‘There Are Track Records Now’: More CRE Firms Pour Investments Into Maturing Proptech Sector
The proptech sector has taken a major leap forward over the past year, with many startups successfully scaling up and providing windfalls for their investors, and the industry it serves has taken notice.
A host of commercial real estate companies that historically only invested in physical properties have become venture capitalists, pouring money into funds that back proptech startups. Fund launches over the past two weeks from MetaProp and RET Ventures demonstrate the range of the industry's investment.
These new fund launches come as the proptech sector continues to grow with massive amounts of investment in recent years. In 2020, 425 proptech companies took in $23.8B in investments, and in 2019, the sector received $31.6B in investments, according to the Center for Real Estate Technology & Innovation.
A string of multibillion-dollar initial public offerings over the past six months has bolstered investor confidence in the space, fund managers say. Smart lock startup Latch went public June 7 through a special-purpose acquisition company, or SPAC, listing that valued the company at more than $1.5B. In April, SmartRent.com went public through a SPAC that valued it at $2.2B. In February, Matterport went public through a SPAC with a value of $2.3B. On Dec. 21, Opendoor used a SPAC to go public at a $17B valuation.
The latest proptech fund launch comes from MetaProp, which announced Monday morning it closed its third fund with $100M in investments, far exceeding the $40M it raised for its second fund in 2018. The third fund includes backing from more than a dozen commercial real estate firms in the U.S. and abroad.
The fund's investors include brokerage giants Cushman & Wakefield, CBRE and JLL, through its JLL Spark technology investing arm. The fund also has backing from major North American real estate investors PGIM Real Estate, Bridge Investment Group and Ivanhoé Cambridge.
MetaProp also has backing from East Asia, Southeast Asia and the Middle East, with investors such as Tokyo-based Mitsui Fudosan, Dubai-based DAMAC, Development Bank of Japan, Hong Kong-based Swire Properties, Indonesia-based PT Jakarta Setiabudi Internasional, South Korea-based Eugene Corp. and Thailand-based Ananda Development. It also received investment from industries that service real estate, such as plumbing and HVAC supplier Ferguson Enterprises and gas supplier Messer.
MetaProp Managing Partner Aaron Block said it intentionally sought investment from a variety of firms that represented a wide cross section of the real estate industry. He said these companies have become increasingly interested in proptech investing as startups have grown and experienced successful liquidity events.
"A lot of this is the market maturing and the M&A activity that didn't exist years ago in this space heating up, and the public market direct listings and SPACs that didn't exist as much a couple years ago," Block said. "That's certainly providing confidence to strategic investors."
On June 8, RET Ventures announced the close of its second fund with $165M raised, up from $109M in its initial fund in 2018.
The fund has backing from some of the largest U.S. multifamily owners and managers: Essex Property Trust, MAA, UDR, BH Management, Bozzuto, Cortland, Greystar, Edward Rose & Sons, Starwood Capital Group and Waterton.
RET Ventures partner Christopher Yip said the number of commercial real estate backers doubled from its first fund to its second fund, which had more than 40 firms participating. When raising capital for the first fund, he said he remembers hearing skepticism from some commercial real estate executives about whether the proptech space could achieve the success that other tech sectors have experienced.
"What we've seen in the last year is a real affirmation of that, even through Covid," he said. "We're seeing very large strategic exits, we're seeing IPOs, we're seeing SPAC deals getting done at strong valuations. There is a broader market recognition that the sector is here to stay, and I think that will continue to attract more investment."
For many large commercial real estate firms that for decades have focused their investments on physical properties, they see investing in proptech as having multiple benefits. Not only can the investments produce sizable returns, but they also give the firms a window into the latest technological innovations that can add value to their real estate portfolio.
PGIM Real Estate Global Head of Innovation Sara Shank, who joined the firm last year in a newly created role, leads investment in proptech for the real estate investor that has $190B in assets under management. The firm invested in MetaProp's second and third funds, and it has invested in two separate proptech funds in Europe and the Asia-Pacific region.
Shank said investing in proptech venture capital funds gives the firm access to expertise that can help it sort through the vast array of startups around the world.
"There's so much money going into the space that it's creating thousands upon thousands of companies," Shank said. "We have all product types, and we're in so many different regions, which means that a lot of those thousands of companies could be utilized by our asset managers at our properties, and it's hard to sort through it all. So we're leveraging the VC groups to help us with that."
Cushman & Wakefield Global Head of Client and Business Solutions Oliver Skagerlind, in emailed responses to Bisnow questions, said the firm has been investing in proptech since 2015. He said he has seen the sector become ripe for investment over the past few years.
"The landscape has matured," Skagerlind wrote. "[We're] seeing greater adoption and clearer value propositions along with new products, services and business model opportunities being tested, resulting in a number of recent successful exits, making it more attractive for investment."
Japanese real estate investor Mitsui Fudosan in 2015 launched corporate venture capital arm 31Ventures. It invested in MetaProp's second and third funds, which are the only two proptech funds it has backed, 31Ventures Executive Manager Takeshi Kodama said in emailed responses to Bisnow questions.
"After thorough due diligence process and interview with the management team, my team reached the conviction that MetaProp has the solid expertise based on the blended background amongst real estate, tech and VC," Kodama wrote.
Block said that MetaProp received strong interest from investors in Europe, Asia and Latin America. He said the proptech startup space hasn't advanced in those regions as much as it has in North America, so overseas investors see investing in MetaProp as a way to gain access to the latest technologies.
"We see hundreds of new technologies a month here ... and then we're able to pass that access and learning on to these folks," he said. "Since North America and the U.S. is still really the innovation engine — it's years ahead of what's happening in Europe and Asia and Latin America — a lot of these folks have a hard time accessing tomorrow's technologies, so we're a natural fit."
He also said MetaProp saw more interest from companies that provide services to the real estate industry such as design, engineering, construction firms and suppliers such as Ferguson.
Ferguson in 2018 launched venture capital arm Ferguson Ventures, and its backing of MetaProp's latest fund represented its first investment in a proptech fund, Ferguson Ventures Managing Director Blake Luse said. He said the firm invests in sectors that can add value to its core business.
"Every investment we make is strategic to one of our business units," Luse said. "With MetaProp, for instance, we've got a facility supply business that is serving multifamily, commercial and hospitality owner-operators. So when we think about investing in proptech and MetaProp specifically, we're doing it because MetaProp gives us the ability to see more startups and technologies that could help our customer base."
CREtech CEO Michael Beckerman, an industry veteran who runs a proptech events platform, said the coronavirus pandemic led to increased adoption for real estate technologies, and that has drawn more funding to the space this year. He said he has seen more commercial real estate firms investing in proptech funds as they have seen more success stories.
"We're at the point in the cycle where these venture firms have enough of a track record now that they can attract the wider real estate industry as limited partners," Beckerman said. "2021 has been a very good year for real estate tech exits and fundraising. There are track records now that are measurable and strong, and that's what's attracting real estate companies to invest in the space."