While traditional offices and home tours aren’t going away, people are re-examining how they will go about doing things in a post-COVID-19 world.
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Experts told me that real estate technology, also known as proptech, can provide the innovative answers needed to solve post-pandemic challenges and changes in the real estate landscape, on both the commercial and residential sides.
Just as fintech grew out of the 2007-08 economic downturn, they say the COVID-19 pandemic gives proptech companies an opportunity to show how they can help.
And investors are paying attention: On Monday, digital brokerage startup Homeday, based in Berlin, secured 40 million euros ($45.3 million) in funding from Axel Springer and Purplebricks. Tech.eu reported that the 5-year-old company has now raised more than 60 million euros.
Will proptech’s momentum help it through COVID-19?
The proptech industry is massive, and the disruption to each vertical is different, Rhonda Wong, CEO and co-founder of Singapore-based property marketplace Ohmyhome, told Crunchbase News via email. The proptech momentum driving the sector through COVID-19 will be products and services that save people time and money, she said.
Ohmyhome helps people view homes virtually, see only a few in-person and then facilitate the purchase through legal professionals, Wong said.
“Our saving grace is really the fact that as a tech company, we have always embraced and encouraged the use of technology, automation and remote working, and therefore have been able to navigate the crisis quite well in terms of management of team members,” she said. “With this crisis unfolding, our sector will definitely need to have a deeper think about automating processes through the use of machines, which should produce higher accuracy work and, at the same time, allow humans to work remotely.”
It may be difficult to predict how things will shape up in the long term, but Connell McGill, co-founder and CEO of New York-based Enertiv, told me that proptech continues to thrive. Not only are there dozens of venture capital firms that have begun investing in the sector over the past three years, but for a while, he felt that 12 new proptech companies were launched every week.
Proptech venture firm MetaProp NYC‘s General Partner Zak Schwarzman went a step further and described what has happened over the last decade as “an explosion” of companies.
“They represent a toolkit for the real estate industry to dig into right now as it looks for ways to adapt more quickly and on a greater scale,” Schwarzman said. “This crisis is different, and the tools provide a mix of better data, greater control, more adaptability and better customer experiences. That is what the real estate industry is looking for right now.”
And that is driving the amount of funding infused into these companies. In the last 10 years, $92.4 billion has been pumped into 11,200 global real estate companies, with a surge beginning in 2017, according to Crunchbase data.
The data also shows 5,100 U.S. companies took in $45.9 billion during the same time period. And as of June 15, $1.8 billion has been invested in 186 companies.
Among some of the top fundraisers are New York-based WeWork, offering coworking space to individuals and companies, which took in $10 billion over the past 10 years. Meanwhile, China-based Ke.com, a platform that enables real estate agents to list properties, raised $3.6 billion in the last two years, and San Francisco-based online home-selling service Opendoor has raised $1.3 billion since 2014.
Who will win and who will lose?
McGill’s company helps commercial real estate firms operate assets, and in speaking with clients and landlords, he said they are looking for solutions that save money and quantify that value.
“There is going to be consolidation, so if companies didn’t have enough cash going into the pandemic, they are going to find themselves in a challenging position,” McGill said. “Unless they are providing solutions to help with COVID-19 or move tenants back in and keep them safe, operators and owners are distracted. That is going to hurt some early-stage companies.”
Tusk Venture Partners’ co-founder and Managing Partner Jordan Nof agrees. He told me that successful companies will be those that help, for example, apartment owners keep rents as high as possible.
“You would help them streamline amenities, track utilization across the building and suggest where to make investments and reinvestments so they can continue to charge a premium,” Nof said. “Keyless entries, where you can use your smartphone to get into the building, track your packages, let in your dog walker—anything that makes life easier. Or even takes the burden off, such as knowing when people come and go so you know you don’t have to leave the lights on in the fitness center 24 hours a day.”
Meanwhile, a May report from MetaProp showed that once-strong sectors, such as co-working and ibuying, are now “under pressure.” And areas such as occupancy and usage monitoring, biometric identification and contact tracing, are accelerating.
Anything that helps someone operate at a distance “is going to have a good time right now,” Schwarzman said. In addition, solutions that provide data and greater transparency for an asset class are doing well, he added.
Whereas Nof said startups that help with higher rents will do well, Schwarzman told me he thinks the opposite: Companies that help prepare assets for reopening and affordability will thrive.
“People and businesses are hard-pressed financially, so any solution that leads to affordability, either residential or commercial, will experience an increase,” Schwarzman said.
Where do we go from here?
So what’s next for the real estate industry and proptech? Philip Michael, founder of NYCE Cos., a fintech company that owns, manages and operates real estate properties, said he expects companies to take a look at their overhead, which includes real estate, and consider whether or not to take a smaller lease or move to a different location.
While he sees smaller office buildings doing OK for now, he predicts “a bloodbath in the sector 12 months from now when foreclosures kick in,” he said.
Michael said he sees real estate becoming less about cash transactions and moving toward offering ownership. Down the road, people will trade among each other and utilize real estate in a way that Robinhood, Stash and Acorns have done with financial services, he said. Fractional shares of real estate will become popular with a huge Gen Z migration to real estate, he added.
Meanwhile, from Wong’s perspective, digitization of processes will be a top priority for many property businesses going forward. In addition, real estate developers and banks have recently been more proactively engaging with proptech startups to discuss collaborations, she said.
“I think this crisis has definitely served a strong warning to those who have been reluctant to go digital or improve their management processes to allow staff members to work from home,” Wong said. “We expect an open mindset toward innovation and embracing of new technology.”
Illustration: Dom Guzman