Technology finally gains a foothold in an industry that had resisted gains made in other sectors.
THIS ARTICLE WAS PUBLISHED IN THE ‘Q’ – THE REGISTRY’S PRINT PUBLICATION – IN MAY 2015
The office tower on the Avenue of the Americas held the biannual CRE//Tech Intersect symposium. The first of the two 2014 gatherings was held in San Francisco.
Commercial real estate is still “a lagging industry” when it comes to adopting technology, said Pierce Neinken, a veteran real estate professional who founded the symposium in 2012.
“But we’re already seeing some key trends that are changing the way our business is done,” Neinken said. “The industry will look very different in five years, and it will be completely different in 10 years” given that technology can influence every stage of the CRE process.
Whereas residential real estate has embraced technology with the likes of Zillow, Realtor.com, RedFin, and other Internet-based house hunting and brokerage services, the estimated $15 trillion commercial real estate industry has largely stuck to long-established tools and techniques such as fax machines, printouts, cold calling and poring over spreadsheets.
The industry has been slow to incorporate innovations partly because big corporations have invested in old systems that are costly to update, said David Mandell, CEO of Colorado-based PivotDesk, whose programs help brokers and startups find office space by connecting them with large firms that have surplus room.
Until recent years, CoStar and its subsidiary LoopNet have been the predominant purveyors of technology on the commercial side, providing online information, analytics and listings on offices, apartments and other properties.
But now a new and diverse generation of CRE tech firms has burst online in a post-recession boom economy. Over the past four years, tech has gained traction in commercial real estate as evidenced by the increasing number of firms entering this market space and the investment they are pouring into it. The attempt is to show how commercial real estate deals can be transparent and efficient, rather than the obscured, long-winded process that has been the norm for decades.
“There’s a whole new group of people out there trying to solve problems in our industry,” said Brandon Sedloff, senior vice president and head of global corporate development at the Urban Land Institute, a nonprofit real estate and land use research and education organization based in Washington, D.C. “There are so many new technology platforms. It went from zero to a bunch.”
Among the rising companies are PivotDesk (shared office space), Auction.com (connecting buyers, sellers and brokers), Fundrise (real estate crowd funding), 42Floors (brokerage), Hightower (mobile commercial leasing platform), LiquidSpace (short term office rental), Procore Technologies (cloud based construction management) and VTS (leasing and asset management).
These innovative companies are making strong inroads in such areas as crowdfunding, asset management, office sharing, data analytics, mobile applications and listings. They also are drawing prominent clients, including from real estate investment trusts Boston Properties and Columbia Property Trust.
Sedloff noted that among the biggest trends in CRE right now is crowd funding, in which companies such as Fundrise and Realty Mogul link accredited investors directly to potential property deals. Another big trend is asset management, in which companies like VTS provide commercial real estate professionals with a platform to track deals, manage space and access detailed real estate information, he said.
One prominent sector involves companies such as Hightower giving brokers mobile access to real-time data. “Traditionally, real estate data has not been updated, and you have to dig deep into a spreadsheet,” Mandell said. So the ability to have the latest information literally at your fingertips at any time is “a huge step forward.”
Even large companies not traditionally associated with commercial real estate are taking notice of these tech firms and using their services. Mass media corporation AOL, for instance, used PivotDesk to offer vacant space across the country to tech companies.
“AOL wasn’t interested in driving extra revenue but wanted to improve relationships with innovative startups,” Mandell said.
VTS lists Boston Properties, owner of the Embarcadero Center mixed-use complex in San Francisco, among its notable clients. Other CRE tech companies have worked with leading real estate services firms such as CBRE and DTZ, top developers like Tishman Speyer, and major financial institutions including Bank of America.
Perhaps even more significantly, investors are pumping capital into CRE tech. In 2013, more than $45 million in investment flowed into this field, according to Neinken. But in 2014 through early 2015, he said, about $180 million was raised.
Earlier this year, VTS announced a $3.3 million partnership with investment firm Blackstone. “The commercial real estate industry has long relied on static information,” Jacob Werner, managing director at Blackstone, said in a news release. “VTS has been the driving force behind the industry’s much needed shift toward real-time data and has quickly become the clear leader in the marketplace. We are excited to partner with the team at VTS to grow the business and accelerate the shift toward a single industry standard.”
Such investment backing in CRE tech indicates a growing eagerness in the traditional real estate establishment “to change how they have done things,” Sedloff said. “The more money is invested, the more companies there will be.”