Ignore proptech’s advance at your own peril.
That central message emerged from an afternoon panel discussion at The Real Deal’s New York City Showcase + Forum Thursday, where the real estate industry was said to be undergoing its most profound transformation in decades.
“I think we are actually in the midst of one of the most significant shifts in and around the real estate industry than we have probably been through since the Industrial Revolution,” said Clelia Warburg Peters, managing partner at Era Ventures. “And it’s on us in this room, whether we’re investors in that innovation or participants in the incumbent industry, to recognize that that’s happening.”
R-L: Willow’s Kevin Danehy, Era Ventures’ Clelia Warburg Peters, Fifth Wall’s Brad Greiwe and The Real Deal’s Hiten Samtani (Photo by Paul Dilakian)
Only a few years ago, fundamental change in real estate, one of the last holdouts of the digital age, wasn’t a given. Owners with mostly occupied buildings felt little need to alter course. But radical shifts in consumer behavior, particularly around retail and the workplace, and the push toward a net-zero carbon economy made it inevitable.
Panelists put the fork in the road around 2017 or 2018.
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“To adapt to a changing environment, to adapt to changing consumer needs, to adapt to a changing climate — these are elements you didn’t have to deal with before, or at least they weren’t at the top of the list,” said Brad Greiwe, co-founder and partner at Fifth Wall.
Panelists emphasized a distinction between proptech that “enables” — makes existing business models easier or more efficient — and proptech that disrupts. Industry incumbents may be too focused today on the former and unprepared for the latter, which can come quickly, they said.
Armed with a record amount of capital from proptech-focused venture firms and, increasingly, generalist investors, a new generation of founders, many spawned from the ranks of proptech pioneer companies like Zillow and Trulia, have created a self-sustaining “flywheel” of innovation, according to Era Ventures’ Peters.
The recent reset in tech valuations is likely only a temporary setback, and a culling of the field will make room for more dominant players to emerge.
“As that flywheel starts to spin faster and faster, it grows out of each point,” Peters said. “You don’t want to be on the wrong side of what I think is an inevitable and very powerful push forward.”
Fundamental change was said to already be upon the brokerage business, where iBuyers and others who reduce the use of intermediaries, such as agents, could take over swaths of secondary and tertiary markets, Peters said.
So-called “neo-brokers” — tech-enabled employee-agents, rather than independent contractors — are fundamentally changing the business by serving as “quarterbacks for a bunch of other transactions,” she said.
High-performing agents, particularly in high-cost coastal cities where inventory is diverse and idiosyncratic, probably don’t need to worry about their jobs, but the very idea of the brokerage is changing and could be under threat.
“I don’t think agents will be totally disintermediated,” Peters said. “But I think there is a legitimate question about whether brokerages will be.”