Investment in Real Estate Tech Gives Consumers More Power and Disrupts Established Industry

Tech for Real Estate Gets Investor Dollars

One way to gauge the growth of an industry or business sector is to look at recent investments. Investors always go where they think the money is or believe there’s an opportunity. Right now, tech for real estate is a significant focus for investors as the industry has been left largely unchanged for decades in a rapidly changing and fast-paced technological world.

PropTech, as it’s known, is quickly expanding thanks to new startups and innovations backed by investor interest. A few eye-opening statistics exemplify just how much interest there is in real estate tech investment and supporting startup infrastructure:

  • The number of real estate tech startups grew from 176 in 2008 to 1,274 by 2017.
  • Between 2008 and 2017 investments in real estate tech startups ballooned from $2.4 billion to $33.7 billion.
  • $660 million in venture capital funding went into PropTech in July of 2018, up from $654 million in June.
  • 46% of investors are willing to make pre-seed investments in real estate tech startups. 75% are willing to offer seed and Series A investments.

Real Estate Tech Startup Infrastructure is on Solid Ground With Big-Time Investors

These are global stats, which further support the fact that real estate tech isn’t just a trend. The Mid-Year 2018 Global PropTech Confidence Index also increased to 8.7 out of 10 up from 8.0 at the end of 2017. A key finding of the index report was that 96% of investors plan to invest as much or more in PropTech in the coming 12 months.

The dramatic increase in innovation and investment signify there are major shifts happening in the real estate industry as a whole. It’s an indicator for builders and developers that real estate tech can’t be ignored and needs to be embraced. Furthermore, builders need to leverage new technology if they want to meet the demand for an additional 100 billion square feet of living space by 2030. They must understand how technology, both off site and online, is and will transform workflows, business models, production, price, growth and the entire selling process.

Many initial rounds of investment for PropTech startups is intended to put infrastructure on a solid foundation. Founders and developers can have an amazing idea that could revolutionize the real estate industry, but infrastructure is needed to make it a reality. And building infrastructure requires capital.

In the last few years, investors have shown more willingness to jump in early to fund real estate tech startups in the initial phases. For example, in 2017 Reali raised $9 million in Series A funding. The stats mentioned above prove this isn’t an isolated case.

Organizations like MetaProp are facilitating the early investment process. MetaProp’s Accelerator Program was launched in 2015 with the express purpose of helping real estate tech startups secure initial seed investment. The program introduces startups to investors, and MetaProp advisors provide guidance for fundraising.

Another notable development sure to enhance real estate tech investment is the influence of technology CEOs. Peter Flint is just one example. He was the founder of Trulia and is now the managing partner of venture capital firm NFX. There he oversees investment in real estate tech.

His article, 3 Trends Defining the Future of Real Estate, notes advancing technology that puts consumers more firmly in the driver’s seat thus leading to alternate transaction models in the real estate field. He believes outside startups will continue to revolutionize the antiquated home buying process and the way consumers discover and purchase their homes will be disrupted and new, alternatives will emerge.

Likewise, big-time real estate firms are eyeing PropTech startups for investment purposes. Tyler Henritze, head of U.S. real estate acquisitions for Blackstone, the world’s largest real estate private equity firm, stated earlier this year that Blackstone, “will be open to invest [in PropTech firms] when the opportunity brings strategic relevance to our global business and makes us better and smarter real estate owners and asset managers.” VTS is just one of the PropTech firms that have received financial backing from Blackstone.

Other real estate industry leaders have also announced big plans to invest in tech:

  • JLL used $100 million to start the JLL Spark Global Venture Fund for tech investments.
  • Colliers International has initiated the Colliers Proptech Accelerator to find tech startups.
  • Brookfield Asset Management created a venture capital unit to invest $200-300 million in real estate tech over the next three years.

Industry insiders/investors like Chris Mayer predict that construction solutions will be the next major focus for startups and investors. Increased productivity and efficiency in construction is the primary target for tech innovations. The groundwork has already begun with 3D printing and autonomous construction vehicles.

A MetaProp report supports this prediction. MetaProp’s research revealed the most interest is in smart building technology. It’s the largest category with 40% of investors eyeing it for investments. The second highest category, which captured the interest of 18% of investors, is architecture, engineering and construction.

Home Sellers and Buyers Are Driving Change Too

So why are investors so sure real estate tech is a good bet? A lot of that confidence comes from consumer demand. Today’s home buyers and sellers are more tech-savvy than ever before, and they’re eager to see the antiquated home buying process get an update.

Many of the new PropTech service providers that are directly competitive with traditional brokerages still charge fees, which is how they generate revenue and attract investors. The difference is they promise to make the process more transparent and streamlined. Real estate tech startups like Ribbon and myHouseby are all about speed, convenience, and efficiency.

It’s not surprising that 36% of the investors who contributed input for the Mid-Year 2018 Global PropTech Confidence Index reported higher than expected customer growth. The reality of the situation is consumers are asking for tech-driven services and are more than willing to give them a try.

There are many PropTech startups that are already providing value and beginning to change the course of the industry. As investment in PropTech continues, buyers and sellers will be offered a greater variety of high-tech tools and solutions that make home transactions easier to complete than ever before.

The real estate industry must follow suit by looking ahead and adopting next-generation technologies in order to build better homes, control construction costs, move faster and create smarter homes. The emerging technology will also help builders continue to understand the consumer acquisition needs of today’s home buyers, which are influenced by changing tech, consumers having more control, enhanced experiences and the expectation of being able to personalize goods, including homes.

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