Members of ULI’s Technology and Real Estate Council discuss the value of property technologies for real estate developers and investors—technologies that offer the most for building tenants, ways of sorting out the hype surrounding property technologies, promising technologies still in the process of being realized, and other related trends.
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What property technology innovations and solutions do you think offer the best value for real estate developers and investors?
Randy Rowe: When we talk about value, for me, it’s an issue of payback. Do you get an attractive payback for your investment? In today’s market, it’s mostly the smart-building systems that are paying off very well in terms of ROI [return on investment], optimizing energy and water use, controlling temperature, sensing when people are occupying spaces, and turning lights on or off.
Jake Fingert: We are always looking for technology that will help reduce complexity and friction between developers and operators and their customers. Camber Creek has invested in Latch, a smart lock and access control company for multifamily buildings. Their locks can be opened with a key card, a code, or a smartphone app. By creating a hardware product that works with the real estate industry, Latch was able to reduce friction for building managers and their tenants. Another company we’ve invested in, Rabbet, simplifies the construction draw process for banks and construction companies. Typically, after the initial upfront money is released, the process of drawing the additional capital can sometimes take weeks, if not months. Rabbet’s cloud-based product allows for draws to happen significantly faster.
John Gilbert III: In response to the blackout across the Northeast in 2003, Con Edison reached out to Rudin Management Company with a 45-second warning of eminent power outage. They wanted to give companies like us early warning— at least 30 seconds. We didn’t have a tool that could take exterior data feeds and have our control systems act on them. And we needed a single integrated platform that would let us see all the data collected by our buildings individually, on a floor-by-floor basis. We couldn’t find such a platform, so we built it. It’s called Nantum, and it is a “brain” for our buildings. It is saving us roughly 55 cents per square foot, which across our 10 million-square-foot [929,000 sq m] portfolio is $5.5 million a year. We also have invested in companies like VTS, an online leasing and asset management platform for commercial real estate; Nestio, which does the same for residential leasing; and Honest Buildings, an online platform for project management and procurement.
What technologies are doing the most to provide benefits to tenants (whether they are office, retail, or residential tenants), and what is the best way to deploy those technologies?
Terry Anderson: A lot of smart-home technologies have become available, especially for apartments. Amazon and Google are trying to scale up in that area. These products include smart thermostats, smart lights, ways to turn appliances on and off remotely—the “internet of things.” I’ve seen more tenant-facing technologies on the residential side than on the commercial side.
Gilbert: We can share with tenants the data that we collect using Nantum. For example, we are working closely with one of our tenants, BlackRock, to provide them with granular data on the 16 floors they lease from us on 52nd Street. The data we’re providing them allows them to benchmark how they have decreased their carbon footprint, which helps them save money and allows them to retain existing employees and attract new talent. Also, we are launching what we call Nantum Tenant Experience at our Dock 72 office building in Brooklyn. It’s a tenant experience app that will allow any person working there to have access to an enormous amount of data, and will help them organize guests, book rooms, and order food.
Fingert: One of the big trends is in the use of technologies to provide tenants with better amenities. Companies like WeWork and Knotel have been doing this. We have recently invested in TFLiving, which is like an Uber for building owners to offer amenities. TFLiving provides tenants with on-demand access to yoga classes, walking services, personal trainers, even cooking classes. On the back end, the company’s technology provides valuable insight to building owners and operators, including data on which services tenants use and when. For example, if a tenant is signing up for yoga classes every week and their lease is up for renewal, you might be able to offer them two months of free yoga classes upon renewal as an incentive.
Are technologies being hyped that you view skeptically? Or what kinds of red flags should developers and investors considering new property technologies watch out for?
Fingert: There are a lot of people with interesting ideas. When we consider technology solutions, we first push hard to define the value proposition and the ROI. That allows us to understand which technologies are nice to have versus need to have. The second step is to do research into the implementation process. Some solutions might claim to have a compelling ROI, but they take six months and many man- or woman-hours to implement, and require the leasing team to change the way they work completely. Once you consider the hidden costs of implementation, the value proposition isn’t always as compelling.
Gilbert: I would be wary of any technology company that starts talking about collecting data from your building. Property owners have to be very clear that there is only one owner of that data, and that is the building owner. The owner took the risk, bought the land, spent a lot of money on leasing commissions, and should own any data that comes from the building.
