I have never been a fan of waiting. It makes me feel anxious. I like things to be figured out and taken care of quickly. As a broker at a major CRE company I feel like I am always waiting for corporate to introduce the latest technology that is supposed to make my job easier, but it never seems to happen. It makes me, well, anxious. I have written about this here and here, and WSJ has written about it here.
In fact, I am not alone in this line of thinking. Recently I attended a talk here in Boston with industry execs and discussed, among other topics, was how advancements in technology may eventually disintermediate brokers from the deal process (or at least begin to erode the fee structure). Comparisons were drawn to the travel, residential real estate, and financial services industries to support the contention that unless the CRE industry begins to adopt new technology, it will be marginalized by the technology itself. To be clear, when I refer to CRE Technology, I mean software solutions that utilize the internet to increase efficiency in a process or transaction within the commercial real estate industry.
But who really cares? As long as brokers can still make huge commissions from time to time, why waste your time looking for ways to do your job better. A CEO is required to care because he has to, but for the everyday broker, is technology really that big of a threat or differentiator? I believe that the answer is yes, and I would also argue that there are two categories of CRE technology that will eventually disrupt the CRE industry, or more specifically disrupt how brokers get paid and/or add value.
Category 1 – Listing/Marketing platforms
It is no secret that any startup that is entering this space is looking to chip away at CoStar’s market share, or create a new model for how space is marketed and found. If I were CoStar, I would be very afraid. Their product is cumbersome, the UI is terrible, and their data (outside of availability listings) is rarely accurate. The only reliable service CoStar provides is the ability to market available space within the brokerage community. But the problem is, everybody uses it and nothing else. In my mind, this is a huge opportunity for startups. Think about it, if there was a way to register interest in office space on the internet without having to speak with a broker, who (or what) would be the procuring cause of the interest in space? The listing broker or the website on which the interest was registered? The brokerage companies that partner with the new listing services first will be the ones that benefit from the eventual wave of internet tenant demand from tenants directly and brokers looking on behalf of tenants. After all, the brokers are the experts, but they might not be the best or most efficient source of demand. Here are a couple of startups that I think are on the right track in this space:
42Floors - “The best place to find office space.”
Good tagline. Now only operating in SF and NY, this service with a new $12.3m funding round, will only spread further. The site is beautiful and the concept is obvious: someone looking for office space gets on the internet and conducts a search. While 42Floors does not currently charge brokers to list space, they plan to make money in the future through “the sale of premium services and products for listings.” Bottom line is that they market of transaction fees is too large not take a piece. Who takes the eventual hit? The broker, whether in the form of a referral fee or payment for premium listing services. Maybe the landlord takes the hit, but if they were smart they would pass that cost onto their brokers.The only thing that seems obviously deficient is their SEO. I Googled “office space San Francisco” and 42Floors was nowhere to be found on the first page. Excited to see more things to come.
Rofo - “Connects you with responsive and qualified landlords who have the ideal commercial space and location to support your business needs.”
Same concept a 42Floors but taking the disintermediation concept once step further with a database of tenants looking for space. When I searched for space on this page, I mostly came across Regus listings and subleases, so I am guessing that its audience is smaller tenants and landlords. I think the concept of tenant demand database is far ahead of its time, but I don’t know how reliable the information is and how they vet it. Imagine being a property owner and browsing through a vetted list of tenant space requirements?
Storefront – “Storefront is the online marketplace for short-term retail space”
Very niche, but very direct. There is no apparent process of dealing with a listing agent or trying to find a tenant rep that will actually work with you. You log on, look for or list space, and they do the rest, including a standardized lease format. Storefront basically does what the highly paid broker is supposed to do, for probably a fraction of the cost. This seems like a good concept for a short-term deal, but might be too light for more complicated commercial leases that require build outs, lawyers, big commissions, etc. If you are a tenant with absolutely no experience leasing space, how do you know if you aren’t making a really bad decision? You cannot replace the value of a broker in that case.
SpaceList.ca – “Search office, retail & warehouse space for lease.”
A couple remarkable things here. One, they are focusing solely in Canada where CoStar does not operate fully, or at least in British Columbia, and two, their elegant UI and clean site works well for both brokers and tenants looking for space. These guys have been signing on brokers and landlords at a very quick pace, which means that brokers get it. They understand that if there is demand for space on the internet, why not utilize a service that can help them fill the pipeline?
View The Space – “Lease space Faster.”
Someone had to eventually pioneer video tours of space. VTS has done this and added all sorts of features around their core offering. At first glance it appears to be a marketing platform for space, but they also offer brokers and landlords the ability to analyze their marketing efforts using data compiled through site usage and “views.” As far as disintermediation goes, it is still confusing to me who pays for the service.
Category 2 – Data platforms
Brokers are in the information business. The bricks and mortar are secondary. Brokers exist to provide tenants and landlords the proper information to help them make a decision. The level of accuracy and reliability of this information is up to the client to decide. Imagine if the data that brokers used as leverage to get hired or advise clients was public? Imagine if lease comps or tenants currently looking for space were searchable on the internet? Eventually this will happen because of companies like these:
Compstak - “Trade your comps for comps you need.”
Fresh out of the latest batch of 500Startups, Compstak is appears to be aggregating lease comps on the internet for brokers to buy. FYI – lease comps are the deal terms of newly signed leases between tenants and landlords. Brokers trade comps as currency, and use the information to look more informed for their prospects and clients. While not quite a public database, the information that is shared on the site is invaluable to real estate investors, brokers, and investment managers. Typically, this info is carefully protected in brokerage company proprietary databases, only to be shared or used when beneficial to the brokers that own it. This will eventually change. Most publicly traded companies file major lease deals anyway, so what is everyone else waiting for? The only trouble I see these guys running into is who exactly owns the data. Landlords, tenants, brokers? By the time this concept reaches mainstream, it won’t really matter anyway.
TenEightApp – “TenEight has developed the first ever virtual and interactive tour booklet app.”
Patrick and his team have tackled the issues of building standardization and tenant ratings by developing a mobile platform for sharing building info. While the platform provides a much easier way for brokers to share tour information with tenants, the underlying play is aggregating the building ratings data and serving that up to landlords and corporations as business intelligence. Wouldn’t it be cool to have a bona fide ratings system for buildings like there is for restaurants or movies?
Leasability – “Lease more space in less time.”
Shameless plug – this is a project that I have been hacking on for a while. The concept is that brokers and landlords should have a web-based platform on which they can manage deal information. The data collected through the deal pipeline will allow landlords to measure the performance of their property portfolios. Brokers are able to spend less time communicating deal progress and more time finding deals. Asset managers log on and see what is going on in each of their buildings in real-time. Brokers can log showings, upload proposals, move deals through the pipeline from their phone or computer. Eventually landlords and brokers can use the data that is gathered through the deal process as business intelligence to optimize portfolio performance and make better leasing and marketing decisions.
I think that CRE brokerage companies should be trying out these new platforms to see where value lies. The big question is how long will it take for the disintermediation to become reality.