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How Proptech Firms ‘Trojan Horse’ Their Way To CRE Greatness


Commercial real estate is a notoriously slow-moving industry when it comes to adopting new technology. For young proptech companies, it can be difficult to break into the market. Even once they have a foothold, innovative proptech companies face another risk: being subsumed by the few established CRE software companies that sit at the heart of the industry and cover critical functions like accounting, leasing and property management

But some tech upstarts are pursuing a different strategy to take on the established tech suites: be exceptionally good at one thing, gain acceptance in the marketplace, then grow and diversify into an entire platform.

“A lot of point solutions are attempting to grow completely outside the world of these established tech suites,” Fifth Wall Managing Partner Brendan Wallace said on the most recent Walker & Dunlop Walker Webcast. “If you can build a better point solution, you can ‘trojan horse’ into the nervous systems of these CRE firms and compete long-term with the established systems.” 

Fifth Wall Managing Partner Brendan Wallace on the Walker & Dunlop Walker Webcast

Wallace, whose company pours a significant portion of its venture capital into emerging proptech companies, pointed to VTS as an example of this new business model. When it was founded as View The Space, the company focused on streamlining the front-end experience of leasing. As it grew into an industry-standard software, the company then diversified into a platform for asset management, marketing and numerous other capabilities that have usually been the province of real estate tech giants like Yardi and RealPage.

One of the unique features of commercial real estate, Wallace said, is how frequently properties trade hands, complete with an entrenched set of systems and technologies. That means the industry is often stuck using outdated or subpar software to manage properties simply because those technologies are standard across the industry. 

But the frequency of CRE trading means that if a technology becomes the standard for even a small number of buildings, it can spread very quickly.

“The high cost of switching platforms can preserve legacy business platforms or it can be an accelerant to change,” Wallace said. “I would say where it nets out is that property management systems are more vulnerable to better solutions and point solutions replacing them.” 

Camber Creek Managing Director Casey Berman on the Walker & Dunlop Walker Webcast

The coming years are likely to be full of upheaval and investment for the world of proptech. The coronavirus pandemic acted as a wake-up call for real estate firms that had not invested in technology, according to Camber Creek Managing Director Casey Berman. He pointed to a host of proptech companies that formed and grew exponentially during the last year: Flex, a company that allows tenants to spread out rent payments over a month and ensures landlords are paid in full and on time, and Notarize, an online notarization platform that he said grew 800% in the last year. 

“It’s the right time to invest in tech, whether you’re a service company, a real estate owner or anyone else in the industry,” Berman told Walker & Dunlop CEO Willy Walker. “If you want to continue with business as usual through the pandemic, you no longer have an option except to use tech.”

There is another distinguishing characteristic of CRE that changes the way proptech is built and sold. Unlike many other industries, which are dominated by a few large companies, real estate has an unfathomable number of owners. Wallace pointed out that the combined portfolios of the dozen largest institutional landlords in New York would still account for a small fraction of the overall market for commercial space in the city. 

When Brookfield announced that it would use Latch, a smart lock company backed by Camber Creek, at its new multifamily properties, Berman said he was ecstatic. But he also understood that it represented only an incremental step in the growth of the company, whose potential market includes tens of billions of square feet of space. 

Berman said he hopes that proptech venture capital firms can act as crucial intermediaries, introducing CRE companies to technologies that can help them streamline their businesses while helping cutting-edge technology companies grow by suggesting their services to a cadre of owners and service providers.

Walker & Dunlop CEO Willy Walker

Wallace recalled how Fifth Wall led the Series C funding round for Opendoor, a company that purchases and redevelops single-family homes, with Fifth Wall brokering a partnership between Opendoor and Lennar, the nation’s largest homebuilder. The partnership brought an influx of users onto Opendoor’s platform, but it also helped Lennar retain its customer base by making it easier to move between Lennar-built homes.

Part of the reason that venture capital needs to take on the role of intermediary, Wallace said, is that CRE firms traditionally look at technology as a way to cut internal costs rather than to grow their businesses in innovative ways with consumers. 

“No CRE company is saying, ‘We need to reinvent leasing or notarization.’ They’re looking at how to reduce materials costs and human resources,” Wallace said. “It’s hard for enterprises to get exposed to how consumers are engaging with technology. We help them invest in consumer tech with strategic value at an enterprise level.”

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This article was produced in collaboration between Walker & Dunlop and Studio B. Bisnow news staff was not involved in the production of this content.

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