Is PropTech the Future of Commercial Real Estate?

By Published On: November 5, 20218.6 min read

Real estate is often a traditional field built more on personal relationships than technological innovation. But when millions of people invited a robot named Alexa into their homes to control appliances, it was only a matter of time before apps and optimization came on board to disrupt the industry.

Platforms for buying and selling residential property, such as Zillow and Redfin, were the earliest and more popular examples of real estate technology, but soon enough, the commercial real estate sector saw potential.

Now investors and developers can choose from platforms that allow them to execute deals faster and get better financing, manage the energy performance of their investments, monitor construction progress, or even perform remote property management for multifamily buildings, all thanks to Property Technology, commonly known as PropTech. We’ll cover what PropTech is, what it’s used for, and how it’s changing the real estate game.

What Is PropTech?

PropTech, also known as real estate technology, is the use of technology to build, buy, sell and manage properties.

“PropTech is really bringing technology into the real estate conversation, whether that be from the evaluations, to transaction process, to data management, to employee experience, to employee engagement, and everything in between,” Todd Edstrom, Southeast Technology Advisor at JLL, told Leverage.com.

According to “Transform with technology: Shaping the future of real estate,” a 2021 report from JLL, PropTech has seen 300% year-over-year growth since 2010.

PropTech encompasses the entire real estate development timeline, from predevelopment to leasing and property management, with an increasing number of products geared toward the construction phase. There are solutions for analyzing whether to relocate your future investment, to determine whether construction is on time or on budget, whether residents of a multifamily building are paying rent on time, or using too much electricity.

What Are Examples of PropTech?

There are a number of instances where PropTech solutions can bring innovation and efficiency to managing a variety of asset classes. We’ll look at four examples.

1. Construction Site Monitoring

A number of companies are building platforms that allow key stakeholders in the construction process to monitor the progress of an investment. One of these platforms is StructionSite, a 360 video and photo monitoring system from the Ryan Companies that captures activity across a construction site. Using cameras attached to workers’ hard hats and on phones, supervisors can track progress remotely and confirm each section of the process is being completed in accordance with codes and procedures before moving on to the next stage.

As Mike Ernst, Vice President of Insights and Innovation at Ryan Companies, which makes StructionSite, told Leverage, users can not only check progress in real time, but observe prior sections of work. For example, they can replay a prior wave of work, such as verifying electrical systems are installed properly before the next team applies drywall. The cameras read images to confirm where materials are and compare actual construction progress against the original timeline. The information from StructionSite can help efficiently determine when and how to make changes to that timeline.

2. Data Visualization and Site Planning

Edstrom emphasized just how much data there is in real estate, and how because of past technology limitations, that data was not being used efficiently to plan where various assets and investments should be located.

Now, when JLL is deciding where to locate a particular project and looking at a map of the surrounding area, they can use a tool that overlays key facts about the vicinity. Instead of making real estate decisions based solely on the potential address of a property, investors and developers can, as Edstrom noted, incorporate neighborhood demographics, businesses, physical infrastructure, transit options and so much more.

Edstrom added, “Being able to merge and combine all of those different resources and data points into one intuitive and easy-to-digest data visualization platform really helps us tell the story better and make more data-driven objective decisions.”

3. Operating System for Buildings

Rudin Management Company, a 94-year-old New York City real estate management firm, told the New York Times they wanted a building operating system that could manage utilities, electricity, and a variety of other data points that also “functioned like a smartphone.” They wanted all of the different systems across their multifamily and office portfolio to be able to communicate with each other, share information and be accessible at the click of a button. Rudin couldn’t find software they liked, so they made their own, Nantum. The product, according to the Times, “has enabled the company to reduce electric consumption by 40 percent and steam consumption by 47 percent.”

Property managers use this information to decide when to power the building up for the day, and when to reduce electricity and other utilities at night, all thanks to real time data on usage.

4. Remote Management Tools for Property Managers

Property managers can’t always be on site at the buildings they manage. They might even manage or own more than one building and have a variety of maintenance, rental, leasing and tenant relationship management tasks to handle on any given day.

