Investors increasingly expect real estate firms to leverage proptech to operate more efficiently and perceive that firms that use tech tools effectively as smarter, innovative, and more successful, contends Chris Barbier, industry principal—investment management for Yardi.
“Investor perceptions might change based on a company’s use of technology,” Barbier points out. “An investor might think, ‘Wait a minute, if they’re not on top of this, how well are they managing their investments?’”
Barbier says that by investing and using proptech, real estate firms are signaling a level of professionalism and sophistication to their partners and investors. The effective use of proptech could be the ultimate differentiator in an investor’s eyes. In fact, the lack of proptech could be a deterrent for many investors.
The survey found that while most real estate firms do use some proptech, the answers as to what type of proptech they used varied greatly. There are not certain categories of proptech that every firm is gravitating towards. According to the WMRE survey, the most-used proptech is technology focused on market research. Next on the list is asset management proptech (29 percent) and investor CRM (28 percent).
One of the reasons for this may be that with so many different tools on offer, there is a lack of industry tools within the industry on many tools and data formats. That leaves it up to each firm’s discretion as to what proptech to invest in.
“A challenge for lenders is collaborating across all the different types of products (agency, banks, CMBS, Insurance, Credit Unions, Funds) and all their varied processes. Some initiatives are underway to address the need for standards across product types,” Andrew Foster, an associate vice president at the Mortgage Bankers Association wrote in a recent column for WMRE. Foster pointed to the Mortgage Industry Standards Management Organization, a standards development body for the mortgage industry, as helping drive this change.
With the state of play as it is, many smaller, nimbler, and more daring operators and sponsors are taking a swing at adopting technology, says Eric Roseman, vice president of innovation & technology partnerships for Lincoln Property Company. Larger real estate companies are exploring proptech, staying attuned to what’s happening, but because they have well-engrained and often highly successful ways of doing business, they aren’t often forced to make swift changes.
“Like anything else, there are tech-forward market participants and there are more analog market participants,” Roseman explains. “As a whole, I think real estate companies have adopted a lot of technologies but there’s always a new flavor of the month, and it’s important to remember that you can’t always chase the shiny new object.”
Now, with new proptech companies and solutions announced weekly, if not daily, CRE professionals are quickly becoming overwhelmed with options, according to Josh Wilcox, managing director in FTI Consulting’s Real Estate Group.
The situation is further complicated by the fact that technology, by its very nature, is evolving constantly, making it hard for companies to keep up unless they have someone dedicated to innovation. Chief technology officers, once a rarity, are increasingly popping up at real estate firms.
“If you’re trying to decide on which proptech tools, how do you pick the right one when there very well could be another solution a week from now or a month from now?” Wilcox says,. “How do you avoid a serious case of FOMO (fear of missing out) when a better solution comes out, and you’ve just signed a contract with the provider that you thought was the best option?”
Without question, that fear of making the wrong choice is one the biggest obstacles that proptech providers face when trying to encourage usage. Another factor driving the varied adoption is a difference in how much firms spend annually on technology. In all, 62 percent of respondents to the WMRE survey say they spend less than $50,000 annually. Nearly 75 percent spend less than $100,000. On the high end, 8 percent of respondents said they spend more than $500,000 on proptech annually.
“In my experience, it’s more about mindset than size,” Barbier says. “I know some very large companies that are very frugal with their technology. And then there are smaller companies that are spending much more, if you look at it on a percentage basis, proportionate to earnings.”
Indeed, there are plenty of smaller real estate companies that invest a significant chunk of money in proptech because one, they believe it will differentiate them from their competitors, and two, they believe it will positively impact their bottom line.
“When it comes to spending money on proptech, to this day, it still feels to me that it’s driven by the CEO,” says Aaron Block, co-founder and managing partner of MetaProp, a New York-based venture capital firm that focuses on real estate technology. “CEOs who are really committed to technology and innovation push that message and encourage people across their organization to invest both time and money in new technologies.”