Rowe: I’m intrigued by the proliferation of scooters in cities. They may be the answer to the “last mile” gap connecting people from transit stops to their homes. But they have also caused a lot of clutter on streets, and I’m not sure how safe they are. Cities are struggling to deal with them. There are debates about whether they should be in the bicycle lanes or on the sidewalk. I’m concerned we’ll see an increase in injuries as usage grows. So even though they are inexpensive and provide mobility, particularly for younger people, I’m not convinced that the risk/reward ratio and the payoff are worth it. And I’m also concerned about whether TNCs [transportation network companies] like Uber and Lyft will only lead to more traffic congestion. Cities like New York City are reviewing their regulation of TNCs for this reason. Even when TNCs start using autonomous vehicles, which will be more cost-effective than human drivers, there will be the challenges of how to nest the vehicles and how to stage them.
Anderson: I’m skeptical of cryptocurrency and coin-based offerings for real estate as an alternative to owning an interest in a building through a true security or a true private offering. There are groups out there that allow you to trade cryptocurrency coins the way you would trade money, but real estate shouldn’t be tradeable that easily. It seems ripe for fraud. Real estate should be viewed as more of a long-term asset.
What property technology would you most like to see realized in the future?
Gilbert: Now that we have the ability to gather data from our buildings, the next step is to use it to optimize all our building systems. As more communities create carbon caps, where property owners could face fines if they fail to cut their carbon emissions, everyone needs to run their buildings as efficiently as possible. The more we can collect data at a very granular level and use it to enhance the efficiency of our buildings’ fans, motors, pumps, etc., the better.
Fingert: Real estate transactions are incredibly complex processes, with a lot of stakeholders—appraisers, title companies, insurance companies, banks, buyers, sellers, agents, brokers. A number of technology companies are starting to streamline those processes, such as Bowery Valuation, which streamlines the appraisal process, and Notarize, which is doing the same for the notarization process. More companies will start chipping away at these antiquated ways of making transactions happen and provide a more seamless, digital transaction experience.
Rowe: I’m sure we’ll see more progress on different construction technologies. There was significant interest about two years ago because some new players emerged who were very well funded. Whether it’s panelized construction or light steel construction or modular construction or new materials like light concrete, the question is, can we deal with the regulatory issues of different municipalities? And can we get these new technologies to scale up enough so they reduce costs and allow us to create buildings at a more affordable price point? I think we will see more modular solutions, but it’s still early.
Anderson: Modular building and new technology-enabled construction businesses promise to shorten the construction cycle. I think those will be powerful over the next 15 to 20 years as construction costs continue to rise. And on the investment and asset management side, machine learning will be powerful as well. If you have a portfolio of assets, there is so much data available from property management and accounting systems, but there hasn’t been a good overlay from an asset management perspective to analyze that data and pick up trends. Machine learning will be a big help in pulling data and analyzing it.
What other trends in property technologies do you think more developers and investors should be aware of?
Anderson: Virtual reality has become highly advanced. It’s going to be very useful in allowing potential tenants to view an apartment or a home without having to walk through it physically. You can see paint colors, tile selections, and kitchen layouts, all in high-quality 3-D.
Gilbert: The concept of a single integrated platform for operating buildings is catching on. You don’t want your building operators and engineers to be looking at multiple screens. As property owners, we all hear that data is the new oil. That may be true, but it’s crude oil. What’s really important is the software that you use to refine that oil, and whether or not it delivers products that save money and enhance the experience of your customers.
Fingert: One trend we are excited about is related to space arbitrage—making better use of existing space to get more value out of assets. A great example is Airbnb, making use of excess capacity in the rental market. We are also investing in WhyHotel, which operates pop-up hotels in new 200-plus-unit luxury rental apartment buildings, giving the building owner additional revenue during the time they are leasing up new units.
Rowe: We’re in the middle of a massive AI [artificial intelligence] revolution, and the real estate industry is significantly behind most other industries. Part of that is because the industry hasn’t gathered data in a way that’s easily consumed by AI. I think more big-data solutions will come to all aspects of our business.
Contributing Their Insights:
Terry Anderson, copresident and cofounder, Platform Ventures, Kansas City, Missouri; member, Technology and Real Estate Council
Jake Fingert, general partner, Camber Creek, Rockville, Maryland; member,
Technology and Real Estate Council
John Gilbert III, executive vice president and, chief operating officer, Rudin Management Company, New York City; member, Technology and Real Estate Council
Randy Rowe, chairman, Green Courte Partners, Chicago; member and former chair, Technology and Real Estate Council