PropTech 3.0: the future of real estate

Transcription

1 University of Oxford Research PropTech 3.0: the future of rea estate PROPTECH 3.0: THE FUTURE OF REAL ESTATE

2 PROPTECH 3.0: THE FUTURE OF REAL ESTATE PropTech 3.0: the future of rea estate Right now, thousands of extremey cever peope backed by biions of doars of often expert investment are working very hard to change the way rea estate is traded, used and operated. It woud be surprising, to say the east, if this burst of activity et s ca it PropTech does not ead to some significant change. No doubt many PropTech firms wi fai and a ot of money wi be ost, but there wi be some very successfu survivors who wi in time have a radica impact on what has been a sow-moving, conservative industry. How, and where, wi this happen? Underying this huge capitaist and socia endeavour is a cash of generations. Many of the startups are driven by, and aimed at, miennias, but they often ook to babyboomers for money - and sometimes for advice. PropTech 2.0 is aso engineering a much-needed boost to property market diversity. Unike many traditiona rea estate businesses, PropTech is attracting a diversified poo of taent that has representation from different regions of the word and entrepreneurs from a highy diverse career and education background. Given the difference in background between the estabishment and the drivers of the PropTech wave, it is not surprising that there is some disagreement about the eve of disruption that PropTech 2.0 wi create. In this research we interviewed over 50 rea estate professionas, entrepreneurs and capita providers. From one side, we heard that none of these startups know what they are doing and that young entrepreneurs misguidedy regard rea estate as a sure thing. From the other, we heard that rea estate peope are not good at strategy and are determined to protect inefficient fee-earning practices seems to mark a turning point. PropTech 2.0 has been buiding such mass and momentum that it wi change the word. But rea estate is a sow moving asset cass, and the rea estate industry is highy conservative. How wi this pay out? This, the Said Business Schoo Oxford s first rea estate research report, maps this emerging sector and focusses in particuar on the impact of tech change on the character of this enormous asset cass. Acknowedgements I woud ike to thank the founding donors to the Oxford Rea Estate Initiative (Forbes Eworthy of Craigmore and The Centre for Studies in Property Vauation and Management Trust) for their financia support. I woud aso ike to acknowedge the many contributions from the venture capita investors, entrepreneurs and consutants I interviewed. I woud ike to express my sincere thanks to a interviewees and contributors. In particuar, I woud ike to thank Dan Madriga for materias incuded in Chapter 4, Yue Zhang for his work on Chapter 5 and Simon Tucker for his detaied contribution to Chapter 7. Mary Criebardis of PiLabs and Roberto Charve were aso extremey PROPTECH 3.0: THE FUTURE OF REAL ESTATE 1

3 hepfu in sharing their ideas and heping to deveop my own. I woud aso ike to thank Josie Baum, Jane Fear and Robert Charve for their very hepfu edits. Any remaining errors (and I am sure there wi be some) are my own. Notes Materia from interviews is quoted verbatim in the text. Verbatim quotes and materias taken from websites are set in itaics. Where interview materias are unattributed, this is at the request of the interviewee. The views are of the interviewees and shoud not be assumed to be the views of the companies they work for. I shoud acknowedge my persona interest in the foowing tech businesses: Property Funds Research, Rea Estate Strategies, Source Centra and Infabode. My view of these businesses may not be objective. Andrew Baum Oxford Apri PROPTECH 3.0: THE FUTURE OF REAL ESTATE

4 PROPTECH 3.0: THE FUTURE OF REAL ESTATE Contents Chapter 1..5 InfoTech, FinTech and PropTech beneath the buzzwords In this chapter we attempt to come up with an initia definition of PropTech and its scope 1.1 Introduction: PropTech is about information, transactions and management 1.2 Background: the FinTech revoution 1.3 PropTech sectors the verticas Chapter 2.10 From PropTech 1.0 to PropTech 2.0 In this chapter we describe the drivers behind the first PropTech wave of , describe the conditions which ed to the current PropTech 2.0 wave, and examine the imitations of rea estate as an asset cass which are driving much of this activity 2.1 The background to PropTech PropTech PropTech The imitations of rea estate as an asset cass Chapter 3.16 PropTech 2.0 the new wave In this chapter we attempt to estimate the scae of the PropTech 2.0, and by reference to the new startups we test, improve and finay estabish our cassification system for PropTech 3.1 Information sources venture capita, acceerators, researchers and bogs 3.2 Sizing the market 3.3 Cassifying the PropTech segments Chapter 4.32 Smart rea estate In this chapter we describe the smart buiding sector, meaning buidings which support tech patforms, and buidings that use tech patforms 4.1 The smart buiding sector is founded on the contro and efficient management of rea estate 4.2 Sustainabiity and energy the background 4.3 Definitions 4.4 Buidings that use tech 4.5 Smart cities 4.6 Buidings that support tech patforms 4.7 On-site energy suppy Chapter 5.40 The sharing economy In this chapter we describe the sharing economy, which is a movement designed to enabe the sharing of the use of assets. The rea estate sharing economy faciitates the sharing of the use of rea estate assets or space through tech patforms 5.1 The sharing economy is founded on transactions enabing the sharing of the use of space 5.2 Definitions 5.3 The shared economy and rea estate PROPTECH 3.0: THE FUTURE OF REAL ESTATE 3

5 5.4 Short term housing renta, co-iving and hospitaity 5.5 Shared workspace and co-working 5.6 Other rea estate shared economy sectors 5.7 China the emerging market Chapter 6.51 Rea Estate Fintech In this chapter we describe Rea Estate FinTech, meaning the enterprise sector which supports (sae or easing) transactions of rea estate assets. 6.1 Rea Estate FinTech faciitates transactions in the capita markets 6.2 Market size 6.3 Research and information businesses 6.4 Residentia saes and etting engines 6.5 Crowdfunding and equity raising patforms 6.6 Debt and mortgage tech patforms 6.7 Commercia property easing and portfoio management 6.8 Disposa and secondary market exchanges 6.9 China the emerging market Chapter 7.65 PropTech 3.0: Bockchain and artificia inteigence In this chapter we expain the background to bockchain and distributed edger technoogy, and why it might have a significant impact on goba rea estate trading 7.1 Bockchain is coming get ready 7.2 An expanation of bockchain technoogy 7.3 How coud bockchain appy to rea estate? 7.4 Facing the future Chapter 8.75 Where is this going? In this chapter, we summarise our findings. How wi PropTech 2.0 shape the future of the rea estate industry? 8.1 The PropTech 2.0 wave 8.2 The context: big, or exogenous, tech 8.3 A reminder: PropTech verticas and horizontas 8.4 Smart rea estate 8.5 The shared economy 8.6 Rea estate FinTech 8.7 Reaction 8.8 What probem wi be soved? 8.9 Fina thoughts 4 PROPTECH 3.0: THE FUTURE OF REAL ESTATE

6 Chapter 1 Chapter 1 InfoTech, FinTech and PropTech beneath the buzzwords In this chapter we attempt to come up with an initia definition of PropTech and its scope 1.1 Introduction: PropTech is about information, transactions and management The internet and mobie teephony have enabed a boom in technoogy patforms appied to neary a areas of our ives jobs, homes, education, heath, eisure, finance and even romance. This has happened through the faciitation of three different activities. These are as foows. Information provision Wikipedia, the BBC website and on-ine newspapers are exampes of on-ine information engines. Initiay, the internet, mobie teephony, socia networking and e-mai were a about information, hence the previousy ubiquitous use of the term infotech. Transactions Information is the key input into the due diigence phase of a transaction. Shopping on-ine was therefore the natura next phase of technoogy deveopment. Paypa, Amazon and on-ine banking are exampes of internet and mobie teephony being used as a medium for the exchange of money, goods and services. Management and contro PCs, tabets and mobie phones are potentia dashboards for controing eectronic functions. The Internet of Things (IoT) aows objects to be measured (information provision) but aso sensed and/or controed remotey across the existing network infrastructure, creating opportunities to adjust or turn systems on or off remotey. As an exampe, Googe s 2014 acquisition of Nest to create a Googe IoT division was seen at the time as a significant moment. Aso, the remote contro of driveress cars and deivery vehices, pus bots offering a range of services, are setting in motion many thought processes imagineering the ikey future of ogistics and retai rea estate. PROPTECH 3.0: THE FUTURE OF REAL ESTATE 5

7 InfoTech, FinTech and PropTech beneath the buzzwords 1.2 Background: the FinTech revoution The FinTech industry in particuar, onine payment systems, crowdfunding equity and debt patforms and onine exchanges provides the foundation for a arge part of the PropTech 2.0 revoution. The deveopment of inteigent contro engineering is another pank. Much reevant work has aready been done in other paces and rea estate can, as usua, be a ate entry to the party, using the essons earned from what works and what does not in the wider word of banking and engineering. In this report, we set out to contribute toward a better understanding of PropTech and Rea Estate FinTech. Ideay, the report woud deveop an authoritative cassification system for the thousands of PropTech startups, SMEs, arger mature companies and unicorns which appear to connect the word of technoogy with the word of rea estate. Unfortunatey, however, this is unikey to be easy or uncontroversia. This is party because the word of rea estate defies authoritative cassification. (To what extent does it incude infrastructure, cities, forests?) It is aso because the reationship between FinTech, Rea Estate FinTech and PropTech is ess than obvious or uncontroversia. In the 2015 Word Economic Forum report The Future of FinTech (produced in cooperation with Saïd Business Schoo at the University of Oxford) FinTech is defined as the use of technoogy and innovative business modes in financia services. KPMG and CB Insights The Puse of Fintech Report (2016) suggests that whie FinTech covers a diverse array of companies, business modes and technoogies, companies generay fa into severa key verticas (industry sectors), incuding: Lending tech: Lending companies, primariy peer-to-peer ending patforms, as we as underwriter and ending patforms using machine earning technoogies and agorithms to assess creditworthiness. Payments/biing tech: Payments and biing tech companies providing soutions ranging from the faciitation of payment processing to subscription biing software toos. Persona finance/weath management: Tech companies that hep individuas manage their persona bis, accounts and/or credit as we as manage their persona assets and investments. Money transfer/remittance: Money transfer companies incuding peer-to-peer patforms to transfer money between individuas across countries. Bockchain/bitcoin: An emerging technoogy that uses distributed databases maintained by the users, aowing for a record and transfer of digita assets across a participants in the network without a third party or exchange. Institutiona/capita markets tech: Companies providing toos to financia institutions such as banks, hedge funds, mutua funds or other institutiona investors. These range from aternative trading systems to financia modeing and anaysis software. Equity crowdfunding: Patforms that aow a coection of individuas to provide monetary contributions for 6 PROPTECH 3.0: THE FUTURE OF REAL ESTATE

8 Chapter 1 projects or companies provisioned in the form of equity. InsurTech: Companies creating new underwriting, caims, distribution and brokerage patforms, enhanced customer experience offerings and software-as-a-service to hep insurers dea with egacy IT issues. From this ist the foowing is cear. FinTech coud be seen as a very good guide to where a ot of PropTech activities wi be directed. A of the above categories are reevant to rea estate, and there are exampes of PropTech firms operating in a of these industry verticas. From this point onwards, we ca this Rea Estate FinTech. PropTech is not a subset of FinTech. For exampe, technoogy designed to make a buiding smart through data coection and anaysis, and responsive through contro mechanisms, is not FinTech. In addition, FinTech, as described by the categorisations above does not capture what is caed coaborative consumption, the sharing/shared economy or the peer economy, in which owners rent out something they are not using, such as a house or office (or car, or bicyce) to a stranger using these peer-to-peer services. Airbnb is the category kier here: this is not quite FinTech, but it is ceary a PropTech venture. Figure 1.1: PropTech and FinTech Smart rea estate PropTech Rea estate FinTech FinTech Shared economy Hence our Venn diagram (Figure 1) shows PropTech and FinTech to be separate groupings, sharing one overap which is Rea Estate FinTech. Smart buidings (or, more generay, smart rea estate) and the shared economy are exampes perhaps the best or ony exampes of non-fintech PropTech sectors, abeit subject to the possibiity that short term eases of office space offered by, for exampe, WeWork, wi have some PROPTECH 3.0: THE FUTURE OF REAL ESTATE 7

9 InfoTech, FinTech and PropTech beneath the buzzwords connection to Rea Estate FinTech. (The shared economy aso works for the temporary use of persona, rather than rea, property, so some shared economy activity is not PropTech). There are three PropTech sub-sectors (verticas), and three drivers (horizontas). The verticas are Rea Estate FinTech; Shared Economy; and Smart Rea Estate. The horizontas are information; transactions (or marketpaces); and contro. Not a segments seem ikey to be popuated. Tabe 1.1: PropTech verticas and horizontas Rea Estate FinTech Shared Economy Smart Rea Estate Information yes yes yes Transactions/marketpace yes yes Management/contro yes We wi test this taxonomy by reference to the many current PropTech ventures in Chapter 3. Before proceeding, however, we need to suggest working definitions of these three PropTech vertica subsets. 1.3 PropTech sectors the verticas Smart Rea Estate describes technoogy-based patforms which faciitate the operation and management of rea estate assets. The assets can be singe property units or entire cities. The patforms may simpy provide information about buiding or urban centre performance, or they may directy faciitate or contro buiding services. This sector supports rea estate asset, property and faciities management. We discuss this vertica in Chapter 4. The Shared Economy describes technoogy-based patforms which faciitate the use of rea estate assets. The assets can be and or buidings, incuding offices, shops, storage, housing and other property types. The patforms may simpy provide information for prospective users and seers of space, or they may more directy faciitate or effect rent- or fee-based transactions. This sector supports the rea estate occupier markets. We discuss this vertica in Chapter 5. Rea Estate FinTech describes technoogy-based patforms which faciitate the trading of rea estate asset ownership. The assets can be buidings, shares or funds, debt or equity; ownership can be freehod or easehod. The patforms may simpy provide information for prospective buyers and seers, or they may more directy faciitate or effect transactions of asset ownership or eases with a (negative or positive) capita vaue. This sector supports the rea estate capita markets. We discuss this vertica in Chapter 6. What reated patforms or businesses does this report excude from the PropTech universe? Primariy, we 8 PROPTECH 3.0: THE FUTURE OF REAL ESTATE

10 Chapter 1 excude technoogy which supports the design and/or construction of buidings or infrastructure. In 2016, CB Insights tracked 31 Construction Tech (ConTech) startups. The emerging (ConTech) sector, newer than PropTech, is increasingy a defined area for investment by VC firms such as Brick and Mortar Ventures (San Francisco). Defined by this VC as a sector focussed on the buit word, invoving architects, engineers, construction firms and faciities managers, ConTech bumps into and at the same time underpins PropTech. The first unicorn in this area, ProCore, and newer firms such as Pangrid, Hoobuider, Miceo, Kahua and Rhumbix, focus on data-driven efficiencies across the construction process, such as recording and benchmarking productivity, faciitating the exchange of information between main and sub-contractors, sharing pans and simpy repacing paper-based reporting in a huge industry whose IT spend is beieved to be beow 1% of tota costs. Excuding undiscosed deas, $2.2B was spent on acquiring companies in the Construction Tech sector in This figure is six times the tota funding secured by the sector ($357M in 68 rounds). Out of the eight M&As reported in 2016, five of the acquired companies beonged to either project management or marketpace segments, traditionay the most funded business modes in Construction Tech. Iron Panet (acquired by Ritchie Bros, $750M), Textura (acquired by Orace, $663M), and ConstructConnect (acquired by Roper Tech for $632M) emerged as the top M&A exits in Despite an overa dip in tota funding, companies in the buiding tech (from $26M to $38M) and visuaisation (from $11M to $34M) space saw a spike in YoY tota funding. Tracxn bog, February 2017 Athough we may see ater that investors incude the ConTech vertica in their definition of PropTech, and the overap with smart buiding tech is very obvious (the distinction between the operation, refurbishment or construction of a buiding might be a fine one), we regard this sector as being adjacent to but not part of - the universe we are concerned about. By doing so, we are refecting the ceave between the rea estate and buit environment industries. This distinction may we disappear over time. Finay, we shoud aso differentiate between endogenous or interna PropTech, as defined here, and the broader impact of exogenous technoogy deveopments such as autonomous vehices and artificia inteigence on buidings, cities and the entire buit (or rura) environment. Bockchain is an exampe of exogenous tech whose impact on rea estate transactions coud be revoutionary. This PropTech is covered in Chapter 7. We return to our broader themes in Chapter 8, when we wi review the tension between the nature of rea estate as an asset cass and the instant nature of a tech-faciitated transaction; between ambitious miennias and conservative baby boomers suddeny confronting each other inside the rea estate industry; and between a narrow view of PropTech and a wide view of the impact of technoogy of rea estate and ives. Next, in Chapter 2, we wi trace the forerunner of the current PropTech boom, which we wi ca PropTech1.0, nested in what was caed the Dotcom boom of the ate 1990s. PROPTECH 3.0: THE FUTURE OF REAL ESTATE 9

11 PropTech 1.0 to PropTech 2.0 Chapter 2 From PropTech 1.0 to PropTech 2.0 In this chapter we describe the drivers behind the first PropTech wave of , describe the conditions which ed to the current PropTech 2.0 wave, and examine the imitations of rea estate as an asset cass which are driving much of this activity 2.1 The background to PropTech 1.0 Rea estate is a very arge - the argest - asset type and one of the ast to adopt technoogica change and the innovation that tech can bring. This shoud present a massive area of opportunity for entrepreneurs. The opportunity is driven not ony by the size of the industry and its ack of tech adoption, but aso by industry practices pagued by inefficient processes and unnecessary transactiona costs defended by sef-interested professionas and institutions. Rea estate is not known as an industry which readiy embraces change. The nature of the asset cass, which comprises arge heterogeneous assets traded in a argey private market, is perhaps a good reason for this. Homes may be too important a part of a private portfoio to take any risks with the process whereby it is traded, hed or vaued. It may aso be the case that there is an agency probem: the professiona advisors that dominate the transaction process ceary have an interest in protecting their income sources, so chartered surveyors, brokers and awyers might a be expected to resist tech-driven innovations designed to disrupt their work. Nevertheess, in current times we are witnessing a batte for market share between traditiona advisors and a discernibe second wave of technoogy-based innovation. The first wave (PropTech 1.0) took pace in the US, UK and esewhere in the mid-1980s. This was a to do with data and computing power. The invention of computing in the 1930s and 1940s and the subsequent 40 years of deveopment made itte or no impact on property markets. The key driver of change was the introduction of the persona computer in the ate 1970s/eary1980s. The Appe II and the twin foppy disc IBM PC XT (introduced in 1983) both supported spreadsheet appications (VisiCac and Supercac) before Lotus and, ater, Exce became industry standard patforms for the organisation and anaysis of data. Aongside the deveopment of the persona computer (PC), the mainframe computer was becoming more and more efficient and affordabe. It was in the mid to ate 1980s that this started to have an impact on property practice. The growth of indirect private fund vehices with different styes, debt and asset-backed securitisation, the arriva 10 PROPTECH 3.0: THE FUTURE OF REAL ESTATE

12 Chapter 2 of REITs, the growth of a derivatives market a of these deveopments fed on and demanded a much more quantitative and research focussed approach to performance measurement and investment strategy; and the rapid gobaisation of the rea estate industry in terms of investors, sources of capita and advisory services substantiay reduced the insuarity of the industry and brought increased demands for a more research-ed product. Growing data avaiabiity enabed more finance-grounded quantitative modeing, and vauation software and property and portfoio management systems became computer and technoogy based. Exce became an essentia rea estate too. Aongside these parochia deveopments, e-commerce had become increasingy popuar in the wider word in the 1980s, foowed by the internet and e-mai in the 1990s. There was no internet access or ease of transfer of fies via emais unti the ate 1990s, by which time internet and e-mai use had faciitated mass data storage and anaysis. Tabe 2.1 describes the growing voume of internet traffic in the US over this decade. The tipping point came in 1995 and 1996, after which the word changed. The dotcom boom, associated with the years , and bust, , were the perhaps inevitabe resut. Market paces such as Craigsist (US) were estabished, and print market paces such as Exchange and Mart and (UK) began the transition from print to web, seing rea estate aongside househod goods and hoidays. Tabe 2.1: Traffic on US internet backbones, (terabytes per month) not known , ,500-4, ,000-8, ,000-16, ,000-35,000 Source: Coffman and Odyzko, 2000 PROPTECH 3.0: THE FUTURE OF REAL ESTATE 11

13 PropTech 1.0 to PropTech PropTech 1.0 Property Market Anaysis (PMA) was founded in London in 1982 to deveop and se the outputs of PC-driven property research. Using mainframe computing, NCREIF was estabished in 1982 to estabish a property index for the US going back to 1978 and the Investment Property Databank (IPD) was founded in 1985 to organise and anayse data describing the performance of commercia property in the UK. In 1987 Prudentia in London and (the whoy unconnected) Prudentia in New York both set up the first institutiona property research teams on either side of the Atantic, using PCs. In the construction technoogy word, 1982 saw the aunch of Autodesk, an American and now mutinationa software corporation that makes software for the architecture, engineering and construction, industries empoying computer-aided design or CAD. Argus, which has become a eading goba provider of software and soutions for the anaysis and management of commercia rea estate investments, was first estabished in the mid to ate 1980s. Yardi, another eading provider of software soutions for the rea estate industry, was estabished in CoStar, a provider of information, anaytics and marketing services to the commercia rea estate industry in the United States, Canada, the United Kingdom, France, Germany and Spain, was estabished in These companies estabished market eading positions which they continue to hod, aongside the ess imited Exce, in These dominant technoogy-based businesses estabished themseves by providing apparenty comprehensive cosed-form enterprise services, often requiring significant and expensive customisation by the cient. They were not open, or coaborative. The dotcom and teecom coapse of the eary 2000s triggered by investors reaising that the transmission capacity in pace and under construction greaty exceeded the demand for traffic - aowed the hoovering up of faied competitors and the growth of market share. This period 1980 to was the period of PropTech 1.0. The bridge between PropTech 1.0 and PropTech 2.0 appears to be the on-ine residentia market sector. For exampe, in the UK Rightmove was started in 2000 by the top four UK estate agencies at the time (Countrywide, Connes, Haifax and Roya and Sun Aiance). Zoopa aunched in 2007, foowed by OnTheMarket in In the US, Truia was founded in 2005 and Ziow aunched in 2006; Truia was acquired (for $2.5bn) by Ziow in Given the recent activity in residentia tech startups (see Chapter 3), we regard these activities as ate stage PropTech 1.0. PropTech 2.0 has continued the eary PropTech 1.0 focus on residentia because it is a homogeneous rea estate asset type with more pubic information (prices and rents), and because it is a huge asset type that everyone interacts with, presenting entrepreneurs with cear opportunities to disintermediate existing information providers and market paces. 12 PROPTECH 3.0: THE FUTURE OF REAL ESTATE

