknown is what the budget will be used for. The “fund of fund,” which Hollinger called it, works as such: Her team would identify a technological solution that her team believes would aid the operations of a business unit. The said business unit would adopt the technological solution but does not need to shell any of the cost of implementation from the business unit’s discretionary budget. If the business unit finds the solution to be effective, then in the next fiscal quarter, the said business unit would need to start paying for the solution out of their division’s budget.

Hollinger calls it the gift box approach because she is essentially asking the business units, “Here is a solution, I am going to gift it to you, would you like to try it?” It incentivizes the business units to try new technology without cutting into their division’s budget. If the solution works, then they can begin to pilot the solution in five or 10 of their properties. Finally, “If we can get into a statistically sizable sample, … then we will take the leap of faith and roll it out across the portfolio,” said Hollinger.

Similarly, at Swire, they have an “experimentation fund.” His team will pay for the proof-of-concept when engaging with startups. Liu shared that his company will make it simple for startups to engage with them, paying for their plane tickets if the startup founders that are based overseas and providing the startups with the workspace. When dealing with startups, both Swire and AvalonBay do not take any equity share.

Direct and Indirect Investment

AvalonBay, unlike several large developers, has not invested in any real estate tech fund but has invested directly into the startups. For AvalonBay, which portfolio is comprised of predominantly multifamily units, Hollinger has to ask herself, “What percentage of the fund is multifamily related?” If the real estate fund has little exposure to technological solutions that can alleviate the major pain points of running a multifamily real estate company, then investing in a fund is not the right path. She emphasized, “It comes down to the ability to consume those opportunities.”

Unlike AvalonBay, Cushman has publicly invested in real estate tech funds. However, they too have invested directly in startups. Ruiz said that working with dedicated real estate venture capital firms give them exposure to many startups. She said partnering with MetaProp NYC builds her company’s visibility among early-stage PropTech companies. For those seeking to invest in late-stage PropTech companies, they can partner with Fifth Wall. Ruiz added that sometimes it can be challenging to do the finding on their own. Having these venture capital firms as an investment partner will ease the vetting process.

For startups that are looking to receive corporate venture funding, Hollinger suggested that they participate in accelerator programs to build a public profile. Publishing articles is also another great idea. She also recommends them to enter startup competitions, which if they can advance to the final rounds will often give the startups a captivated audience of industry leaders for six full minutes.

In the past, real estate development companies like AvalonBay and Swire will build in-house tech solutions if they are unable to find off-the-shelf solutions. However, the PropTech industry is becoming more mature that it is unlikely that third-party products are not already available. Hollinger noted that most likely the solution is already out there, we just need to talk and spread the word.

Where in the past real estate behemoths would entertain cold pitches from PropTech startups promising to decrease the firm’s operational expense or offer a leg up over their competitors, today the process is reversed. With the scale of advancement in the PropTech industry, real estate corporations are now more prudent with their use of time and resource. Standard operating procedures for engaging with startups are now codified into the firm’s practice. It is unclear whether this trend of institutionalization will make it harder or easier for the PropTech startup community to thrive. On one end, Cushman’s lite master agreement approach should make the process of rolling out pilot project simpler. However, AvalonBay and Swire’s modus operandi of engagement will make it more difficult: “I, the giant real estate company, will contact you, the small real estate tech startup. Let me make it clear: I will contact you, not you contact me.”

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