real estate technology

Pilot Day at Cushman & Wakefield

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On December 8th, top Cushman & Wakefield technology and business executives participated in an exclusive, two hour “Pilot Day” with featuring presentations from the MetaProp NYC 2015 real estate tech accelerator class. 

During the Cushman & Wakefield Pilot Day, SocialSign.In, Radiator Labs, Optii Solutions, Rentalutions and Notion demonstrated their technologies.  In August 2015, the five startups were selected from a pool of more than 150 applicants by the MetaProp NYC investment committee made up of current technology investors and former executives at Blackstone, Sequoia Capital, Cushman & Wakefield, Boston Consulting Group and Google.

Cushman & Wakefield Global CIO Adam Stanley remarked, “Our industry is evolving so quickly and our clients want us to lead through technology and innovation.  We’ll continue to offer our business and technology leadership access to top minds in the real estate tech space.”

MetaProp NYC Co-Founder and Managing Director Aaron Block said, “Cushman & Wakefield touches every aspect of the real estate business and the MetaProp NYC 2015 accelerator class has companies that improve office, retail, hotel, multifamily, industrial, and leisure asset types.  There’s a lot of exciting overlap and potential impact.” 

“The Pilot Day series is an important aspect of our teams’ preparations for the New York (January 26, 2016) and San Francisco (February 3, 2016) Demo Days,” continued Block.  “Cushman & Wakefield was a perfect partner. Their CIOs, strategists and business line leaders were extremely engaged.  They rolled up their sleeves, asked thoughtful questions and provided meaningful feedback about the startups’ technologies and presentations.”

MetaProp NYC Demo Days celebrate the culmination of the 22-week MetaProp NYC accelerator program and provide graduating startups with new corporate relationships (for pilots and investment), new angel/VC interest, and media awareness.  Those in attendance (MetaProp NYC 2015 class, venture capital investors, program mentors, corporate partners, real estate industry executives, media, government officials, etc.) network with the industry’s top minds and are the first to hear about the latest technologies, new partnerships/funding announcements and early details about MetaProp NYC’s 2016 class.

The Forgotten 50%

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Real estate is one of the oldest industries in the world.  Some of the first ever real estate deeds were signed and recorded in cuneiform script, on clay and stone tablets, at the dawn of the 4th Millennium BC in Ancient Mesopotamia.  That means that human beings have been transacting land from one party to another for approximately 6,000 years if not longer.

Since then, real estate has become a roughly $15 trillion industry, which amounts to the size of the entire stock market.  From Sumerian times through the 1980’s, real estate was a family affair.  Property was owned and passed down from generation to generation, and each family had its own quirky way of managing, leasing, and selling real estate. 

Starting in the mid 1980’s, this “mom and pop” world of real estate gradually began to change.  In 1986, congress enacted new tax laws that leveled the playing field for institutional investors to start investing in real estate as its own diversified “asset class”, much like they would equities or fixed income.  1988 saw the creation of what many believe was the first modern real estate fund: the Zell/Merrill Lynch Real Estate Opportunity Fund.  This vehicle raised $400 million of institutional investor capital to pursue assets sold primarily by the Resolution Trust Company.  This opened the floodgates to the rapid proliferation of Real Estate Investment Trusts (REITs) and real estate private equity funds in the 1990’s. 

Along with the rise of institutional real estate as an asset class came the birth of the World Wide Web in 1989.  As the web proliferated in the 90’s, so did real estate technology.  Since then, real estate technology has been almost exclusively focused on catering to these “institutional” real estate investors and property owners.  Software companies preferred to sell directly to these types of entities, as they owned massive amounts of property and theoretically conducted business in a more organized and professional way. 

Thus, legacy players like YardiMRI, and RealPage, as well as newcomers like VTS and Hightower have focused almost exclusively on providing software to manage institutional real estate.  As these software platforms have grown more robust, more and more resources have been poured into assisting these large institutional players manage their massive portfolios.  However, what has happened to the smaller landlords, the ones who still pass down real estate through generations and maybe still write deeds in cuneiform on stone tablets?  The short answer: nothing at all. 

While mom and pop landlords still control roughly 50% of the total real estate market in the United States, they have been almost completely ignored by software companies.  Small time landlords manage 24 million homes according to the latest US Census data.  These landlords want to use software to manage property more efficiently, but can’t afford large solutions like Yardi or MRI.  At MetaProp NYC, we call this class of landlords “the forgotten 50%” because since the 1990’s the software community has largely forgotten about them.

Companies like MetaProp NYC portfolio company RentalutionsEasyrent and a few others are beginning to provide small landlords with the same functionality as larger property management software platforms at a fraction of the price.  Rentalutions allows landlords to accept payments online, screen tenants, execute leasing, manage facilities, and more.  Although the market is highly fragmented, these landlords are now clamoring for software.  Rentalutions has been able to sign up 16,000 landlords in 5,500 zip codes across the country to its platform and it’s growing quickly.

Some things never change: as large as institutional real estate has become, the business is still very similar to how it was in Ancient Mesopotamia.  Only difference is now small time landlords use Rentalutions instead of stone tablets.

How The Hell Did This Company Just Raise $20 Million From Peter Thiel?

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That must have been the question on some of your minds when the news broke last month that Breather had just raised a $20 million Series B led by Peter Thiel’s Valar Ventures.

It might seem odd at first glance that a company offering “private space on demand” would be taken seriously by one of Silicon Valley’s most legendary investors.  However, I would argue that Valar saw the same incredibly powerful thing in Breather that I saw when I invested in their seed round in 2013: companies like Breather are completely changing the way that “space” or “real estate” is consumed throughout the globe. 

