Embracing Proptech

Whether in the U.S. or elsewhere in the world, when practitioners from the commercial real estate and technology sectors come together, similar messages prevail: Innovation and collaboration are crucial to staying competitive. Adoption of technology allows real estate companies to address new user demands. Change is happening quickly and those who don’t adapt will be left behind. And, yes, real estate continues to lag behind other industries in adopting new technology.

Don’t Brave the Unknown Alone

Collaboration was the common theme at MIPIM PropTech NYC last November, specifically between real estate companies and the technology sector that is developing new products that differ from traditional real estate tools. This need for collaboration is born out in KPMG’s annual global proptech survey, released last fall. Of the 270 real estate decision makers from 30 countries who responded to the survey, 93 percent agreed with the statement, “Traditional real estate organizations need to engage with proptech companies in order to adapt to the changing global environment.”

Jim Young, founder and CEO of Realcomm, speaking at the 20th anniversary Realcomm conference last summer, said that the complete real estate professional is the one who faces up to the uncertainty about the future and asks such questions as: What’s next? How do I integrate technology into my business model? How do I use technology as a competitive advantage? “We are all looking for the magic bullet,” Young noted during his address. “It is essential to collaborate and not to go on this journey alone. There are many potholes along the way to watch for.”

Hans Vrensen, head of research at AEW, likewise emphasized the need for collaboration and innovation when speaking at ExpoReal in Munich last October. “The vast majority, let’s say 80 percent of the entire real estate industry, is still working on spreadsheets,” he said, “but spreadsheets are not a great way to manage a multi-trillion-euro industry.” He went on to say that “It is really important for the proptech industry to work with the traditional investment fund managers to find solutions and alternatives to the globally integrated vertical solutions.”

“Reduce Friction and Improve Service”

One of the sentiments clearly expressed at PropTech NYC is that commercial real estate technology is no longer an IT issue—it’s a core business issue. It’s no longer the CIO who is making technology decisions, declared Sara Shank, managing director and head of portfolio management at Beacon Capital Partners. It’s the real estate team.

Reinforcing this point was Scott Rechler, chairman and CEO of RXR Realty. In years past, he said, technology was looked at from a back-office standpoint. More recently, it is customer-focused and aimed at enhancing the level of service. The ways people live and work and are entertained have changed, said Rechler. The real product is the community and the experience, not the building. Technology is the vehicle for successfully making the transition to a service provider. “What does technology mean to me in five words? Reduce friction and improve service,” said Rechler.

“Proptech makes our clients’ lives much more efficient, and it helps us move from a brick-and-mortar industry to a service industry,” said Ric Clark, senior managing partner and chairman of Brookfield Property Group, another panelist at PropTech NYC.

This theme was reiterated by Michael Phillips, president of Jamestown, L.P., in his keynote speech at PropTech NYC that focused on his company’s integration of technology. For Jamestown, which owns and operates 25 million square feet of residential and commercial space, Phillips said that it all comes down to reducing friction for the users of the space. One example of reducing friction, said Phillips, is easing entrance into and security within a building. Simply translated, this means providing security but doing it without turnstiles or other visible and bothersome obstacles.

Phillips also spoke about a primary role of real estate being “to partner with the tenant to attract and retain talent.” Noting that payroll is the number one expense for most companies, it often drives corporate decisions, said Arie Barendrecht, CEO and founder of WiredScore. Real estate speaks to the issue of where a company’s people will work and how the workplace can attract and keep talent. As one of the speakers noted, “Free beer may be fun,” but it takes a lot more to keep talent, like a healthy and comfortable workplace and workspaces that both foster collaboration and provide for quiet, head-down work.

Something else employees want: connectivity. The baseline experience is access without hassle. This means minimal risk of outages and cellphones that function everywhere throughout a building so that work can be extended into all of its spaces. In older buildings especially, this can be a challenge. Looking ahead, 5G technology is being seen as the future of connectivity. According to Barendrecht, 5G will be 100 times faster, but it probably won’t work well in office buildings. What will happen is that people will get used to 5G speed outside the office and be frustrated when they can’t get it in the office. Barendrecht suggested that landlords begin preparing for a future with 5G.

Some Progress toward Acceptance

At PropTech NYC, there was general agreement that acceptance of technology by the commercial real estate sector is finally being seen after years of resistance. Speaking on a panel that focused on property and asset management, Riggs Kubiak, CEO and co-founder of Honest Buildings, pointed out that an estimated 5 to 10 times as many dollars are being invested in real estate technology today than five years ago, which reflects a willingness to accept technology. John Sarokhan, PGIM Real Estate’s global investment risk director, reinforced this, noting that there is a “fear of being left out” and that the amount of capital being invested can be seen as a proxy for interest.

The result is lots of creative solutions. But as Rechler cautioned, it’s sometimes less about what the proptech companies are doing and more about whether the companies will be around. “You don’t want to introduce a product or service if the company goes out of business,” he cautioned. That having been said, it was agreed that, for those who ask about technology’s return on investment, it can be difficult if not impossible to measure. Ultimately, it’s about staying up to date or being left to die. Or, as Chris Marlin, president of Lennar International put it, “Evolve or die” because there is no protection from disruption.

At the same time, because real estate is so fragmented, implementation of technology is all the more challenging, noted Shank. Large owners are embracing technology, she said; not so with smaller owners, who either aren’t willing or able to participate financially. She went on to say that real estate isn’t necessarily broken, but technology is making it easier, better, more efficient. For smaller, Class B buildings, the need for technology isn’t as strong, at least for now. But over time, this may change.

At the end of the day, what real estate wants from technology is fewer pain points and more efficiency, to make business competitive, to support people where they live and work and play. While keeping this in mind, Jan Hein Lakeman, executive managing director of EDGE Technologies, warned against applying technology when it doesn’t make sense. “Are we trying to find a solution for a problem that doesn’t exist? It only works if it takes away friction.”

Technology should always be seen as a means to an end, not an end to a means, noted Rechler. In the near future, technology will be available to everyone. Companies won’t compete on technology; they will compete on implementation of technology. Richler posited that “The secret sauce is in the execution.”