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:
- 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
- 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
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).
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.
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.
Ruairi is a respected high-performance building design expert. His aim is to elevate the built environment and restore order to the climate for future generations. He specializes in commissioning services for new and existing buildings, building energy assessments, high performance building design, energy modeling/advanced building simulation, and measurement and verification consulting.
Sarah Zaleski currently serves as a Senior Advisor for the U.S. Department Building Technology Office where she leads commercial zero energy efforts, district-scale solutions, and a portfolio of data infrastructure projects. In previous roles at DOE, Sarah led local government clean energy innovation programs. Sarah has over 15 years of experience in sustainability and energy work. Before DOE, Sarah worked for Baltimore City where she helped establish their Office of Sustainability.
Ryan Knudson, is the AVP for Operations and Energy Management at Macerich. He is responsible for the development, execution and operations for all Capital Expense Energy and Smart Building projects as well as national program vendor management. He oversees the daily operations of Macerich’s portfolio with a focus on same center NOI growth.
Akshai Rao, a vice president at Yardi, is responsible for the development of procurement and energy management solutions to ensure high-performing buildings. Prior to Yardi, Akshai spent five years at Bain & Company where he focused on technology and telecom.
Jean-Simon Venne is a tech expert who thrives on developing and implementing new technology to solve long-standing commercial issues. He has over 25 years of experience in the fields of telecommunications, biotechnology and energy-efficiency specializing in the fast and efficient migration of technological innovations to commercial applications. With an industrial engineering background, Jean-Simon is uniquely trained to optimize the value creation opportunity that exists where new technology intersects with business and energy markets.
Gary Fescine FMA, RPA is the president of GFC his own consulting firm. He has recently retired from BlackRock where he was global director of facilities, building operations, overseeing 77 sites in 23 countries. He has held a number of related positions including director of facilities at The New York Times and director of operations at the New York Post. Mr. Fescine was the recipient of several energy savings awards including the Energy New York Award in 2017.