In the past I have blogged extensively about the best way to start a real estate technology company.  In summary, I believe that you need to work with industry veterans to identify specific pain points and build technology to solve those pain points.  Well, some ideas just seem SO insane at the time of conception that it takes someone with very little knowledge of the space to come in and create an entire new paradigm.  Back in 2013, Julien Smith was that person, an unconventional professional author who just had a hunch that private space on demand needed to work.  Most people in the real estate industry almost immediately dismissed the idea as too batshit crazy to ever work in the real world.  Then again, founders like Julien don’t back down from a bunch of people telling them their idea won’t work; it just pushes them to work harder and prove everyone wrong.

I first came across Breather and Julien in 2013 on Angel List.  I don’t remember what initially drew me to the company’s profile page, but I do remember that it had a certain mystique.  There was very little information about the company available (I think it was just a photo of a sleeping dog) but I asked for an introduction and Julien was kind enough to respond.  We were able to schedule a call for an afternoon later that week. 

I decided to take the call in between meetings in the Union Square area of NYC.  I didn’t have an office nearby so I took the call from my cell phone.  I spent the entirety of the call walking around Union Square Park looking for a quiet place to take the call.  I remember saying to Julien, “You wouldn’t believe what I’m doing right now but I’m living the pain point your company is trying to solve right this instant!  I can’t find a quiet place to take this call!”

Julien laughed and explained to me that he came up with the idea for Breather working as a freelance author constantly traveling.  He was sick of working in random cafes with bad Wi-Fi and wanted something different.  He also mentioned that he was excited to chat with me because I was the first real estate person he had talked to about the concept and he wanted my help working with landlords so that he could obtain space.  At this point he had no proof of concept, no app, and no spaces; he just had an idea and a will to make it happen.

After the call Julien had not yet committed to inviting me into the funding round, so I knew that I would need to prove myself worthy, and do it quickly.  So, I decided to start reaching out to friends of mine in the real estate community to see what they thought about the concept, and if they would be willing to either co-invest with me, or lease some of their commercial space to Julien to open up one of his first ever Breathers.  I was not surprised when my enthusiasm for the Breather concept was met with quizzical looks from some, and outright derision from others.

In fact, I brought the Breather concept up in a meeting with one of the most innovative and creative real estate minds of all time.  This was one of the people who invented the concept of urban mixed-use buildings, something considered pretty radical at the time in the early 90’s when he first started building them.  He told me that Breather had no shot, and that’s when I knew I had to invest.  Nowadays, my father is pretty excited to have Breather in our portfolio!

There are a few of reasons why Breather is simultaneously so radical and so obvious.  As I have mentioned in the past, commercial real estate is a fundamentally inefficient asset.  Tenants only occupy office buildings during the day (investment banks excluded here) and hotels during the night.  Landlords however have to pay to operate these buildings all day long: they have to pay utilities, taxes, maintenance, and management expenses all day long.  The innovation of mixed-use buildings in the early 90’s, pioneered by our company, Millennium Partners, helped to defray some of these costs as a combination of residential, hotel, office, sports club, and retail uses ensured that some portion of the building was occupied 24 hours per day, 365 days per year.  

Nonetheless, Breather takes the mixed-use model even further, by creating flexible space modules that can be used 24 hours per day, 365 days per year for different purposes, matching tenant demand at any given time to landlord supply.  Breather effectively matches tenant demand with landlord supply in real time, and pushes the envelope even further with a dynamic pricing model.  Now, landlords are not only ensured to have commercial space occupied 100% of the time; they also will know how much each time of day is worth to tenants in a particular building.  For some buildings 2 PM is the most desirable hour of the day and for other buildings it’s 10 AM.  Prices can thus change dynamically to accommodate this phenomenon.

Once demand and supply are perfectly matched, and price elasticity becomes transparent, landlords know exactly how much their space is actually worth.  They will make more informed decisions about their buildings because of this additional knowledge.  Also, since the spaces will always be occupied, landlords can afford to charge tenants less on a per hour basis because they know that the space will be more valuable on a per square foot basis than had they leased the space under a traditional ten year commercial lease.  Everybody wins: landlords charge less and make more money and tenants pay less and only use the space when they actually need it.

As more and more people move into cities across the globe, urban real estate becomes ever more precious.  54% of people globally now lives in cities and population growth in cities is expected to accelerate over the next ten years.  I believe that concepts like Breather will be essential as space becomes scarce and citizens require greater efficiency of space within their cities.  Eventually, real estate developers will begin to build completely flexible modular commercial spaces within their buildings, satisfying more types of use than a current Breather location can handle.  What will buildings look like when there are Breather conference rooms, Breather kitchens, Breather bedrooms, Breather dining rooms, and Breather bathrooms?  People will conceive of how they live completely differently.  They will only pay to use their bathroom when they actually use it.   They will only pay to use their dining room during dinnertime.  They will only pay to use their conference room during a meeting, and so on.  This way of living will drastically reduce costs for urban residents because they won’t ever pay for space they don’t actually use.  Landlords will be happy because all their space will be occupied and leased 100% of the time.

Thus, Breather is the future of conceptual commercial real estate, and that’s why Peter Thiel just gave them $20 million.  Now, the company that was dismissed a few years ago by our industry as a gimmick that would never work could just be the company that completely disrupts our industry and improves urban quality of life around the globe.  I am thrilled to be along for the ride!