14 Chapter PropTech 2.0 We are now seeing PropTech 2.0, a new exposive wave of innovation, investment and entrepreneuria activity. Its origins ie in frustrations concerning the arge, unmoving, iiquid asset cass and the vested interests of the business which contro it, pus (according to Steve Weika at MIT) unprecedented breakthroughs in technoogy coud computing, eaner coding, mobie devices, sensors and much ower costs, pus ubiquitous connectivity driven by broadband, Wi-fi and 4G teephony. There is new demand from an increasingy tech knowedgeabe and famiiar mobie rea estate workforce. Innovation appears to be inversey correated to desktime, and the workforce is increasingy sef-empoyed (40% by 2020) and mobie. As the PC and ater the internet faciitated the growth of PropTech 1.0, PropTech 2.0 has been reeased by e- commerce, socia networking, open-source software and the muti-patform word. Taking these in order, Amazon has driven a revoution in commerce, diverting activity from shops to e-commerce in huge quantities. Why not se rea estate via an e-commerce patform using customer feedback as an aternative to professiona advice? Facebook has created a system of networks that have a scae and goba reach we beyond the capacity of any rea estate broker. Why not capture onine networks for the marketing of rea estate? Opensource software has aowed cheap access to previousy very expensive technoogy soutions (for exampe, on ine payment processes). Why not buid a website that acts as a hanger for these processes and data and buid a porta for rea estate services? And why not distribute these products and services via PCs, tabets and (given that there are as many ce-phone subscriptions as there are peope on this earth) smartphones, and through a sateite cuture of appications (apps)? Accompanying these goba earthquakes, trade bodies such as PISCES and ater OSCRE set standards for the exchange of what had been idiosyncratic property data edgers. Systems such as Yardi and Argus that were designed not to tak to each other ( spaghetti bas of knots and tanges ) began to aow coaboration and compatibe appications to be buit. Zoopa has aunched an open appication programming interfaces or API to aow deveopers to create appications using oca data on their sae and renta istings, using 15 years of sod price data. (Appication programming interfaces aow coaboration between sites, whie driving traffic to your own website and not osing that eyeba ). IPD deveoped from a UK business to a provider of information in a regions of the word. Such advances enabed the PropTech 2.0 innovator to move into an industry whose barriers were being sowy dismanted. PropTech 2.0 is happening because the answers to these questions appear obvious, whie the rea estate industry continues to be characterised by its imits. Wi the nature of the asset cass utimatey frustrate the innovators? In retrospect, PropTech 2.0 wi be judged to have been a highy successfu revoution ony if it reeases the asset cass and the industry which surrounds it from its imits. Wi PropTech be as enduring as the industry on which it has buit its foundations? Can it make fundamenta changes to the way property is hed, traded or vaued? PROPTECH 3.0: THE FUTURE OF REAL ESTATE 13

15 PropTech 1.0 to PropTech The imitations of rea estate as an asset cass The foowing anaysis of rea estate s imits as an asset is taken from Andrew Baum s Rea Estate Investment (Routedge, 2015). As with a equity-type assets, the performance of property is utimatey inked to some extent to the performance of the economy, and ike a assets its performance is inked to the capita markets. The economy is the basic driver of occupier demand, and, in the ong term, investment returns are produced by occupiers who pay rent. However, in the shorter term - say up to 10 years - returns are much more ikey to be expained by reference to changes in pricing, or capitaisation rates, which are in turn driven by required returns. Required returns do not exist in a property vacuum but are instead driven by avaiabe or expected returns in other asset casses. As required returns on bonds and stocks move, so wi required returns for property, foowed by property capitaisation rates and prices. Nonetheess, history shows that property is a true third asset, distincty different from equities and bonds. The direct impication of property being different is its diversification potentia, and hence the justification for hoding it, within a muti-asset portfoio. Generay, the impact of the rea economy and the capita markets on the cash fow and vaue of rea estate is different from the impact on stocks and bonds, and is distorted by severa factors. These are as foows. 1. Property is a rea asset, and it wears out over time, suffering from physica deterioration and obsoescence, together creating depreciation. 2. The cash fow deivered by a property asset is controed or distorted by the ease contract agreed between owner and occupier. US eases can be for 3 or 5 years, fixed or with pre-agreed annua upifts. Leases in continenta Europe may be 10 years ong, with the rent indexed to an infation measure. Leases in the UK for high quaity offices are commony for 10 years, with rents fixed for fiveyear periods after which they can ony be revised upwards. 3. The suppy side is controed by panning or zoning reguations, and is highy price ineastic. This means that a boom in the demand for space may be foowed by a suppy response, but ony if permission to buid can be obtained and ony after a significant ag, which wi be governed by the time taken to obtain a permit, prepare a site and construct or refit a property. 4. The returns deivered by property are ikey to be heaviy infuenced by appraisas rather than by margina trading prices. This eads to the concept of smoothing. 5. Property is highy iiquid. It is expensive to trade property, there is a arge risk of abortive expenditure, and the resut can be a very wide bid-offer spread (a gap between what buyers wi offer and seers wi accept). 14 PROPTECH 3.0: THE FUTURE OF REAL ESTATE

16 Chapter 2 6. Property assets are generay heterogeneous, and arge in terms of capita price. This means that property portfoios cannot easiy be diversified, and suffer hugey from specific risk. Research and due diigence costs are significant. 7. Leverage is used in the vast majority of property transactions. This distorts the return and risk of a property investment. 8. The risk of property appears ow. Rent is paid before dividends, and as a rea asset property wi be a store of vaue even when it is vacant and produces no income. Its voatiity of annua return aso appears to be ower than that of bonds. This is distorted somewhat by appraisas, but the reported performance history of rea estate suggests a medium return for a ow risk, and an apparenty mispriced asset cass. 9. Unike stocks and bonds, rea estate returns appear to be controed by cyces of eight to nine years. 10. Rea estate is time-consuming and expensive to manage. Looking into the future, there are opposite forces at work. The excesses of the ead-up to the credit crisis wi create a reaction that vaues conservatism, ow everage, more modest fee structures and stricter or better governance. At the same time, we must continue to innovate. An improvement in the iquidity of unisted hodings can be expected. Whie rea iquidity is neither possibe nor ceary desirabe in the private equity rea estate market, we can expect to see secondary trading patforms that hep investors to manage mixed portfoios of isted and unisted property, particuary at the core end of the market. To what extent wi PropTech 2.0 be successfu in attacking these imitations? And what exacty is going on within the PropTech boom? We examine the evidence in Chapter 3. PROPTECH 3.0: THE FUTURE OF REAL ESTATE 15

17 PropTech 2.0: the new wave Chapter 3 PropTech 2.0: the new wave In this chapter we attempt to estimate the scae of the PropTech 2.0, and by reference to the new startups we test, improve and finay estabish our cassification system for PropTech 3.1 Information sources venture capita, acceerators, researchers and bogs There is a pethora of information sources describing activity in the broader tech and PropTech sectors. These incude trackers of venture capita such as Venture Scanner, Crunchbase, Pitchbook or Angeist; bogs and newsetters dedicated to the provision of news items concerning PropTech, incuding CRE Tech Daiy in the US and Prop Tech News in the UK; research organisations such as CB Insights, a broader technoogy patform providing data, research and news; universities, in particuar MIT, which hosts reguar seminars devoted to PropTech (readisruption.com); acceerators such as 500 StartUps or Y Combinator which have backed PropTech ventures, and pure pay PropTech acceerators such as PiLabs (UK) and MetaProp NYC. Of course, there is no agreed definition or standard regarding what constitutes a PropTech venture or a PropTech investment. Scaing and cassifying the sector is therefore difficut. Every reference source has a different set of search variabes; there is no agreed definition of rea estate, et aone what constitutes a Rea Estate Fintech firm. We can ony estimate the ikey scae of the sector. In scaing the sector, venture capita (VC) shoud provide a fruitfu starting pace. The new PropTech companies are bootstrapping (using minima financia resources); using seed funding; or raising more substantia venture capita through what are caed Series A, B and C (etc) rounds. The purpose of the series seed funding is for the company to carify the product it is buiding, the market it is in, and the user base. Typicay, a seed round heps the company scae to a few empoyees past the founders and to buid and aunch an eary product. The range of seed funding amounts is $250K-$2 miion; anges and eary stage venture capitaists both invest in seed rounds. Series A funding is appicabe when the business understands its product and user base and needs capita to scae its distribution or identify a more pausibe and deiverabe revenue mode. Typica series A raises are in the order of $2m-$15miion. The Series B and C raise typicay aims to scae the business, often through acquisitions. Amounts raised vary from 5m upwards for series B and hundreds of miions for Series C. 16 PROPTECH 3.0: THE FUTURE OF REAL ESTATE

18 Chapter 3 Seed acceerators, aso known as startup acceerators, are fixed-term, cohort-based programs that offer mentorship and education, and cuminate the reationship in a pubic pitch event. Unike business incubators, the appication process for seed acceerators is open to anyone, but highy competitive. 500 Start Ups, a seed fund and acceerator, has (as the name suggests!) invested in over 500 startups and its website ists over 100 categories of businesses the firm has invested in. A search under the Rea Estate category turns up 6 businesses; that puts rea estate in the top 40% of sectors backed by the firm. Meanwhie, London-based PiLabs is an acceerator focussed ony on PropTech. Property Innovation Labs (Pi Labs) is Europe s first venture capita patform to invest excusivey in eary stage ventures in the property tech vertica. Pi Labs is based in London and invests in property tech companies gobay. Pi Labs was founded to become the centre of the property innovation ecosystem with the vision to identify, mentor, invest in and acceerate high-caibre startup ventures which have the passion and abiity to create scaabe businesses that wi disrupt the property industry. Its in-house property expertise assists entrepreneurs in the rapid scaing of tomorrow s tech-enabed property start-ups. Pi Labs invests in property tech companies both directy, investing in Seed to Series A stage businesses, and through its acceerator programme. New York based MetaProp is aso an acceerator: We are the word s premier rea estate technoogy nexus. We work with the smartest entrepreneurs, technoogists, investors and partners to fund and hep buid up to 25 of the rea estate tech industry s best ideas every year. According to Venture Scanner, Acce Partners is the eading PropTech VC in the US, having invested in a tota of 31 unique Rea Estate Tech companies, foowed by 500 Startups, which has invested in 27 unique Rea Estate Tech companies. Meanwhie, the MIT Rea Estate Innovation Lab hods a database of over 1,600 Rea Estate Tech startups. By 2017, there was cear evidence of PropTech funding going mainstream, spreading out to rea estate professionas and traditiona rea estate organisations. Prominent exampes of firms investing in PropTech ventures or even aunching funds and in-house acceerators incude Hines, LaSae, Cushman, British Land, CBRE and others. 3.2 Sizing the market Since 2012, CB Insights suggests that rea estate tech companies have raised amost $6.4 biion in funding across 817 deas (see Figure 3.1). They define rea estate technoogy as the software toos and patforms used by different participants in the rea estate industry, incuding brokers, investors, rea estate-focused enders, property owners and managers. The category incudes onine rea estate renta and buying guides. PROPTECH 3.0: THE FUTURE OF REAL ESTATE 17

19 PropTech 2.0: the new wave In eary 2016, Venture Scanner announced that it tracks 1,137 Rea Estate Technoogy companies across 12 categories, with a combined funding amount of $16.99 bn. By ate 2016, the same company is currenty tracking 1,258 Rea Estate Technoogy companies in 12 categories across 61 countries, with a tota of $28 biion in funding. Venture Scanner may have changed its measurement methods; it may have re-cassified some ventures to its rea estate category; or the growth in rea estate funding is taking off and becoming as exponentia as Moore s Law. On the other hand, RE Tech reported in Apri 2017 that at that point venture capitaists had become extra cautious, preferring to back ony estabished businesses. 90% of venture capita went to ony 10 companies, incuding shared economy eader WeWork and eading Indian advisor PropTiger. Nevertheess, Crunchbase data suggests that venture firms depoyed neary $3 biion in 70 rea estate tech companies in Q Using these various data sources, we can tentativey suggest that there are ikey to be over 2,000 PropTech startups of serious ambition; and that around 60% of these firms appear to have raised seed or better funding. Somewhere between $30bn and $50bn (an average $25-40m per firm) has been raised and is being spent by these vantures. The venture capita industry has been raising capita at the rate of around $10bn per quarter. If the PropTech sector has raised $30bn since 2012, this woud constitute around 15% of the market. Figure 3.1: CB Insights - most active rea estate tech investors 18 PROPTECH 3.0: THE FUTURE OF REAL ESTATE

20 Chapter 3 CB Insights (Figure 3.2) ranks the top VCs and acceerators over the period, omitting Acce, which Venture Scanner has identified as the eading US PropTech VC firm. Figure 3.2: CB Insights - most active rea estate tech investors CB Insights have produced rea estate tech market maps for commercia (Figure 3.3) and residentia (Figure 3.4) sectors. Mortgage tech warrants its own infographic (25 companies, Figure 3.5). For 53 commercia companies featured, the CB Insights categories are: Listing and search services (15) Leasing management software (2) Marketpaces (3) Investment/crowdfunding (7) Property information (4) Data, vauation and anaytics (11) PROPTECH 3.0: THE FUTURE OF REAL ESTATE 19

21 PropTech 2.0: the new wave Occupier to occupier services (1) Mortgage tech (1) Tech-enabed brokerage (2) Property/buiding management (4) Virtua viewing (3) Figure 3.3: CB Insights commercia rea estate tech market map For residentia, the categories inhabited by the 96 companies featured are: Listing and search services (27) Agent matching (5) Marketpace (9) Broker-free ist and search (3) Investment/crowdfunding (8) Property information (4) Data, vauation and anaytics (1) Occupier to occupier services (3) Mortgage tech (10) Tech-enabed brokerage (4) 20 PROPTECH 3.0: THE FUTURE OF REAL ESTATE

22 Chapter 3 Leasing management software (2) Property management (7) Virtua viewing (5) Saes and marketing (5) Agent services (3) Figure 3.4: CB Insights residentia rea estate tech market map Figure 3.5: CB Insights mortgage tech market map PROPTECH 3.0: THE FUTURE OF REAL ESTATE 21

23 PropTech 2.0: the new wave From this evidence, we can discern more activity in the residentia sector than the commercia sector. VCs interviewed confirm this: because the goba residentia market is estimated to be around five or six times the size of the goba commercia market (Savis, 2017) see Tabe 3.2 the ikey payoff for a successfu residentia tech firm is enough to justify serious funding, whie commercia property soutions are ess compeing. Tabe 3.2: Savis market size estimates Investabe Non-investabe A % A rea estate % Residentia % Commercia % Agricutura % Other investments % Equities % Securitised debt % God 6 2% A Assets % Source: Savis, 2016 We woud a ove to invest in a business that captured 1% of a 10bn market, or even better, 20%. Property is about as big as it gets. As the main store of weath for most of the word s popuation, an industry generating 12.3% of the UK s GDP, property is amost second to none in terms of market size. If we are right in our estimate that PropTech has captured around 15% of a VC investment since 2012, we can expect some growth. 3.3 Cassifying the PropTech segments MIPIM is a major property meeting hed in Cannes in France every March. Recenty, MIPIM introduced an innovation forum and competition promoting PropTech ventures. The MIPIM graphic, shown as Figure 3.6, ists the foowing tech categories: 22 PROPTECH 3.0: THE FUTURE OF REAL ESTATE

24 Chapter 3 smart buidings/iot (internet of things); smart city sustainabiity; market pace; crowdfunding; ConTech; 3D/VR (virtua reaity); data and research anaytics Figure 3.6: MIPIM innovation forum 2017 These categories map reasonaby we onto our initia cassification system (see Chapter 1), but they mix what we ca verticas (smart buidings) and horizontas (information). Venture Scanner caims to track over eeven hundred Rea Estate Technoogy companies across 12 categories, with a combined funding amount of amost $30 biion. They organize Rea Estate Technoogy into the 12 categories isted beow. Property Management: Technoogies that hep in the day-to-day operation of rea estate rentas. Exampes incude tenant management, eectronic payments of rent, and toos for andords and tenants to communicate. Our category: smart buidings/management Construction Management: Technoogies that hep teams manage the construction of new buidings. PROPTECH 3.0: THE FUTURE OF REAL ESTATE 23

25 PropTech 2.0: the new wave Exampes incude construction visuaizations toos, project management toos for construction teams, and patforms to manage bueprints. Our category: ConTech Faciity Management: Technoogies focused on the efficiency and ong-term sustainabiity of arge structures. Exampes incude toos to quantify a buiding's data (energy usage, water usage, etc.), toos to make buidings more efficient, and buiding inspection patforms. Our category: smart buidings/management Portfoio Management: Technoogies that rea estate investors use to make smarter investment decisions as we as patforms to make investments. Exampes incude isting data trackers, information on REITs, and rea estate crowdfunding. Our category: Rea Estate FinTech/information and Rea Estate FinTech/transactions Home Services: Technoogies that support consumers in the management of their homes. Exampes incude ceaning services, renovation management, and technoogy-forward posta services. Our category: Smart Buidings/management Commercia Rea Estate Search: Toos that hep consumers/businesses find commercia rea estate for rent and/or sae. Exampes incude shared working space search engines as we as traditiona commercia rea estate search engines. Our category: Rea Estate FinTech/information and Shared Economy/information Long-Term Rentas/Sae Search: Consumer toos that aid in the process of finding residences for sae and for ong-term rent. Exampes incude traditiona rea estate search engines as we as mobie apps. Our category: Rea Estate Fintech/information Short-Term Renta/Vacation Search: Consumer toos that aid in the process of finding residences for shortterm rentas or vacation rentas. Exampes incude patforms for individuas to ist their persona properties as we as traditiona vacation odging search engines. Our category: Rea Estate FinTech/information and Shared Economy/information Life, Home, Property & Casuaty Insurance: Companies that offer ife, home, and property insurance, as we as other kinds of insurance such as renters, disabiity, and marriage insurance. Exampes incude websites that offer ife, home, and P&C insurance in packages. Our category: Rea Estate FinTech/information Rea Estate Agent Toos: Technoogies that hep rea estate agents do their job, as we as technoogies that effectivey automate it. Exampes incude rea estate specific CRMs, rea estate agent review patforms, and 24 PROPTECH 3.0: THE FUTURE OF REAL ESTATE

26 Chapter 3 marketing toos. Our category: Rea Estate FinTech/information Indoor Mapping: Companies that hep create indoor modes for the rea estate industry. Exampes incude cameras that produce 3D renderings and visuaization patforms that aow users to interact with foor pans. Our category: Rea Estate FinTech/information IoT Home: Internet of Things devices focused on the residentia rea estate segment. Soutions incude home security, home automation, and energy management. Our category: Smart Buidings/management James Dearsey, in a we-known infographic (Figure 3.7), uses another set of categories. These, which recognise the different residentia and commercia sectors with some overap, incude: Big data Software providers Lending/crowdfunding News/advice Lending: peer-to-peer Virtua and augmented reaity Property management Lending mortgages Co-working Internet of things Onine agent - brokerage Onine agent saes Onine agent ettings Payment operations Bockchain Artificia inteigence (AI) Acceerators and VCs PROPTECH 3.0: THE FUTURE OF REAL ESTATE 25

27 PropTech 2.0: the new wave Figure 3.7: the James Dearsey infographic 26 PROPTECH 3.0: THE FUTURE OF REAL ESTATE

28 Chapter 3 This mixes verticas (co-working), horizontas (news/advice) and modes of operation (AI). Mapping these (omitting acceerators and VCs, and AI) onto our matrix, we might arrive at the foowing indicative cassification (Tabe 3.3). Tabe 3.3: Dearsey verticas and horizontas Rea Estate FinTech Shared Economy Smart Buidings Information Software providers News/advice Big data Virtua and AR Lending/crowdfunding Lending/peer to peer Lending/mortgages Onine agent brokerage Onine agent saes Onine agent ettings Payment operations Transactions/marketpace Bockchain Co-working Property management Management/contro Internet of things Finay, we examine the activities of PiLabs, a London-based acceerator. Now we set out to test how the companies which appied to PiLabs and the 3% of those appicants that were successfu in raising investment backing from the acceerator fit into our matrix. In doing so, we eft the Piabs team to decide on the appropriate cassification for each of the companies. We shoud point out that the horizonta and vertica cassifications are not necessariy the ones Pi Labs uses. In discussions between the author and PiLabs, the foowing carifications were made. A patforms that assist with finding a tenant or property are cassified as FinTech - transactions/marketpace. AR/VR tech for buit environments is cassified as FinTech - information. AR/VR tech for new buids is cassified as Construction Tech - information. A interior design and architecture patforms are cassified under Construction Tech. A property management software is cassified under Smart Buidings - contro/management. PROPTECH 3.0: THE FUTURE OF REAL ESTATE 27

29 PropTech 2.0: the new wave Hospitaity patforms (such as Airbnb) are cassified as Rea Estate FinTech - transactions/marketpace. Property management incuding repair request patforms is cassified under Smart Buidings contro/management, uness it connects the user with a repairer, in which case it is cassified as Smart Buiding transaction. Tenant referencing technoogy is cassified as FinTech transactions/marketpace. Construction Tech management patforms are under ConTech contro/management. Other Smart Buidings - contro companies incude buiding access technoogy and companies that have buit sensors to manage space better. Smart appications which expand the shared economy space offering are cassified under Shared Economy contro/management. Figure 3.8 shows the breakdown of the PiLabs Acceerator appications over a four-year period. More than haf of a (over 600) appications were in the Rea Estate FinTech sector; around 20% were derived from each of the Sharing Economy and Smart Buidings verticas; and ConTech is the east active vertica, with under 10% of a appications. Figure 3.8: Pi Labs appications anaysis by vertica Contech, 8.6% Other, 1.2% Smart Buiding Tech, 19.3% Rea Estate Fintech, 51.2% Sharing Economy, 19.6% 28 PROPTECH 3.0: THE FUTURE OF REAL ESTATE

