When the world’s first pure real estate tech fund launched in May with a $212m (£157m) raise, the two former Blackstone associates behind it couldn’t believe they had got in before anyone else.
LA-based Fifth Wall founders Brendan Wallace and Brad Greiwe are still flummoxed as to how they managed to beat the rest of the investment community to the punch.
“We are genuinely puzzled as to why there were no funds already focused on this category,” Wallace told EG in an interview last month.
“There are maybe 10 venture capital funds focused on education technology, which have produced a hundredth of the enterprise value of real estate tech.
“With real estate, you have this enormous industry at an early stage of tech adoption and no dedicated funds. We saw a huge opportunity, both in terms of scale and timing.”
As it turns out, they may have got in just in time. While the pair were the first to launch a dedicated proptech fund of this size, interest from investors in this sector has skyrocketed over the past five years.
Real estate tech start-ups raised more than $2.6bn in funding last year, according to CB Insights – up from $1.9bn in 2015 and just $221m in 2012.
“In 2016, the real estate tech industry grew both in terms of deals and dollars, just as it has every year since 2012,” says James Dearsley, partner at Proptech Consult.
And there has been no sign of interest slowing down in 2017, particularly in the UK, where a total of £576m was raised in the first three months of the year, based on Tech City News Investment Tracker records. This is up 142% on funding recorded in Q4 2016 and up 80% on the £320m raised in Q1 last year.
And this has also been the year that we have seen the major agents getting their foot well and truly in the proptech door; from CBRE’s investment into Fifth Wall to Cushman & Wakefield’s global tie-up with US-based accelerator/investor MetaProp NYC and the creation of JLL Spark.
So, the money is there and the agents are on board but who are the investors eyeing the proptech sector and what is it they are looking for?
Tables have turned
Three years ago, one of the biggest concerns in the real estate tech sphere was lack of investor appetite. Now, as everyone from the VCs to institutions and high-net-worth individuals pile in to make the most of a late-adopting industry on the cusp of major tech disruption, the tables have turned.
“I think we are in a real renaissance period for real estate tech investment,” says Rob Kniaz, founding partner of Hoxton Ventures, an early stage European VC firm based in London, which was one of the early investors in food delivery service Deliveroo.
“There is a lot of capital available, you can build global companies from here in London and increasingly you can have very large outcomes of people going public or selling to bigger tech firms.”
Beyond the VCs, Lisa Shaforostova, director of real estate investment at CBRE, adds that the institutional investors are also now putting their money where their mouths are when it comes to tech adoption.
“We are seeing a lot more big investors listening to how tech can be incorporated into investment decisions and embracing that,” she says. “Especially on big-ticket deals where there is interest in how you can capture things like non-traditional data sets and start factoring those into decisions.”
Look in the corners
With the availability of capital in the real estate tech sphere reaching new heights, another issue is finding the projects to invest in.
CBRE’s Shaforostova says: “We are seeing a very limited number of start-ups that are trying to solve the problems we are experiencing and our customers are experiencing. There is this big gap and we are now building internal capabilities and hiring developers to try to connect our development team to the wider business.”
So what does catch investors’ attention? Zak Schwarzman, who leads Metaprop NYC’s venture capital arm, says: “One of the things we look at when we look at proptech is the corners of real estate – some of the backwaters that are huge end markets but that have almost no technology innovation and very few new players coming into the market.”
Not so long ago, hearing swathes of investors discussing the strategies they have employed to ensure they don’t miss out on the most valuable innovations in the proptech sphere would have been a fairly uncommon occurrence.
Today, the money is there in its billions and it is a trend that is unlikely to show signs of slowing down any time soon. Not least because as far as some of the biggest spenders are concerned, the opportunities are endless.
“The industry is such a late adopter, and because what exists today is so low-tech, most ideas in this space are good ideas,” says Fifth Wall’s Wallace. “By that, I mean you don’t face the same big questions that you would in most other kinds of venture investing. Like ‘does it work? ‘Can you build it?’ ‘Is it better than the status quo?’ In most cases in this sector, the answer is yes. For that reason, I think everything in proptech is on the table right now.”
Look out for proptech events and panels at MIPIM UK including From atoms to bits and bytes – the digital trends transforming your world on Wednesday, 18 October, 2pm
To send feedback, e-mail emily.wright@egi.co.uk or tweet @EmilyW_9 or @estatesgazette
