4 Ways Tech Is (Finally) Changing Real Estate

Nearly $650MM in venture capital has gone into commercial real estate tech over the last 24 months. What's the impact?

This is one of the many questions Brian Turpin, IT Director at Greenwin, Peter Altobelli, Yardi's Canadian VP, Joe Kostantin, Technical Services Director at GWL Realty Advisors, Joe Nakhla, bazinga!'s CEO, and I sat down to discuss at this week's Canadian Apartment Investment Conference in Toronto. Here's the four things I found most fascinating about the discussion.

  1. Innovative IT alone won't change our industry. But innovative business models plus IT will. Software that solves business administration and tedium is being commoditized, forcing software providers to develop new economic models that rely on uncovering deeper, more valuable insights into customers' business. Shared savings agreements in energy management and on-demand subscription contracts in brokerage are the new killer models that de-risk business relationships and (re)align incentives.
  2. The apartment sector is behind. Office has long been the darling of real-estate technology but with all the progress made, it's astonishing just how uneven the IT revolution has been applied in multifamily and industrial. There are many good reasons for this, including the highly fragmented operating behavior of multi-res and the relatively low asset value and OpEx of industrial buildings. But the particular cause is the notorious split incentive that turns most CapEx scenarios into non-starters. The "split" is caused by a mis-alignment of incentives in the lease structure (common among NNN leases where occupiers pay their own utility bills). The result is capital projects and IT are much less likely to be deployed by the landlord, who can afford improvements, in benefit of tenants. Conversely, tenants rarely have the authority or longevity, let alone capital, to make unilateral investments. This is a major block to operationally-impactful technologies.
  3. Landlords are turning multi-family and multi-tenant assets into platforms for monetizing services, not just square footage. Airbnb changed the hospitality industry by reimagining the relationship, economics and responsibilities incumbent among owners of lodging space. A marketplace in what amounted to short-term rentals was born. The elephant in the room is: how long before commercial real estate is similarly disrupted by on-demand, short- and medium-term rentals? The answer is "it already has". Storefront does it for retail. City-led co-working spaces, start-up incubators, and shared space landlords like Nextspace prove the transformation is well underway. But the lessons go much farther for traditional landlords who make money signing leases and are paid on "term and transom" - that is the longer the lease, the larger the space, the more lucrative the deal. But if you imagine an amalgam of tenants as a community with service requirements far beyond mere square feet, then you can see what's next for landlords - open workspaces, community areas, coffee shops and food courts - all just the beginning of the profit potential (and service imperative) in front of real estate owners.
  4. Property managers and owners must change their IT buying habits. The nosediving cost of building and deploying software has made tech cheaper and allowed niche solutions to thrive. That means property-level individuals and lines of business with specific requirements can now find solutions tailored to them, at price points they can afford. Now they're being empowered to act. The result is a curtailing of the old model of centralized IT procurement, its laborious RfIs and RfPs, and the expensive long-term contracts it yields. Flexible, subscription-based, quick-to-deploy software is in. The political realignment of how the "buy" decision is made within organizations is now underway.

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