Note: The following is a repost from the original Forbes article. Mike is a regular contributor to Forbes.
It’s hard to believe that only three years ago the $15 trillion commercial real estate industry had virtually no software support and was vastly underserved by available technology.
The opportunity to innovate in this space has been identified by gritty entrepreneurs and smart investors who have committed over $1.46 billion of early stage investment capital to build and capture the substantial value to be had. “CRE tech” is now a recognizable term used to identify and communicate this period where the commercial real estate industry becomes tech-enabled.
Today, there are hundreds of institutionally-backed software and other technology companies built for the specific needs of commercial real estate that are achieving various levels of traction and success. We’re even seeing early winners with valuations in the hundreds of millions of dollars. I have little doubt that this will grow to include publicly held companies that employ thousands of people and are measured in the billions of dollars as they power commercial real estate into the future.
While CRE technology continues to grow and mature in the commercial real estate market, we’re witnessing a healthy and necessary consolidation phase where resources become focused on the most promising opportunities.
In just the past nine months we’ve already seen the merger of VTS and Hightower to create a new force in leasing and asset management software with an estimated valuation of $300 million. There’s been a surge in later stage financing from top tier venture firms, including Cadre raising a $65 million Series C financing led by Andreessen Horowitz to fuel a tech-enabled institutional investment advisory management firm, Clutter raising a $64 million Series C financing led by Atomico and Sequoia to evolve the self-storage business, and Breather raising a $40 million Series C led by Menlo Ventures to bring flex office space and conference rooms to every major metro area. Mergers and acquisitions (M&A) transactions are happening every month: CBRE recently acquired Floored; Berkadia invested in RedIQ; MRI has made a multitude of acquisitions including ResidentCheck and CallMaX.
As we look ahead to more exciting developments in the great consolidation of CRE tech, watch for these five trends to gain ground in the coming 12 months:
- Industry standard point solutions (e.g., property data, valuation, property accounting and portfolio management services) will be extended and combined with new offerings to deliver more comprehensive platforms for commercial property owners. For example, if MRI were to acquire Honest Buildings, they would be able to provide elegant and advanced tooling for managing capital projects with an open asset management platform. Additionally, we might see Altus Group acquiring a company like Waypoint to more deeply tie and entrench valuation into core use cases.
- The revenue growth, market size and execution of leasing (revenue) data services are compelling for both private and public market investors leading to an IPO. Leasing data services have become necessary to creating and capturing value in this competitive market. We may see VTS raise $100 million-plus in Series D financing with its eye toward going public in 2019, or CoStar making moves by acquiring CompStak, or possibly something bigger.
- Institutional investors expect professional, effective communication and transparent reporting, which is accomplished with software and is most valuable when bridging the chasm between front office and back office. One bridge that might make sense is the combination of Yardi or MRI and Juniper Square, but watch out for Cadre swooping in as they build out their own advisory and investment management empire.
- Auctions and crowdfunding seem to be boiling down to better tooling and branding for originating transactions efficiently. We could see Ten-X acquiring Realty Shares for this very reason.
- Robo-advisors who provide customers with an easy to manage, low cost, diversified investment platform need to deliver better exposure and visibility into the fourth asset class of commercial real estate. In which case, companies like Betterment could benefit from the acquisition of new comer Fundrise.
Industry activity is accelerating and it’s an exciting time to be in the mix where billions of dollars of value will be created and/or missed. We can further expect that in a couple of years the term CRE tech will be dead and the industry will absorb technology into its DNA to be software enabled. In order to compete in this increasingly competitive and complex market, firms will need to be proficient users of the best software tools.
