REAL ESTATE TECHNOLOGY PERSPECTIVES THAT COUNT

The Antiquated CRE Transaction Process

U.S. commercial real estate is a $20-trillion asset class, yet – even as technology has enhanced other aspects of the sector — the transaction process for buying, selling, and financing commercial property has remained highly analogue. Most deal-related data is collected by third-party intermediaries in offline channels, with disconnected spreadsheets, emails, handshakes, and other manual processes continuing to dominate workflows.

Despite the real estate industry’s size and scope, it has never benefited from what many other large financial markets enjoy: a technology infrastructure that centralizes the disparate counterparties, workflows, and datasets at play in every deal.

A Comprehensive Capital Markets Platform

Historically, RET Ventures has focused heavily on the operational side of real estate technology, with numerous investments in smart buildings and property management tools focusing on maximizing the operating efficiency of properties and portfolios. As we grow, our strategic approach has expanded accordingly across the CRE value chain, with a keen eye toward how owners build and finance their portfolios. A significant priority is bringing greater efficiency and transparency to the processes surrounding acquisition, disposition, and financing of projects, properties and portfolios; to that end, we’re excited to announce our investment in Revere.

Revere presents a novel concept for the institutional CRE market, combining a verified professional network, listing marketplace, and deal execution venue into a true ‘one-stop-shop’ for market participants. Revere enables brokers, developers, owners, lenders and investors to expand their network; identify potential counterparties; and buy, sell, or finance an asset all in one place.

Revere aggregates and stores vast amounts of relevant information on the people, companies, and transactions that comprise the institutional CRE market, making this data easily accessible to platform subscribers. Furthermore, Revere is unique among real estate transaction marketplaces as a subscription-based platform that does not take commission from any deals facilitated on the network — this model was designed deliberately, motivated by Revere’s mission to bring greater efficiency and transparency to the existing market structure, with brokers very much included. Revere provides a valuable turnkey tool for brokers throughout the transaction lifecycle helping them ensure best execution for clients on the buy and sell side of any deal.

Revere’s Incredible Potential

As a seed stage company, Revere is younger than our typical investment. But we see incredible market opportunity in the prospect of aggregating the different components of the CRE market onto a single comprehensive, collaborative platform. Just as importantly, we have tremendous confidence in the company’s leadership team, which includes sophisticated CRE professionals and ex-Googlers who understand the inner workings of a CRE transaction and how technology can improve it.

The company has already gained significant traction from several prominent institutions — including our co-investors Related Companies, Holland Partner Group, The Feil Organization, Driftwood Capital, Davis Development and Essence Development — and it is poised for rapid growth in the near term.

The Future of Real Estate Capital Flows

A platform like Revere is long overdue, but more timely than ever. With macroeconomic trends and inflation driving investors to real estate, the asset class is one of the most attractive destinations for institutional capital. In this climate, Revere’s ability to bring together all aspects of the capital stack – investors, developers, debt and equity — will simplify the transaction process and allow users to build business partnerships with investors across the country.

Revere is a valuable addition to RET’s current portfolio of real estate technology investments, and we look forward to providing the company with resources and support as they expand their team and continue to refine their product in the years ahead.

In the latest installment of this series profiling RET portfolio companies and their executives, we talk to Mogens Smed, CEO of Falkbuilt.

What is the inefficiency in the real estate industry that makes Falkbuilt necessary?

Conventional construction is inherently inefficient. Think about long schedules waiting for different trades to come and go, giant waste bins onsite and tipping fees at the landfill. Half of all waste in North American landfills is from construction sites! And now, with supply chain issues and severe materials shortages, conventional construction is even more challenged. Why would you want to throw 30 percent of your hard-come-by materials in the garbage?

How do you solve that problem for the construction industry?

Falkbuilt’s offsite prefabrication solution, empowered by technology, solves these issues.

We manufacture digital components in a compact factory—super studs, digital horizontals and cladding—and ship them to jobsites all over the world for fast, clean installations. We virtually eliminate waste onsite, which makes working in occupied spaces much easier.

