INTERVIEW: Two years ago, two former Blackstone associates launched the first dedicated fund focused on tech in real estate, seemingly out of nowhere. Founded by Brendan Wallace and Brad Greiwe, Fifth Wall hit the headlines in May 2017 all guns blazing with the announcement of a $212m (£170m) fund straight off the bat.
A clever concept, it invited investment from strategic partners within real estate including CBRE, Prologis and Lennar International to give entrepreneurs open distribution channels to major corporates within the sector from the word go. The launch was the first time many people had even heard of the VC firm. Now there is hardly a soul left in the sector who doesn’t know the name Fifth Wall. So when it announced its second, record-breaking fund this week at $503m, news travelled fast. Not just because of its sheer size but because the investors this time around are not solely north America-based but instead hail from across the globe, including two from here in the UK – SEGRO and British Land.
EG spoke to Fifth Wall managing partner Brendan Wallace to find out more about what the team is looking for in its new tranche of portfolio companies as it widens its focus and “internationalises”. Plus, he reveals why British Land and SEGRO made the cut in such a heavily oversubscribed raise and why investment in sustainability has never been more important.
Importance of tech
“The first thing we noticed when we set out to raise Fund 11 was how much the real estate sector has changed since we started out two years ago,” he says. “We wanted to raise $400m but we did that within four months because there was so much latent demand. With Fund 1, we had to do a lot of education around why investing in technology in real estate was so important. There was nothing like that this time. This is something that is now just accepted by the vast majority of the industry.”
In terms of what the VC was looking for from investors for the second fund, Wallace says is came down to speed – “everyone was moving very quickly so it came down to first come first served for the right companies” – and then a hybrid of size, scale and a genuine commitment to innovation.
UK companies tend to be more focused on applying technology and innovation in their sustainability programmes than their American counterparts. This is something we were looking at very closely and we are in a unique position now to invest in very disruptive innovators
As for SEGRO and British Land, Wallace adds there were specific reasons each of these two UK-based firms were the right fit.
“SEGRO is very forward thinking and tech-forward,” he says. “And we were also interested in their insights and learning around how being a business owner has changed. Plus, industrial and logistics represents such a huge opportunity area for investment in real estate.
“With British Land it was a mixture of the fact it had a very diversified, institutional quality portfolio and is highly respected as one of the leading real estate firms in the UK and across Europe. We liked it already had a full team in place which was both interested in and capable of adopting new technology. It was a no-brainer for us.”
Emphasis on sustainability
Wallace adds that in terms of specific target areas for investment opportunities out of Fund 11 there will be a focus on ‘traditional proptech’, such as B2B enterprise software, but says that in Europe in particular there will be much more emphasis on sustainability.
“We have found that in the UK companies tend to be more focused on applying technology and innovation in their sustainability programmes than their American counterparts. This is something we were looking at very closely and we are in a unique position now to invest in very disruptive innovators in this sector.”
He adds that the internationalisation of Fifth Wall’s investments represents a core part of its ongoing strategy with a “keen interest” in Europe – focusing on major hubs like London, Berlin and Paris – and Asia. “Real estate is inherently global,” he says. “And the sector has underinvested in tech at a global level. Now capital pouring into tech has grown and reached $12.9bn in the first half of 2019 compared to $12.6bn in the whole of 2017. That’s a pretty dramatic acceleration of capital. I believe we now represent 66% of all dedicated VC investment for proptech between our two funds. So we have a lot of work to do.”
