Page 6 - Realcomm13-Final-LR

FROMthe PUBLISHER

CRE Tech 4.0 – Boom, Bust or Fizzle?

e have heard this story before—or have we? There to sell some form of technology, automation and innovation to
have been various tech booms and busts through- the commercial, corporate and institutional real estate industry.
W out history, with the most notable being the dot. Comparing the two most recent cycles, dot.com was seven
com crash. The dot.com bubble occurred from 1995 through years ‘start to bust’, with about $2 billion invested in CRE Tech.
2001 and had a significant impact on the The current cycle is now in its eighth year with at least five
general economy. The NASDAQ, well known times the investment level of the dot.com era.
for being a high-tech exchange, lost more From our vantage point, here are a few observations:
than half its value and has only recently Positive
reached and exceeded pre dot.com levels. • Innovation is good; it removes inefficiencies, creates new
The commercial and corporate real estate experiences and improves the industry
market also participated in the general dot. • There are a lot of new smart, curious minds trying to solve
Jim Young com euphoria and we estimate that approx- our industry’s problems
Founder and CEO imately $2 billion was invested in real estate • The degree of innovation is forcing all companies, new
Realcomm technology startups. About $1 billion was and old, to push forward and improve the way we conduct
focused on the information and transaction market and the business and serve customers
other $1 billion was geared toward broadband infrastructure. In • Without the restrictions of legacy systems, innovators
many cases, these investments evaporated into thin air. are free to re-think processes and procedures with no
There were, however, a good number of companies that sur- limitations
vived the crash and went on to become well-known and suc-
cessful. One of the most notable successes from this period was Potentially Troublesome
LoopNet (later merged with Property First and then acquired by • Sources of capital: much of it is coming from investors with
CoStar), while some of the less fortunate were companies such very little knowledge of the industry who are not aware
as RealtyIQ, Broadband Office and Real Centric. of our specific challenges, most notably slower, calculated
“Our best estimates show that if you include adoption (One senior level RE executive speculated that
literally thousands of outreaches by new companies result
transactions, operations, user experience in only four new evaluation projects each year.)
and smart buildings, the level of investment • The patience of investors for reaching profitability goals has
in new companies could be in excess been extended from two to three years to five to seven years
of $10 billion.” • Given the high magnitude of investment in CRE Tech 4.0,
there has been a relatively low number of high profile exits
Many in the industry are starting to ask how Phase 4 of CRE • There are too many new competitors in an already crowd-
Tech investment (which began in 2009/2010) compares with ed space
earlier bubbles and what the next 12-24 months will bring. • Lack of industry-specific knowledge by many startups
Will we see more notable exits, M&A activity, new entrants, or • Tactical ‘app’ approach without a comprehensive under-
closures? To date, the VTS/Hightower merger, WeWork and the standing of strategic issues such as enterprise integration,
CBRE acquisition of Floored are the most recognized success data integrity and cyber governance
stories of CRE Tech 4.0. Many industry thought leaders have speculated that 2017
Our best estimates show that if you include transactions, could be the year we see some significant signs of market
operations, user experience and smart buildings, the level of consolidation, the same sentiment we heard regarding 2016.
investment in new companies could be in excess of $10 billion. Though many agree that 2015 was the peak of investment in
This represents well over 3,000 companies, old and new, trying the CRE tech space, we continue to see new entrants every

4 Realcomm