Our process, “Digital Component Construction,” shortens the construction schedule, is far more sustainable than conventional construction and vastly increases the efficiency of labor onsite, which is an added benefit in the worsening labor crunch.

We use fewer materials, have a warehouse full of inventory, provide quicker lead times, deliver incredible design response, acoustic performance, durability as well as speed of construction. And we’re cost competitive with conventional construction. Our total material, fabrication, overhead, freight and installation costs are less than half other prefab manufacturers. Further, the digital components we manufacture are designed for disassembly, so they are easily and quickly reconfigured when a client’s needs change.

We’re also the only prefab manufacturer that has a solution completely aligned with conventional construction. Our digital components and process emulate how trades work onsite. Skids of flat-packed components come off the truck in the order they’re needed onsite. It’s all very intuitive and instantly familiar to trades on the job site.

We use that same principle—working like you already do—in our technology platform, Echo, which exponentially empowers industry standard software in the cloud. Echo also frees offsite fabricators from the constraints of standardized solutions to provide customized solutions with much quicker lead times.

How does your technology differ from your competitors’?

Echo is the first end-to-end cloud computing communication tool in the construction industry. With Echo, designers and engineers use the same tools they’ve already invested in, like Autodesk’s Revit or Inventor (the platform is technology agnostic).

Echo collects and manages the project data throughout from early design development, to pre-construction, material order, fabrication, shipping and installation. Each stage of the project moves faster, saving hundreds—sometimes thousands—of hours and providing total clarity as to cost and schedule.

With Echo, for the first time, architecture and construction professionals can leverage prefab construction, save thousands of decision-making hours, gain pinpoint accuracy as well as the ability to customize any project, large or small.

No one else does this! Echo is the only AI cloud computing platform that fuses design, manufacturing and delivery and we are confident it will transform the massive, notoriously technology-hesitant, building construction industry.

There’s an old trope about real estate being slow to adopt technology? Do you think that is still an accurate characterization?

That has been true for a very long time, but that’s mostly because previous technologies did not respond to the industry in a way that supported their process, leaving them with tried and true “best practices” as their only alternative. In the last few years, we’re beginning to see that evolve. If you look at the market, billions and billions of dollars are being invested in technology innovations for the construction industry. Echo is poised to change the game.

What advice would you give to a young entrepreneur just starting out in rent tech or proptech?

Don’t waste any time worrying! Don’t worry about running out of money because you will! Besides, too much capital compromises the sense of urgency and moving at speed which is integral to building any business. Don’t worry about making mistakes because you will make many. Stay focused on your vision and accept there will be a multitude of challenges you have to overcome. As every entrepreneur knows in their bones, a challenge is an opportunity.

Churchill is credited with saying: “A pessimist sees the difficulty in every opportunity. An optimist sees the opportunity in every difficulty.” Successful entrepreneurs are realistic optimists! There is a mantra I subscribe to: “Any individual can make mistakes, but success only comes from a team of people!”

Our Falkbuilt/Echo experience is testimony to the value of a strong culture supported by a capable and committed team of people both at HQ and throughout our global distribution network.

What is one challenge about building a proptech company that you weren’t aware of five or ten years ago?

Covid-19! I can tell you growing a new company in the middle of a pandemic has been the hardest experience in my 50-plus year career working in both construction and technology.

What’s next for Falkbuilt?

We’re just ending our second fiscal year and we have 90+ Factory Direct Branches across North America, the Middle East and India. Falkbuilt and our Falkbuilt Branches have outperformed all expectations, thanks in large part to employing the incredible efficiency of our Echo technology across our operations.

In just a few years—and during a pandemic—Falkbuilt has grown from nine employees in an empty building to more than 400 “Falkers” in a fully implemented, very busy, 90,000-square-foot factory. We’re producing projects for clients around the world and across a range of vertical markets including commercial, retail and healthcare. We’ve just celebrated our 1000^th successful project. And we’re just getting started. Echo technology is the backbone for building a scalable business model for Falkbuilt, and our greatest vision is seeing the technology have a major impact on the entire construction and fabrication industry!