30 Chapter 3 Tabe 3.4: Pi Labs appications anaysis by segment Rea Estate FinTech Sharing Economy Smart Buidings ConTech Tota Information 12.9% 0.6% 0.9% 3.1% 17.5% Transactions 38.3% 16.6% 3.4% 3.4% 61.7% Contro/management 0.0% 2.5% 15.0% 2.1% 19.7% Tota 51.2% 19.6% 19.3% 8.6% 98.8% Tabe 3.4 shows that by far the most common orientation (or horizonta) is transactions or marketpace businesses, with over 60% of a appications, and information and management equay weighted at %. By sub-sector, Rea Estate FinTech/transactions is by far the most popuous. One of tweve sub-sectors, this captures 38% of a appications. In Chapter 2, we imagined how the matrix woud fi out, and did not expect to be abe to popuate the FinTech/contro, Shared Economy/contro and Smart Buidings/transactions sub-segments. These are nonexistent or very scarce in the PiLabs data, as is Shared Economy/information and Smart Buiding/information. Tabe 3.5: Pi Labs investments anaysis by segment Rea Estate Sharing Smart ConTech Tota FinTech Economy Buidings Information 15.8% 0.0% 0.0% 0.0% 15.8% Transactions 15.8% 21.1% 0.0% 5.3% 42.2% Contro/management 0% 10.5% 26.3% 5.3% 42.1% Tota 31.6% 31.6% 26.3% 10.5% 100.0% Tabe 3.5 and Figure 3.9 show that the 19 businesses that were successfu in getting PiLabs acceerator support (fewer than 3% of the tota appications) are more eveny distributed between the three main verticas. ConTech captures 10%, roughy refecting the weight of appications, whie FinTech is down 20% to just over 30%. Sharing Economy and Smart Buidings businesses do very we by comparison. PROPTECH 3.0: THE FUTURE OF REAL ESTATE 29

31 PropTech 2.0: the new wave Figure 3.9: Pi Labs appications anaysis by vertica Other, 0.0% Contech, 10.5% Rea Estate Fintech, 31.6% Smart Buiding, 26.3% Sharing Economy, 31.6% We beieve that this process offers proof of concept regarding our verticas and horizontas. We wi now focus on three of the four verticas, eaving ConTech to one side as a reated but different non PropTech sector. We recognise the difference between endogenous PropTech (created by and for the property market) and exogenous tech (not created by and for the property market but impacting on it). Figure 3.10 summarises our anaysis. Rea Estate FinTech is a sub-category of FinTech and a key PropTech segment. Smart Buidings Tech is reated to ConTech, but as it affects the contro and management of existing assets it becomes a second key PropTech segment. Shared economy is a third sub-category of PropTech, with some possibe overap with Fintech (as transactions may take pace under this vertica). These are a endogenous PropTech segments; the externa word of exogenous tech is aso important. In Chapters 4, 5 and 6 we wi focus on each of our PropTech verticas: smart buidings (Chapter 4), shared economy (Chapter 5) and rea estate FinTech (Chapters 6 and 7). Exogenous tech and its impact is briefy considered in Chapter PROPTECH 3.0: THE FUTURE OF REAL ESTATE

32 Chapter 3 Figure 3.10: The PropTech industry verticas Smart rea Rea estate estate FinTech PropTech FinTech Shared economy Exogenous tech PROPTECH 3.0: THE FUTURE OF REAL ESTATE 31

33 Sma buidings Chapter 4 Smart rea estate In this chapter we describe the smart rea estate or smart buidings sector, meaning rea estate which supports tech patforms and buidings that use tech patforms Poster chidren: Nest, Digita Reaty, Equinix, Aggreko 4.1 The smart buiding sector is founded on the contro and efficient management of rea estate In our anaysis of the companies which appied for PiLabs acceerator support in Chapter 3, 20% of a appications were in this vertica. The Smart Buidings vertica was active excusivey through the contro horizonta. This chapter wi focus on tech deveopments that faciitate the contro and efficient management of space. Pure information is the precursor to contro and management. Businesses ike TAP (Tenant Assistance Program) provide tenants with information about the buidings they are renting from energy consumption to insurance and heath and safety compiance. Energy consumption, in particuar, ies at the heart of the smart buiding concept. 4.2 Sustainabiity and energy the background The top five S&P 500 companies by market capitaisation in Q were Appe, Aphabet (Googe), Microsoft, Amazon and Facebook. These companies have a huge appetite for power. The increasing dominance of coud computing, for exampe, requires Facebook to buid huge data centres on the fibre optic network powered by eectricity. The data hed by these companies is expoding in size big data is vauabe, and it needs to be stored. Where it is stored needs to be powered and cimate controed. The baseine standard to deiver an asset now incudes a commitment to sustainabiity. It now seems obvious that deivering a green buiding is the modern norma, but this was not the case as recenty as fifteen years 32 PROPTECH 3.0: THE FUTURE OF REAL ESTATE

34 Chapter 4 ago. Deivering sustainabe assets is necessary as a minimum standard; it is no onger a marketing issue but something the marketpace demands. In order for a buiding to be efficient, it needs to be in the right ocation and fit for purpose. This means that the basic buiding service inputs (air, water, power and transport) and outputs (emissions, sewerage and refuse) need to be consciousy managed for the heath and we-being of the buiding, its tenants and the oca community. This appies to any deveopment type within the broader rea estate asset cass (office, retai/commercia, eisure/hote, residentia, ogistics, and so on). There is an expectation from both users and investors that buidings wi operate efficienty from both a cost and functiona perspective. In theory, if operationa costs are ower, then a more competitive tota occupation price is offered to occupants, and better returns are avaiabe to investors. This issue is sowy becoming incorporated in market pricing. Initiay, the drive for sustainabiity and energy efficiency was a burden which was hed by the pubic it was a matter for pubic concern that was not transmitted into market pricing. This is because the traditiona ease between a property owner and a tenant governed ony space usage (and not the utiities). The utiity bi was the responsibiity of the tenant, and discovery of the issue of running costs by tenants was a gradua process not priced in the initia ease negotiation (see Figure 4.1). Figure 4.1: Transferring the energy burden PROPTECH 3.0: THE FUTURE OF REAL ESTATE 33

35 Sma buidings We remember, for exampe, a presentation by DHL which discussed the stages of energy use consciousness. This began with the identification of a depot using too much eectricity, expained by staff faiing to switch off ights at night because the ight switches were hidden and inaccessibe; to the automatic switching off of ights when rooms are not in use; to information gathering and the subsequent automatic adjustment of energy use. It took quite some time for consciousness about buiding energy efficiency and the subsequent costs in use to be incorporated into the corporate rea estate decision process. When this began to be the case, andords and deveopers had a motive for producing energy efficient buidings. Now a ower energy cost coud be used to negotiate higher rents and deiver better returns for investors. The evidence for this has been patchy, perhaps because the connection between energy cost and rent is somewhat indirect, but it is accumuating (see, for exampe, Green Buiding Counci, 2015). A more powerfu connection is made if and when energy costs and rent are bunded together in one payment. If the deveoper/owner suppies both space and energy and charges an energy-incusive rent, his motivation to deiver an energy efficient buiding is direct. If the deveoper/owner can aso generate power within the buiding and cut out the middeman (the utiity company) we wi have a much more efficient market for space and energy. However, the andord wi now be concerned to imit the amount of energy used by the tenant. So we wi need to be abe to deveop a system where the benefits of energy saving pass directy to the market participants. This requires inteigent monitoring of energy use through contro and monitoring devices, and the efficient transmission of data between the user of the buiding and the suppier of space and energy. Sady, according to interviewees, traditiona office eases argey continue to fai to achieve the internaisation of energy saving in office management. The deveopment of inteigent eases, efficient energy suppy and energy monitoring ies at the heart of smart buiding technoogy. The root driver of change an increased need for energy and teecoms to suppy the users of technoogy wi require deveopers to make buidings more energy efficient, to satiate the hunger for space to support the new tech word and to be much more creative in easing practice. 4.3 Definitions What are smart buidings? This term means buidings which combine space with technoogy. Given the recent growth of technoogy firms as tenants of buidings, this concept now has two dimensions. We need buidings that use tech patforms to be more efficient; and we aso need buidings which support tech patforms (such as the Facebook HQ in Caifornia, any of the big five s data centres, or the Googe European HQ in London s Kings Cross). There are at east a dozen variants on the definition of a smart buiding, mosty taiored by big name consutants for their cients. In its simpest form, it refers to an asset which runs efficienty through automated technoogy in its buiding systems. This is to ensure the asset s optima functionaity. A buiding wi ony be as smart as its 34 PROPTECH 3.0: THE FUTURE OF REAL ESTATE

36 Chapter 4 programming, which sti requires human input, so it is a misnomer that a smart buiding is an automated buiding. To be more precise, a smart buiding is an asset which optimizes the system design and automation to run efficienty. There is a oose coroary that smart buidings are green buidings, and therefore sustainabe. Efficiency has become a synonym for sustainabiity, hence the terms are used amost interchangeaby. There is a continuing drive to ensure that buidings are performing with minima waste to baance what is used and what is expeed. It is impicit that smart buidings are both cean and environmentay friendy, whie supporting the ong-term use of the asset for its occupants or purpose. 4.4 Buidings that use tech Smart buidings describes technoogy-based patforms which faciitate the operation of rea estate assets. The assets can be singe property units or entire cities. The patforms may simpy provide information about buiding or urban centre performance, or they may directy faciitate or contro buiding services. This sector supports rea estate asset, property and faciities management. PCs, tabets and mobie phones are potentia dashboards for controing eectronic functions. The Internet of Things (IoT) aows objects to be measured (information provision) but aso sensed and/or controed remotey across the existing network infrastructure, creating opportunities to adjust or turn systems on or off remotey. As an exampe, heating systems can be switched on remotey through a mobie phone app, and Googe s 2014 acquisition of Nest (a producer of thermostats, sensors, ighting and other inteigent energy-saving home appications) to create a Googe IoT division was seen at the time as a significant moment. The instant popuarity of the Nest thermostat, introduced in 2011, seemed to confirm hopes that this sector woud take off. But those expectations were dashed in the coming years as the market for connected home devices stagnated. Nevertheess, many of the biggest consumer technoogy companies are now moving into the smart home market. For exampe, Appe recenty reeased its sef-instaed smart home ecosystem, caed Appe Home. Googe aunched the Googe Home and its companion ecosystem in 2016, hoping to jump into the voiceactivated smart home speaker market, which Amazon currenty dominates. Googe Home was set to be aunched in the UK in Apri Like Amazon's Echo and Aexa, Home can answer basic queries as we as contro smart home devices. Many more companies (Distech Contros is an exampe) deiver innovative buiding automation and energy management systems that maximise comfort, environmenta quaity and sustainabiity requirements. As these advances continue, we are getting cose to seeing unmanned, robotic buidings engaging in such activities as 3D printing or warehousing. The next generation of smart buidings wi be abe to run whoy remotey. Companies such as CAME, Honeywe and Siemens have transformed themseves from traditiona suppiers of mechanica goods into deveopers of home automation and inteigent systems. CAME, for exampe, deveops PROPTECH 3.0: THE FUTURE OF REAL ESTATE 35

37 Sma buidings contros for arge pubic faciities and the management of urban and pubic areas, offering integrated soutions to meet a needs of peope-fow and access contro controing and monitoring. The remote contro of driveress cars and deivery vehices, pus bots offering a range of services, are setting in motion many thought processes imagineering the ikey future of ogistics and retai rea estate. More can be expected. According to the CEO of a major UK business space deveoper, smart buidings wi increasingy rey on smart transport. One of the key probems for deveopers and managers of office/workspace on business parks is parking - how much to provide and how to manage. So the firm is deveoping a smart app to faciitate car sharing, without yet having soved the economic benefits of sharing (see Chapter 5). 4.5 Smart cities Smart cities encapsuate an urban deveopment vision to integrate mutipe information and communication technoogy and IoT soutions to manage a city's assets, incuding information systems, schoos, ibraries, transportation systems, hospitas, power pants, water suppy networks, waste management, aw enforcement and other community services. The goa of buiding a smart city is to improve quaity of ife by using urban informatics and technoogy to improve the efficiency of services and meet residents' needs. Through the use of sensors integrated with rea-time monitoring systems, data are coected from citizens and devices, processed and anayzed (Smart Rea Estate vertica; information horizonta). The information and knowedge gathered are keys to tacking inefficiency. At the city eve, firms such as Maaka have been working on district-eve sustainabiity, deveoping an expertise in creating eco-districts and sustainabe districts, incuding the Pear District in Portand and Kashiwa-no-ha in the Chiba Prefecture of Japan. 4.6 Buidings which support tech patforms The 1980s created a new property sector. High tech (or hi-tech) buidings were initiay the mixed use office/industria buidings which formed the component parts of a science park. Hi-tech described the operations carried on within the buiding rather the buiding itsef; but now the term has migrated to describe the buiding. High tech another variant of smart buidings - aso describes new buidings (and whoe new property types) which support technoogy-based patforms. These incude data centres, speciaised ogistics such as on-ine distribution hubs, cick and coect stores, Amazon ocker sites, co-working space designed for tech companies requiring very fast broadband, and other futures which we can imagine, such as autonomous car charging stations, drone hubs and others. Mega data centres, typicay aso known as 'hyperscae data centres' and operated by arge service providers, 36 PROPTECH 3.0: THE FUTURE OF REAL ESTATE

38 Chapter 4 are on the rise gobay. According to Cisco, goba data centre IP (internet protoco) traffic wi grow threefod at a compound annua growth rate of 27 percent between 2015 and Traffic within hyperscae data centres wi quintupe by An industry tracking pubication, Datacenter Knowedge, estimated that Facebook was running about 60,000 servers in Given the scae of Facebook s competed sites, thousands of new servers wi come on-ine each year. This is not surprising with the exposion of appications avaiabe from the coud, and the expectation from users for any app to process any transaction instantaneousy. For a company ike Facebook, buiding its own coud faciity is essentia. Neary two biion photos are currenty shared on Facebook services. In addition to this vast stock, 350 miion photographs are upoaded onto Facebook every day. This produces a huge demand for data storage or coud faciities. In 2010, Facebook (by no means the most data hungry of the big five tech firms) announced pans to buid its own data centre in Prinevie (Oregon). Since then it has competed three other data centres in Forest City (North Caroina), Atoona (Iowa), and Luea (Sweden). To support its growth from acquired patforms such as Instagram, WhatsApp and Messenger, Facebook has started construction in two new ocations in the U.S. and two more in Europe in Conee (Ireand) and Odense (Denmark). Facebook has commissioned a new buid averaging a miion square feet every year in the ast seven years. In SEC fiings Facebook reported capita expenditures reated to data centre infrastructure, network equipment and office space of about $4.5 biion in 2016, $2.5 biion in 2015, and $1.8 biion in 2014 growth of 2.5x in three years. The company expects this expense to continue growing as its business (and its data centre footprint) expands. Figure 4.2: The Facebook data centre at Atoona (Iowa) According to the Facebook Sustainabiity Page (sustainabiity.fb.com): In 2004, one miion peope were using Facebook. Today, more than a biion peope from around the word use our famiy of apps and services, PROPTECH 3.0: THE FUTURE OF REAL ESTATE 37

39 Sma buidings incuding Facebook, Messenger, Groups, Instagram and WhatsApp. They re staying connected with friends and famiy, discovering what s going on in the word, and expressing what matters to them. We are committed to powering connectivity with the smaest footprint possibe. Connectivity is a main piar for such mega data centres and their ocations are useess without meeting the atency (the time interva between request and response) requirements of the appications they are serving. In the ast year, Facebook has announced partnerships to hep ay a trans-oceanic cabe from the U.S. between the East Coast and Europe and simiary from the West Coast and Asia. It is interesting that the trading routes from severa centuries ago mirror the fibre optic routes of the digita age. However, the changing nature of the internet s goba information fow is chaenging and taxing existing network points, so new ones must be buit, sponsored by the ikes of Microsoft, Aphabet and/or Facebook. As another exampe, Amazon has deveoped its Amazon Web Services (AWS) data centres into one of the essentia piars of its business, not ony serving Amazon's interna needs but aso a source of externa competitive advantage. These buidings wi need to be connected to broadband services in order to be fit for purpose. In response to this need, PropTech stratup WiredScore s Wired Certification rating standard uses severa metrics, incuding connectivity quaity, infrastructure, and readiness, to rate buidings. WiredScore provides property owners with officia certification detais and information about how to improve their connectivity eves. Wired Certified information is made pubicy avaiabe for tenants, agents and the genera pubic to identify commercia spaces that meet their connectivity needs. There is a growing number of REITs and property companies speciaising in data centres and other newgeneration high-tech buidings. For exampe, the CBRE Goba Investors spin-off Digita Reaty has 198 buidings in 14 countries across 5 continents. According to Wikipedia, Digita Reaty hed its initia pubic offering in November At the time, its portfoio of 24 properties consisted primariy of those contributed by a private equity fund (GI Partners Fund I) to which CaPERS provided a $500 miion equity commitment to invest in technoogy-reated rea estate and technoogy operating businesses. In addition, CB Richard Eis Investors, a subsidiary of CB Richard Eis, and members of GI Partners management provided a commitment of $26.3 miion. Digita Reaty has reguary deivered outstanding returns. Equinix has 145 data centres in 40 markets on five continents. This is an American-origin mutinationa company that speciaizes in enabing goba interconnection between organizations and their empoyees, customers, partners, data and couds. The company is the eading goba coocation data center provider by market share. Equinix was founded in 1998 to provide a neutra pace where the networks forming the eary internet coud exchange data traffic. It expanded to Asia-Pacific in 2002 and Europe in The company ater began operating faciities in Latin America in 2011 and in the Midde East in Its purchase of TeecityGroup in eary 2016 estabished the company as the argest coocation provider in Europe. In December 2016, Equinix 38 PROPTECH 3.0: THE FUTURE OF REAL ESTATE

40 Chapter 4 announced that it had agreed to purchase 29 Verizon data centres in a move to expand its presence across the U.S. and Latin America. The dea, expected to cose in mid-2017, woud bring Equinix s data centre count to 179 faciities in 44 markets. 4.7 On-site energy suppy Energy suppy for data centres (and other arge commercia buidings) is a growing business need and opportunity. Traditiona eectricity utiities cannot keep pace with the expoding demand for energy by big data centres. The energy chaenge is exacerbated by high tota expenditure on eectricity by data centre operators; high voatiity in eectricity prices; and pressure to ower the carbon footprint. A possibe soution is to deveop cooing (and/or heating) systems and earning agorithms that enabe customers to get the energy services they need at a ower cost. For Facebook, energy use in its data centres requires a renewabe energy partner to meet its sustainabiity targets. It has committed to power its owned and eased data centre operations with cean and renewabe energy. Facebook is expected to announce a commitment to secure 100% cean and renewabe energy in its future sites, as it has done for severa of its existing centres and the ones currenty under construction. Aggreko pc is an exampe of a modern age energy suppier. Aggreko is a manufacturer of temporary power generation equipment and of temperature contro equipment, headquartered in Gasgow, Scotand, isted on the London Stock Exchange and a constituent of the FTSE 250 Index. We can expect partnerships between energy suppiers and energy users as the data centre market and the smart rea estate sector - continues to grow. PROPTECH 3.0: THE FUTURE OF REAL ESTATE 39

41 The sharing economy Chapter 5 The sharing economy In this chapter we describe the sharing economy, which is a movement designed to enabe the sharing of the use of rea estate assets or space through tech patforms Poster chidren: Airbnb, WeWork 5.1 The sharing economy is founded on transactions enabing the sharing of the use of space In Chapter 3 we deveoped our cassification system for PropTech and the major horizonta business activities: information provision, transaction or marketpace faciitation and contro/management. In our anaysis of the companies which appied for PiLabs acceerator support in Chapter 3, 20% of a appications were in the Shared Economy vertica. The Shared Economy vertica was primariy active through the transactions horizonta, which comprised 85% of a appications in this sector. This chapter wi primariy focus on transactions enabing the sharing of the use of space. 5.2 Definitions Your first space is hopefuy your home. If you are a service industry worker, your second space is ikey to be your company s office. You are now increasingy ikey to do work in a third pace, or a whoe range of third paces. This coud be a coffee bar, a hote, a park or a train a shared, socia space. The Sharing Economy - sometimes aso referred to Coaborative Consumption, or the Access Economy - represents an economic revoution buit around an economic phiosophy that space and capita goods are better shared. The concept of the sharing economy started to emerge in the eary 2000s. Since then, probaby encouraged by the search for new business formats in the aftermath of the goba financia crisis of 2008, it has fostered seventeen unicorn companies with biion-doar vauations, and impacted many industries by redefining their core business modes (Tune, 2014). The best known exampes are Uber and Lyft, Airbnb, WeWork and Zipcar. The assets being shared in these exampes are cars, houses and offices, but the concept is not imited to these assets. 40 PROPTECH 3.0: THE FUTURE OF REAL ESTATE

42 Chapter 5 The industries that have been dramaticay impacted are: Transportation: car rentas and taxis Rea estate: residentia, hospitaity, retai, storage and office space Labour: the sharing economy mode provides an onine patform to share peope s skis and expertise for potentia customers, eading to the gig economy. The sef-empoyed US workforce is estimated to be about 53 miion, which in 2014 equated to approximatey 34% of the entire US workforce and was expected to grow to about 60 miion by 2020 (Grothaus, 2015). Figure 5.1 depicts miestones in the evoution of the sharing economy, and provides statistics for some of the industry s key payers. Figure 5.1: miestones in the evoution of the sharing economy Source: Cognizant Business Consuting (2016) Most of the successfu Shared Economy companies emerged or gained significant motion during or after 2008 and this is not by coincidence. Significant job oss and financia austerity has changed the way consumers access, buy and use products and services. Instead of aiming excusivey for traditiona ownership, which carries with it the burden of expensive storage space, an increasing number of consumers are paying for temporary access or temporary ownership. This (signaed by the growth of offsite sef-storage as anew property PROPTECH 3.0: THE FUTURE OF REAL ESTATE 41

