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CRE Tech 4.0 – Boom, Bust or Fizzle?

We have heard this story before – or have we? There have been various tech booms and busts throughout history, with the most notable being the dot.com crash. The dot.com bubble occurred from 1995 through 2001 and had a significant impact on the general economy. The NASDAQ, well known for being a high-tech exchange, lost more than half its value and has only recently reached and exceeded pre dot.com levels.

The commercial and corporate real estate market also participated in the general dot.com euphoria and we estimate that approximately $2 billion was invested in real estate technology startups. About $1 billion was focused on the information and transaction market and the other $1 billion was geared toward broadband infrastructure. In many cases, these investments evaporated into thin air.

There were, however, a good number of companies that survived the crash and went on to become well-known and successful. One of the most notable successes from this period was LoopNet (later merged with Property First and then acquired by CoStar), while some of the less fortunate were companies such as RealtyIQ, Broadband Office and Real Centric.


Many in the industry are starting to ask how Phase 4 of CRE Tech investment (which began in 2009/2010) compares with earlier bubbles and what the next 12-24 months will bring. Will we see more notable exits, M&A activity, new entrants, or closures? To date, the VTS/Hightower merger, WeWork and the CBRE acquisition of Floored are the most recognized success stories of CRE Tech 4.0.

Our best estimates show that if you include transactions, operations, user experience and smart buildings, the level of investment in new companies could be in excess of $10 billion. This represents well over 3,000 companies, old and new, trying to sell some form of technology, automation and innovation to the commercial, corporate and institutional real estate industry. Comparing the two most recent cycles, dot.com was seven years ‘start to bust’, with about $2 billion invested in CRE Tech. The current cycle is now in its eighth year with at least five times the investment level of the dot.com era.

From our vantage point, here are a few observations:
    Positive
    • Innovation is good; it removes inefficiencies, creates new experiences and improves the industry
    • There are a lot of new smart, curious minds trying to solve our industry’s problems
    • The degree of innovation is forcing all companies, new and old, to push forward and improve the way we conduct business and serve customers
    • Without the restrictions of legacy systems, innovators are free to re-think processes and procedures with no limitations
      Potentially Troublesome
      • Sources of capital: much of it is coming from investors with very little knowledge of the industry who are not aware of our specific challenges, most notably slower, calculated adoption (one senior level RE executive speculated that literally thousands of outreaches by new companies result in only four new evaluation projects each year)
      • The patience of investors for reaching profitability goals has been extended from two to three years to five to seven years
      • Given the high magnitude of investment in CRE Tech 4.0, there has been a relatively low number of high profile exits
      • There are too many new competitors in an already crowded space
      • Lack of industry-specific knowledge by many startups
      • Tactical ‘app’ approach without a comprehensive understanding of strategic issues such as enterprise integration, data integrity and cyber governance
      Many industry thought leaders have speculated that 2017 could be the year we see some significant signs of market consolidation, the same sentiment we heard regarding 2016. Though many agree that 2015 was the peak of investment in the CRE tech space, we continue to see new entrants every day. While perhaps not at the same pace as past years, it does indicate that investors continue to show interest in our industry. There are also those investors who feel the sector is too ‘frothy’ and it might be best to wait for a correction. Bottom line: there is still sentiment on both sides of the argument for investing, and for now it is business as usual.

      With so many new companies focusing on commercial, corporate and institutional real estate, the innovative ideas that rise to the top are important to the progress of our industry, and that is why Realcomm and IBCON will continue to showcase the ‘best of the best’ ideas. We will provide a forum for discovery, discussion and debate on the challenges and opportunities of the innovation emerging from Phase 4 of CRE Technology.

      To learn more about the future phases of CRE Tech, join us at Realcomm | IBcon 2017, which will be held in San Diego on June 14-15 (June 13: Precon | June 16: Innovation Tech Tours).

      Jim Young, Co-Founder & CEO, Realcomm
      Founder of Realcomm Conference Group, an education organization that produces Realcomm, IBcon and CoRE Tech, the world's leading conferences on technology, automated business solutions, intelligent buildings and energy efficiency for the commercial and corporate real estate industry. As CEO, Jim interacts with some of the largest companies globally pertaining to some of the most advanced and progressive next generation real estate projects under development.

      This Week’s Sponsor

      Now in its fourth decade, Yardi® is committed to the design, development and support of software for real estate investment management and property management. With the Yardi Commercial Suite™, Yardi Multifamily Suite™, Yardi Investment Suite™ and Yardi Orion™ Business Intelligence, the Yardi Voyager® platform is a complete real estate management solution. It includes operations, accounting and ancillary processes and services with portfolio-wide business intelligence and platform-wide mobility. Yardi is based in Santa Barbara, Calif., and serves clients worldwide from offices in North America, Asia, Australia, Europe and the Middle East. For more information, visit www.yardi.com.

      Realcomm News


      For more information about the event, course and its design: Realcomm | IBcon Golf Outing

      The golf outing is open to all registered Realcomm | IBcon attendees. Conference registration (early bird rates expiring 4/14/17) and advance reservation is required.

