Industrial N Illinois

Bring it on: New CRE tech continues to blossom in industrial market

Bring it on: New cre tech continues to blossom,ph01

Industrial Insider

Investors are continuing to invest billions of dollars into all types of real estate. Most investors believe that RE still provides a significant amount of upside potential, especially with mortgage interest still at very low rates and valuations continuing to climb.

Some of the largest beneficiaries of this investment trend continue to be the companies that provide technology solutions to RE investors and related service providers, such as brokers, developers, lenders and title companies.

The real estate industry as a whole has continued to evolve dramatically because of the myriad of technological advances. Some of the “trends” discussed below have already had a significant impact in revolutionizing the business, and will continue to do so in ways we cannot currently imagine.

ECONOMIC SHARING

WeWork is a “global network of workspaces where companies grow together…by transforming buildings into dynamic environments for creativity, focus and collaboration.”

WeWork was started in 2010 as a place “that you join as an individual, but where you become a part of a greater ‘we’.” The company’s mission statement is “to create a world where people work to make a life, not just a living.”

The company offers workspaces in many different packages, from on-demand desks to full-time private offices for small businesses all at a daily, weekly or monthly fee. Conference rooms, coffee and water bars, daily cleaning, mail/package services and 24/7 access provide maximum working flexibility to its members.

As of 2015, WeWork investors included J.P. Morgan Chase, T. Rowe Price, Goldman Sachs and Boston Properties, to name a few, and it was named among the “most innovative companies” of 2015 by Fast Company magazine.

The company currently has plans to expand to every continent, except Antarctica, by 2017-18. WeWork currently occupies space in 196 buildings in 51 cities globally. WeWork offers a Broker Partnership program whereby brokers can introduce their clients to a WW office space, and receive a commission percentage based on the length of the membership commitment, including renewals and expansions.

GOOGLE EARTH

The Google Earth computer program displays satellite imagery of the Earth’s surfaces, and superimposes aerial photography and GIS (geographic information system) information. Google Earth was initially released in 2001 by Keyhole, Inc., and Google purchased the company and released its app in 2005.

Google Earth applications integrate well with real estate functions, including custom mapping, modeling and investigating building and site characteristics online. It has now become possible to “fly” to a property from your computer and use measuring tools to determine the size of a building or site, and see a 3D photo of the property from street view.

You can also obtain some preliminary information with the clickable icons for property details, demographics, individual neighborhoods and nearby roads. This resource has become a staple in real estate operations across the globe. Many real estate offices have now equipped their conference rooms with large-screen TVs and the ability to make presentations to clients and/or do research utilizing Google Earth in a group setting.

ONLINE INVESTING

Crowdfunding can be defined as “collaborative funding via the web,” and this type of investment activity is an emerging market, albeit initially hindered by new SEC regulations. Regulation Crowdfunding (Reg CF) went into effect in mid-2016, and equity crowdfunding investments have roughly been doubling each year since 2012.

According to the Massolution Crowdfunding Industry Report, the average individual investment has been just under $1,000, and most campaigns have just more than 300 investors. The average amount raised is between $225,000 and $230,000, and it takes an average of 45 days to successfully raise the targeted investment amount.

Some of the most successful CF platforms include Wefunder, StartEngine, Kickstarter and Indiegogo. Reg CF was initiated for the purpose of stimulating the growth of small businesses by adding jobs to the economy. The World Bank Report estimates that global investment through crowdfunding will reach $93 billion by the year 2025.

IoT (INTERNET OF THINGS)

The IoT is defined as “a global infrastructure for the information society, enabling advanced services by interconnecting (physical and virtual) things based on existing and evolving interoperable information and communication technologies.”

The IoT enables objects to be controlled and sensed remotely across existing network infrastructures, creating opportunities for direct integration of the physical world into computer-based systems. This results in improved efficiencies, economic benefits and accuracy with reduced human intervention. Through a variety of devices and sensors, useful information is collected and then technology enables the autonomous flow of the data between other devices. Some current examples include home automation, medical functions (i.e. DNA analysis), and search and rescue operations. Municipalities are able to provide more efficient services, reduce operating costs and manage city assets.

The Industrial Internet of Things (IIoT) is in its embryonic phase of implementation in manufacturing industries. Experts anticipated that the IIoT in manufacturing may potentially generate so much business value that it could eventually lead to the fourth industrial revolution - the so-called Industry 4.0.

What would the benefits be for a company to enable the potential of an Internet connection in manufacturing? A connection to the Internet allows access to IIoT data and supporting applications from virtually any device, any time, from any place in the world. Functional managers can check on specific machines, schedules, inventories, etc. at any time, in full detail, no matter where they are.

Executives can drill down to study situations and analyze performance and results when at home or on the go. More importantly, perhaps, IIoT with Internet connectivity can provide hands-on visibility and control capabilities for remote locations, subcontracted manufacturing plants or suppliers’ factories. It has been estimated that successful companies will be able to increase their revenue through the internet of things by creating new business models and improve productivity, enhance analytics for innovation and transform workforces. The potential for growth by implementing the IIoT is estimated to generate $12 trillion of global GDP by the year 2030.

DATABASE INFORMATION, ANALYTICS

The CoStar Group was founded in 1987 to provide information, analytics and marketing services to the commercial real estate industry globally. The company offers online information “that enables clients to analyze, interpret and gain unmatched insight on commercial property values, market conditions and current availabilities” for sale and lease.

CoStar Group became a public company in 2012. It subsequently acquired LoopNet in 2014 and Apartment Finder in 2016. A large majority of real estate service professionals utilize the CoStar databases as part of their overall service package to provide a variety of information to clients, and it has already had a positive impact on the ability to turn-around comprehensive packages of information in a relatively short timeframe.

The Zillow Group defines itself as a media company that primarily generates advertising revenue from its websites. Zillow was founded in 2006 by two former Microsoft executives who also founded Expedia, Rich Barton and Lloyd Frink. The Zillow Newspaper Consortium was formed in 2009 as a partnership to lend its search engine to the web sites of 200-plus U.S. newspapers. In 2011, Zillow and Yahoo! Real Estate created an exclusive partnership to implement the largest real estate advertising network on the web.

This group clearly has chosen to focus one of its business strategies on real estate, as other recent acquisitions include Mortech (mortgage technology); Buyfolio (real estate shopping and collaboration platform); StreetEasy (NYC residential database); HotPads and Naked Apartments (apartment rentals); and, Trulia (national residential database). The stock of this public company (Z/ZG) is up more than 42% in the last five years, and they have made a heavy bet on real estate as part of their long-term business plan.

It is hard to imagine that the real estate industry has been transformed so dramatically in such a short time frame, but based on the information above; it appears that we are only in the initial stages of this transformation, and the most exciting developments may be yet to come!

Elise Couston is senior managing director with Chicago’s Newmark Knight Frank.