43 The sharing economy type) has become a cost saving mechanism that has commuted to an iconic modern ifestye for miennias. Whie the sharing economy may be the resut of the economic downturn, there has ceary been a shift in mindsets of miennias. Significant technoogica, economic, poitica and socia changes have aso fostered this fast-growing iconic stye of iving. These are as foows: Technoogica: the internet has made it easier for companies to aggregate suppy and demand and has transformed consumers reationships with products and services. Smartphones have revoutionised both consumers and producers access to the marketpace. Sateite positioning functions hep to find nearby markets, and socia media networks and recommendation systems have heped to estabish a biatera trust system. Finay, internet biing systems such as Paypa have heped to buid the foundation for e-commerce (the transactions/marketpace horizonta). Economic: austerity, crises, high house prices in goba cities and the decine of stabe fu time empoyment have re-oriented peope s consumption behaviour towards more cost efficient renta modes. Poitica: increasing poitica instabiity, the promotion of the entrepreneur and the repacement of institutions by goba businesses has created a shared channe for ideaism and socia enterprise. Socia: a starting number of miennias have begun to question ownership as a necessity for security and a fufiing ife, and this is infectious. The shared economy movement has buit its roots and gained popuarity by resoving and improving two important business and socia probems. The first is the importance and increasing drive towards coaboration and the access economy. The second is the accessibiity of goods and services. Coaboration is defined as the share or exchange through peer-to-peer based patforms of such intangibe assets as skis, expertise, innovation and user experience. In a recent JLL po, 74% of respondents indicated that thinking, taking, and brainstorming create the most vaue for an organisation. In response, companies are turning to aternative workpace soutions such as co-working to encourage coaboration (Jones Lang LaSae, 2016). Exampes of avaiabe soutions quited by JLL incude WeWork (co-working); Ecomodo (ski sharing); and Good Neighbours (neighbourhood support). Coaborative consumption differs from standard commercia consumption in that the cost of purchasing the good or service is not borne by one individua, but instead is divided across a arger group and recouped through renting or exchanging. Major exampes incude Uber, Reayrides and Zipcar (transportation); Airbnb and Sharedesk (home and office space sharing); Roost, Sharemystorage and Storemates (storage and parking); and We Are Pop Up (retai). Accessibiity is a function of tech-driven information systems and marketpaces. Location is usuay important in a shared economy proposition think Airbnb or Uber and in maximizing the vaue of a proposition it is essentia that the information systems used aggregate a avaiabe offers to make the ocation choices as precise as possibe. How fexibe are you about where you woud want to park your car or store your canoe? Micro-ocation and accessibiity are cosey reated. 42 PROPTECH 3.0: THE FUTURE OF REAL ESTATE

44 Chapter The shared economy and rea estate In the rea estate space, we can gather exampes of tech-driven propositions enabing the shared use of houses, rooms in houses, office buidings, restaurants, storage space, car parking and shops. Miennias have been forced to assume that home renting, and not ownership, is the order of the day. This is because house purchase in increasingy densified urban centres is prohibitivey expensive, requiring arge capita down payments. Rea estate has a high capita cost: even if debt is used, an initia equity payment of around 10-30% of the tota outay, incuding fees and transfer taxes, is needed. In London, despite over 30,000 new city apartments having been buit since 2008, prices have increased by 60%. The average house price in London is around 660,000. Typica minimum deposits are at east 20% - or 135,000. Affordabiity has forced miennias to reconsider the need for ownership in housing, yet there is extreme excess capacity in the rea estate market. It is estimated that there are 700 miion sq m of existing spare capacity in China aone as at 2016, with over 400 miion sq m in residentia and the rest in commercia (Jieman News, 2016). The Engish housing survey 2015 (DCLG 2016) suggested that The overa number and proportion of under-occupied househods in Engand increased between and from 31% (6.2 miion househods) to 36% (8.2 miion househods). This was driven mainy by an increase in under-occupied househods in the owner-occupied sector, from 39% in 1995 to 51% in Meanwhie, under-occupation in the rented sectors decined from 13% in 1996 to 9% now. These statistics suggest a growing rich-poor divide; the decine in under-occupation in the rented market suggests that more and more miennias are being pushed or pued into a shared renting ifestye. The evergrowing demand for the rented sector has created a suppy shortage. However, as more and more business startups begin to operate in the p2p (peer to peer) renta market, this shortage can easiy be corrected by empoying the sharpy increasing number of spare bedrooms in the increasingy under-utiised owner-occupied sector: 8.2 miion househods in Engand have one or more bedrooms than they need. In addition to its high capita cost, the asset is aso highy iiquid and non-portabe. The ownership exchange process is inefficient, sow and costy. The average time to compete a purchase in the UK is 3 months or more and the average in China is 6 to 12 months. In 2016, fewer than 2% of owner-occupied properties changed hands in China (Jieman News, 2016). The burdensome purchasing process and the high capita requirements of traditiona rea estate have deterred many peope from owning their own properties. 5.4 Short term housing renta, co-iving and hospitaity A cear expression of the asset-ite shared economy is now being expressed through co-iving businesses such as OpenDoor Co-Living or The Coective, which create coaborative iving spaces (a perfect exampe of coaborative consumption). These spaces (says OpenDoor) are targeted at urban creatives and miennias. Our homes are curated socia environments that faciitate sharing, connections, and meaningfu reationships. PROPTECH 3.0: THE FUTURE OF REAL ESTATE 43

45 The sharing economy Where most andords and property managers rent space, we provide a patform for a ife we ived. We are a cuture pay with a rea estate business mode. Truia and Ziow both originay house saes intermediaries have now expanded into shared economy propositions. They set out to make house purchase and renting more efficient, for exampe by finding a renter for a second bedroom to support house purchasers or rent to rent entrepreneurs. Spittabe faciitates the shared use of iving space by tracking expenses and faciitating the sharing of bis, spinning off so-caed big data which can be sod to traditiona owners and offer another revenue stream. A second form of expression of the shared economy in hospitaity space is of course Airbnb, which was aunched in the autumn of 2008 at the peak of the goba financia crisis. Its founders, Brian Chesky and Joe Gebbia, who had both recenty graduated from the Rhode Isand Schoo of Design, were unabe to find a job. When an industria design conference came to town, they reaised a commercia opportunity to make extra money by taking in a few boarders who were coming to the conference but did not want to pay for an expensive hote. So they buit a website, bought some air mattresses, and payed host to three peope for the weekend. Today, Airbnb is an internationa phenomenon. It currenty operates in 57,000 cities in 192 countries. In 2015, Airdna identified a tota number of 550,000 Airbnb istings in the United States. HVS research suggests that over 2.8 miion room nights were booked via Airbnb between September 2014 and August As a resut, HVS estimated that hotes have ost over $450 miion in direct revenue per year to Airbnb (Mahmoud, 2016). Airbnb has more than 2.3 miion house istings and a market capitaization exceeding $30 biion (Newcomer, 2016; see Figure 5.2). The key appea of Airbnb is the cassic PropTech proposition. The conditions are (i) a diverse, widey distributed source of demand (potentia users of short stay hospitaity); (ii) a diverse, widey distributed and heterogeneous source of suppy (rooms); (iii) no dominant, efficient mechanism for bringing demand and suppy together; (iv) potentia financia gains to the demand side, the suppy side and an intermediary; and (v) scaeabiity. The dominant efficient mechanism appears to be a very simpe combination of a website and a brand. Traditiona marketing and saes is by no means unimportant, but the vaue of brand, often associated with first or eary mover advantage, is a huge factor in the automatic and ow cost generation of voume. Shared economy businesses need iquidity - ots of traffic. Sma sices of suppy revenue can be taken by the intermediary because potentia voume is so arge. Airbnb is not the ony force of change being appied to the hospitaity market. The advent of Amazon-stye customer feedback has driven businesses such as booking.com, Trivago and Trip Advisor in their journeys to extract revenue from the hospitaity industry. These are in part cassic PropTech businesses, part of the Rea Estate FinTech vertica and the information and transaction horizontas. They have undermined or at east cannibaised the hote and hote chain website as a revenue source, as they offer much more choice. To traveers, ocation is the key variabe driving demand, not brand; hence aggregators simpy have a better proposition. 44 PROPTECH 3.0: THE FUTURE OF REAL ESTATE

46 Chapter 5 Figure 5.2: Growth in Airbnb istings Source: Newcomer, 2016 To put the Airbnb scae into context, the Tabe 5.1 summarises the number of Airbnb bedrooms avaiabe and the number of traditiona hote rooms in the top 10 U.S. markets (CBRE, 2016). Airbnb appears to constitute around 10% of the tota market in the top 10 US cities, but ony 3.3% nationay, iustrating the sef-reinforcing nature of densification. The vaue of a PropTech proposition is very ikey to depend on the richness of the data it uses, as data richness wi drive demand traffic to its site. Location is vita in rea estate, so urban concentration is necessary to create that vaue. As oca urban data becomes richer, more peope are pued to that ocation, further driving concentration. This is the same river that makes Uber particuary its car sharing service - highy successfu in many big cities but absent from rura communities. PROPTECH 3.0: THE FUTURE OF REAL ESTATE 45

47 The sharing economy Tabe 5.1: Airbnb units as a proportion of hote rooms, US 5.5 Shared workspace and co-working The third pace (or third space) is the socia space separate from the two usua socia environments of home ( first pace ) and the workpace ( second pace ). Exampes of third paces are environments such as cafes, cubs, pubic ibraries, or parks. In his infuentia book The Great Good Pace, Ray Odenburg (1989, 1991) argues that third paces are important for civi society, democracy, civic engagement, and estabishing feeings of a sense of pace. According to Jones Lang LaSae (2016), 25% of average worker time is now spent in third paces. Dennis Frenchman of MIT uses the term rea estate fracking to describe the fragmented and inefficient use of rea estate space. Optimising workspace is a second exampe of the shared economy being appied to rea property. Rea estate workspace sharing patforms can be viabe given the necessary conditions we presented above (a diverse, widey distributed source of demand (office-type workers); a diverse, widey distributed and heterogeneous source of suppy (work rooms); no dominant, efficient mechanism for bringing demand and suppy together; potentia financia gains to the demand side, the suppy side and an intermediary; and scaeabiity. Workspace (offices, coffee bars and restaurants, pubic spaces) is ess vouminous than bedrooms, but it offers sufficient scae for the disruptors to become interested. Co-working is buit on the opportunity to create third paces which support coaboration by workers from different backgrounds to encourage knowedge sharing, innovation and the user experience. The demand for 46 PROPTECH 3.0: THE FUTURE OF REAL ESTATE

48 Chapter 5 co-working space has been driven by the growth of the creative and tech industries as we as the changing nature of work. The number of co-working cub members using co-working spaces gobay has been steadiy increasing year on year to reach 1 miion by 2017 (Huet, 2016). Co-working - which has grown its market share from 1% to 14% of office space in centra London over the period has three distincty separate drivers. The first two coiding forces were the increasing demand from big businesses to be more fexibe in a fast-moving word and the ength and infexibiity of the traditiona office ease. One resut of this coision was Regus, a mutinationa corporation aunched in 1989 that now operates 4,000 business centres suppying fexibe quantities of space on short eases or icences across 120 countries. Regus, ike WeWork, expanded rapidy during a dotcom boom, but Regus became bankrupt in 2003 after the teecom and dotcom bubbes burst and its tech customers reduced their more fexibe workspace commitments. It has since diversified its tenants and now has a market capitaisation of $2.5 biion. Regus was not estabished by or for the benefit of miennias. When we add the third driver of co-working, the miennias preference for the access economy, we provide the conditions for WeWork and many other coworking brands. There are two co-working PropTech modes. We can characterise one as the Uber or Airbnb concept, where the tech firm is simpy an intermediary or broker of shorter term workspace. Brands active in this space incude LiquidSpace, PivotDesk, Fexioffices, Spacious (brokering office space in restaurants) and Breather. These, ike Airbnb, Uber, booking.com and many others rey on customer feedback and are as a resut sef-poicing (athough they face a reguation push back which we discuss in Chapter 8). The second co-working mode is characterised as the operator mode, in which the business directy or indirecty contros the capita asset. This is the ZipCar mode, used most famousy in the co-working sector by WeWork, Workbar (which recenty negotiated a tie up with retaier Stapes to use redundant retai space), Spaces (from the Netherands), Centra Working, Grind, The Hub and others incuding Regus, scrambing to adapt. These business typicay act as renters (and in future, owners?) of space and faciities managers rather than intermediaries between users and operators. WeWork, the gobe s eading shared office provider, opened the UK s argest shared space in London in 2016, with capacity to house 3,000 members. Its vauation reached a staggering $16 biion after its 2016 round of investment funding. Its cients are diversified across mutipe industries and the fastest growing segment is arger, more mature companies which have joined for the vaue proposition of more affordabe space, community and network (Jones Lang LaSae, 2016). The six-year-od New York start-up has aso changed its revenue mode from ease ength arbitrage (buying ong eases, seing short eases and reaising a break-up vaue) into a management fee coection mode for its services, incuding in some markets design, branding, software, and staff trading for its goba network of members. In 2017, Japan-based SoftBank Group invested $300 miion in WeWork, thought to be the first instament of a muti-biion-doar bet to make the brand truy goba. PROPTECH 3.0: THE FUTURE OF REAL ESTATE 47

49 The sharing economy Figure 5.3: The co-working journey Source: Jones Lang LaSae, PROPTECH 3.0: THE FUTURE OF REAL ESTATE

50 Chapter 5 Operators such as WeWork may continue to evove as a management company not a tenant, not a andord but an operator ike Marriott or Hiton. However, the probabe emergence of a third mode the owner-operator must aso be considered (see Chapter 8). It woud be surprising if a highy successfu WeWork with a strong baance sheet did not in the onger term de-risk its operations by acquiring the rea estate it operates in which case it woud probaby become a REIT. Meanwhie property companies are moving in the opposite direction. This temptation is neaty expained by the Harvard Business Schoo Jamestown Case (Sege, Baum, Lietz and Wu, 2016). Shoud Jamestown, a deveoper/investor of mixed use workspace in Brookyn, ease a key buiding to JP Morgan or WeWork? One has credit strength, supporting a high vauation for the income stream; the other a much weaker cash fow but a strong appea to a vauabe source of emerging tenants. Or shoud Jamestown aunch its own co-working operation? Astria, a German REIT, chose this atter route. British Land (initiay through a joint venture with Centra Working) is aso beginning to operate its own co-working spaces. Some co-working spaces focus on more deiberate coaboration, education and mentoring The Hub and Centra Working are exampes. These operations may then be tempted to become acceerators by trading space for equity. Big companies know they need to be keep an eye on the disruptors, so we can aso observe interna co-working, whereby estabished host companies invite investee companies and coaborators to share their workspace. 5.6 Other rea estate shared economy sectors The residentia, office and hote/hospitaity sectors wi bear the main brunt of the shared economy effect, and create an increased, more responsive and fexibe suppy that conventiona rea estate research and data fai to pick up. The next wave of workspace in a sharing economy is ikey to further diversify third paces as a way of faciitating mobie working, potentiay with a socia enterprise dimension. Meanwhie, other property sectors are aso being fracked. Internet-reated over-suppy in the retai sector is being matched with short term demand for what have become known as pop up shops through ventures such as Appear Here and We Are Pop Up, which caims to be the word's argest network of retaiers, space owners and brands coaborating on creative retai experiences. Excess retai space is being made avaiabe for workspace in Stapes stores in the US via a joint venture with Workbar, and Spacious is making restaurant space avaiabe to the same market in urban centres. Regus has a third pace workspace proposition, buiding a series of partnerships with airports, raiways stations, retai and roadside ocations. Former managing director Phi Kemp said: We see an increasing number of mobie workers. There were 1.3 biion of them in 2013, enabed by the mobie technoogy. Peope find themseves working wherever they are. But physica space hasn t caught up with the technoogy peope on the move don t have professiona paces to work. So we are targeting high footfa ocations that business peope use, and PROPTECH 3.0: THE FUTURE OF REAL ESTATE 49

51 The sharing economy provide a professiona workpace that s geared towards convenience and productivity. Roost is an onine storage and parking marketpace that matches the demand side - renters who have cars to park or materia to store with the suppy side, specificay neighbours who have unused space in their homes, garages, and driveways. The startup currenty operates in over 22 cities in the US. Sharemystorage and Storemates are simiar storage and parking ventures. Next in ine is ikey to be municipa buidings, ibraries, schoos, universities, churches and other ess obviousy commercia spaces where the opportunity to maximise space use wi driven party by socia enterprises. Here we see a the necessary factors in pace: a diverse, widey distributed source of demand (office-type workers); a diverse, widey distributed and heterogeneous source of suppy (under-used community and municipa space); no dominant, efficient mechanism for bringing demand and suppy together; potentia financia gains to the demand side, the suppy side and an intermediary; and scaeabiity. However, achieving scae wi be more difficut, as the suppy side is not entirey focussed on revenue. 5.7 China the emerging market The tota amount of investment made in rea estate in China (1.5 triion RMB) represents around 15% of the country s GDP (Nationa Bureau of Statistics of China, 2015). Incuding other reevant businesses, the entire rea estate and construction industry coud contribute as much as 30-40% of China s tota GDP. This is far arger than any other country in the word. On the other hand, the estimated tota size of the shared economy in China is ony 0.2 triion RMB, with ess than 5.5% of China s tota workforce either directy or indirecty empoyed in the fied (China State Information Centre, 2016). However, the Chinese centra government predicted that this area of the economy wi grow by over 40% annuay and comprise we over 10% of China s tota GDP by 2020 (China State Information Centre, 2016). This market presents an irresistibe opportunity for shared economy enterprises. Companies such as Airbnb, Xiaozhu and Mayi aready dominate the traditiona short renting market. Tujia and Youtianxia are pioneer companies in hoiday renting; Soho 3Q, Urwork and Vanke Coud Space are coaborative working space providers. Both traditiona short etting and hoiday renting sectors are growing rapidy. The entire onine short renting market was worth ony 140 miion RMB in 2012, but by 2015 its size had mutipied 71.4 times to 10 biion RMB and the estimated size by 2016 is 30 biion (Zhou, 2015). However, unike the bu market in residentia markets, coaborative office sharing space has not appeaed to Chinese companies. The extremey poor patent system in China has created distrust between corporates and discourages coaboration. Meanwhie, the Chinese government has buit mutipe incubators in each city to hep faciitate centra government s promotion of popuar entrepreneurship and innovation propaganda. China may be agging, but it is moving towards a soid and we estabished socia trust system, which wi eventuay provide the support needed to capitaise on its huge shared economy potentia. 50 PROPTECH 3.0: THE FUTURE OF REAL ESTATE

52 Chapter 6 Chapter 6 Rea Estate FinTech In this chapter we describe Rea Estate FinTech, meaning the enterprise sector which supports (sae or easing) transactions of rea estate assets Poster chidren: Ziow, Zoopa, LendInvest, OpenDoor 6.1 Rea Estate FinTech faciitates transactions in the capita markets In our anaysis of the companies which appied for PiLabs acceerator support in Chapter 3, 51% of a appications were in this vertica. The Rea Estate FinTech vertica was primariy active through the transactions horizonta, which comprised 75% of a appications in this sector. This chapter wi therefore primariy focus on transactions of, and information enabing transactions of, rea estate assets. Thus incudes freehod or fee simpe tite, ong easehods and shorter eases any rea estate asset with a capita vaue and capabe of being transacted. Given its size and the potentia revenues attached to it, the residentia sector is ikey to feature heaviy in any survey of Rea Estate Fintech: see Chapter 3, and CB Insights, 2016b. In Chapter 6, we set out the conditions that made a shared economy proposa attractive to tech investors and entrepreneurs. The conditions are (i) a diverse, widey distributed source of demand; (ii) a diverse, widey distributed and heterogeneous source of suppy; (iii) no dominant, efficient mechanism for bringing demand and suppy together; (iv) potentia financia gains to the demand side, the suppy side and an intermediary; and (v) scaeabiity. These same conditions woud seem to appy to the Rea Estate Fintech sector in genera; given that the residentia sector is much arger in size than the commercia sector, much activity wi be focused here. The diverse, widey distributed source of demand in the broad Rea Estate Fintech sector is homebuyers, home renters, and buyers and users of commercia and other non-residentia rea estate types; (ii) the diverse, widey distributed and heterogeneous source of suppy is the same goba rea estate asset base; (iii) there is no dominant, efficient mechanism for bringing demand and suppy together, instead of which we have a very arge number of brokers by whom information is often keeny guarded and who can survive on a sma number of arge, remunerative transactions; (iv) potentia financia gains to the demand side, the suppy side and an PROPTECH 3.0: THE FUTURE OF REAL ESTATE 51

53 Rea Estate FinTech intermediary evidenced by very arge round trip transaction costs; and (v) the same scaabiity based on the huge goba rea estate asset base. I'd expect that technoogy wi take a the offine rea estate search and transaction processes onine. Consumers wi be armed with transparent market demand and suppy information and wi be abe to take any actions they desire to easiy buy, se, or rent their homes. The home buying and seing process wi become much shorter and homes can turn over at a higher rate. Moreover, more consumers wi rent out their homes either as subets, nighty ets or ong-term rentas using onine technoogy, ike booking reservations on Open Tabe. Consumers wi be incentivized to purchase arger homes so that they can easiy rent out space; and roommates wi easiy find each other to ive together either on a short-term basis unti someone finds another pace, or on a ong-term basis. Truia just aunched rooms for rent; consumers can now easiy post their rooms onine in just a few steps. Truia and Ziow brought rea estate information onine so that consumers can have insightfu information at their fingertips instead of soey reying on an agent, just to understand and see avaiabe istings. Both companies are sti operating mainy as ead generating businesses for agents, focused on sending them highy quaified eads. In Q4 2016, on average more than 140 miion monthy unique users visited Ziow Group s consumer brands, an increase of 13% year-over-year. Neary 45% of peope who visited Ziow and/or Truia in the past 12 months are panning to buy and/or se a home in the next 12 months. Of the emerging technoogies, I d expect VR to pay a huge roe in rea estate. With VR, buyers and renters can view homes remotey and secure a pace. Potentiay, there coud be a service ike TaskRabbit where consumers can hire peope to go view a home for them. From my own perspective, I want to see everything currenty done offine to be brought onine with a heavy focus on mobie, so that the home buying and renta processes can be done on-the-go. Yardey Ip, Truia 6.2 Market size According to Savis, 2016 and the Word Bank, the goba rea estate market is worth $217tr, 75% of which is residentia property. Annua rea estate trading has averaged $683bn annuay since 2007 and reached $900bn in This represents turnover of around 0.3-4% of the capita stock. Inventory turnover in the S&P 500 company averages around 15 times; this is a mutipe of approaching 5,000 compared to goba rea estate. The goba rea estate market is huge making up more than haf the vaue of a mainstream assets in the word - but it is horriby iiquid. Ignoring taxes on property transactions, ega, vauation and structura due diigence, contracts, investment advisory fees and brokerage fees are ikey to produce an average round trip trading cost of around 3-6% of the price of the rea estate; and this estimate excudes abortive costs on transactions that do not compete. Annua 52 PROPTECH 3.0: THE FUTURE OF REAL ESTATE

