Predictions: Accelerated Change in Technology & Real Estate
Technology has transformed our world in every way – from how we communicate, do business, buy goods and services, and stay connected.
At many conferences I attend and in many articles I come across, technology in real estate, and particularly in commercial real estate (CRE), was seen as lagging behind other industries.
Technological advances in the real estate sector are growing and addressing the needs of investors, developers, and real estate professionals.
I believe we are poised for a great year in 2018 for more technology in real estate – including advances in Artificial Intelligence (AI), 3D printing and modeling, next-generation geographic information systems (GIS), and Internet of Things (IoT).
Michael Sroka, Co-Founder and CEO of Dealpath, shares some insights on CRE technology in The Top Five CRE Software Narratives To Watch In 2018 from his article in Forbes, Real Estate Council:
In August, I described what I call the Great Consolidation of CRE Tech. Since then, all signs have shown that the industry is indeed in a period of both rapid expansion and consolidation.
Honest Building raised $13 million in a Series B with Brookfield this October, and Realty Shares secured $28 million in a Series C led by Starwood Capital Group.
Meanwhile, Moody’s recently bought a stake in CompStak, Altus Group entered a partnership with Waypoint, and MRI Software and RealPage both made multiple acquisitions.
With CRE software service entering its prime and the industry continuing to evolve, 2018 promises to be an action-packed year. Here are my top five predictions for the new year:
1. The big will get bigger. Long-time industry standards with strong balance sheets like CoStar, Altus Group, Yardi, RealPage and MRI are well-positioned for synergy with compelling new offerings at a time when the market is applying a favorable multiple to growth in recurring revenue. A new crop of leaders in key segments of the value chain like VTS and Cadre will also be looking to augment their organic growth with complementary assets.
2. Investment will be concentrated around later-stage growth equity. Significant product and revenue traction is clear and will provide a more desirable risk-adjusted return profile compared to the earlier-stage opportunities of the past few years. As a result, Series B, C and D financing rounds will receive disproportionate interest in 2018, both from traditional venture capital as well as CRE industry operators looking to benefit from the equity appreciation that they’re helping to create. Leverton, Dealpath, Apto, Juniper Square and Reonomy are prime examples of companies on this trajectory.
3. Early winners will prep for life as public companies. Alongside an active private investment market, the public equity market is eager for access to growing software companies. A key and distinguishing draw is that these companies are solving real business challenges with rational sales models and unit economics. It’s no surprise, then, that seasoned executives with public company experience are increasingly taking leadership roles and buttoning up financial reporting to prepare for the big leagues.
4. The lines will blur between CRE, CRE tech, construction and construction tech. The CRE and construction industries are now tech-enabled with specialized software integrated into their day-to-day workflows. Investors, developers, owners, architects and general contractors each have unique perspectives and require their own lens in the creation of new tools. However, the needs are often interrelated and overlap.
As a result, 2018 will introduce major integrations, both within industry segments and between the software powering these industries.
This includes both market leaders in A&E like Autodesk, AECOM and Bechtel as well as relatively newer services like Procore, PlanGrid and BuildingConnected, which are looking to build bridges with their counterparts in commercial property.
5. Politics will do little to impact the bottom line of financial and tax statements. While politics will continue to have a material share of dinner table conversations and media attention, the political climate will only spell marginal change for the bottom line of financial and tax statements of CRE software service providers. To be clear, the handling of carried interest, 1031 exchanges, stock option recognition and tax code overhauls all deserve exhaustive attention. From a practical standpoint, however, the political climate is unlikely to drive either progress or regress for CRE software in 2018.
Taken together, these five trends will make 2018 a defining year for CRE software services. Just like in London in the early 1800s, New York City in the early 1900s and Silicon Valley in recent decades, CRE software services is “the place to be” in 2018. We’re in the midst of a bona fide Industrial Revolution for commercial real estate, and firms are embracing the opportunities or being left behind.
Click here to read the full Forbes article. Forbes Real Estate Council is an invitation-only organization for executives in the real estate industry.
Christine Baird, a member of the Forbes Real Estate Council, is the President/Founder of Clarus Real Estate and Business Consulting which provides clear and intelligent business strategy and consulting solutions for real estate investment, development, brokerage, and financial clients.
Contact us at www.ClarusRealEstate.com.