The Mighty “Mom-and-Pop” Landlord

While institutional landlords dominate most real estate conversations, individual owners and operators of either a single rental property or a small portfolio actually comprise a major portion of the market. In 2018, so-called ‘mom-and-pop’ landlords were responsible for 60% of all investor home purchases, and as of 2020, this class of landlords owned a collective 22.7 million units across 16.7 million properties — making up a majority of rental residences in the country.

Despite their size, this group of investors has historically been underserved by the technology resources that streamline operations for institutional owners.

A One-Stop Shop for Financial Operations

As the leading VC for multifamily and single-family real estate technology, servicing the entire range of residential property owners and operators has always been one of RET Ventures’ most prominent goals. With this in mind, we have kept a keen focus on technology that has the potential to improve operations across the industry at-large; as we have expanded our portfolio, this has led to investment in platforms such as TurboTenant and TurnoverBnB. We are now expanding our focus on mom-and-pop operators as we announce our latest investment in Azibo.

Acting as the financial hub for small-scale owners of rental property, Azibo offers landlords a one-stop shop where they can complete necessary financial transactions — such as free rent collection and bill payments — while also efficiently managing, organizing, and analyzing payment and expense data. The platform also enables full-service banking services through free checking and savings accounts with cashback and offers nationally licensed insurance, as well as lending solutions such as mortgages and short-term loans. By collecting a wide array of property-related financial data, Azibo is able to generate powerful analytics that provide landlords with data-driven insights relating to operations, potential renovations and more.

Through our partnership with Azibo, we hope to democratize the sort of full-stack financial services and analytics currently utilized by large-scale institutional owners to the mom-and-pop market. The application of RET’s detailed expertise with tools for the institutional multifamily and single family rental market — combined with Azibo’s sophisticated team and robust suite of fintech products and licenses — has established the foundation to improve financial management for all landlords.

The Future of Rental for Non-Institutional Owners

With this latest funding round, Azibo will be expanding its team, accelerating product innovation and expediting its rollout to the entire rental property ecosystem, from landlords and renters to property managers and vendors.

Azibo is a valuable addition to RET’s current portfolio of investments supporting small landlords, and we are eager to continue backing technologies that meet the needs of this important yet underserved group of owners.

We are excited to kick off 2022 with this new partnership, and we look forward to supporting Azibo’s immense potential to better the rental management process in the years to come.

RET Ventures Partner Christopher Yip recently spoke on the “Inclusion & Innovation: Changing the CRE landscape” webinar hosted by EisnerAmper. Chris joined panelists Jim Farris, CEO of Mosser Capital; Alex Lofton, co-founder and president of Landed; and Michelle Boyd, director of the Housing Lab (a program of the Terner Center for Housing and Innovation at UC Berkeley) in the final installment of EisnerAmper’s “DEI in Commercial Real Estate” series.

In the webinar, Chris shared his perspective on the importance of market-based solutions rising up to meet the challenge of housing affordability and how real estate investors are increasingly focused on measuring and improving the ESG impact of their portfolios.

Watch the full webinar on the EisnerAmper site.

The Emergence of Insurtech

Over the last decade, the $1.3-trillion U.S. insurance industry has become a focal point for venture capital, driving emerging disruptors to bring sorely needed innovation to the space.

”Insurtech” has already produced major success stories, with billion-dollar valuations and public exits for names such as Lemonade and Hippo, which leverage technology to power a step-change in the ease of access for the average consumer to secure and manage their basic insurance needs. With the early success of these first movers, the insurtech market has accelerated in kind, to an estimated $2.72 billion in 2020.

