A Discussion Regarding the PropTech Industry6 Dec 2019
For this month’s Nelson Report, I was joined by two visionaries in the PropTech world, Zach Aarons of MetapropNYC and John Sikaitis of Avison Young’s new global innovation practice. Zach Aarons has been investing in early-stage PropTech both individually and with his company for years now, having invested in close to 100 startups. On top of this, he just published a book titled, “PropTech 101: Turning Chaos Into Cash Through Real Estate Innovation.” My other guest, John Sikaitis, just recently joined Avison Young as the Chief Innovation Officer after being with JLL for 15 years as the Managing Director of Research. His current focus within Avison Young is to drive ideas, develop processes and launch products at the intersection of data analytics and technology.
I started the conversation by diving straight into the definition of PropTech and how Aarons uses this understanding to navigate through the dozens of start-ups coming to his firm each week.
Aarons explained that there are multiple different phrases or “buzzwords” that are used throughout the PropTech world including; PropTech, technology for the built world, technology for the built environment, CRE tech or real estate technology, as well as AEC technology to refer to architecture, engineering and construction.
“The important thing to understand as it relates to our investing process is that we look at every single real estate transaction from dirt to disposition of the asset,” Aarons said. “We look at every party involved in every part of the transaction through the entire lifecycle of the asset all the way from the boiler room up to the board room within the organizations. We’re trying to invest in technology that helps professionals do their job faster, better, cheaper or looks to completely replace human professionals with artificially intelligent beings.”
Aarons further expanded by saying that when you look into PropTech and delve into the technology world that is surrounding real estate today, anything that encompasses speeding up a process using some sort of technology or innovation, would fall into the purview of PropTech. In his book, he mentioned an astonshing statistic stating that in 2016, a start-up research company tracked 1,136 PropTech companies, with a total funding of $16.99 billion. By June of 2018, the same company was tracking 1,659 PropTech companies, representing $55 billion in total funding.
With a more thorough understanding, I turned my attention to Sikaitis as it related to what exactly Avison Young is focusing on today and for the future, in reference to the new technologies that are out there.
“The first thing you have to think about is who we are and who our clients are,” said Sikaitis. “ We’re a service based company that’s mainly providing transaction based services across most facets of our business. As it relates to PropTech, a lot of what evolved in the beginning is focused on the boiler room. The core of what we want to focus on is a more efficient and transparent transaction universe.”
Sikaitis continued on to explain that what Avison Young is trying to do is make our cities more transparent which will help make our people more productive, and our clients more successful in their real estate outcomes. He explains that as a real estate professional, we have a minimum of 15 sources of information on a daily basis, but as a company, our goal is to have one centralized location where we can store this information in an efficient manner.
“Our first and foremost strategy is on the data side,” he said. “We need to get to the micro level and be able to capture every transactional element that transpires in the market place.”
As real estate professionals, we rely heavily on data when we’re dealing with our clients and other parties involved in a transaction as a way to provide facts and evidence. By starting at the micro level, as Sikaitis states, we are getting the best data possible, giving our clients the most accurate information, and keeping all parties accurately informed when completing a transaction.
Our conversation then transitioned to how properties and owners are utilizing PropTech today to better suit the tenants and users of the space.
“We’ve seen PropTech companies, that when deployed correctly, certain ones are excellent for growing revenue and certain ones are excellent for reducing expenses,” explained Aarons.
As mentioned in Aarons’ book, Rudin Management is saving fifty cents per square foot annually, equating to $5,000,000 a year across their 10-million-square-foot portfolio by implementing a system called Nantum. This includes a 24 percent reduction in total electric consumption, as well as a 47 percent reduction in steam consumption.
He brings up another point further on that a lot of real estate professionals don’t necessarily believe that spending the money on certain PropTech services results in higher rents. Aarons agrees, but explains that although rents may not increase year-over-year, the retention of that tenant may be greater because they see that the building or space that they are in, or the owner that is their landlord, is making a conscious effort to include new PropTech systems in their space, making an investment in their day to day life.
“One of our portfolio companies, for example, HQO, it certainly costs money to deploy their solution, but the thought is that you’re spending a little bit of money to make your tenants happy and you’re saving a lot of money when your giant occupier, instead of de-camping for Hudson Yards when their lease is up, they’re staying put with you,” explained Aarons.
Our conversation continued on and many interesting and fantastic points were brought up regarding the relatively new PropTech world. To put it in relative terms, I asked Aarons what “inning” we were in, in the PropTech industry and he looked at me, smiled and said, “I’m still tailgating.”
To hear more from both Zach Aaron’s and John Sikaitis’ thoughts and plans on the emerging PropTech industry, listen to the full Nelson Report Podcast available on all podcast platforms now. Hear how John was involved in the Amazon HQ2 search, how PropTech played a role in that and what the plans for Avison Young are in the future. Also listen in to see how Zach determines what PropTech companies he invests in and which don’t make the cut. Also be sure to listen to James Nelson’s radio show, “Real Estate Investing – Live From New York” each week at 7pm on the VoiceAmerica Business Network.