Hype concept. photo credit: Getty
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Much has been written (by myself included!) about the exponential growth and increasing maturity of the PropTech space. Confidence in the sector is at an all-time high. According to the mid-year MetaProp Confidence Index which was just published, 64% of investors plan to make more investments (an all-time high) and a massive 80% of startups think it will be as easy as or easier to raise money in the next year than in the past 12 months. In the hyped-up environment that characterizes PropTech these days, it is important for startups and investors alike to ensure they don’t get their heads turned, but continue to focus on the objectives that matter. I sat down with the growth team at JLL Spark, a PropTech VC backed by JLL, and discussed what they have found to really matter, from their privileged view sitting at the intersection of investors, clients, and startups.
The growth team at Spark, led by Eric Wittman, was set up with the purpose of ensuring that the tech the fund invests in is deployed to maximum effect both within the company and with its clients. According to co-CEOs Mihir Shah and Yishai Lerner this team, which is made up of people such as Wittman who boast a significant background in technology and is the largest dedicated force of its kind in the PropTech VC space, is the true differentiator for the fund. By effectively bridging the gap between tech and real estate, they work towards what they seek to be a win-win-win scenario for all stakeholders.
Perhaps unsurprisingly, the first thing we discussed is culture. I have touched upon this in the past: the necessary first step to innovation and therefore the adoption of technology in real estate firms is a cultural shift. According to Wittman, “there needs to be a willingness to share data, reevaluate risk and embrace a more transparent culture. Without these cultural changes efforts to adopt new technologies are ultimately hollow.”
The real estate landscape is changing, due to shifting market expectations, the emergence of new leaders in the space (including the well know real estate forays of big tech firms) and the fact that the technology embraced to date is beginning to show positive results for the companies implementing it. Despite this, adoption of PropTech continues to be slow due to the complex and idiosyncratic nature of the real estate industry.
I asked Wittman to share the top tips he gives his real estate clients in order to facilitate their technology adoption.
Change begins at the top
The first step to fostering cultural transformation starts with a company’s leadership. Executives must challenge current orthodoxy and mobilize the organization. The ideal leaders are mission-driven and value openness and transparency – people that are naturally curious and want to learn. These qualities cut across generations, meaning forward-looking leadership doesn’t necessarily mean younger leaders. The chances of success are greater in an environment when the leadership and the workforce are collaborating.
It’s okay to fail
Companies considering technology need to rethink risk and experimentation. This is a huge adjustment for the real estate industry which has been built on and benefitted from a strong culture of risk aversion. Within real estate companies, there needs to be a willingness to experiment, to test what works well for the company’s culture and its workforce.
Have a laser focus
Some companies believe the only way to adopt technology is wholesale, which ultimately leads to failure. Instead, it is better to have a narrow project scope and determine early on what the criteria for success look like. It is prudent to choose one asset and consider experimenting with a pilot project. And like any project, it must have the necessary resources and support in order to be successful.
Face a hard truth: you’re as much a technology company as you are a real estate company
We are in an era of consumerization of technology. The lines between traditional industries and technology are blurring, and real estate is not immune to this change. Companies today need to realize that they’re as much of a technology company as they are a specialized real estate company.
Rethink data
A generational shift is starting to take place. What was commonplace in the last 30 years will not be in the next 30. Though real estate tends to be risk-averse and data-driven, it’s crucial to have an open mind about what’s to come. Currently, information is siloed in the industry, but that’s changing, particularly as companies see opportunities to use technologies such as machine learning to analyze and uncover insights.
JLL Spark’s growth team is currently most active in Europe and the US. EMEA growth lead Tanguy Quéro and Americas lead Andrea Jang shared their insights that have emerged from working with clients and startups alike.
Personal security is as important as data privacy
In Europe, as can be expected, there is a lot of focus surrounding data privacy following the introduction of GDPR just over a year ago. Quéro warned that this focus on data security should not come at the expense of ignoring physical security at a building as well, especially in the case of large campus portfolios and mega trophy assets, where it is difficult to manage visitor management and building security systems with existing technologies. Landlords today are looking at new technologies in order to offer higher levels of security to their end-users.
Sustainability is driving technology adoption
According to Quéro, “Companies’ growing focus in the area of corporate social responsibility is driving technology adoption, as firms consider new ways to achieve their CSR goals and differentiate themselves in the marketplace. For landlords, being good stewards of the environment is having an indirect impact on ROI. Sustainability measures, such as reducing energy consumption, are having a positive impact on tenant experience and building brand goodwill.”
Jang shared that one of the key areas of focus for the growth team is to help PropTech startups overcome adoption challenges and utilize Spark’s network of contacts to accelerate their growth. For example, she claims that JLL Spark introductions have led to the sale of more than 1,000 sensors made by VergeSense, a Spark portfolio company, covering about 1 million square feet in commercial real estate to date, and another 1,000 sensors are in the pipeline.
Jang recommends that startups develop a deep knowledge of their target clients’ investment strategy and asset portfolio. They should be very aware of the chain of command, such as whether there is a dedicated tech team and who is responsible for implementation. It is crucial to understand the firm’s budget and allocation for technology adoption, as well as the type of innovation the firm is seeking. They could be looking to innovate specific business functions, or alternatively to overhaul their entire real estate activity. Jang’s top tip to startups is to work with a VC that has strong relationships with its target clients, therefore facilitating long term partnerships.
In the frothy waters of today’s proptech ecosystem, it is very easy for startups, clients, and investors alike to get lost in the hype. By keeping sight of core values and common sense, and building productive relationships with like-minded stakeholders in the space, it could indeed be possible to produce win-win-win outcomes, despite the hype.