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CRE Tech 4.0 – Boom, Bust or Fizzle?

We have heard this story before – or have we? There have been various tech booms and busts throughout history, with the most notable being the dot.com crash. The dot.com bubble occurred from 1995 through 2001 and had a significant impact on the general economy. The NASDAQ, well known for being a high-tech exchange, lost more than half its value and has only recently reached and exceeded pre dot.com levels.

The commercial and corporate real estate market also participated in the general dot.com euphoria and we estimate that approximately $2 billion was invested in real estate technology startups. About $1 billion was focused on the information and transaction market and the other $1 billion was geared toward broadband infrastructure. In many cases, these investments evaporated into thin air.

There were, however, a good number of companies that survived the crash and went on to become well-known and successful. One of the most notable successes from this period was LoopNet (later merged with Property First and then acquired by CoStar), while some of the less fortunate were companies such as RealtyIQ, Broadband Office and Real Centric.


Many in the industry are starting to ask how Phase 4 of CRE Tech investment (which began in 2009/2010) compares with earlier bubbles and what the next 12-24 months will bring. Will we see more notable exits, M&A activity, new entrants, or closures? To date, the VTS/Hightower merger, WeWork and the CBRE acquisition of Floored are the most recognized success stories of CRE Tech 4.0.

Our best estimates show that if you include transactions, operations, user experience and smart buildings, the level of investment in new companies could be in excess of $10 billion. This represents well over 3,000 companies, old and new, trying to sell some form of technology, automation and innovation to the commercial, corporate and institutional real estate industry. Comparing the two most recent cycles, dot.com was seven years ‘start to bust’, with about $2 billion invested in CRE Tech. The current cycle is now in its eighth year with at least five times the investment level of the dot.com era.

From our vantage point, here are a few observations:
    Positive
    • Innovation is good; it removes inefficiencies, creates new experiences and improves the industry
    • There are a lot of new smart, curious minds trying to solve our industry’s problems
    • The degree of innovation is forcing all companies, new and old, to push forward and improve the way we conduct business and serve customers
    • Without the restrictions of legacy systems, innovators are free to re-think processes and procedures with no limitations
      Potentially Troublesome
      • Sources of capital: much of it is coming from investors with very little knowledge of the industry who are not aware of our specific challenges, most notably slower, calculated adoption (one senior level RE executive speculated that literally thousands of outreaches by new companies result in only four new evaluation projects each year)
      • The patience of investors for reaching profitability goals has been extended from two to three years to five to seven years
      • Given the high magnitude of investment in CRE Tech 4.0, there has been a relatively low number of high profile exits
      • There are too many new competitors in an already crowded space
      • Lack of industry-specific knowledge by many startups
      • Tactical ‘app’ approach without a comprehensive understanding of strategic issues such as enterprise integration, data integrity and cyber governance
      Many industry thought leaders have speculated that 2017 could be the year we see some significant signs of market consolidation, the same sentiment we heard regarding 2016. Though many agree that 2015 was the peak of investment in the CRE tech space, we continue to see new entrants every day. While perhaps not at the same pace as past years, it does indicate that investors continue to show interest in our industry. There are also those investors who feel the sector is too ‘frothy’ and it might be best to wait for a correction. Bottom line: there is still sentiment on both sides of the argument for investing, and for now it is business as usual.

      With so many new companies focusing on commercial, corporate and institutional real estate, the innovative ideas that rise to the top are important to the progress of our industry, and that is why Realcomm and IBCON will continue to showcase the ‘best of the best’ ideas. We will provide a forum for discovery, discussion and debate on the challenges and opportunities of the innovation emerging from Phase 4 of CRE Technology.

      To learn more about the future phases of CRE Tech, join us at Realcomm | IBcon 2017, which will be held in San Diego on June 14-15 (June 13: Precon | June 16: Innovation Tech Tours).

      Jim Young, Co-Founder & CEO, Realcomm
      Founder of Realcomm Conference Group, an education organization that produces Realcomm, IBcon and CoRE Tech, the world's leading conferences on technology, automated business solutions, intelligent buildings and energy efficiency for the commercial and corporate real estate industry. As CEO, Jim interacts with some of the largest companies globally pertaining to some of the most advanced and progressive next generation real estate projects under development.

      This Week’s Sponsor

      Now in its fourth decade, Yardi® is committed to the design, development and support of software for real estate investment management and property management. With the Yardi Commercial Suite™, Yardi Multifamily Suite™, Yardi Investment Suite™ and Yardi Orion™ Business Intelligence, the Yardi Voyager® platform is a complete real estate management solution. It includes operations, accounting and ancillary processes and services with portfolio-wide business intelligence and platform-wide mobility. Yardi is based in Santa Barbara, Calif., and serves clients worldwide from offices in North America, Asia, Australia, Europe and the Middle East. For more information, visit www.yardi.com.

      Realcomm News


      For more information about the event, course and its design: Realcomm | IBcon Golf Outing

      The golf outing is open to all registered Realcomm | IBcon attendees. Conference registration (early bird rates expiring 4/14/17) and advance reservation is required.

      Contact information: Alicia Riddle | 757-333-2332

      UPCOMING REALCOMM WEBINARS

      A Path to Net Zero – Driving ENERGY EFFICIENCY in Smart Buildings - 7/18/2019

      One of the first trends to emerge in the modern smart building movement was energy conservation and efficiency. Approximately eight years ago, the industry realized that connecting energy related equipment to a network and applying advanced analytics and complex integration strategies could result in a significant reduction in energy and natural resource consumption and a resultant decrease in energy related expenses. In recent years, operational efficiency and occupant experience have been added to the smart building discussion, sometimes overshadowing energy efficiency. This webinar will focus on the very important goal of including energy efficiency in the comprehensive smart building strategy.

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