54 Chapter 6 fees of 5% on $1tr of property vaue (0.4% of the market) woud provide income for buit environment consutants, rea estate professionas, awyers and accountants of around $50bn a year. Shaving 10% off that through greater efficiencies woud reease potentia revenues of $5bn. Reducing the iiquidity of rea estate from a five thousandth to ony, say, a one thousandth of the average arge companies woud mean that a 10% efficiency gain woud reap a goba revenue gain of $50bn; and a 50% improvement woud be worth $250bn annuay. In 2015 the biggest goba companies earned revenues as foows: Facebook $17bn, Googe $70bn, Microsoft $95bn, Amazon $100bn, and Appe $200bn. KPMG earned $25bn and Deoitte $35bn; CBRE earned $10bn, and JLL $6bn. A dominant patform reducing the inefficiencies of property trading and enhancing iquidity might not ony command a arge share of those $50bn revenues but might aso grow the size of the pie. The industry coud certainy generate a unicorn (a $1bn vaue company) or 10; there are currenty around 25 goba FinTech unicorns. Ceary, the focus of endeavour wi be on improving the efficiency of the transaction process, and creating more iquidity or veocity. The reative scae of the market wi encourage serious investment primariy in the residentia market; commercia market appications are ikey to foow behind. The MIT innovation ab has conceived a funne of rea estate tech, described by Steve Weika. Imagining the rea estate professiona moving through a process of site ocation research, through finding a space, anaysing the dea, managing the transaction process and finay managing the asset, MIT provided exampes, to which our research has added, of new PropTech 2.0 entrants and the PropTech 1.0 defenders. These wi be described in the foowing sections. 6.3 Research and information businesses PropTech 1.0 created a arge number of information and anaytica businesses, which were then weakened by over-capacity, attacked by market eaders and subsequenty swaowed. The end of this process was marked by Loopnet being sod to the big winner in the sector, CoStar ( The industry s most comprehensive database of commercia rea estate information with $1bn invested in data coection ). Aongside some newer PropTech1.0 spinoffs such as Rea Estate Strategies/PACM in the UK we now have a new generation of chaengers using cheaper and more advanced technoogy in combination with a greater avaiabiity of pubic data to produce what appear to be product-driven businesses. These incude Datscha, Geophy, Kensee and Mashvisor, a offering (as the atter suggests) mashups of various data sources and hoping to persuade property investors to make sense of the combined resut. Datscha provides an onine soution for faster and more accurate decisions by turning data from the best pubic and private sources. Our core DNA is to coect, match, aggregate and visuaise pubic and proprietary rea estate data in the market s most modern and easy to use web based service. Kensee automaticay coects and organizes mass amounts of goba Rea Estate data, cutting through the PROPTECH 3.0: THE FUTURE OF REAL ESTATE 53

55 Rea Estate FinTech noise by bringing you ony the reevant information, taiored to your interests and needs. We convert the bits and pieces of dispersed information into crysta cear market signas, sentiment trends and actionabe insights, so you never miss rapid markets changes. Geophy is aso representative of this group: In a word demanding ever-greater transparency, rea estate remains incrediby opaque. GeoPhy was founded to change just that. On a daiy basis, investors, banks, pension funds, consutants, governments and reguatory bodies make rea estate decisions based on partia and inconsistent information. Right across the industry the ack of consistent and reiabe data has undermined, devaued and destabiised short, medium and ong term investment returns. We appy cutting-edge technoogy to an ever-growing amount of data from a wide variety of sources. Our semantic mode for the rea estate domain enabes advanced anaysis and research, combined with machine earning for predictions and forecasts. Machine earning and artificia inteigence are important in Rea Estate Fintech. Artificia inteigence (AI) is inteigence exhibited by machines. An inteigent agent is a device that takes actions that maximize its chance of success in achieving a specific goa; machine earning is a type of artificia inteigence that provides computers with the abiity to earn without being expicity programmed. Machine earning focuses on the deveopment of computer programs that can change when exposed to new data. The process of machine earning is simiar to that of data mining, as both systems search through data to ook for patterns. However, instead of extracting data for human comprehension, machine earning uses patterns in data to adjust program actions automaticay. This means that, for exampe, mutipe regression modes used to forecast rents can be constanty re-estimated in rea time as new data enters the system. Can machines out-advise experienced professionas? We wi return to this question in Chapter 8. ZoomProspector, Aeria Look, ESRI and StateBook are focussed on ess ambitious site seection toos: StateBook is the first onine marketpace for site seection and economic growth and deveopment. Expore reiabe information required for site seection decisions for every community in the country, from demographics, taxes and utiity costs to quaity of ife data ike museums and gof courses. Connect with economic deveopers from each ocation to earn more about their communities, and use our robust toos to search, create meaningfu reports, and more. Wecome to the new onine meeting pace for site seection consutants, EDOs, business, academia and government. Compstak (US-based) brings together easing data for investors and occupiers; its India equivaent is Propstack. UK-based Infabode brings together reports on goba rea estate markets into one simpe search engine. A major component of the research and information sector is the commercia property search engine. Finding a space to rent or to buy has been or was unimaginaby difficut pre PropTech 1.0. This invoved magazine paper-based advertising media incuding pubications such as Craigsist, Yeow Pages, Exchange and Mart and Gumtree eading to physica meetings, or (at the upper end of the market) phone cas with a disaggregated 54 PROPTECH 3.0: THE FUTURE OF REAL ESTATE

56 Chapter 6 seection of rea estate brokers. In London, these brokers were retained to se or ease certain properties, meaning that they woud receive a fee on sae from the seer of up to 1% of the price or, on a etting, say 10% of the initia rent. They often described themseves as advisors to the vendors (and sometimes were). If they were not retained, they woud ook to the purchaser for a fee if they introduced a property on which another broker was retained. Of course, they woud heaviy promote the assets on which they were retained. Sma brokerages or agencies coud survive for a year and onger on one successfu cosing. That word and business mode is sowy being assigned to the past. Properties are searchabe on the internet through individua brokers sites. A diigent tech entrepreneur can imagine ways to aggregate this data and to motivate the brokers to share it. Aternativey, he or she might empoy a web crawer which is a bot (software appication) designed to systematicay browse the web. These web crawers can copy a the pages they visit for ater processing by a search engine. Crawers often visit sites without tacit approva. New sites, using both the aggregation and web crawer modes, are in arge suppy in a winner-takes-a race for brand supremacy. Exampes incude PropTech 1.0 survivors CoStar and LoopNet (owned by CoStar), pus startups ReaMassive, TheSquareFoot, Hubbe, Property.Works, SPD, Xceigent, REALLA and Rea Capita Markets. Painy, not a of these wi survive to PropTech 3.0. Anaysing the dea requires comparabes, or comps what has been paid for simiar buidings nearby? This process is faciitated again by CoStar but aso by by Compstak, Credi-Fi, Megaytics, Propstack, 42 Foors and Lucro, which neaty adds modeing software for woud-be property investors. However, the great majority of commercia rea estate deas wi continue to require expert ega and rea estate advice. Brokers who might now be better described as agents - wi continue to charge fees for heping to se buidings by direct contact with the purchaser (or his own agent). The revenue modes for these businesses may be subscription-based (CoStar), or may instead rey upon taking a sice of the broker s fee. This process is now under pressure, and true advisors charging time-based fees wi emerge in a word where much information is freey searchabe and high brokerage fees are unsustainabe. This assumes that vendors of properties wi wish to expose their assets to pubic inspection. Uness and unti we have an active unitized market for shares in assets (see Section 6.8 beow), this is not ikey to be the case for arger transactions. It often suits both buyer and seer to transact off-market, to avoid the stigmatisation of an over-exposed asset that fais to transact rapidy through over-pricing. In March 2017, for exampe, British Land and Oxford Properties announced the sae of The Cheesegrater 22 Leadenha Street, London for 1.15bn to Chinese buyer CC Land. Very few market professionas, et aone the pubic, knew that the buiding was up for sae. Then, of course, maybe it was never marketed for sae. In a word of open web-based information, woud-be buyers are capabe of using research engines to identify buidings and their owners and make a direct approach. It is no wonder that rea estate agents worry about disintermediation as Eizabeth Barrett Browning wrote: et me count the ways.. The deveopment of open ownership data pursued by Datscha, for exampe, might by itsef reduce transaction costs and improve iquidity and turnover from that tiny 0-3-4% of the capita stock. PROPTECH 3.0: THE FUTURE OF REAL ESTATE 55

57 Rea Estate FinTech 6.4 Residentia saes and etting engines Onine estate agents are grabbing market share from the traditiona versions, with a reduction in the number of estate agents widey anticipated. Ziow, Truia, Rightmove and Zoopa are a successfu tech-enabed information providers in UK and US residentia rea estate, a ate stage PropTech 1.0 payers who are now reativey mature and with a straightforward information aggregation proposition (Rea Estate FinTech/information). These businesses began with residentia saes and have more recenty moved into ettings: for exampe, Truia aunched its renta brand in The PropTech 2.0 chaengers are a mix of sophisticated machine-earning tech companies (we feature HouseCanary) and something of a reversion to a human interface (we feature Purpe Bricks). Saes Data science wi continue to pay an increasingy huge roe in predicting home prices for companies ike OpenDoor and Knock. Ziow aready has a dominant brand - Zestimate - to hep home seers better understand their home vaues. Yardey Ip, Truia Jeremy Sickick of US-based HouseCanary, which uses AI/machine earning to vaue residentia property in rea time, estimates that it takes on average over 100 days to se or buy a house in the US, and a combined tota of 11% of the price of the house is spent by both sides in fees and taxes. Their mission and opportunity is to take a sice of that 11% whie reducing the tota burden of cost. In the UK, estate agents have traditionay operated on a soe agency basis, and are reiant on instructions to se properties on behaf of the owner for a fee of around 1%-3% of the purchase price. In the US, soe agency is ess common than the pooing of instructions across groups of brokers through what is known as a mutipe isting service. This is a coection of services that rea estate brokers use to share information about properties with other brokers who may represent potentia buyers, estabish contractua offers of fee sharing. and accumuate and disseminate comp information to enabe appraisas. The isting data stored in a mutipe isting service's database is the proprietary information of the broker who has obtained a isting agreement with a property's seer. Broker fees can as a resut of this sharing mode be a huge 6% of the property price, athough it shoud be said that the broker aso faciities exchange of contracts and ega professionas are ess invoved, saving fees esewhere. In most deveoped markets, where debt is used in the majority of house purchases, the bank or ending party commissions a vauation by a quaified professiona. This inevitaby takes time form fiing by the buyer, processing of the appication by the ender, commissioning of the vauation, setting up the inspection, preparing, writing and returning the vauation and processing the information received which can eat into a arge proportion of the 100 days. 56 PROPTECH 3.0: THE FUTURE OF REAL ESTATE

58 Chapter 6 Uncertainty over the vaue of the property can aso deay the initia sae process, risking gazumping (a potentia buyer offering more to a seer after an agreement has been reached with another buyer at a ower price) and a ong drawn out negotiation. The we-funded HouseCanary proprietors beieve that they can deveop inteigent AI agorithms which can be accurate for the vast majority of US homes (say 80%) to within a 2% error range. Given that in some markets (incuding the US, Austraia and South Africa) on-ine appraisas are egay acceptabe, the acceptance of this thesis by market participants and enders woud mean that perhaps haf of the 100-day ag can be taken out of the process in 80% of transactions. This woud create a 40% efficiency gain. We can imagine a word in which prospective house buyers can go to one site where a houses on the market or, better, a houses - are isted, with an independent and pubic vauation discoverabe by the seer, the buyer and enders. The transaction process wi be faster, and the iquidity of this huge asset cass wi be greaty improved. This one site, or a duopoy, is aready in pace or emerging in the deveoped and major deveoping markets, and the activity of venture capita investors described in Chapter 3 suggests a focus on increasing dominance by arge brands. In the US, Ziow recenty bought its cose competitor Truia; in the UK, Zoopa bought Hometrack; in China, Fang, Sina and Juwei (for internationa property) are dominant; in India it is PropTiger and Square Yard. However, an interesting batte is emerging in the UK which might be an eary sign of the ikey PropTech 2.0 reaction that we wi discuss in Chapter 8. Zoopa and Rightmove are information providers; Purpe Bricks is a tech-enabed estate agent which puts seers together with oca experts. Since its aunch in 2014 Purpe Bricks has raised we over 100m in VC funding and through the isted markets. Its business mode is shockingy simpe it simpy cuts out the cost of running a chain of offices. Purpebricks was conceived by brothers Michae and Kenny Bruce from their experience in running a successfu traditiona estate agency in the Midands. The brothers reaised that, with the proiferation of the internet and widespread acceptance of transacting onine, customers were interacting much ess with high street branches. This presented the opportunity for the deveopment of a new ower cost mode without the need for a branch network yet retaining the oca expertise and persona service that an agent offers. As of Apri 2016 the Directors estimate that the Company has become the third argest estate agency in the UK by fee paying customers at its current run-rate of instructions. Purpebricks successfuy foated on AIM in December Since then the Company has expanded its market share consideraby and has announced its aunch into the 3.3bn Austraian estate agent market (and now the US market). (From customer feedback in Austraia): The process for a seer starts by booking a property appraisa. This can be done onine. Using an onine form, the seer can enter in their address, choose a day and time, and confirm an appointment with their Loca Property Expert. A Loca Property Expert is someone who works for Purpe Bricks, basicay ike a franchisee or oca office of any other rea estate agency. One difference between Purpe Bricks and a traditiona rea estate agency is that Purpe Bricks Loca Property Experts do not have an office; they work remotey and come to the seer s home for any face to face interactions. The Loca Expert wi PROPTECH 3.0: THE FUTURE OF REAL ESTATE 57

59 Rea Estate FinTech create a foorpan of the property and give the seer an idea of what the property may be abe to se for in the current oca rea estate market. If the seer chooses to go ahead and use Purpe Bricks to se their property, they wi be charged $4,500 for a sae by private treaty and $5,325 for sae by auction. Another difference between Purpe Bricks and a traditiona rea estate agent is that Purpe Bricks wi charge the fee to the seer whether the property ses or not; a traditiona agent is ony paid their fee if they se the property, and the fee comes out of the proceeds of seing the property. The Purpe Bricks mode, which combines digita and human interfaces, and is repicated in the US by Tripe Mint, coud be a sign of the future. Traditiona business formats capturing tech for their own benefit wi hit back and compete with purey digita offerings. This appears to be the mode in India; SquareYard and PropTiger are both tech-based advisory and saes businesses that are raising significant US venture capita. Lettings We beieve that urbanization wi acceerate the sharing economy (cars, bikes, etc.) and aso create more efficient and iquid markets for residentia and commercia spaces. Differences from one neighborhood to the next or one quadrant of the city to the next, in our view, have aways been apparent to consumers and rea estate professionas. We beieve urbanization wi make these differences more important, and thus generate increased demand for information and anaytics about hyperoca markets. As a resut, we beieve that residentia and commercia brokers that are abe to become hyperoca market experts and use socia media to brand themseves as such wi take market share from peers that, in contrast, try to be a mie wide and an inch deep. Urbanization and the increase in residentia deveopment (rented and owned) wi ikey increase the impact technoogy has on apartment and condominium markets. Consumers wi be abe to use technoogy such as Matterport s 3-D tour software to view prospective rentas virtuay after using information from sites such as RentPath and CoStar to choose a neighborhood in which to ive. Whie we woud not decare that technoogy wi commoditize the renta market, we beieve the combination of urbanization and technoogy wi dramaticay increase the iquidity of the renta market and hasten the demise of renta intermediaries. Wiiam Bair, 2015 Like the typica residentia sae, the residentia etting process is aso characterised by risk and inefficiency. Landords risk etting to inappropriate and untrustworthy tenants; tenants risk paying out deposits and rent to unsuitabe andords; and a disparate poo of avaiabe rentas is matched by a disparate poo of prospective renters. Many tech entrepreneurs beieve this market is ripe for disruption. In the UK, Goodord is a renta market pace whie Houzen rates etting agents using customer feedback. NoAgent connects residentia andords and tenants directy via an app, with revenue derived from andord subscription fees. Zumper is an onine aggregator of apartments for rent. Reposit intermediates tenant deposits by taking a fee from tenants and guaranteeing to pay for any damage shortfas. Cozy incentivizes andords to set up renter appication processes and payments through their patform. 58 PROPTECH 3.0: THE FUTURE OF REAL ESTATE

60 Chapter 6 Pastiq and RadPad aow renters to initiate payments without andords having to expicity invite the renters, eaving the contro in the renters hands. (RadPad was acquired by LandordStation after neary shutting down despite having what was beieved to be a good product.) Yapstone is essentiay a service provider for businesses who want to accept payments. 6.5 Crowdfunding and equity raising patforms If there is one area ripe for FinTech innovation, it s rea estate investing. Why put 30% down just to gain massive management headaches when you can now invest in renta cashfow onine with very simiar returns? FinTech and Rea Estate are ike peanut butter and jey, they just go together! Linda Schicktanz, Chief Advisor, CK Mack Equity raising in the private markets remains a vita, difficut activity. Equity is generay more time consuming to raise than debt: Keith Bresauer of Patron Capita describes the 949m equity raise for Patron Fund V as a ong process incuding 490 meetings with potentia and eventua investors. Hence, we can observe tech-driven entrepreneuria activity in the raising of equity. The shared economy mode rea estate crowdfunding - has captured the imagination of young entrepreneurs; the bigger inefficiency, as iustrated by Patron, woud be in the institutiona markets. Up to 2016, rea estate equity crowdfunding had raised $3.5 biion for 125 companies in the US, around 10% of goba crowdfunding capita raised (Esbaitah, 2016). Crowdfunding has the potentia to resove the capita requirement probem for ess financiay capabe buyers, but aso to remove geographica barriers. Reducing the minimum dea size for an investor shoud widen the potentia buyer base and the poo of avaiabe capita. Capita raisers Brickvest, Property Partner, Capitarise, Property Crowd, Property Moose, Piggyback and Mashvisor, in the somewhat patronising yet hopefu words of the atter, et average peope become savvy individua investors to make profitabe rea estate investments and renta strategy decisions through an onine patform that instanty aggregates rea estate data. Increasingy, new GP patforms (for exampe, Shojin) use their own crowdfunding soutions as a retai distribution channe. Singe properties are unreguated, so the resut of the coision of retai crowdfunding and reguated investment management business is yet to become cear. The mechanism used for more sophisticated investments invoves retai investors being grouped into one LP, advised by the patform. Piggyback aims to source the best property deas so you don t have to. A of the Piggyback investment properties have been handpicked by our team foowing extensive research and in accordance with our strict criteria, so you can be confident about the investment opportunities we offer and pick a property that is right for you. Your investment is competed through our secure patform and your money is safey hed by a reguated third party custodian in a cient account unti the property is fuy funded. We accept investments in increments of 1,000, in exchange for which you wi receive shares in the property. You can check the performance of PROPTECH 3.0: THE FUTURE OF REAL ESTATE 59

61 Rea Estate FinTech your investment portfoio by ogging into your Persona Property Porta at any time, day or night. Whether good advice is being proved by professionas in these patforms is at best uncear. We refect on the risks in Chapter 8. The disparate word of GPs (genera partners, fund raisers) and LPs (imited partners, investors) requires inteigent GP and LP matching soutions. Tech-enabed information providers such as Property Funds Research and Indirex are being repaced by PropTech 2.0 soutions such as icapitanetwork (for private equity) and rea estate-focussed Source Centra, which modernizes how Institutiona Investors and Fund Managers engage each other. As Rea Assets become a arger part of Institutiona portfoios, teams need toos that improve productivity and ease the intense operationa demands of rea asset investing. Source Centra is designed excusivey for Institutiona Investors and Rea Asset Fund Managers: a secure two-sided network that provides Investors with an intuitive patform to source and organize investment opportunities and Fund Managers with a compiance-friendy distribution and engagement too. Our mission is to improve how Rea Asset Investors and Fund Managers do business through we-designed technoogy. In addition to crowdfunding and GP/LP matching, we observe a truy innovative group of residentia coownership sites incuding The Unmortgage and Stride Up, whose proposition is to hep prospective homeowners without adequate deposits co-invest with equity-rich capita providers. These sites combine crowdfunding-sourced equity and secondary market exits for home occupiers and co-investors. Is this a revoution in train? Wi rea estate become a iquid, divisibe, tradeabe asset, ike any security? See Section 6.8 and Chapter 8 for more on this issue. 6.6 Debt and mortgage tech patforms There is going to be an exposion in the use of data driving the mortgage process in Both Freddie Mac and Fannie Mae have announced their data initiatives toward the end of 2016, and enders are starting to push consumer financia data aggregation into the core components of their customer experiences. This ties in nicey to the industry-wide push forward to a more digita, end-to-end process that started in Nima Ghamsari, co-founder and CEO, Bend In addition to equity sources, debt crowdfunding and mortgage patforms are booming (see Chapter 3). Muhn (2017) distinguishes what she cas mortgage tech companies from digita mortgage ending companies. Mortgage Tech companies are mosty B2B companies specificay focused on faciitating part of a of the mortgage appication process but which do not end or service the oan. Within this category (and focusing on the US market) she ists Credit Sesame, Envestnet/Yodee, Equifax, eveopen, Habito, Kofax, Mortgagebot, Mortgage Harmony, Point, Roostify and Top Image Systems. Digita mortgage ending companies are onine enders which both faciitate the mortgage appication process and service the oan. Within this category she ists Better Mortgage, Guaranteed Rate, LendingHome, 60 PROPTECH 3.0: THE FUTURE OF REAL ESTATE

