Commercial real estate technology startups aren’t just shaking up how the industry works – they’re also raking in plenty of cash from investors. And New York-based firms are starting to receive more of that money, seizing the momentum from rivals in the traditional tech haven of Silicon Valley.
According to a new report from real estate consulting firm RE: Tech, investors funneled $743.7 million globally into commercial real estate tech startups between the second quarter of 2012 and the second quarter of 2014. While Silicon Valley-based firms attracted $74 million of worldwide investment in the sector, the dollar volume of capital going to these firms dropped 18 percent year-over-year in the second quarter of 2014. In contrast, New York-based firms pulled in nearly $56 million of total investments in the same period, but the dollar volume of investment in these firms leaped nearly 78 percent year-over-year.
The average deal size – defined in the report as the money the startups raised in a single financing round – was just under $2.2 million in New York, compared to nearly $4.1 million in Silicon Valley. New York, however, saw 23 deals in the two-year period, compared to Silicon Valley’s 21. Together, the two markets accounted for more than a third of all deals, according to the report.
“There are more institutional landlords here in New York than anywhere else in the country,” said Ashkan Zandieh, the author of the report and a former broker at ABS Partners Real Estate who founded RE: Tech earlier this year. “Once you reach one, it’ll be easy to reach another. And if you’re a real estate startup servicing brokers, it’s easier to connect here.”
Among the city’s top magnets for investor cash: online marketplace Honest Buildings, which raised $11.5 million; cloud-based leasing portfolio management company View the Space, which received more than $7 million; 3D technology firm Floored, which pulled in $6.4 million; and “crowdsourced comps” firm CompStak, which raised $5.7 million. (The Real Deal featured many of these companies last year in a story on the industry’s hottest tech entrepreneurs.)
“Tech companies used to be exciting if they had two things — the business expertise and the tech expertise,” said Honest Buildings CEO Riggs Kubiak. Nowadays, however, Kubiak said that investors in real estate startups look for a third criteria: direct industry experience.
Combine the city’s massive financial and real estate industries with its growing tech talent pool and “New York is uniquely positioned to have that trifecta,” he said.
The report doesn’t include the money raised by startups in the real estate crowdfunding domain, such as Fundrise, which pulled in $31 million from industry giants like Silverstein Properties, and Realty Mogul, a firm that attracted more than $10 million from big investors, including Canaan Partners.
The commercial real estate technology space does appear to be in its infancy. The report states that nearly 54 percent of the investments made in the two-year period were seed money. About 32 percent of the investments were Series A investments.
CompStak CEO Michael Mandel predicted that the investments would increase in size as companies that successfully secured seed funding go back to their investors in subsequent financing rounds.
And it’s common to see cross-pollination of investors in the space. Mandel pointed out that his firm shares investors with View the Space and office space search website 42Floors, while Joshua Kushner’s Thrive Capital is a backer of both Honest Buildings and Hightower, a View the Space competitor.
“They’ve realized that the [real estate] industry is rather antiquated,” Mandel said, “and that this is a huge market opportunity.”
(Alexandra Barrett contributed reporting)