A number of companies created products that allow property managers to do everything from addressing maintenance requests, collecting rent, managing electricity usage, and even leasing new apartments with automation and technology. There are property and facility operation apps for managing the use of building amenities like pools and gyms, and others to coordinate package delivery. Managers can even take advantage of cameras that allow them to monitor common areas both for usage and security reasons.

How Is PropTech Affecting Commercial Real Estate Investors?

PropTech is bringing technology, innovation and efficiency into the industry, which is good news for investors. Various kinds of PropTech allow them to more easily appraise properties, research lenders and monitor the performance of their assets, and help them make decisions about when to buy and sell properties depending on their financial and physical performance. Data visualization can tell them where to build, and how to take advantage of existing infrastructure in multiple communities.

The goal of all of these tools, as Edstrom said, is “to build confidence and consensus across the business.” It’s not always about reinventing processes, or entirely throwing out older ways of doing business. Sometimes, he continued, it means “bringing all of the information we’ve all always had, but to a digital environment.” This development, he added, “is really changing the game.”

Construction projects, for example, have always needed site visits, evaluations and progress reports to track a project. Remote monitoring isn’t a replacement for in-person visits, but a way to make them more efficient, and to keep track of projects in between.

According to Ernst, the transparency of technology like StructionSite can give investors and developers more confidence in the entire real estate cycle. “This gives trust and comfort in the fact that their building is progressing as scheduled,” he said. “Viewing the progress can help lenders feel comfortable in releasing funding,” which lets investors know they can begin spending that capital on their projects. “Both groups,” Ernst said, “can also feel secure in the quality of the building as they can now virtually see behind the wall (i.e., x-ray vision).”

Buildings have also frequently hired outside contractors to monitor and manage their energy usage. Thanks to PropTech, they have more opportunities to do so in house, and access to more of their own data. This shift to internal doesn’t mean buildings and management companies won’t still continue to hire outside contractors, but they just might pick and choose the situations where it’s necessary.

3 Disruptive Startups in the PropTech Industry

PropTech startups both follow and create PropTech trends. Here are just a handful of startups paving the way for new technology in real estate.

VergeSense

VergeSense is a workplace analytics service that uses specialized sensors combined with an app to track a building, a floor, or even a room’s usage. Users can then use that data to determine workspace design, employee schedules, cleaning times and more.

The sensors are placed in different rooms in a particular building or floor, and track the flow of people as they move through them. The sensor feeds the information to an app, which managers can then use to make workplace decisions, like how many people should be able to use a conference room in a day.

During COVID, it’s been particularly useful in managing social distancing protocols, as businesses move to hybrid remote and in person models. In late 2020, they raised a $12 million Series B round.

Landis

Landis aims to expand access to home ownership for buyers who might otherwise be turned away by a bank. The platform uses technology to determine if a prospective homebuyer would be able to qualify for a mortgage within 1-2 years. If the answer is yes, Landis will rent the property, and pair the buyer with a financial coach who will assist them in the transition from renter to actually owning their home.

In July 2021, Landis raised $165 million in venture capital from funders like Will Smith’s Dreamers VC and Jay-Z’s Roc Nation, according to The Real Deal.

Bowery Valuation

Calling itself “the modern appraisal firm,” Bowery uses a proprietary appraisal program for commercial real estate that combines, according to Forbes, the older methods of appraisals with the power of big data to make appraisals faster and more accurate.

Software engineers work with appraisals to create new features to help customers make informed decisions. In June 2021, they raised $35 million in a Series B round, led by Goldman Sachs Asset Management. According to Yahoo News, that brings their total funding to $66 million.

Technology is Changing the Real Estate Game

Digital transformation doesn’t mean personal relationships will go away. Even Edstrom, who was previously a broker, said “I truly believe that the real estate industry will always be a relationship-driven industry and that relational and real estate knowledge is one that’s earned through experience.” Nonetheless, he continued, “the way we do business will change.”

And perhaps it already has. The market for proptech climbed to $6 billion in 2019, according to The Economist, and the number will only grow. The growth of apps that help manage office space usage and energy efficiency also show how PropTech will be a part of commercial real estate’s post-pandemic recovery. As Edstrom put it, “I see the future of the commercial real estate industry as PropTech.”

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