62 Chapter 6 LendingTree, Rocket Mortgage/Quicken Loans, Sindeo, SoFi and Zeus Mortgage. Lender SoFi was at eary 2017 about to cose a $500 miion funding round. Its competitor LendingHome topped $1 biion in mortgage oan originations in 2016, and peer-to-peer ender ReatyShares has seen over $300 miion raised on its patform. As a sign of deas to come, Roostify formed a partnership with conventiona ender JP Morgan Chase; in the UK, Trusse and pioneer peer-to-peer rea estate ending patform LendInvest are aso very active. 6.7 Commercia property easing and portfoio management For buiding owners, easing and portfoio management are the most pressing issues driving cash fow and return. Recognition of this has encouraged two different groups of tech-based businesses. First, the modeing of portfoio cash fows has aways been a difficut chaenge in rea estate because of the compexity and risk of buiding very big datasets in Exce. The dominant portfoio modeing, property and asset management toos a with their critics - are argey creatures of PropTech 1.0. Argus, Taiance and Yardi have swaowed competitors and compatibe businesses en route (Argus swaowing The Ream, Circe and Voyanta being a good exampe) but are being joined by new offers such as Reoptimizer, and others are poised to use new and more efficient processes than the PropTech 1.0 spaghetti bas of knots and tanges to compete with these arge and often unfriendy engines. Second, management of the easing process is often inefficient. Interviewees compained about etting agents using a variety of communication media, incuding paper, to report progress with viewings, offers made and recommendations regarding terms. VTS (View This Space), which recenty acquired its competitor Hightower in a $300m merger, is buit to provide rea-time portfoio anaytics to the top andords and brokerage firms in the word. VTS aows brokers and andords to manage dea activity, identify trends and quantify portfoio performance from their desktop or mobie device. With 3.3 biion square feet under management, VTS is the driving force behind the industry's shift towards rea-time data and is quicky becoming the market standard. These firms enabe owners and managers of commercia rea estate to monitor the etting process in rea time basis by sharing information through a common patform. At the same time, prospective tenants can view the space using virtua reaity. Leverton is another exampe of a tech firm creating efficiency in the easing and portfoio management process. Adding another critica eement to its technoogy patform, JLL today (August 10, 2016) announced a goba cooperation agreement with Leverton. This formaises the reationship between the two companies and enabes more effective management of ease documents through the ro out of Leverton s machine earning technoogy gobay. JLL, the eading goba financia and professiona services firm speciaising in rea estate, and Leverton, the eading goba deep and machine earning company, had an existing reationship to automate and digitise key administrative processes in ease management. As part of the newy signed agreement, Leverton s PROPTECH 3.0: THE FUTURE OF REAL ESTATE 61

63 Rea Estate FinTech automated ease abstraction software wi be depoyed for JLL s cients in North America, Continenta Europe and Asia Pacific. Leverton s machine and deep earning technoogy enabes the identification, extraction and management of key terms and data from corporate documents, such as eases and contracts, in more than 20 anguages. JLL wi integrate these systems into its own goba technoogy patforms to transform the way ease documents are reviewed, anaysed and managed for its cients. JLL cients wi benefit from optimised data management, more efficient processing of documentation, reduced operationa risk and a more robust audit trai. The efficient storage of ease data opens up possibiities for much greater iquidity of easehod interests. Currenty, eases may be assigned or properties may be subet, often requiring the essor s consent, in an odfashioned paper-based process invoving up to six parties (assignor, assignee, rea estate advisors on both sides and two sets of awyers). The efficient storage and summarisation of easing documents wi, in time, simpify this transfer. We may even be at the beginning of a new market for eases as tradeabe securities, with bockchain (Chapter 7) paying a key roe. 6.8 Disposa and secondary market exchanges Is a revoution in rea estate in progress? Wi tech-based endeavour be the prince which transforms the rea estate frog into a beautifu, iquid, divisibe, tradeabe asset, ike any security? UK residentia rea estate is now more unaffordabe that it has ever been in recorded history, and the goba iiquidity of the residentia saes process has been another barrier to first time buyers. Wi this issue be soved by on-ine house sae sites? In the vouminous and tempting residentia sector, the WeBuyAny Car.com mode is aready being appied to create what is intended to be a secondary market patform for homes. Opendoor raised $210m in 2016 and $320 miion to date to expand its home buying and seing patform to 10 US cities. A UK equivaent, Nested, was aunched in Companies ike Opendoor, OfferPad and Knock operate as pure market-makers, iquidity providers or middemen, suggesting to seers who are trying to iquidate fast that they can se their homes more quicky and efficienty but for a service fee of around 6,5% and at a discount (said from some evidence to be around 6%). Opendoor buys the home from seers outright, whereas Knock uses an underwriting mode by guaranteeing a price and seing on the seer s behaf. If the house does not se within six weeks, Knock wi buy it. Rezi takes ong eases of residentia property and rents out the space on shorter terms at a profit again, pure market arbitrage faciitated by the greater reach of a tech patform. Ironicay, perhaps, this tech soution suggests a beief in the inadequacy of tech-based renta sites. We wi earn over time how sustainabe this mode is, how commoditised the sector can be, and whether homeowners wi accept discounts for iquidity as the price of funadamenta defects in the home saes and etting processes. The commercia market, on the other hand, is ess ikey to offer such a service. Instead, we can see attempts 62 PROPTECH 3.0: THE FUTURE OF REAL ESTATE

64 Chapter 6 made to unitise assets and to trade units through patforms. For exampe, Goba Aternatives is a hoding company which has acquired crowdfunder Property Crowd and set up Prop-X, a secondary trading patform for seing and buying units in buidings. Prop-X wi provide ive rea time prices, promising iquidity and (perhaps) rea time price discovery. IPSX, the Internationa Property Securities Exchange, is a new exchange for the trading of shares in singe asset property companies preparing to appy for fuy reguated exchange status in mid IPSX says: We wi ist singe-asset companies hoding buidings worth about 30m or more as a proxy for direct investment in property. IPSX wi operate the first dedicated exchange gobay to provide a pubic stock market soey for the admission and trading of shares in companies owning and managing individua commercia property assets. IPSX wi provide property owners both institutiona investors and owner occupiers with the option to progress an Initia Pubic Offering of their rea estate assets in a corporate entity, which offers the unique assurances to investors of a fuy reguated exchange. Wi there be iquidity in the shares? This is not the first time that a wave of activity has been aimed at unitising rea estate hodings. The 1980s saw Property Index Certificates, Singe Property Ownership Trusts and Singe Asset Property Companies; in 1988 the Biingsgate SAPCO disappointed as iquidity disappeared during a severe property downturn (Roche, 1995). The 1990s saw the Rea Estate Index Market; the 2000s saw the emergence of the rea estate derivatives market. A fattered to deceive; none gained irreversibe momentum. However, the widespread use of FinTech distribution patforms wi make the potentia marketpace bigger; and the decine of defined benefit pensions and, because defined contribution pension pans need daiy vauations, the parae growth of defined contribution pans may just create the right backdrop. A daiy traded market in singe assets coud be the way in which these pans wi access rea estate. Maybe just maybe PropTech 2.0 wi deiver the soution we have been waiting for. We consider this again in Chapter China the emerging market It is unikey that we wi see a truy goba dominant patform for on-ine rea estate transactions anytime soon. Reguations differ, oca cutures vary, the essentia data does not aways exist, and trade barriers are being maintained and enhanced. Given its recent deveopment from a communist state to big government with a pro-business stance, China has been abe to eapfrog traditiona western modes of doing business and adapt immediatey to the era of e- commerce. The Economist (2017) has suggested that China is the word s eader in FinTech with by far the biggest market for digita payments. Dominant businesses such as Aibaba and Tencent, protected by government-imposed trade barriers, are aready in pace, and China constitutes no ess than 75% of the goba market for on-ine ending. The argest Chinese FinTech company, Ant Financia, is vaued as highy as UBS. When it comes to FinTech, the rest of the word wi be studying China s experience. There is more PROPTECH 3.0: THE FUTURE OF REAL ESTATE 63

65 Rea Estate FinTech consoidation of web appications, with the resut that phones are used as waets by 425m Chinese (65% of a oca mobie users). However, a reguatory kickback is in motion. More than a third of a peer-to-peer ending patforms, which had captured a arge part of the market, have been shut down. Banks and asset managers have responded and are entering the e-commerce market, sometimes in partnership with the interopers. It appears that China offers an exampe for the rest. Where there are few barriers to entry, the brand of a we-capitaised and secure bank in an inherenty risk-averse industry wi see it beat any startup. In the rea estate sector, Chinese FinTech is sower moving, ike the asset cass. However, residentia saes information engines are dominant, incuding Fang.com, previousy known as Soufun, which is the argest domestic porta for new home buiders. Sina Rea Estate is one of the arger information congomerates (simiar to Googe or Yahoo), with a subsidiary rea estate information porta. Juwai is the argest internationa rea estate porta. This is subscription based: seers can upoad property istings for a fee. Juwai aso puts on saes events. E-House Leju has a strategic partnership with Ziow, whie the $225 biion Chinese internet and socia media group Tencent, which operates China's equivaents of WhatsApp, Facebook, Spotify, Kindy and AppePay, has announced the creation of an internationa rea estate marketpace with Juwai. However, debt-financed property transactions are ess straightforward in China because of an absence of credit histories. This may change. The emergence of e-commerce in China since the beginning of 2000 means that companies such as Tma (a subsidiary of Aibaba) and JD.com have accumuated big data, and reevant technoogy improvements have enabed these patforms to use consumers shopping patterns to buid interna credit frameworks. Experienced companies such as Experian from the UK are expanding into China by creating joint ventures with oca companies to hep set up officia credit rating systems. Severa socia media and rating patforms have been estabished and have gained tremendous popuarity in recent years. Can the atest technoogy deveopments jump over these internationa barriers? Asia (probaby) was the birthpace of the most intriguing of a of these deveopments - bockchain. This and its potentia impact - wi be covered in Chapter PROPTECH 3.0: THE FUTURE OF REAL ESTATE

66 Chapter 7 Chapter 7 PropTech 3.0: bockchain and artificia inteigence In this chapter we expain the background to bockchain and distributed edger technoogy, and why it might have a significant impact on goba rea estate trading Bockchain is coming - get ready. If you haven't heard of Bockchain yet, it's ikey you wi soon. It coud drasticay change the rea estate industry if it takes off as proponents beieve. It's a new technoogy, a way of doing business, and transformationa if it pays out." (Ian Cameron, CIO OSCRE Internationa) 7.1 Bockchain is coming get ready OSCRE (a coaboration of organizations and individuas focused on the deveopment and impementation of rea estate standards) is ooking into the ong-term potentia for Bockchain, or distributed edger technoogy, as a potentia breakthrough that coud restructure the way information is exchanged and business is conducted in rea estate. Expaining the bockchain for the first time is tricky because it borrows from so many discipines, incuding game theory, economic and monetary theory, cryptoogy, the internet and computer sciences. The technoogy was introduced in ony eight pages by Satoshi Nakamoto s famous 2008 white paper (Nakamoto, 2008). According to Simon Tucker: The increased eve of avaiabe information and computationa data, in conjunction with improved automation, may trigger a second information revoution, going beyond what internet and mobie technoogies generated. Particuary for Bockchain, the potentia is huge, and so is the threat to existent paradigms. The eve of operationa automation that you can generate brings an amazing edge over traditiona processes. In addition, the digita certificates are easier to trade, opening possibiities for new trading venues and bringing secondary markets to traditionay iiquid assets. A distributed edger (aso caed shared edger) is a consensus of repicated, shared, and synchronized digita data spread across mutipe sites, countries, or institutions. There is no centra administrator or middeman and no centraised data storage. Bockchain is: (i) a technoogy and a business practice buit on peer-to- peer transactions; pus (ii) a packet of information (a bock) with the abiity to create an historica and permanent edger of transaction detais. Its rea vaue is in estabishing trust-based interactions, thereby acceerating the transfer of governance from PROPTECH 3.0: THE FUTURE OF REAL ESTATE 65

67 PropTech 3.0: bockchain and AI centraised institutions to distributed networks of peer-to-peer coaboration. Bockchain currenty works on sefreguation through sef -interest and consensus. The information function the edger is perfect for and registration. Wi bockchain be used to transfer money overseas, the most cunky and inefficient of a banking processes, without a party to use or speak to? Wi individuas and institutions use bockchain for a arge rea estate transaction without the protection of a human interface? Bockchain gives service providers a means to coaborate and derive a greater share of the vaue for themseves. The technoogy s trust protoco aows autonomous associations to be formed and controed by the same peope who are creating the vaue. A revenues for services, minus overheads, woud go to members, who aso contro the patform and make decisions. Trust is not estabished by third parties, but rather through an encrypted consensus enabed by smart coding. The differences between this approach and current internetbased transaction technoogies are profound and difficut to comprehend, which is a probem for bockchain proponents. However, internationa banks, investment firms, technoogy companies and others are spending significant capita and resources to evauate the benefits and potentia impact of Bockchain. The abiity of bockchain-based processes to execute transactions without an intermediary or a cearinghouse very much suits a private market ike rea estate and provides a cear contrast and aternative to the IPSX mode of providing a pubic market to trade shares in buidings. For those who prefer not to expose their assets to the gare of the market, this is a cear attraction. The distributed edger hods a history of a transaction, a property, an asset, or a tite; it deveops a digita secure identifier for a proposed transaction; and it offers an abiity to transfer funds in new ways, for exampe using a digita encrypted (or crypto-) currency such as Bitcoin. The bitcoin bockchain is the most robust and ongest running form of distributed edger technoogy, and this wi be the focus of this chapter. Data quaity is one of the major benefits of a bockchain. The internationa scope of bockchain makes internationa data exchange standards even more important because of the diversity of assets and the geographies invoved, and it is cear that data exchange standards such as those maintained by OSCRE wi pay a significant roe in creating consistency, trust and a common ground for bockchain transactions. Consuting companies are now setting up bockchain practices and advising cients to do their own due diigence and to get ready for the transition. Some firms have aready stepped into bockchain around a specific focus, such as subeasing; others are undertaking research and exporing proof-of concept projects to hep decide how Bockchain might benefit their organization. Disintermediation, fraud prevention, the increased use of digita currency and smart contracts are some of the major impacts of bockchain. Transparency between transactors, aong with faster transactions and ower costs, are potentia benefits. However, security and fraud concerns are sti to be resoved, as in Brazi recenty, where according to CRE Tech Daiy (January 2017) "...hackers siphoned off $50 miion from the Ethereum bockchain, an onine edger behind smart contracts and cryptocurrency". 66 PROPTECH 3.0: THE FUTURE OF REAL ESTATE

68 Chapter An expanation of bockchain technoogy Bockchain is a form of distributed edger technoogy, a distributed edger being a radica aternative to a centraised database. At its most abstract, its characteristics are: There is no centraised, trusted version of the database or edger; everyone on the network has an identica copy. There is no centraised, trusted authority: any change or update to the database is by the agreement of everyone on the network. Communication (or the transfer of any data) is not through a centraised, trusted exchange: it is peer-topeer, from one user to another. It is (said to be) extremey secure. If one copy is hacked or corrupted, copies on the rest of the network remain intact. It is data-agnostic. Because there is no centra organiser, anything can be stored as ong as it is in digita form. In summary, a distributed edger ooks ike a centraised database because it accepts inputs from mutipe parties and appears to present everything from one source. However, its distributed structure overcomes the centraised mode s vunerabiity to attack. In decentraising and becoming trustess, distributed edger technoogy disrupts arge parts of the current infrastructure. We are used to the (costy) intermediation of trusted centra authorities, especiay in finance where everything passes through a bank. Consider a simpe asset transfer, in this case of money. You instruct your bank which aerts the recipient s bank. The money passes from your account to the bank s account in cearing at the Centra Bank. It goes through here into the recipient bank s centra bank account and from there, finay, into the recipient s account. The two banks then exchange confirmations. This is time-consuming and expensive, and appears ridicuousy archaic. On a peer-to-peer (bockchain) network, the asset (bitcoin, a crypto- or digita currency) passes directy from one account to another. Transactions are anonymous. Everyone might see the entire transaction history of an address but can have no idea who uses that address. This anonymity protects users from identity-theft; nevertheess, it has given rise to crimina activity. Bockchain is secure: no bitcoin has been stoen from an address, but there have been thefts off-chain, either through accounting fraud or from websites that use bitcoin. As a resut, the FBI is one of the argest hoders of (recovered) bitcoin. Bockchain s innovative security protoco uses a (conceptuay) simpe mathematica too to check for changes in every transaction, in every ink between transactions, in every bock into which inked transactions are bunded and in every ink between bocks in the chain. It does this every time there is an update, creating a compex web of cross-references from transaction to bock to chain. The smaest change anywhere wi cascade through the web and become immediatey apparent. Furthermore, it can check the transaction history of every bitcoin (or part thereof) back to its origin. This is anaogous to foowing the ownership history of a bank note. PROPTECH 3.0: THE FUTURE OF REAL ESTATE 67

69 PropTech 3.0: bockchain and AI Figure 7.1: How a bockchain works 68 PROPTECH 3.0: THE FUTURE OF REAL ESTATE

70 Chapter 7 Transactions are made and secured with pairs of keys, which are strings of characters and numbers unique to a new address (or account). The Pubic Key can be used by anyone to view the address; the Private Key is known ony to the user and enabes access to the address. The keys work ony in tandem to encrypt and decrypt a hash, which is a fixed-ength, mathematica representation of a fie s contents. The hash ensures that a fie (usuay a bitcoin transaction) has not been hacked or changed when sent over the pubic network to the counterparty s address. The sender encrypts the fie hash with her Private Key to create a digita signature and transmits the fie, signature and corresponding Pubic Key. The recipient decrypts the signature with the Pubic Key to confirm, with the hash, the integrity of the fie s contents. Mining is how the network is updated simutaneousy and new bitcoin are created or mined. Transactions are bunded together into a bock, and the miner broadcasts the bock to the rest of the network. A compex puzze is attached to the bock which must be soved to ensure the vaidity of the transactions in the bock. Each miner is in competition to sove the puzze first and is rewarded with bitcoin, creating an economic incentive for mining. Each bock is tethered to the previous bock, creating the bockchain. After a bock is soved and has been broadcast to enough nodes, work begins on the next bock. The process requires huge computing power, eectricity and time (10 minutes for a confirmation). These are ongoing issues; however this is the required trade-off for a secure system that enabes peer-to-peer transactions without a centra authority. In order to effect a transaction, it is not necessary to run the entire network which woud require heavy downoading and constant synchronisation of the bockchain. Instead there is a process of Simpified Payment Verification (SPV) that aows users to make ight transactions. A user needs ony the bock header, around 80 bytes, of the most recent bock to confirm that the transaction has entered the bockchain. Smart Contracts are used for the automated movement of funds, data and agreements. They are contracts written in computer code which can react to information sent to them from a storage system, which can be the distributed edger it is stored on. Smart contracts can be sef-executing and sef-enforcing, meaning that a contract can enforce a pre-determined outcome once the required criteria are met. They can be standard, mutifaceted, muti-party or taiored to individua needs and can eiminate timing differences by making an exchange simutaneous. Currenty, Smart Contracts do not have a ega status and are used as a guide to protocos of exchange. However, ike edocs and esignatures, they wi eventuay acquire ega status and be abe to enforce these protocos in the future, most ikey working in tandem with traditiona, paper-based ega practices where human judgement wi sti take precedence. Whie the bitcoin bockchain itsef has not been hacked, Bockchain is not, unfortunatey, fooproof. Garbage can be maiciousy upoaded coaborative consensus is needed to push it out. The identity of the upoader of garbage is known, and any upoad can be disputed and changed so that eventuay there is a consensus, but there is no third party arbitration and the system reies on trust and coaboration. In practice, this may reduce to a reiance on professiona advisors participating in the system and acting effectivey as arbiters. PROPTECH 3.0: THE FUTURE OF REAL ESTATE 69

71 PropTech 3.0: bockchain and AI 7.3 How coud bockchain appy to rea estate? Bockchain works with any transaction or interaction where property rights and timing matters. Kausik Rajgopa, McKinsey In rea estate, PropTech innovators have sped up the process of information exchange, but the market is sti argey dependent on intermediaries. Transactions require time, proximity and reationships. By contrast, a distributed edger such as bockchain has the capacity to send data, without friction, to a reevant parties. Eary assessments of the potentia appications of bockchain in rea estate incude ease transactions arranged directy between essor and essee; and acquisitions and dispositions incuding tite and parce detais; tite, ownership and panning histories being avaiabe during the acquisition and due diigence process; and the exchange of maintenance records in buidings. Imagine aso a word of digita asset management, which registers ownership and manages and distributes revenue rights directy. Consider the minimum number of parties invoved in a simpe, UK residentia transaction: Estate agents Conveyancing awyers Structura surveyors The Land Registry (tite deeds) Loca authorities (mutipe searches) The Environment Agency HMRC (Stamp Duty) Banks (financing and exchange of money) Credit Rating Agencies (on behaf of banks) Utiities (outstanding accounts) Much of the data hed by these parties, necessitating their participation in the process, is pubic but is stored in mutipe private sioes. A awyer is paid to coect a this information. Other data is gathered by the Credit Rating Agencies but is dupicated in the awyer s searches. Payments are made to mutipe parties through mutipe banks. Neary a of this information can reside on a distributed edger, referenced to the singe asset (the property) and avaiabe amost instantaneousy to every actor. Once agreed, the exchange of assets (ownership for money) and fees can aso happen instantaneousy. Of course, it is necessary that the parties put information into the distributed edger rather than into their sioed databases. (No doubt awyers wi aso keep fies copies, but these wi have ess authority.) However, the huge savings in time and money might make it economicay attractive - one day - to do so. 70 PROPTECH 3.0: THE FUTURE OF REAL ESTATE

72 Chapter 7 There are severa property-based distributed edger projects being pursued by a variety of sources. The initia focus of many projects has been to improve the efficiency and transparency of the registration and exchange of tite deeds. Securrency uses a repeatabe process (which) makes it easy to trade vaue from a wide range of asset casses such as structured settements, rea estate eases, energy agreements, agricutura production, coud IT services, etc. Securrency s unique patform introduces an eastic securitization mode that aows portfoios of assets to efficienty and securey expand/contract to meet market demands something the mortgage-backed securities (MBS) markets desperatey needed during the 2008 market coapse. By providing access to an investment grade instrument that carries with it the stabiity of a bond, the transferabiity of digita currency, and the exchangeabiity of the US doar, Securrency wi positivey enabe increased iquidity and access to both a dividend-producing asset and more affordabe funding for capita improvements and investments. (Danie Doney, CEO) Ethereum, a not-for-profit, is a decentraized patform that runs smart contracts: appications that run exacty as programmed without any possibiity of downtime, censorship, fraud or third party interference. These apps run on a custom-buit bockchain, an enormousy powerfu shared goba infrastructure that can move vaue around and represent the ownership of property. This enabes deveopers to create markets, store registries of debts or promises, move funds in accordance with instructions given ong in the past (ike a wi or a futures contract) and many other things that have not been invented yet, a without a midde man or counterparty risk. On traditiona server architectures, every appication has to set up its own servers that run their own code in isoated sios, making sharing of data hard. If a singe app is compromised or goes offine, many users and other apps are affected. On a bockchain, anyone can set up a node that repicates the necessary data for a nodes to reach an agreement and be compensated by users and app deveopers. This aows user data to remain private and apps to be decentraized ike the Internet was supposed to work. The Swedish Land Registry, tech firm ChromaWay, Kairos Future and the Teia Company have investigated the possibiities for using bockchain technoogy for rea estate transactions. Through a partnership with rea estate tech startup Veox.re, Chicago s Cook County is testing the use of the Bitcoin bockchain for transferring and tracking property tites and other pubic records. The Cook County Recorder s Office is the second argest such office in the United States, and it wi be the first in the US to experiment with bockchain technoogy. Specificay, the office wi be testing bockchain appications of property tite transfer and a system for fiing iens; the compatibiity between a bockchain and a traditiona, server-based setup; frauduent use prevention; and conveyances of vacant property in Chicago. Other projects incude the foowing: BitFury and the Estonian government are working together to secure and tites over a private network, using the bitcoin bockchain for vaidation ConsenSys and the Dubai government bare deveoping bockchain strategies for pubic services and smart PROPTECH 3.0: THE FUTURE OF REAL ESTATE 71

