The 7 Metatrends Shaping the Future of Real Estate Tech
Over the past year, the real estate industry has suddenly realized that themes like remote work, ESG and cloud computing will continue beyond the pandemic. All these themes are powered by the technology innovations that real estate firms need to understand and capitalize on. It is no secret the real estate industry is known for its slower adoption cycle, but over time, if new tech is not adopted, old-school firms will lag in their investor performance and will end-up playing a catch-up game.
Let's take a look at the 7 metatrends that are shaping our industry today:
Cloud computing, neural networks and the availability of better data will enable further integration of AI across multiple real estate functions: acquisitions/dispositions, intelligent underwriting, asset management, construction, and lending. AI can potentially eliminate manual data tracking, efficiently run portfolios, value assets and make buy/sell decisions.
Smart building solutions are a part of the IoT and connected sensor technology. Essentially, this is the operating system of the building or the "brain." Smart building technology can be applied across different systems: water supply, HVAC and chiller plants can be automated; multiple internal systems can be connected and run more efficiently; data collection can be improved, and; the structural integrity of the building, optimized. There is a healthy ROI on the smart building investment projects, too. In a recent interview about smart building implementation, John Gilbert of the Rudin Management Company said, "For us at 345 Park Avenue, first year we saved almost a million dollars, $980,000. At 560 Lexington, which is a smaller building, (300,000 sq. feet), we saved a dollar a foot."
ESG, green energy, supply-chain innovations
There is growing evidence that when the ESG factors are incorporated into portfolio construction and investment analysis, investors may gain long-term advantages in relationship to performance. Having strong ESG practices can seriously benefit companies and investors, potentially opening up vast amounts of capital, allowing the opportunity for companies to promote sustainable growth over the long-term and build a stronger, more dependable brand. As the market rapidly changes and competition increases, attention and concern for ESG issues have become crucial for success in the long term. Several European operators issued detailed guidance on how they plan to achieve a net-zero portfolio – mainly through operational emissions within every building under their direct control. Tier 1 involves direct emissions and Tier 2 involves power-related emissions. The companies plan to increase investments in smart energy management tech. This also includes producing renewable energy, such as 100% renewable electricity. Another efficiency in the works is to strengthen the supply chain engagement (indirect emissions), aiding suppliers when transitioning to low-carbon materials/methods.
Edge computing and micro data centers
The Internet and the cloud gave rise to data center facilities a long time ago. But because of the length of time it takes for a computing request to move from a user through a network to a data center, edge computing is gaining momentum. Edge computing requires locations physically closer to the user, thus creating a new property type - micro data centers - a more distributed network to access computing power. All this space has to come from somewhere. The biggest winners could be the owners of underperforming retail centers, distribution facilities and even billboards - properties in locations that offer the right mix of power and Internet connectivity.
This is considered the most wanted tech innovation in the post-COVID world. In short, it changes the way we shop for real estate. Perhaps, the most extreme example would be a recent sale of the digital house as an NFT (non-fungible token) for $500,000(!)
Something that was just a concept a few years ago is gaining momentum as the printing costs keep falling. 3D printed homes are considered one of the best ways to address the affordability housing crisis around the world and the issue of homelessness. Icon, one of the first companies in the space, has recently completed a project in Austin, TX.
New forms of capital
Global connectivity, dematerialization, democratization, and unprecedented amounts of stimulus have led to the abundance of capital available for investments. Crowdfunding is expected to reach $300 billion by 2025. Debt capital that's contingent on a certain outcome that fits a global purpose / purpose-driven lending - HARP, infrastructure-related improvements, sustainability goals - is becoming more popular. Major real estate firms (such as Fifth Wall, Tishman Speyer and others) are joining the SPAC craze. Some ETFs are now run by AI. Bitcoin is becoming an acceptable currency for various types of transactions - consider that the Governor of Nevada recently granted a city charter to Painted Rock, a $16 billion smart city to be built entirely on blockchain.
In my recent research paper in the Journal of Real Estate Finance, I argued that real estate companies of the future will be technologically oriented and focused, as opposed to real estate focused. The latest tech innovations demand new organizational structures that would reinvest capital into R&D (and not distribute all as REITs would do). In this scenario, the CTOs must become an integral part of the organizational structure. All employees need to be familiar with tools that impact companies globally (universal accountability for enterprise-level tech). There must be an open environment for collaboration to foster innovation.
Given the wide adoption of technology, real estate companies need to focus on technological innovation, development and delivery. Real estate companies are decades behind in their ability to respond to the marketplace. On an ongoing basis, they will need to restructure their organizations and create new internal cultures, becoming more virtual and organic, changing their internal psychology and politics to adapt. Companies may consider de-REITing to become Real Estate Operating Companies (REOCs) to gain access to capital markets, retain more earnings, increase plow-back and grow rapidly via R&D investments.
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