Insurtech Meets Rent Tech

Insurance is a critical category for RET and our Strategic Investors, comprising a group of enterprise-scale residential real estate owners and operators representing ~2.4m units of multifamily and single-family rental inventory. We have been monitoring the growth in this sector for years, tracking the emergence of various solutions focused on renters and multifamily owner-operators. We announced our formal entry into the sector earlier this month, leading a $7 million Series A funding round for Get Covered.

Through an easy-to-use interface, Get Covered streamlines the purchase and tracking of every form of renter-related insurance, including renters’ insurance, master liability programs, security deposit alternatives, and other risk management products.

Our partnership with Get Covered marks RET’s first standalone insurtech investment - one that follows a deliberate, extended process to identify a solution that best solves the pain points our Strategic Investors experience as enterprise scale owner-operators.

Proven Value for Rental Communities

Renter’s insurance is largely a commodity product in a market crowded with both traditional and tech-enabled offerings. Recognizing this, Get Covered has been built from the ground up to differentiate itself by providing a better insurance operating system to connect all stakeholders in the value chain, mastering the complex relationship between owner-operators, property managers, and residents. While other tech-enabled solutions offer a single or small number of products, often directly to consumers, the Get Covered team has built a platform that offers a comprehensive, flexible suite of insurance products and an API integration that allows for seamless and near-instant implementation into existing property management systems.

Get Covered’s unique approach allows operators to accurately, comprehensively, and efficiently track resident compliance with a community’s minimum required policy for the first time and automatically tracks coverage throughout the term of the lease.

With the help of our Strategic Investors, we spent significant time test-driving Get Covered, building conviction that the platform addresses the systemic weaknesses in the resident-insurance ecosystem. With a new round of funding in hand, Get Covered will be able to drive more efficient and transparent adoption of insurance at multifamily properties across the country - offering tangible benefits not only to residents but owners and property managers as well.

Insurtech & Real Estate: Early Innings

Get Covered represents RET’s first insurtech investment, and it will not be our last. As we continue our work to build a better tech stack for the real estate sector, we expect to identify additional pain points at the intersection of insurance and real estate. We see potential examples in the property and casualty sector, as well as with legacy insurance carriers that own large portfolios of real assets, or elsewhere in the industry value chain.

We could not be more excited to partner with Get Covered and to enter a new area of real estate technology that holds so much potential for our partners.

Below is the first installment in a new series profiling RET portfolio companies and their executives. Today, we talk to Roman Pedan, founder and CEO of Kasa.

RET: Can you give a quick rundown of how you came to found Kasa?

RP: I was working in private equity at KKR in New York City and we were doing huge deals, deploying immense amounts of capital to buy hotels. But in my personal life I was Airbnb-ing an apartment on the side and staying in more Airbnbs when I traveled. It seemed like hotels represented the old way people travelled, whereas more and more people seemed to want something different.

But Airbnbs weren’t perfect. While short-term rentals were getting popular, they lacked consistency and reliability and therefore hadn’t fully earned trust from consumers. I founded Kasa to try to solve that problem.

RET: What is the inefficiency in the real estate industry that makes Kasa necessary?

RP: Here’s the main issue: On any given night, over 1 million apartments sit vacant across the US. Combined, that’s a major metropolis of emptiness. For property owners, that means less yield on their investment. For potential renters and travelers, that means empty space that nobody is using. Kasa helps utilize space more efficiently which means more cash flow to owners and more options and lower prices for renters and visitors.

RET: How do you solve that problem for property owners and guests?

RP: For property owners, the Kasa model—managing the end-to-end accommodation experience and passing along 100% of the cash flow, minus our management fee—generates above market returns. Multifamily owners can also easily backfill vacant space with Kasa rentals, and having Kasa in their buildings can help multifamily owners adapt quickly to changes in the community and adjust the unit mix to best suit the property needs as they evolve.

For guests, our model allows us to offer consistency: they get high-quality hospitality experiences for lower costs and in a wide range of locations.

RET: How does your technology differ from your competitors’?