73 PropTech 3.0: bockchain and AI city connectivity Ubitquity, Veox.RE and Propy are deveoping the bockchain for tite deed transparency and cross-border transactions of high end residentia rea estate Deoitte Netherands, the City of Rotterdam and Cambridge Innovation Centre are deveoping a bockchain appication for recording ease agreements ABN Amro and IBM have estabished a bockchain piot for commercia rea estate cients and services, making use of the Torch app onto which detais can be upoaded and spread to necessary parties RexMLS is a US-based muti-isting service that has deveoped a peer-to-peer proposition whereby information providers and vaidators can be paid in cryptocurrency Tapscott and Tapscott (2016) cannot be accused of a ack of enthusiam for bockchain s potentia reevance to rea estate. Spare residentia space can ist itsef and negotiate through the Ledger of Everything to hep tourists, students, managers of homeess sheter programs, and others find space that meets their needs. They aso more reaisticay point to the probem of rampant tite registration costs and corruption of this process in poor economies. Can poorer governments eapfrog the deveoped word and set up bockchain based tite registry? The government of Honduras, working with Factom, are said to be engaged in a study of this type. Coud rea estate transactions be bockchain-faciitated? The transaction time on the bitcoin bockchain is 10 minutes the reguar cearance period. This is not fast enough to cear stock market trades - but it is penty fast enough for rea estate. 7.4 Facing the future These projects form ony one stream of the much arger bockchain and distributed edger ecosystem which encompasses every type of market and industry. For the rea estate industry, distributed edgers represent a risk because new services and appications can appear from nowhere to threaten the market s architecture. At the same time, distributed edger technoogy represents an intriguing opportunity to buid a robust infrastructure for future use by the industry. It makes great sense for an industry consortium to expore bockchain technoogy and incude associated sectors, incuding oca and nationa government, the ega profession, finance (banks and insurance) and reguators. Athough the impementation of bockchain seems distant today, the pace of technoogica change argues against compacency. An open-source structure for the instant movement of assets is simiar to the internet, which itsef is an opensource structure for instant communication. In practice, the internet woud not have scaed without commerciaisation by industry: finance (banks, stock/commodity/bond/futures exchanges), retai (Amazon), media (Facebook), teecommunications (Googe, Appe) and, more recenty, transport (Uber), eisure 72 PROPTECH 3.0: THE FUTURE OF REAL ESTATE

74 Chapter 7 (TripAdvisor) and rea estate (AirBnB). In the same way, bockchain and distributed edger technoogy wi deveop and might scae as a resut of its commerciaisation by industry. The rea estate industry is abe to use bockchain or distributed edger technoogy to buid appications, incuding smart contracts, and services that bring the benefits of a new technoogy both to itsef and to the mainstream. Even if smart contracts do not radicay transform easing and saes, bockchain proponents caim that there wi be: more information, avaiabe instantaneousy; ess error, ess dupication, ess human inefficiency eading to much ower costs; greater transparency (through consensus and distribution) of prices and contracts; potentiay reduced transaction times; and greater market iquidity and turnover. The bockchain is aso argued to be the natura medium for feedback from the Internet of Things and, with advances in machine earning and AI, from big data-driven anaytics. The rea estate industry uses both pubic sector and private, or proprietary, data. For the industry to incorporate a shared edger, it needs a system that is, correspondingy, both pubic and private. Simon Tucker argues: It shoud be a core objective of the industry, at the very east, to put pubic information onto a shared edger. Currenty, this freey-avaiabe information is sioed across different institutions, databases and/or websites, making the coection and anaysis of data highy inefficient. Connecting a these pubic sources to a singe, shared edger system woud give the industry instant access to a avaiabe information from a seemingy centraised source. The savings in time, money and increased coaborative capabiities woud be enormous. Yet, as we earn from Goodman (2015): The more we pug our devices and our ives into the goba information grid whether via mobie phones, socia networks, eevators or sef-driving cars the more vunerabe we become to those who know how the underying technoogies work and how to expoit them to their advantage and to the detriment of the common man. Tapscott and Tapscott (2016), in Bockchain Revoution highy positive bockchain evangeists aso ist the risks, or the perceived risks, summarised as foows: The technoogy is not ready for prime time The energy consumed is unsustainabe Governments wi stife or twist it Powerfu incumbents of the od paradigm wi usurp it The incentives are inadequate for distributed mass coaboration PROPTECH 3.0: THE FUTURE OF REAL ESTATE 73

75 PropTech 3.0: bockchain and AI The bockchain is a job kier Governing the protocos is ike herding cats Distributed autonomous agents wi form Skynet (a fictiona neura net-based conscious group mind and artificia genera inteigence (see aso superinteigence) system that features centray in the Terminator franchise and serves as the franchise's main antagonist) Big brother is sti watching you Criminas wi use it So the bockchain technoogy and ecosystem around it are evoving rapidy, and are probaby raising more questions than answers. How do we estabish a system of transparent governance to ensure the ongevity of the bockchain? What about security, speed, cost and, more importanty, reguations? As with other disruptive technoogies, there wi be winners and osers. If the technoogy is successfuy managed for scaabe growth, it coud transform society. We have an opportunity to transform the digita patforms for tomorrow s cities. The bockchain becomes the city s operating system, improving citizens access to services, goods and economic opportunities. However, the technoogy is yet to mature. It remains to be seen if reaity can ive up to the ideaist s imagination. In many ways, this point in bockchain time is quite reminiscent of the internet in the mid-1990s, but the same resuting adoption rate is by no means certain. Wi bockchain technoogy produce PropTech 3.0, the next wave of innovation in rea estate? We consider our response to this and other questions uncovered over the course of this report in Chapter PROPTECH 3.0: THE FUTURE OF REAL ESTATE

76 Chapter 8 Chapter 8 Where is this going? In this chapter, we summarise our findings. How wi PropTech 2.0 shape the future of the rea estate industry? Is PropTech creating a whoe new industry or is it a more efficient way to create or extract money from a fat dinosaur that s got bad knees and ost its agiity? 8.1 The PropTech 2.0 wave Wecome to the Big Leagues, Rookie As is happening with many other industries, technoogy is beginning to disrupt how the traditiona rea estate industry operates. The introduction of technoogy generay creates process efficiencies through automation, scae, and uniformity, which we beieve is occurring in the rea estate industry after years of underinvestment. These new technoogies are creating better consumer experiences and more productive agents, a whie the rea estate industry is being tasked with becoming more compiant as the reguatory spotight brightens. In our opinion, these new technoogies wi either improve or repace most vaue propositions that have ong been the status quo in the rea estate market. Therefore, we view the next few years as an opportune time for entrepreneurs, venture capitaists, private equity and corporations to reevauate how they perceive that technoogica advancements and changing consumer behaviors wi drive the outcome for the next rea estate cyce. We expect that the singe-famiy, mutifamiy, and commercia rea estate sectors wi be materiay affected by technoogy, each at different speeds and in different ways. Wiiam Bair, 2015 There is no denying the huge energy, creativity and optimism behind the wave of activity that makes up PropTech 2.0. Thousands of extremey cever peope backed by biions of doars of often expert investment are working very hard to change an od-fashioned and inefficient industry that can be improved by ideaism and which sucks out arge fees for sef-interested professiona advisors. The heterogeneity and iiquidity of the industry goes some way to expaining those fees; advisory work is very often customized, because there is no veocity of repeat business. Hence much of the PropTech 2.0 activity is aimed at the way rea estate is traded. Can it produce more veocity; more homogeneity; more commoditisation of processes; ower transaction fees; and a more tradeabe iquid asset cass? PROPTECH 3.0: THE FUTURE OF REAL ESTATE 75

77 Where is this going? Underying this huge capitaist and socia endeavour is a cash of generations. Many of the startups are driven by, and aimed at, miennias, but they often ook to babyboomers for money - and sometimes for advice. PropTech 2.0 is aso engineering a much-needed boost to property market diversity. Unike many traditiona rea estate businesses, PropTech is attracting a diversified poo of taent that has a strong femae component, representation from different regions of the word and entrepreneurs from highy diverse career and education backgrounds. Given the difference in background between the estabishment and the drivers of the PropTech wave, it is not surprising that there is some disagreement about the eve of disruption that PropTech 2.0 wi create. Ideaism appears to infect the drive towards smart buidings, the shared economy movement and rea estate FinTech. Are energy-efficient buidings a fad? Is the shared economy a socia idea with no future, or a capitaist drive for a cassic entrepreneur-enabed revoution in the use of rea estate space? Wi houses be traded onine, or is this asset cass too important to risk taking out the traditiona advisor? Rea estate is a sow moving asset cass, and the rea estate industry is highy conservative. No doubt many PropTech firms wi fai and a ot of money wi be ost. However, It woud be surprising if this burst of activity does not ead to some significant change. There wi be some very successfu survivors who wi in time have a radica impact on what has been a sow-moving, conservative industry seems to mark a turning point, and PropTech 2.0 seems to be buiding such mass and momentum that it wi change the word. How wi this pay out? 8.2 The context: big, or exogenous, tech In Chapter 3 we identified four verticas defining technoogy deveopment in the buit environment. One of these construction technoogy or ConTech - ies outside the scope of this report. We focus instead on Smart Rea Estate (Chapter 4), The Shared Economy (Chapter 5) and Rea Estate FinTech (Chapter 6). We can ca each of these verticas endogenous or interna PropTech or Rea Estate Tech sectors. In Sections 8.4, 8.5 and 8.6 we wi summarise our views on the ikey impact of activity in these sectors. Before doing so, if ony in passing, we shoud consider the context of the bigger, exogenous tech movement and its potentia impact on the rea estate sector. According to CBRE (2017), technoogy wi pay an ever greater roe in how occupiers use and manage their office space. Growth in the use of sensors, big data techniques and predictive anaytics to create strategies and manage portfoios more efficienty wi sustain this trend. Underying a of this is a desire on the part of corporations for greater operationa fexibiity in their rea estate arrangements. In the industria sector: Automated warehousing technoogies wi mean that growth wi increasingy be accommodated verticay in mezzanine foors, high bays or structura muti-ayered warehouses. 76 PROPTECH 3.0: THE FUTURE OF REAL ESTATE

78 Chapter 8 In retai, The growth of muti-channe retaiing wi make retaiers increasingy ocation sensitive. Virtua reaity (VR) and augmented reaity (AR) wi benefit retaiers by expanding the reach of their brand, driving additiona traffic. There are big forces at work. Driveress cars, airborne cars and drones wi change the configuration and ocationa quaities of ogistics space, retai space, parking and residentia property. We can imagine a andscape of high rise high density urban buidings surrounded by ow rise, ow density agricuture, warehousing and parking sites. Robotics and machine earning wi ead to the automation of many office jobs, further driving change in the nature of work. Some worry that this wi seriousy damage the demand for office space. A 2013 Oxford University study concuded that 47% of US empoyees are at high risk of osing their jobs to robotic automation by There wi be job growth in new sectors, if ony for awyers, saesman and programmers speciaised in tech, robotics, drones, driveress cars and AI, but the two big changes - co-working and automation - are aready having an impact on work stye. Advances in voice-recognition, AI, and mixed reaity wi change the way office workers interact with technoogy and each other. Software and hardware wi continue to become cheaper and faster, with cheaper sensors and devices, significanty more data and better transparency. There may be fewer office and factory jobs, but more ikey is an ever-growing rich-poor divide. According to IBM: 90% of the data in the word today has been created in the ast two years aone. We can expect to see more powerfu anaytics and predictive decision-making toos, decreased transactiona friction and increased resource optimization which may mean fewer office jobs and/or a radica change in the front office/back office reationship. The suburban office park coud stage a comeback as a centre for more automated activities, with a burring between the data centre and the decentraised, automated office buiding. Facebook coud become a huge property company of which more ater. The growing confusion between retai and ogistics space seems set to continue as drones and driveress cars faciitate ast mie deivery. Again, the rebound of suburban deveopment to hod warehousing and deivery functions aongside the automated office seems ikey. Driveress and automated vehices wi change parking ocations, which shoud move to the urban periphery. Changing and use patterns wi have a knock-on effect on residentia ocations. Continuing urbanisation and the vertica city dependent on rai transport for atera connections wi be encouraged by big tech, and it is those high rise vertica constructs that wi end themseves to smart buiding technoogy, the Internet of Things and fexibe use co-iving, co-working and fexibe renta/ownership. Rura areas wi focus more on agricuture, energy production, eisure, second homes and retirement/senior iving. We can expect a reaction against urbanisation and automation, and a second hippy movement focused on tiny homes, traditiona crafts and rura ife. There wi more jobs for carers and socia entrepreneurs. Investabe rea estate wi continue to migrate to new uses, mixed uses and socia infrastructure. As offices, retai and ogistics continue to evove and mutate, the risk of these formats wi rise, encouraging much greater PROPTECH 3.0: THE FUTURE OF REAL ESTATE 77

79 Where is this going? investment in residentia and socia enterprise - sectors that wi require arge private investment in the face of reductions in government spending. Student housing has aready become a mainstream investment market; other emerging private rea estate sectors wi incude schoos, universities, hospitas and medica centres, prisons, data centres, a new generation of re-cycing pants creating energy and vaue from ever-increasing obsoescence and waste, parking for automated vehices, fue storage and generation faciities and senior housing parks. Co-working, co-iving, vertica spaces and micro urban apartments wi be suppemented by tiny rura homes. It seems highy ikey that the sector definitions which we are currenty famiiar with office, retai, industria - wi fade in importance as the muti-purpose high rise buiding (aready evident in cities such as Hong Kong and New York) wi grow in dominance. More custering of urban centres and vertica trave between co-iving space, co-working space, corporate HQ, hote/gym, shopping centre, schoo and medica centre is a natura deveopment requiring ony more fexibe panning reguations and inventive design. 8.3 A reminder: PropTech verticas and horizontas Many of the new propositions have unsustainabe business modes. Rupert Cate, OwnerSeers Figure 8.1: PropTech, ConTech, FinTech and exogenous big tech Smart rea Rea estate estate FinTech PropTech FinTech Shared economy Exogenous tech 78 PROPTECH 3.0: THE FUTURE OF REAL ESTATE

80 Chapter 8 Whie faciitating the impact of big tech on ife and and use patterns, PropTech investment wi aso continue to shape the interna operation of the rea estate finance and investment sector. As Figure 8.1 is designed to iustrate, big or exogenous tech wi continue to be driven by forces outside the rea estate sector, but wi require the support of FinTech, ConTech and PropTech entrepreneurs. Tabe 8.1: PropTech verticas and horizontas Rea Estate FinTech Shared Economy Smart Rea Estate Information yes yes yes Transactions/marketpace yes yes Management/contro yes For exampe, in Tabe 8.1 the smart buiding vertica wi continue to attract capita and drive innovations which wi faciitate the operation of new property types and cities, and the management/contro horizonta wi be vita in this endeavour. The efficient use of space and continuing shifts in and use wi be promoted by shared economy rea estate deveopment, requiring continued information to faciitate transactions. Meanwhie, companies in the Rea Estate FinTech vertica wi attempt to push the rea estate market towards the fexibe and iquid sector it wi need to be to acceerate the pace of change. Over 150 PropTech firms are mentioned in this report. We refer in passing to 10 ConTech firms. The PropTech industry verticas smart buidings (c.15 companies), the shared economy (c.35 companies) and rea estate Fintech (c.100 companies) are the subjects of review in the next three sections. 8.4 Smart rea estate Smart rea estate, smart cities and smart buidings are terms in common use which describe technoogy-based patforms which faciitate the operation of rea estate assets. The assets can be singe property units or entire cities. The patforms may simpy provide information about buiding or urban centre performance, or they may directy faciitate or contro buiding services. This sector supports rea estate asset, property and faciities management. We discussed this vertica in Chapter 4. Smart buiding tech supports the efficient use of buidings and urban environments, and faciitates contro and sustainabe management, which is a powerfu driver of change. There is a huge appetite for power by tech firms, and energy costs are now becoming internaised in property rents and pricing. New property sectors, incuding data centres, are emerging. Based on our expectations about the big tech impact on city form, there is a huge demand for growth in this sector. This is a natura growth area for PropTech, with the ConTech sector aso paying a vita roe, and requires much more focus by rea estate professionas. PROPTECH 3.0: THE FUTURE OF REAL ESTATE 79

81 Where is this going? 8.5 The shared economy Penty of micro entrepreneurs are now entering the shared economy to make profits. It woud be difficut to find individuas that own more than five properties on Airbnb s istings. Like Janee Oris, the sharing awyer, has pointed out: I am disappointed in the structure and financing of most sharing-economy companies. Because they re mosty VC-funded, there s a great dea of incentive for their founders, and for their funders, to se out to a arger company. This has aready become reaity in mutipe markets. Avis, the existing traditiona car renting incumbent, spashed out $500 miion in acquiring Zipcar. It woudn t be crazy to imagine that in the near future Marriot wi acquire Airbnb. To me the utimate future shoud be the shared community, where rea estate deveopers wi buid entire minicities or towns. Within these communities, we wi share resources such as schoos and utiities with those who ive in the same area. Co-working spaces, community sports faciities, pubic transportation faciities and other infrastructure shoud be shared within the community. Consequenty, peope wi not need to trave out of the community. Utiising new financing technoogy, the deveoper wi no onger se each housing unit to property buyers or investors. Instead, the deveoper wi create a portfoio of such communities, and then securitise the portfoio to make it virtua currency friendy, so that it can be purchased through bockchain, bitcoin or any other form of virtua currency. This wi not ony improve the current burdensome purchasing process, but aso remove current geographica barriers to house buyers. Securitised investment wi be come in two forms: the traditiona whoe property unit and shared property based on a minimum iving space for exampe, a singe room in a mutibedroom house or apartment. This set up wi enabe peope who can ony afford a singe bedroom to buy a singe bedroom, whie other peope can buy a doube bedroom or sma studio, Finay, a property within the community wi be suppied with smart tech features and fuy powered by many mini soar power farms. Oxford MBA student The Shared Economy describes technoogy-based patforms which faciitate the use of rea estate assets. The assets can be and or buidings, incuding offices, shops, storage, housing and other property types. The patforms may simpy provide information for prospective users and seers of space, or they may more directy faciitate or effect rent- or fee-based transactions. This sector supports the rea estate occupier markets. We discussed this vertica in Chapter 5. The shared economy coud be a popuar movement which is part way through a process of radicay atering concepts of private property, heath and safety reguation and pubic iabiity. Airbnb and WeWork (ike Uber) are immensey successfu unicorns. In this report we are not short of exampes we refer to 35 rea estate shared economy ventures. Is this an irreversibe revoution? If so, wi the discovery and utiisation of huge voumes of previousy hidden space create a suppy tsunami that wi ki any growth in rents for the traditiona owner? 80 PROPTECH 3.0: THE FUTURE OF REAL ESTATE

82 Chapter 8 The net impact of the sharing economy on the word consumers and economy is expected to be overwhemingy positive. Consutancy Europe Economics (2016) has estimated the potentia wefare gain from reductions in the under-utiisation of assets and abour across the EU at 572 biion, which transates to over 1,000 per EU citizen (Zuuaga, 2016). Airbnb has not ony had 150 miion guests but drives other start-ups, such as Propry (a ceaning and key deivery service for Airbnb hosts); Guesthop (a company which provides support services for home sharers from check-ins, to key management and ceaning); and Piow (which handes a the detais of hosting, incuding marketing, guest communications, booking and pricing optimization, ceaning, repairs and troubeshooting). However, an unimited shared economy boom is very unikey. Whie a continued increase in the use and suppy of co-working spaces in more and more inventive ocations (pubic faciities ike schoos and ibraries, and shopping centres in particuar) is to be desired and expected, and co-iving propositions wi cater for some sices of society, there are natura imits to this movement, which many see as a temporary fad. Co-iving and co-working are economic necessities in the post-recession age but have a imited appea for many of us. There are natura imits to sharing coaborative consumption might be a ong term miennia preference but it is ikey to be age-reated. As famiies and responsibiities grow, a desire for more contro is natura. The miennia generation for whom Uber, Airbnb and the shared use of space are natura may be youthfu ideaists who wi mutate into conservative property-owning and non-sharing parents. We have aso seen that cutura differences reduce the appea of sharing space in countries ike China where there is weak copyright contro. Sharing wi have a imited appea for users of rea estate, and it wi have even ess appea for operators. We can foresee a day in the not-too-distant future when WeWork wi announce that it wants to own and contro buidings. Asset-ite has not proved to be a sustainabe mode for successfu operators of space, who usuay demonstrate conservatism and a desire to protect weath by moving up the food chain and becoming property companies. And, coming at this issue from the opposite direction, there are no barriers preventing traditiona property companies from offering fexibe WeWork-stye space to their tenants. Reguatory pushback may aso inhibit the growth of this sector (CNN, 2016). We can imagine a sorts of disputes invoving unprofessiona essors of not fit-for-purpose space and damaged renters. Because of concerns about its market impact and the potentia misuse of residentia property as quasi-hotes, Airbnb has aready faced pushback in paces ike Barceona and Berin, and it has sued other cities, incuding its hometown of San Francisco, which recenty passed a aw requiring anyone who wants to rent out their home on Airbnb or simiar patforms to register their property with the city authority. Pushback is happening party because Airbnb has caused incumbent businesses (hotes and b&bs) a oss of revenue and jobs. Over 2,800 jobs have been directy ost to Airbnb, a oss of over $200 miion in income for hote empoyees (Mahmoud, 2016). In San Francisco, Airbnb s home ground, the first ever awsuit was fied on behaf of tenants who have been damaged by the iega conversion of residentia housing into short term etting properties. New York state aw bars most urban apartment-dweers from renting out their units for ess than 30 days if they are not present. In Berin, the city enforced a new aw imposing fines up to $110,000 on peope PROPTECH 3.0: THE FUTURE OF REAL ESTATE 81

