According the the Bureau of Economic Analysis, Real Estate is the largest sector of the US economy measured by value added GDP. It leads state and local government, finance, health care and manufacturing by healthy margins. Yet, it’s the only one of these that hasn’t dramatically felt the impact of technology and the internet. Modern technology has profoundly impacted how the other leading industries make decisions and, in general, conduct their business, yet real estate hasn’t benefited in the same way. Old fashioned business processes still prevail and very few new technologies have gained widespread adoption, driving meaningful improvements in efficiency.
Anyone who has bought an apartment in New York City has witnessed some of this up close. The contract used for the majority of home purchases in the city looks as if it was written at the dawn of the century (the 20th century, that is) with edits and annotations written in the margins. This document with hand-written annotations is then photocopied and signed… yes, this is your contract and official record for what is most likely the most significant investment of your life. As someone who entered the workforce in the 1990s, well after word processing was pervasive, buying my first home was an enlightening experience and the first time I witnessed such inefficiency in a professional context. Needless to say, the real estate sector has lagged its peers in utilizing technology for efficiency gains.On the residential side of the market, we’ve seen some efficiencies created through the use of online listings. Craigslist started the revolution in the 1990s and it evolved further with Zillow, Trulia and StreetEasy improving the way we view and evaluate properties. These services earn the majority of their revenue from advertising though, so some might say they are in the media business and their topic of coverage happens to be real estate. We’ve also seen entrepreneurs rethinking the brokerage model, with Redfin leading the way, and several local startups including Real Direct and Suity also turning brokerage models on their heads by using technology in creative ways. While compelling and, in many cases, lucrative, these are largely incremental improvements on existing business models that continue to rely on the existence of an intermediary between buyer and seller. Eventually, my hope and belief is that technology will remove this layer and allow buyers / sellers to interact freely. Until that time though, there’s probably opportunity for innovative technology to claim its stake.
On the commercial side of the market, where spend is more concentrated, innovation has been slower. When you look at the activity in the value chain, you find that the five standard modes of behavior are: (1) research and analysis, (2) acquisition, (3) portfolio management, (4) construction, (5) marketing/disposition. Services designed to improve the listing and viewing experiences address both the acquisition and marketing / disposition phases. We’ve seen some innovation in this area with companies like 42 Floors, View The Space and Floored making nice strides with unique approaches. For portfolio management, a young company called Hightower recently raised money here in New York, attempting to challenge the legacy software incumbents in the space. And in construction, one of our portfolio companies, FieldLens, is making great progress helping crews work and collaborate more effectively on the job.
Research and analysis is the one activity that’s not only involved in nearly every commercial transaction, but duplicated by multiple parties. A typical deal involves investors, lenders, brokers — each investing time researching the issues that matter most to them to gain an edge in the negotiations. Research is also the one area of the value chain that’s most closely aligned with improvements in data availability and the capabilities of software to manipulate and make sense of data. And yet, it’s an area that’s seen a surprising lack of innovation from young real estate technology startups. In talking to investors, developers and lenders, we learned that acquisition / valuation reports often take weeks to assemble and often involve teams of MBAs and accountants gathering and assembling data — typically a laborious and manual process — before packaging it for presentation to the higher ups. This process is old-fashioned, inefficient and nonsensical when, in most cases, the data is more easily accessible.
Enter Reonomy. Reonomy’s research platform enables commercial real estate players to conduct quant-based analyses in a matter of clicks. We think their property and market-level data from 100+ sources, validation algorithms and analytics will redefine how commercial real estate assets and market forces are analyzed and understood. Never before has so much data and knowledge on the commercial real estate market been made available so easily. By entering a simple address, the user gains access to historical revenues, NOIs, projections, comps, peer data, ownership records and a slew of other information. Reonomy is currently in beta, testing a product with select partners in the New York City market and plans to rollout to other markets across the country in the near future.
We’re thrilled to be working with an extremely talented management team. Charlie Oshman had the original vision and began work on this concept 4+ years ago. More recently, he teamed up with Rich Sarkis, who brings strong entrepreneurial and leadership sensibilities to the business, having previously founded BookCentral, a global online textbook retailer, well before that business model was fashionable. More recently, Rich spent five years with McKinsey, before deciding to hang up his consulting chaps and return to his entrepreneurial roots. And the team is super well rounded on the technical side with Harlan, Memo, Brian and Luka each bringing strong and differentiated engineering skills to the table. We’re also excited to be working with some stellar co-investors. Mike Hirshland and Resolute VC, Brad Svrluga and High Peaks, as well as KEC Ventures and FinTech Collective bring terrific domain expertise to this endeavor. Since this is officially the first venture capital investment that I’ve led, it’s reassuring to have such smart people around the table. TechCrunch was nice enough to provide coverage of the financing today. Onward!!