RP: At one point, we realized we were operating a certain kind of hotel that had never existed before. Early on, we were managing 100 units spread across nine buildings, eight cities and three states, and there was no software that could support that kind of distributed operation. We had to build that technology ourselves, including software and systems that can better help us track operations of our distributed units, manage all aspects of the guest experience and support comprehensive financial reporting to our partners. We also stand apart with the rigor of our trust and safety technology and policies--they are our top priority and we believe they are also the most advanced and stringent in the industry. Ultimately, our technology generates better financial returns for our property partners, higher quality experiences for our guests and more trust with our neighbors.

RET: What advice would you give to a young entrepreneur just starting out in rent tech or proptech?

RP: Get in the weeds.

One oft-repeated snippet of leadership advice you hear is that executives should always stay as high-level as possible — they should learn to delegate and look at things from 1,000 feet.

I agree with that to a point, but you also have to get into the details and enable your team to do the same. I’ve stayed in many, many Kasas, for instance, and as part of that I’ve drilled into every detail of the customer experience. I’ve experienced it all firsthand. That’s crucially important for any leader, and it has informed my formulation of Kasa’s strategy moving forward.

RET: What accomplishment are you most proud of?

RP: Kasa was able to not just survive the COVID-19 pandemic, but we took the opportunity to quickly pivot and forge a clear path to continued growth. The sudden collapse of the hospitality sector caught us all off-guard, but I am so proud that the Kasa team was able to respond by developing a revenue-sharing management model that allowed us to continue to pass along income to our property partners while growing our business, as well. During COVID-19 we maintained occupancy levels that were double that of the hotel sector and we expanded our portfolio two-fold. It was a gargantuan feat, and I’m so proud that the Kasa team was able to accomplish it. The pandemic is not yet behind us, and we already know there is some hard work ahead as we continue to build our business. But I do think this once-in-a-century challenge will also offer once-in-a-century opportunities to rethink how we use livable space.

RET: What’s next for Kasa?

RP: We’re looking to accelerate investment in our proprietary technology. Our existing suite of products and systems are a key part of our “special sauce”: They enable Kasa to manage units across various property sizes and locations and generate unmatched operating margins, while maintaining exceptional guest experiences at an affordable price point. But there is still so much to be done. We plan to even more effectively streamline our operations and minimize onsite overhead by developing additional technology that focuses on community safety, guest support, and improving the Kasa experience at all touchpoints. We believe these developments will be transformational for the industry, and will represent entirely new tools that have never existed before. Stay tuned!

RET: If you weren’t a proptech executive, what would you be doing?

RP: It would have to be improv comedy. Generally, I like building things so it may seem strange to choose comedy, but I’ve done some improv and it’s much more similar to starting a business than many would think. In both, you build and create as you go, collaboration is key, and it is critical to have sound principles. Plus, besides being immensely challenging, improv comedy is fun!

RET: What is one challenge about building a proptech company that you weren’t aware of five or ten years ago?

RP: The fragmentation of the sector across the ownership, management, software, and hardware sides means there are immense integration challenges. In order for the various systems to work together in a cohesive manner, a company must vertically integrate to support the full stack of needs themselves, while also mastering enough lateral flexibility to fit with the fragmented solutions already in place. All of this should provide higher quality, lower costs and more dynamic offerings versus others — but it’s incredibly challenging to do right.

RET: There’s an old trope about real estate being slow to adopt technology? Do you think that is still an accurate characterization?

RP: Real estate has a few structural elements that make it slower to innovate--generally, people invest in real estate for predictability, and their investments remain very illiquid over long periods of time. As a result, real estate investors have tended to be risk averse and don’t want to try new technology. Technologists, accordingly, have steered clear of real estate.

However, as yields have compressed (and the impact of NOI moves has thus been magnified), the potential benefits of technology to increase revenue or cut expenses have become more obvious. The equation has flipped: it would be riskier (possibly existentially so) not to explore new technology, and owners who are able to incorporate technology thoughtfully will emerge with a competitive advantage.