PropTech - the new rage?
The PropTech space is full of investment opportunities but where?
September 18, 2019 - Call it PropTech, ReTech, Real Tech or some other derivation, the real estate technology investment space has been a hot topic for the past several years. VCs, Angels and traditional real estate companies are grappling with both the opportunities and the obstacles.
Investors and startups know there are unicorns out there with the simple example of the on-line property search site, Zillow, earning more than $1 billion in annual revenue last year. Investors know there are many others out there but many are still hesitant to try. Why?
Commercial real estate investor, Dandan Zou, sums it up with generational ‘lack of incentive’ or their conservative perception of a ‘too risky’ environment.
“Most commercial real estate owners are older. They don’t see a need to invest a lot of capital for innovation. Their properties are making them money so ‘what’s the point’ is their thinking.
Then with the big commercial real estate companies, they have an institutional set of thinking and bureaucracy that makes it more difficult to add innovation and disruption.”
Global firms like JLL, CBRE, Blackstone and Brookfield have recently recognized the need to enter the PropTech space by forming their own venture firms or developing some sort of acquisition strategy.
Zou who is principal in Mainstay Global is trying to take advantage of the PropTech opportunities in two ways. Being a small boutique commercial real estate investment company, they can move on investments and opportunities much quicker and make themselves more available to PropTech startups giving them a wider selection.
With their strategic partners, they launched Mainstay Global SS Protech Fund last year, they have raised nearly $20 million of their $40 million and have found a commercial real estate niche that no other has addressed yet with full end-to-end solution – the self-storage industry. They identified independent self-storage companies as perfect candidates.
Independent self-storage units haven’t modernized in decades both in upkeep or technology. They’re typically family managed by an aging couple whose children have no interest inheriting or the couple wants to sell for retirement. That’s the gap Mainstay Global SS Fund looks to fill and so far looks to be on the way to successful execution and ROI.
MG SS fund and their operating partners take full advantage of identifying, purchasing, renovating, fully automating and installing their patented lock system. Their strategy has their fund raising twice the rate they analyzed and already developing their third round scheduled for early next year.
“There’s been a global shift in the talent going into the industry, and investors are waking up to the opportunity,” said Zach Aarons, a co-founder of MetaProp, a PropTech venture in New York. “Real estate is such a long-game, fragmented and idiosyncratic business that it’s been challenging for outsiders to break in,”
Venture capital investments in PropTech companies have taken off in the past few years. Venture investors have already put $12.9 billion into PropTech startups so far this year breaking last year’s record of $12.7 billion.
Clearer applications for PropTech have started to emerge such as smarter energy systems, automation and security systems for buildings or self-storage units as Mainstay has identified. Those are hot areas because they can cross pollinate with smart city tech, residential real estate and security tech for all companies. And the first PropTech applications gathering and analyzing swaths of property data to find trendlines such as Zillow keep branching out to smaller and more specific niches.
PropTech is the hot topic out there but there is still a gap between hearing an exciting breakthrough at a conference then integrating it into a profitable unicorn. The key is which VCsthat focus or dabble in PropTech will be able to tap into the many opportunities waiting for them.