The smartphone in my pocket carries greater computing power than those operated by NASA engineers to guide the Apollo spacecraft. In 1969, long before I was born, computers the size of cars solved the complex equations necessary to land on the moon.
By 1975, Paul Allen and Bill Gates began working for Micro Instrumentation and Telemetry Systems (MITS), manufacturer of the Altair 8080, “the world’s first microcomputer kit.” They wrote customized software in BASIC language before starting their own venture, Microsoft. It would take several additional iterations, but this is the digital revolution that launched PropTech.
By the late 1970s, NYC commercial real estate was a thriving, albeit insular, traditional industry. Innovators and early Honest Buildings investors, The Durst Organization (1915), Rudin Management Company (1924), and Milstein Properties (1919) were established players. It would take 40 more years before PropTech received its first venture capital investment. At the time, Navitas Capital “was among the first to focus on the nascent PropTech sector.”
In the meantime, I was learning the industry. Combining my interests in commercial real estate and investment, I launched a career in structured finance with Ernst & Young. This experience developed an appreciation for operations from the owners’ unique perspective. It occurred to me that the internet had the capacity to play a pivotal role in what would become the next iteration of commercial real estate. Technology had the potential to automate workflows while promoting collaboration, transparency, and accessibility.
After investing a decade in commercial real estate, including leading a global acquisition, asset management, and sustainability team at Tishman Speyer, I acknowledged that while resources abounded for architects, construction teams and finance teams aimed at optimizing visibility and insight within the industry, no resources were purpose-built to meet owners’ needs and fiduciary obligations.
Honest Buildings entered the world in 2012. Owners, I learned, carry the greatest risk. So much so that they need tech platforms and digital resources created primarily for their use to consolidate operations, share organizational intelligence, and deliver projects in less time and at less cost.
I remember looking at my iPhone and thinking that with this tiny device, a small team could make piles of binders and months of analysis on reams of paper completely obsolete.
The importance of innovating the way real estate is managed was apparent in the scope of the opportunity. In addition to being the largest asset class in the US, commercial real estate is among the largest market opportunities in the world, with roughly $10 trillion in global construction spend per year. Not a big number? For context, not only is that $10 trillion expected by McKinsey to grow rapidly over the next 10-20 years but by comparison, only $6 trillion of gold has ever been mined. (Ever).
Fast forward to 2017. PropTech was making big news. At the time, early-stage investments in real estate technology nearly doubled since the year before. Investors began onboarding large portfolios and expanding investments across PropTech internationally. Everyone was aware that there was some serious traction.
Just one year later, industry entrepreneur and visionary James Dearsley offered the following wisdom:
PropTech is similar to teenage sex; everyone is talking about it, everyone thinks that others are doing it and everyone is telling others that they are doing it, yet nobody knows what on earth they are doing.”
PropTech Today, Sydney, Australia 9/5/2018
I don’t think he’s wrong, and he certainly grabbed everyone’s attention. I prefer to call PropTech a “50-year Overnight Success.” It took a while to get started but it continues to rapidly gain momentum.
2018 ushered in the age of adoption, where the biggest bets on technology further evolved. Investments in PropTech continued to grow. According to MetaProp’s Global PropTech Confidence Index, in addition to growth, those investments began to show dividends. Nearly 40% of PropTech companies who benefited from significant investments in 2017 currently exceed customer acquisition growth benchmarks.
Even still, there is a long way to go and uncertainty remains. CRE has historically been resistant to change, especially when it comes to technology adoption.
In 2018, KPMG’s annual Global PropTech Survey, 93% of respondents agreed that they should be engaging with PropTech. However, only one in three participants confessed to having a strategy in place. That means that while 9/10 people can identify a “good thing,” only 1/3 of those have a plan for what to do next.
We have a plan. At Honest Buildings we see the opportunity. Every day we see more real estate companies adopt technology like ours. I think in the near future we will see instantaneous access to asset performance data and where automation on real estate investment management to lessen the administrative burden, allowing investment professionals to focus primarily on creating value rather than reviewing spreadsheets.
John Gilbert, Chief Operating and Chief Technology Officer of Rudin Management Company, said recently, “We used to be a real estate company that dabbled in technology, now we’re a technology company that dabbles in real estate.”
While it might have taken our industry 50 years to get here, the next five years represent the greatest opportunity of our lifetime. The built world is evolving at an unprecedented pace. An anticipated $200 trillion will be spent on construction between now and 2030 as a result of rapid urbanization of the global population.
Another estimate is that “the PropTech market globally was valued roughly at $200M in 2012. That shot up to $2.6B in 2017, and analysis done by KPMG suggests that it will reach $20B by 2020. It’s a large amount of investment and is spread across the entire property lifecycle…”
Since that initial PropTech investment in 2009, in every quarter in the last three years, at least 10x the original value of that investment has been re-invested. The $40 trillion in real estate value in the US is larger than the entire US stock market In 2017 alone, global investment in real estate tech companies topped $12B.
Rapid transformation of the analog real estate industry continues to revolutionize the built world where we live, work, and play…and we’re only getting started.