83 Where is this going? renting out more than 50% of their homes for ess than 2 months. In Barceona, Airbnb s third-argest market in Europe, the city is imposing fines of over $65,000 for istings without proper icenses. Sharing economy businesses have a entered markets where existing companies are subject to reguation. Reguators beieve that arge chunks of Airbnb s business are iega. Shoud Airbnb be responsibe for a hosts having proper insurance? Micro entrepreneurs who own more than one property are essentiay running a mini hote business but without any proper icenses. Federa, state and oca tax administrators have not directy addressed many of the tax impications of shareabe transactions. As micro entrepreneurs get savvy on Airbnb, they are buying or converting more properties into short term etting properties. This causes house shortages for the poor and can push up house prices to an unaffordabe eve. There is a imit to the ideaism of coaborative consumption and the shared access economy. The discovery and utiisation of huge voumes of previousy hidden space is very unikey to create the suppy boom that wi ki any growth in rents. 8.6 Rea Estate FinTech Looking into the future, there are opposite forces at work. The excesses of the ead-up to the credit crisis wi create a reaction that vaues conservatism, ow everage, more modest fee structures and stricter or better governance. At the same time, we must continue to innovate. An improvement in the iquidity of unisted hodings can be expected. Whie rea iquidity is neither possibe nor ceary desirabe in the private equity rea estate market, we can expect to see secondary trading patforms that hep investors to manage mixed portfoios of isted and unisted property, particuary at the core end of the market. Baum and Hartze (2012) Rea Estate Fintech describes technoogy-based patforms which faciitate the trading of rea estate asset ownership and easing. The assets can be buidings, shares or funds, debt or equity, freehod or easehod, but must have a (negative or positive) capita vaue. The patforms may simpy provide information for prospective buyers and seers, or they may more directy faciitate or effect transactions. This sector supports the rea estate capita markets. We discussed this vertica in Chapter 6. We discovered from our discussions that the residentia sector is more compeing (bigger and more iquid) for investors than the commercia market. The greater the size of the capita stock, and the greater the veocity of turnover of assets in both sectors, the greater the voume of fee savings that wi be made avaiabe for more investment in process improvements. The key question is therefore this: can and wi Rea Estate FinTech improve iquidity and grow veocity? In our discussions, the preponderance of Rea Estate FinTech firms (70 of our popuation of 120 firms) is interesting and aso a matter for some concern. As one interviewee said: There is too much of a get-rich-quick godrush mentaity among innovators and some very poor propositions. 82 PROPTECH 3.0: THE FUTURE OF REAL ESTATE

84 Chapter 8 We know that a significant financia benefit wi fow to the innovators who can introduce more veocity and iquidity into rea estate, and more efficient distribution. There is no doubt that information patforms are aready hepfu in ubricating the market. Whie there appear to be too many purey product-driven research businesses appearing, some wi hit the target: Simpy being abe to discover the identity of surrounding andowners via Datscha rather than a Land Registry search in the UK can unock deas that woud otherwise take much onger to arrange or never happen. The main area of doubt is the potentia for the transactions segment, popuated argey by crowdfunding/distribution and secondary market patforms, to make a rea impact; and, reated to this, the bockchain factor. There appears to be itte doubt among outsiders that the inefficiency of property trading means that brokers richy deserve to be disintermediated. However, the disintermediation process wi be ong and sow, the product of many sma process improvements, with no siver buet or big bang. The accumuation of ots of sma contributions may create a sma revoution, but this depends on the attitude of banks and professiona institutions. Wi banks accept the machine earning founded appraisas of House Canary? Is the peer review process capabe of repacing the professiona advisor and promoting rea estate investment to the masses via a crowdfunding patform? Or is this a disaster waiting to happen? What wi happen in a market crash? Can IPSX or Prop-X create a successfu secondary market for units in commercia rea estate? Scepticism woud be very natura, given the various faied attempts to introduce such iquidity and unitisation in previous decades, particuary when it is not obvious that technoogy has changed the nature of the required soution (a heterogeneous offering, through an efficient patform, and a arge poo of quaified buyers). Consoidation is certainy on the way, and we can expect to see traditiona broking and advisory businesses cherry-picking the best ideas and moving into the space currenty occupied by the more thoughtfu startups. Meanwhie, bockchain has a very ong way to go before it wi penetrate the mainstream of ega rea estate transactions - trusted professiona advisers are sti needed to keep the system cean. 8.7 Reaction The new dinosaurs PropTech 1.0 ed to a very arge number of start-up faiures and takeovers driven by over-optimism. We were eft with a sma number of dominant survivors with market share but strugging with an outdated tech infrastructure. As technoogica improvements gather pace, the same process is sady inevitabe. Reguation Equay inevitabe is a reaction from protective governments and big business. We have aready described Airbnb s probems; other successfu FinTech wi run into simiar issues. Unauthorised deposit hoding, PROPTECH 3.0: THE FUTURE OF REAL ESTATE 83

85 Where is this going? unreguated investment advice, unprofessiona governance, inaccurate advertising and misrepresentation are a charges against Rea Estate Fintech startups that we heard in interviews. Processing renta recurring payments exposes companies to ega iabiities ike a money transmitters which wi cause many companies to be unwiingy and unwittingy considered a bank. Even more concerning for some, some success by crowdfunding patforms in what is the currenty unreguated property market pus some secondary market iquidity might force reguators to reguate direct property investment. Whie a cear oss of confidence in banks and finance professionas has been in evidence post 2007, it is difficut to see the risk management offered by experienced advisors being over-ridden by peer review and bockchain, uness the bockchain movement is itsef monitored and administered by those professionas. This wi sow the pace of change. The human factor The notion that quaified, experienced professiona advisors can be repaced by customer feedback is fancifu. The human factor wi re-assert itsef in a variety of ways. As an exampe, the reativey unadventurous Purpe Bricks mode, which combines digita and human interfaces and is repicated in the US by Tripe Mint, coud be a sign of the future. Traditiona business formats capturing tech for their own benefit wi hit back and compete with purey digita offerings. Asset-ite? Asset ite businesses quite reasonaby point out that their return on equity is enhanced as a avaiabe capita gets put to work in highy profitabe operations and not in ow-return assets ike rea estate. Yet Googe owns its own HQ buidings and Facebook owns its data centres and HQ. It has been suggested that Facebook might use its customer base to offer oans and become a bank with a baance sheet. Deiveroo is taking on property research staff and Amazon has begun to open shops and sub-ease data centre space. It wi certainy mutate into a property-owning business. The death of the asset-ite mode is inevitabe as firms accumuate cash and profit, become more risk averse and buy rea estate assets. Coming from the opposite direction, property owners wi hoover up tech firms and combine high return service operations with ow risk ownership. 8.8 What probems wi be soved? In this report, we have discussed the product-driven businesses which characterise much of PropTech 2.0. A product-driven environment invoves the business deveoping a product first, then searching for a market for it. Such a business operates under the assumption that with great products come great customers which, in turn, bring in revenue and profit. When, on the other hand, a business goes out and gets information from its customers, and subsequenty deveops a product based on the information gathered, then it fas under the customer-driven category. How do you make the customer happy? What can your business do to address their 84 PROPTECH 3.0: THE FUTURE OF REAL ESTATE

86 Chapter 8 needs? How can you meet and exceed their expectations? Tech business ike Appe are cassic product-driven patforms. Ceary, they can be immensey successfu. But there are not many Appes, and the safer bets are customer- or market-driven. How can PropTech make the customer happy? In Chapter 2, we isted the perceived probems associated with rea estate as an asset cass. 1 Property is a rea asset, and it wears out over time, suffering from physica deterioration and obsoescence, together creating depreciation. Can technoogy remove this probem? No: the imitations of physica space designed for a specific purpose wi cash with shared economy and muti-use re-purposing. The increased pace of change wi ikey increase obsoescence, especiay of energy-inefficient buidings that are incapabe of becoming smart buidings. Some buidings wi be re-imagined, but we wi need more urban high rises and some property types wi find themseves in the wrong ocations, too far from the front office, the communications network and power. Obsoescence is more ikey to acceerate than to disappear. 2 The cash fow deivered by a property asset is controed or distorted by the ease contract agreed between owner and occupier. US eases can be for 3 or 5 years, fixed or with pre-agreed annua upifts. Leases in continenta Europe may be 10 years ong, with the rent indexed to an infation measure. Leases in the UK for high quaity offices are commony for 10 years, with rents fixed for five-year periods after which they can ony be revised upwards. The shared economy and the increasing pace of change both point to the need for shorter and more fexibe eases, a deveopment which is aready in motion. We can expect to see more owner-operator andords, characterised by the student housing and muti-famiy PRS sectors, as co-working and co-iving operators merge with traditiona property owners in their joint mission to create, own and operate muti-purpose, energy efficient, fexibe space. Leases wi be shorter. Much of the rea estate market wi become more ike an equity asset and ess ike a bond. 3 The suppy side is controed by panning or zoning reguations, and is highy price ineastic. This means that a boom in the demand for space may be foowed by a suppy response, but ony if permission to buid can be obtained and ony after a significant ag, which wi be governed by the time taken to obtain a permit, prepare a site and construct or refit a property. Can tech disrupt the rea estate cyce? The much greater avaiabiity of information might just hep to reguate and smoothe away the boom and bust nature of the office market, as may the muti-purpose design of new space. 4 The returns deivered by property are ikey to be heaviy infuenced by appraisas rather than by margina trading prices. This eads to the concept of smoothing. Appraisas of unitised property may become machine-generated in rea time, but this is unikey to affect arge, PROPTECH 3.0: THE FUTURE OF REAL ESTATE 85

87 Where is this going? compex assets. Shorter, more fexibe eases may make rea estate harder to vaue, as it wi take on more equity-ike quaities and ook ess ike a bond. More iquid and unitised secondary markets might just begin to provide rea time transaction evidence and the much-needed veocity/iquidity, but this is not ikey to happen quicky. 5 Property is highy iiquid. It is expensive to trade property, there is a arge risk of abortive expenditure, and the resut can be a very wide bid-offer spread (a gap between what buyers wi offer and seers wi accept). This is the key issue. Crowdfunding patforms, on ine secondary market patforms and bockchain make this the most intriguing of FinTech questions. It seems very ikey that the many tech-based contributions to the residentia saes process wi bear fruit. If investor protection issues can be soved, tech patforms wi enabe smaer residentia assets to transact on patforms and exchanges in reasonabe quantity, eading to exponentia growth and radica change. In the ess homogeneous and ess we-funded commercia or institutiona investment sector, the experience of the ast 30 years suggests that more iquidity wi be very hard to effect. Can PropTech 2.0 make the difference? Whie many sma forward steps in the provision of data wi reduce the risk of abortive expenses, the conservatism of institutiona investors, the heterogeneity of the assets and eases and the size of the transactions put together mean that radica change is much ess ikey. Uness and unti the market and processes become very we estabished, arger investors are unikey to want to automate arger transactions due to the sums and risks invoved. However, greater unitisation and iquidity is something of a hoy grai. The trading of shares in singe assets by patforms such as IPSX may create sma scae iquidity very soon, whie PropTech 3.0 bockchain - coud just provide the key to mass market change. Unfortunatey, this is many years away. Note that unitisation and iquidity coud change the nature of the asset cass not aways for the best, as more voatiity and equity market correation is ikey. Anticipating the speed and scae of this movement is one of the most chaenging PropTech issues. 6 Property assets are generay arge in terms of capita price. This means that property portfoios cannot easiy be diversified, and suffer hugey from specific risk. Again, unitisation is possibe through the primary and secondary market patforms now being estabished. However, investors, both high net worth and institutiona, wi wish to sette arge capita sums in singe transactions, and are unikey to automate this type of transaction for a ong time due to the sums and risks invoved. On the other hand, defined contribution pension pans may be an exception and singe urban property assets wi get bigger, so we can expect to see the further deveopment of a isted market for singe assets. If this happens, rea estate portfoios wi become easier to diversify. 7 Leverage is used in the vast majority of property transactions. This distorts the return and risk of a property investment. 86 PROPTECH 3.0: THE FUTURE OF REAL ESTATE

88 Chapter 8 Nothing is ikey to change, as peer-to-peer ending patforms and onine mortgage apps may make everage easier to obtain. 8 The risk of property appears ow. Rent is paid before dividends, and as a rea asset property wi be a store of vaue even when it is vacant and produces no income. Its voatiity of annua return aso appears to be ower than that of bonds. This is distorted somewhat by appraisas, but the reported performance history of rea estate suggests a medium return for a ow risk, and an apparenty mispriced asset cass. Onine marketpaces, if successfu, wi aow rea time pricing and introduce more voatiity. If active secondary patforms begin to capture rea scae, rea time pricing of assets becomes inevitabe and (whie this has many benefits) the risk of the asset wi rise. Shorter eases and more operationa rea estate wi make property more ike a risky equity and ess ike a bond. For the first time, investors (and banks) wi know when they are out of the money, and ender and borrower baance sheets wi both become more unstabe. It is to be hoped that the pace of this change is sufficienty moderate to aow ending banks to sort out their baance sheets in advance of this deveopment. 8.9 Fina thoughts The rea estate sector is ripe for change, being famous for its ack of capacity for deep and continuing innovation. We need to be make sure that we do not under-estimate the capacity of the rea estate industry to resist change, and we need to be aware of the generay uncritica positive spin put out by those tech businesses with vested interests. Some exist because technoogy makes some things possibe, but do not serve an obvious need. However, the majority of PropTech activity is creating buiding bocks towards a more efficient property market, and the sums invested mean that FinTech and PropTech is here for the ong term. PropTech businesses wi survive if they sove probems without dupication. The majority of PropTech firms that wi succeed are not those that are trying to be disruptive; they are the ones focussed on deivering products that bring efficiency and aignment to the market. Ryan Masieo, VTS PropTech appears to be capturing ony around 15% of a VC funding. Rea estate is a huge sector, but has itte or no veocity. If and as this probem is soved, more and more funding wi be attracted. This issue means that Rea Estate FinTech is where the money is, and is probaby attracting at east haf of a PropTech funding. At the same time, it shoud be recognised that the smart buiding sector is the east chaenged PropTech segment the demand is cear, the market huge, the technoogy increasingy avaiabe, and vested interests aigned. A truy transformative PropTech movement is under construction. These firms wi eventuay bring efficiency and aignment to the market, but they wi encounter behavioura obstaces, estabishment reaction, and often PROPTECH 3.0: THE FUTURE OF REAL ESTATE 87

89 Where is this going? financia caamity. There is an oversuppy of activity in Rea Estate FinTech, an excess of optimism in shared economy rea estate, but a rea need for smart buidings. PropTech 2.0 startups need to respond to these economics before PropTech 3.0 comes aong and makes them as obsoete as many of the buidings they rey upon. 88 PROPTECH 3.0: THE FUTURE OF REAL ESTATE

90 Appendix References Baum, A and Hartze, D (2012): Goba Property Investment, Wiey Backwe Wiiam Bair Equity Research (2015): Rea Estate Services and Technoogy Carbon War Room (2015): Buiding Returns with Sustainabiity Programs CB Insights (2016): The Puse of Fintech Report CB Insights (2016): Home, Sweet Home: 96 Tech Startups Reshaping Residentia Rea Estate, May. CBRE (2016): The sharing economy checks in: An anaysis of Airbnb in the United States, CBRE (2017): Goba Rea Estate Market Outook CNN (2017): Coffman, K.G. and Odyzk, A.M. (2001): Growth of the Internet, A T & T Labs - Research Cognizant Business Consuting (2016): The Sharing Economy: Impications for Property and Casuaty Insurers, CRE (various): CRE Tech Daiy Goodman, M (2015): Future Crimes, Corgi Esbaitah, W. (2016): Growth of Rea Estate Crowdfunding in 2016, Frey, C. and Osborne, M. (2013): The Future of Empoyment: How Susceptibe are Jobs to Computerisation? Oxford Martin Schoo Green Buiding Counci (2015): The Business Case for Green Buidings, Green, D. (2015): Inside NYC s First Micro Apartment Buiding, December 28 Grothaus, M. (2015, May 21): Four Things Freeancers Wish You Understood, Huet, E. (2016, September 26): WeWork Turns to New Business Mode for India Expansion, Inman (2017): Internationa Bockchain Rea Estate Association (various): Jieman News (2016): An interview with Mr. Ren Zhiqiang, PROPTECH 3.0: THE FUTURE OF REAL ESTATE 89

91 Appendix Jones Lang LaSae (2016): A New Era of Co-working, KPMG (2015): The Future, Word Economic Forum Market tracker, May 2016: Proptech Business Modes: is the Rea Estate Sector Facing a Paradigm Shift? Mahmoud, A. (2016): The impact of AirBnb on the Hote and Hospitaity Industry, March 7 Muhn, J (2017): Why PropTech and MortgageTech Are the Future of Fintech,@juieschicktanz, February 23 Nakamoto, S (2008): Bitcoin: A Peer-to-Peer Eectronic Cash System, White Paper, 31 October Nanos, J. (2013): The End of Ownership: America s New Sharing Economy, Nationa Data (2016): Nationa Bureau of Statistics of China, Newcomer, E. (2016): Airbnb Seeks New Funding at $30 Biion Vauation, June 28. Odenburg, R (1989, 1991): The Great Good Pace Prop Tech News (various) ReaWeathNetwork (2017): REIT Bond Pricing (2016): REN 21 (2015): Renewabe Energy Production Comparison from 2004 and 2014, Roche, J (1995): Property Futures and Securitisation the Way Ahead, Woodhead Pubishing, Cambridge Savis (2017): Around the Word in Doars and Cents Sege, A., Baum, A., Lietz N., and Wu, C. (2016): The Jamestown case, Harvard Business Schoo Tapscott, D. and Tapscott, A. (2016): Bockchain Revoution, Portfoio Penguin Tune, J. K. (2015,): The Sharing Economy Has Created 17 Biion-Doar companies and 10 Unicorns, Venture Scanner (various), incuding Apri Zhou H.T. (2016): The Last Corner of the Sharing Economy: Are There Prospects for Onine Short Term Renting?, Zuuaga, D. (2016): Reguatory Approaches to the Sharing Economy: A briefing, February 90 PROPTECH 3.0: THE FUTURE OF REAL ESTATE

92 Appendix Interviewees Seb Abigai, VTS Atif Ansar, University of Oxford Richard Batten, Jones Lang LaSae Darren Bechte, Brick and Mortar Ventures Aice Breheny, TH Rea Estate Keith Bresauer, Patron Capita Marc Bruno, Datscha Faisa Butt, PI Labs Roberto Charve, Vander Mary Criebardis, PI Labs Ian Currie, TH Rea Estate Drew DeWat, Rhumbix James Dippe, MEPC Jack Eton, DN Capita Jane Fear, Property Funds Research Macom Frodsham, Rea Estate Strategies Yair Ginor, Lipton Rogers Adam Hyde, Keepsite Yardey Ip, Truia Ragnar Jongen, DN Capita Nataia Karayaneva, Propy Phi Kemp, Regus Rache Kiser, Kensee Hugo Leweyn, Newcore Capita Management Dan Madriga, Facebook Andy Mies, REALLA Rohin Modasia, Goba Aternatives Aie Morse, Lamudi Richard Newton, Thomson Reuters Rayhan Rafiq Omar, Unmortgage John Partridge, Cording Matt Partridge, Infabode Jacob Phiipson, Datscha Sandeep Puri, Shojin Property Partners Curtis Rodgers, Brick and Mortar Ventures Rajeev Ranade, Source Centra Nei Sarkhe, Newcore Capita Bryan Saxby, Oairo Lisa Shaforostova, CBRE Jack Sibey, TH Rea Estate Jeremy Sickick, House Canary Chares Tan, Goba Aternatives Cyri Theret, IPSX Rohan Trivedi, Stride Up Simon Tucker, consutant Steve Weika, MIT Kristina Wirt, Pitchbook Andy Wishart, Thomson Reuters Sakeeb Zaman, StrideUp Bob Zerbst, Digita Reaty Yue Zhang, University of Oxford PROPTECH 3.0: THE FUTURE OF REAL ESTATE 91

93 Appendix PropTech companies featured ConTech Autodesk ConstructConnect Hoobuider Iron Panet Miceo Kahua Pangrid ProCore Rhumbix Textura Smart Buidings Aggreko CAME Digita Reaty Distech Equinix Honeywe Maaka Matterport Nest Siemens TaskRabbit WiredScore Shared Economy Airbnb Appear Here Breather Centra Working Fexioffices Grind LiquidSpace Love Home Swap Mayi Open Door Co-Living PivotDesk Regus Rentpath Roost Sharedesk Sharemystorage Soho 3Q Spittabe Spaces Spacious Storemates The Coective 92 PROPTECH 3.0: THE FUTURE OF REAL ESTATE

94 Appendix The Hub Tujia Urwork Vanke Coud Space We Are Pop Up Wework Workbar Xiaozhu Youtianxia Rea Estate FinTech 42 foors Aeria Look Argus Better Mortgage Brickvest Capitarise Compstak CoStar Cozy Credi-Fi Credit Sesame Datscha Envestnet/Yodee Equifax ESRI EyeOpen Fang Geophy Guaranteed Rate Habito HouseCanary Houzen Hubbe Infabode IPSX Juwei Kensee Knock Kofax LandordStation LendingHome LendingTree Lendinvest Leverton LoopNet Lucro Mashvisor Megaytics Mortgagebot Mortgage Harmony NoAgent OfferPad OnTheMarket OpenDoor PROPTECH 3.0: THE FUTURE OF REAL ESTATE 93

95 Appendix Piggyback Pacester Pastiq Point Property Crowd Property Moose Property Partner Property.Works Propstack PropTiger Propy Purpe Bricks RadPad Rea Capita Markets Rea Estate Strategies REALLA ReaMassive ReatyShares Reoptimizer Reposit RexMLS Rezi Rightmove Rocket Mortgage/Quicken Loans Roomi Roostify Shojin Sina Sindeo SquareYard Statebook SoFi Source Centra StrideUp SPD Taiance TheSquareFoot The Unmortgage Top Image Systems Tripe Mint Truia Trusse VTS/Hightower Xceigent Yapstone Yardi Zeus Mortgage Ziow ZoomProspector Zoopa Zumper 94 PROPTECH 3.0: THE FUTURE OF REAL ESTATE

96 Appendix Professor Andrew Baum Professor Andrew Baum is chairman of Property Funds Research, a rea estate consuting and research business, and chairman of Newcore Capita Management, a fund manager. He is currenty Visiting Professor of Management Practice and responsibe for deveoping the rea estate and rea assets initiative at Oxford Said. PROPTECH 3.0: THE FUTURE OF REAL ESTATE 95