      Contact information: Alicia Riddle | 757-333-2332

      UPCOMING REALCOMM WEBINARS

      Commercial Real Estate Information Management - Best Practice Showcase - 5/10/2018

      Years ago, the choices were much simpler. Property Management, Accounting and Email were all you needed to run a Commercial Real Estate organization. Fast forward to today and the complexity of the industry’s information management requirements have grown exponentially. Single stack, integrated best-of-breed, and open ecosystems are all options under consideration. Databases, warehouses and now lakes, as well as new technologies such as AI, Machine Learning and Blockchain all add to the growing complexity of real estate information management strategy. Additionally, there are thousands of new companies that want to be part of the solution. Join the debate as best practices are uncovered.

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      Jim Young Realcomm
      Jim Young Co-Founder & CEO Founder of Realcomm Conference Group, an education organization that produces Realcomm, IBcon and CoRE Tech, the world's leading conferences on techno
      headshot for Jim Young
      Jim Young
      Co-Founder & CEO
      Realcomm
      LinkedIn

      Founder of Realcomm Conference Group, an education organization that produces Realcomm, IBcon and CoRE Tech, the world's leading conferences on technology, automated business solutions, intelligent buildings and energy efficiency for the commercial and corporate real estate industry. As CEO, Jim interacts with some of the largest companies globally pertaining to some of the most advanced and progressive next generation real estate projects under development.

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      Chuck Niswonger NiceNets Consulting
      Chuck Niswonger President
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      Chuck Niswonger
      President
      NiceNets Consulting

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      Sam Wong QuadReal Property Group
      Sam Wong Head of Analytics and Data Science Sam Wong is Head of Analytics and Data Science at QuadReal. He has over 15 years of experience in Analytics and has worked within numerous industries
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      Sam Wong
      Head of Analytics and Data Science
      QuadReal Property Group

      Sam Wong is Head of Analytics and Data Science at QuadReal. He has over 15 years of experience in Analytics and has worked within numerous industries with a wide range in technologies. Sam is a featured speaker on Data Science and Analytics, most recently he spoke at the 2018 Gartner Data and Analytics Summit and at IBM THINK 2018.

      headshot for Chong Huan
      Chong Huan THE INLAND REAL ESTATE GROUP
      Chong Huan EVP & Chief Information Officer Chong P. Huan is Executive Vice President and Chief Information Officer at Inland Real Estate Group. Chong has over 22 years experience and a Proven t
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      Chong Huan
      EVP & Chief Information Officer
      THE INLAND REAL ESTATE GROUP

      Chong P. Huan is Executive Vice President and Chief Information Officer at Inland Real Estate Group. Chong has over 22 years experience and a Proven track record in aligning business with vision and IT strategies to achieve efficient and cost-effective IT organizations. Diverse expertise in financial products and services, order and portfolio management, risk management, securities trading, processing, research and operations with IT acumen to achieve growth and enhance shareholder value.

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      Brian Zrimsek MRI Software
      Brian Zrimsek Industry Principal Brian Zrimsek is Industry Principal at MRI Software. Brian brings 25 years of large scale enterprise software experience to MRI, most recently as an I
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      Brian Zrimsek
      Industry Principal
      MRI Software

      Brian Zrimsek is Industry Principal at MRI Software. Brian brings 25 years of large scale enterprise software experience to MRI, most recently as an IT Vice President at the Irvine Company. With over a decade of experience in real estate technology he has become a well-known subject matter expert, industry panelist, and trusted advisor, especially within the multifamily real estate market.

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      Abhinav Somani LEVERTON
      Abhinav Somani Chief Revenue Officer Abhinav (Abe) is an experienced investment, financial, technology, business development and operations strategist. He is currently the Chief Revenue O
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      Abhinav Somani
      Chief Revenue Officer
      LEVERTON

      Abhinav (Abe) is an experienced investment, financial, technology, business development and operations strategist. He is currently the Chief Revenue Officer for LEVERTON. Abe has worked with many law firms and institutions over the years and has a deep understanding of the real estate technology / CREtech / PropTech space. With LEVERTON, Abe is revolutionizing how corporations use artificial intelligence based machine and deep learning algorithms for data extraction.

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      Alex Stanton Yardi
      Alex Stanton Regional Director, Commercial Sales Alex Stanton has over 20 years working with in the real estate application space. Currently as VP of Solution Consulting for Yardi Systems, he leads t
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      Alex Stanton
      Regional Director, Commercial Sales
      Yardi

      Alex Stanton has over 20 years working with in the real estate application space. Currently as VP of Solution Consulting for Yardi Systems, he leads the solution presales team, who work with customers and prospects to explore how to address business needs. Alex’s recent areas of focus has been to work with clients on the real estate specific applications of cloud, mobile, 'big data' and energy.

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      Jeff Thompson AwareManager
      Jeff Thompson Co-Founder/CEO Jeff Thompson is co-founder and CEO of AwareManager. He leads the company's commercial and corporate real estate clients’ most complex projects. By co
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      Jeff Thompson
      Co-Founder/CEO
      AwareManager

      Jeff Thompson is co-founder and CEO of AwareManager. He leads the company's commercial and corporate real estate clients’ most complex projects. By combining his industry and IT expertise, Jeff helps organizations get data models set up correctly from the very start and helps them overcome major hurdles to user adoption, data-driven decision-making and stakeholder engagement.