Editor's note: Big returns or bust

Aug.August 01, 2018 12:00 PM

Stuart Elliott

Talk about pressure.

Venture capital money is pouring into real estate — tens of billions of dollars of it. But taking that seed money is not for the faint of heart.

In our cover story this month, we look at the New York real estate startups that are capitalizing on the flood of money coming from Silicon Valley and elsewhere.

Just be prepared to grow your business tenfold — and fast.

“It’s the most expensive capital you will ever find,” says Brad Hargreaves, founder of the co-living company Common. Early investors “are not going to be happy with less than a 10-times return.”

But since real estate represents a staggering 17 percent of America’s gross domestic product, many venture capital firms see the opportunities as limitless. And they still see real estate as a dinosaur when it comes to innovation.

“I don’t think there’s a whiteboard in San Francisco or the Valley right now that doesn’t have ‘real estate tech’ written on it,” says Ryan Simonetti, co-founder of the Manhattan-based office services startup Convene, which has raised $280 million to date.

It seems that all budding real estate companies these days must cast themselves as tech firms — WeWork, for example, doesn’t like when we write about its deals because it doesn’t want to be seen as part of the real estate industry. And you’ve got to walk the Silicon Valley walk when it comes to job titles, too — the fast-growing residential brokerage Compass recently created a “chief evangelist” position

Meanwhile, if you possess ill-gotten gains and want to launder your money, real estate can be a great way to do it. The Real Deal traveled down to D.C. last month to look at the recent efforts among legislators to change that. But it’s proving to be an uphill battle — especially with the Trump administration in office.

The scope of the problem may be much larger than is commonly understood: When the Treasury Department launched a pilot program in 2016 to identify individuals behind anonymous real estate deals, it found that 30 percent of those individuals had been previously flagged for suspicious financial activity. That’s a pretty staggering figure.

While European countries have enacted measures to increase transparency in real estate (so that shady investors can’t hide behind anonymous LLCs), the U.S. is lagging. In the meantime, our country has become the world’s second largest tax haven behind Switzerland. And lobbying activity to fight against new regulations has doubled in the past year. Be sure to read the story by David Jeans, Will Parker and Adam Piore.

Elsewhere in the issue, we have a profile of Brookfield, the publicly traded real estate firm with a massive appetite for NYC property as of late. Not only did Brookfield announce plans to take a big slice of Kushner Companies’ 666 Fifth, but it is also working on one of the most ambitious developments the Bronx has ever seen, building its megaproject right next to Hudson Yards and even buying up lots of retail Downtown (not a particularly popular asset class right now). In another sign of its heightened activity lately, news broke just as this issue was going to print that Brookfield plans to buy Forest City Realty Trust for $6.8 billion. And the company is doing it all with “a Canadian decency,” which sounds pretty refreshing these days.

We’ve also got an in-depth examination of the often-hostile environment faced by female construction workers, a story about the intense game of musical chairs being played by commercial real estate brokers switching firms and a behind-the-scenes look at the latest sale of the iconic Plaza Hotel.

Finally, enjoy a relaxing last month of summer before things kick back into full swing. September is often one of the busiest months (and sometimes the most tumultuous) for the financial markets and the real estate industry, so have fun while you can.

Enjoy the issue!

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