Tech in Commercial Real Estate — Why Everyone Cares All of the Sudden
What’s been nice about the last year or so is I am having to answer the following questions less and less —
“I’m a CRE investor/developer/broker/whatever. I’ve made a successful career without any tech beyond my email & phone. Why should I care about technology?”
It’s never quite as overt as that. It’s always much more subtle.
“I just don’t see the value.”
“We are going to focus on our core competency.”
“We haven’t seen anything meaningful in terms of innovative technology.”
These are just polite evasions of the truth.
This is still the real question executives ask themselves — Why should I care? It’s a modern version of “If it ain’t broke, don’t fix it.” And, I get that.
Here’s the problem.
Someone is demanding technology.
Newer, cheaper, more reliable, more scalable, cutting edge technology that you had never heard or thought of before 2018.
Know who is starting to demand that?
TENANTS.
And guess who pays all of your bills, Ace?
At the end of the day, if a tenant doesn’t sign a lease, no brokers get paid, no developers get fees, no acquirers hurdle their pref, no appraisers get engaged, no lenders lend, no companies run title. Nothing.
Tenants sign leases and everyone gets paid.
So, if tenants in competitive markets are starting to demand both property and individual-space-level technology, you might want to start paying attention.
Luckily, most major players seem to have realized that.
And it’s not too long before they pilot some terrible tech or get overwhelmed with the amount of tech providers who can save the “20% on their annual HVAC/Water/Energy” bill and they realize they do not have the skill set to vet which company is worth the time. (If only some expert party existed to provide such a service . . .)
Some try investing in tech companies, knowing that people with capital always see the best tech.
Almost all of them are terrible at it. At least, they are terrible at making direct investments.
Which makes perfect sense. They have no experience.
How could they be good at it? How could they spot bad tech structure?
And what we are seeing is that even the largest institutional limited partners are getting in the game.
I can’t really tell you specific names, but we are speaking to some of the largest pensions, endowments, and SWFs in the world about investing in CRE Tech through our fund. (They don’t need to be convinced of the lunacy of direct investing.)
Why?
Because they know who ultimately pays the bills in the CRE portion of their alternatives portfolio.
It’s the same effect we saw with LEED and the ‘Green” building movement a decade ago. Tenants demanded it and LPs stopped funding GPs who lacked a “green” strategy.
The problem with that movement is that no one seems to have found a way to actually SAVE MONEY by having a LEED/Green building.
Fortunately, most of us professional investors have an eye toward NOI and don’t invest in “window dressing” technology that has no real impact on the bottom line. This isn’t investing for PR so that the retired public employees of California feel warm-and-fuzzy about low flow toilets in Miami office buildings. These are technologies that are fundamentally changing the way we build, finance, and operate buildings and save (and make) money.
So it’s actually pretty encouraging to see that everyone is realizing where their bread is buttered and has seen tech investment as the new normal.
I would go as far as saying that the deal sponsor or GP who doesn't have a tech strategy going forward is going to look increasingly antiquated and provincial by the month. After all, the best players in our industry have always been the ones who are most in tune with the tenant’s needs.
But, hey, maybe all of this tech noise will just go away and be a fad . . .
