The Beginner’s Guide To CRE Tech: Mergers, Acquisitions And Future Industry Consolidation
Merger and acquisition activity within the PropTech space these past 12 to 18 months has been aggressive, but consolidation in the convoluted real estate tech landscape is just barely scratching the surface of what is coming.
“What you’re going to see over the next 18 months is increased consolidation among startups themselves,” MetaProp co-founder Zach Aarons said. “There are a lot of subsections that can support one to two companies, but can’t support six or seven. Companies are starting to feel the pressure from investors and customers to merge with other companies [in a] merger of equals.”
Startups are not the only firms feeling acquisitive in the CRE tech sphere. Everything from private equity firms to traditional brokerage services firms are seeing value in the sector and shelling out cash to enhance their operations or become part-owner of the next unicorn.
“Back in the last cycle you didn’t have this depth of potential acquirers,” Aarons said. “Maybe a [public company like] CoStar or RealPage, but now it’s like you don’t have to just rely on that for a potential exit.”
These are a handful of significant PropTech mergers and acquisitions that have occurred in the last 18 months.
Commercial real estate data giant CoStar Group snatched up multifamily listings website ForRent for $385M in September — $350M in cash and $35M in stock. The deal added 3.5 million monthly visitors to CoStar’s network of apartment search websites and increased the industry titan’s brand presence in the apartment sector.
Aarons said publicly traded companies like the CoStars, RealPages and Zillows of the world are known for having very robust acquisition pipelines.
“That’s a way they keep their talent fresh,” he said.
Leasing management platforms VTS and Hightower merged in a $300M transaction late last year. The combined platforms track market data, including neighborhood rents or lease expirations, and provide forecasting and analytic services. They also consolidate information about lease activity, tenant relationships and transaction data such as emails, spreadsheets and handwritten notes into one place.
“That was an example of two startups deciding that 1+1=3 instead of two,” Aarons said. “Combined they essentially control the whole sector.”
Irvine, California-based real estate marketplace Ten-X made national headlines when it was acquired by private equity firm Thomas H. Lee Partners. THL acquired a majority stake in the tech company for $1B, signaling a shift by PE funds into the real estate tech sphere. Ten-X has completed $50B worth of property sales since its inception, and has raised a total of $141.7M in series funding during that time, according to Crunchbase data. To further differentiate itself from competitors and boost its buyers pool, the real estate auction platform has teamed up with financer Money360 to provide pre-arranged loans for qualifying properties up for sale on its site.
“I wouldn’t be surprised if private equity funds became a lot more acquisitive in the space in the next 12 to 18 months as well,” Aarons said.
Multifamily solutions provider RealPage has been on a buying spree, grabbing four smaller firms to enhance its offerings this year alone. In January, the Richardson, Texas-based publicly traded company acquired Texas-based Axiometrics — a multifamily transaction data platform — for $75M. The company followed that deal with the acquisition of multifamily services firm The Rainmaker Group for $300M. Shortly thereafter RealPage acquired Chicago-based American Utilities Management for $70M and shelled out $250M for multifamily leasing platform On-Site Manager. The company aims to become the largest and most accurate multifamily database on the market.
In a creative move to boost its campus amenities package, property owner and developer Tishman Speyer introduced a suite of services called Zo to tenants at Rockefeller Center in Manhattan. Though not quite a merger, the move reflects how large owners are also entering the space, Aarons said. Zo's services include travel planning through American Express Global Business Travel, wellness services like in-office meditation and group yoga and fitness classes, an on-the-go hair and makeup team presented by Glamsquad, emergency-backup childcare and so much more.
"This really is different,” Tishman Speyer Senior Managing Director Michael Spies told Bisnow in February. "I’m not sure the word amenity does justice to this. In the real estate vocabulary, these are amenities. From a tenant standpoint, these are strategic services for their human capital."
“Another dynamic taking place is you have traditional companies buying tech,” Aarons said.
Brokerage services firms like CBRE and JLL have already entered the fray. In the beginning of the year CBRE announced plans to acquire New York-based Floored, a 3D graphics firm focused predominantly in the CRE and hospitality sector. The platform is a marketing and leasing tool that allows customers to see and compare vacant space using virtual tours. The tech is already being used by developers Related Cos., Equity Office and Beacon Capital.
“You have acquisitions coming from all angles, and it’s exciting for everyone in the space,” Aarons said.