New applications for artificial intelligence (AI), 3-D printing, and the “internet of things” promise to transform the commercial real estate industry and create new ways to generate revenue and reduce expenses, the head of a real estate–oriented investment fund said at the 2019 ULI Spring Meeting in Nashville.
Constance Freedman, founder and managing partner of Moderne Ventures, a venture capital fund focused on technology companies involved in the real estate, mortgage, finance, insurance, and home services industries, said that the commercial real estate industry relies on antiquated processes and is ripe for change.
“We’d better innovate, or we’re going to get disrupted,” said Freedman, whose fund has invested in startups ranging from Dwelo, a platform for connecting and managing smart devices in apartment communities, to ICON, which has developed a method for 3-D-printing small houses in 24 hours for a cost of just $4,000. Another firm, TaskEasy, has created an online platform that functions as a sort of Uber for lawn care.
Such innovations have the potential to create new monetization opportunities and unlock hidden value. Freedman cited the example of Nova Credit, a startup that has developed a means of accessing foreign credit histories of recent immigrants who might otherwise have difficulty leasing apartments, and creating the equivalent of a FICO credit score that U.S. property managers can use to evaluate them. The innovation provides the opportunity to capture “$15 billion in rental income that otherwise gets lost every year,” explained Freedman, who noted that by 2050, immigrants are projected to drive 82 percent of U.S. population growth.
Freedman noted that over the past few years, there has been a surge of venture capital into various real estate–related technology firms, with funding reaching an estimated $14 billion last year. Tech investors no longer are seeing real estate as “a cute little niche,” she said.
Constance Freedman of Moderne Ventures took ULI Members through a broad overview of how technologies around us are influencing behaviors in the real estate market and how you can capitalize on those changes. See more coverage of #ULISpring at https://t.co/hN6xt9LB8w pic.twitter.com/BpdGk8gdef
— Urban Land Institute (@UrbanLandInst) April 18, 2019
There is plenty of potential for transformation. Freedman said that the enormous amount of consumer data being generated is a resource that could create new opportunities for real estate. Amazon generates 35 percent of its revenues from recommendations that it provides to customers, and 75 percent of the videos watched by Netflix users are ones that Netflix recommended to them.
“They’ve used AI to help them do that,” Freedman said. “Why can’t we do the same for residents and tenants in our buildings?”
Already, ByteGain, a startup in which Moderne Ventures has invested, is using AI to sift through mountains of data and identify patterns that enable real-time conversion predictions, lead scoring, and the best actions to close, whether it’s offering a tour of the property or following up with pop-up ads that the potential renter will see on a Facebook or Tinder page.
“They’re addressing a big problem,” Freedman explained. “We spend $30 [billion] to $50 billion in marketing a year, mostly on people who don’t want to move into our offices or living spaces.”
But it is not enough to wait for startups to develop solutions to real estate problems. To get the most benefit from innovation, the real estate sector should look to startups making an impact in other industries and figure out how their inventions can be applied to multifamily housing and office buildings as well. “We work with partners across all the asset classes,” she said.
Freedman said that her firm facilitates such connections by partnering with a network of more than 700 executives and companies in real estate and related industries, in an effort to help them identify technological solutions. In addition, Moderne Ventures offers the Passport program, which selects promising tech startups and connects them with real estate industry leaders to receive mentoring and strategic guidance.
Freedman urged real estate executives to think more imaginatively about how technology could help their businesses. As an analogy, she cited an experiment in which adults and children were asked what they would like to improve about themselves. “Adults would say, I would like to be taller, I wish my nose would be smaller,” she explained. “When they asked kids, they would say, I want cheetah legs so I can run faster.”
Freedman previously headed strategic investments for the National Association of Realtors (NAR), where she launched and managed NAR’s Second City Ventures fund.
This and all other sessions discussed at the 2019 Spring Meeting are now available for members in Knowledge Finder.