CRE Tech Investors Now Choosing Profitability Over Growth
CRE tech Investors are strict about profitability with growth as the cherry on top as the ten-year market bull run slows.
NEW YORK CITY-The wellspring of new real estate technology companies has venture capitalists excited— but also cautious following the recent lesson from WeWork’s flopped initial public offering, as they watched the co-working company’s valuation deflate and stunted cash flows on the front lawn.
Now, investors are strict about profitability with growth as the cherry on top as the market perception is that the ten-year bull run will end, according to a CREtech New York 2019 panel dubbed “Convincing the skeptics – the great proptech debate.”
“These cycles come and go. The focus is on growth and profitability,” said panelist Mihir Shah, co-CEO of JLL Technologies. Investors will search for “innovative companies that create value regardless of the cycle.”
Whether fundraising or launching a new growth initiative, a solid business model that taps a tenant need has proved not only essential but resilient in stormy economic conditions. While many criticize WeWork’s current financial state, the company has revolutionized the tenant experience and brought value to what tenants want, according to Shah.
Despite real estate serving as the wild west of technology, one thing investors are hungry for is how proptech companies are engaging the market and capturing end-users for the long term. “At the end of the day you can deploy technology, but people have to use it,” Shah said.
Currently, JLL Technologies has raised an estimated $100 million for its proptech fund, investing in 14 companies with an average investment of $2 million. One of the criteria the fund doesn’t skip on is engagement measured in square feet.
JLL Technologies’ HQO, a tenant experience online application that allows tenants and landlords access to property insights for amenity and management purposes, has engaged in over 60 million square feet and is innovating with the feedback and data generated from the platform. And as the data is collected, it’ll go to adapting the platform’s offerings to meet the changing demand.
While new companies are springing up, the attention remains on existing companies that are innovating, applying their market experience and corresponding collected data, said panelist Yishai Lerner, co-CEO of JLL Technologies. “We’ve seen a lot of innovation from existing companies which is where our interest is,” he said. “In 5 to 10 years, where are we going.”
The anticipation of a market correction is at an all-time high, and if the conversation isn’t about tenant experience, it is about leveraging technology to strengthen operations and boost operating incomes, according to Shah. “Everyone wants to buy a product that helps measure their utilization rate,” he said.
For instance, office landlords crave insights that’ll measure the attractiveness of their property against rising trends, such as more employers allowing staff to work from home. An estimated 40% of employees work from home, Shah said.
“Investors are asking, ‘wait did I build the right office,’” he said. “The technology stack is not only about tenant experience but about property usage to measure returns on investment.”