A Fresh Take on CRE

The Great Recession: Catalyst for CRE Innovation?

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In keeping with the theme of our blog, I interviewed other companies in the CRE space to ask them about innovating in an inefficient industry. I spoke with Ryan Masiello of View the Space and Tanner McGraw of Apto, and was left with two points addressing why some CRE tech companies are progressing in the commercial real estate space:

1. CRE professionals faced and continue to face real challenges that could be solved by technology.

2. The real estate crisis allowed for CRE professionals to reevaluate their systems and processes, and was a catalyst for technological advancement.

As background on the two companies, Apto and VTS were founded by former commercial real estate brokers. VTS is a commercial leasing platform that enables landlords and brokers to close more deals and manage their listing portfolios more efficiently. Their product features range from reporting and analytical tools to video allowing users to tour the space on the platform. Apto is an all-in-one CRM for commercial real estate brokers. It's a fully customizable and scalable solution that enables brokers to easily manage their relationships, along with investment sales, landlord rep, and tenant rep pipelines.

To understand how CRE experience drives success, it is important to determine the challenges faced by CRE professionals.

First and foremost are tech challenges. Brokerages are notorious for having antiquated systems. McGraw describes how Apto was born out of this frustration: “I was a broker for 10 years on the investment sales side...the industry is slow to adopt technology and plagued with all these disparate systems.” McGraw goes on to explain “many people are still using Outlook and Excel. It is an unsophisticated approach.” McGraw states, “new brokers coming in [to the industry] did not have the advantage of less competition when they first started out. [They] needed to catch up and that’s where tech comes in.” McGraw describes how after many poor attempts by other software companies, he decided to create Apto as his “CRM, prospecting, deal management tool...”

Because McGraw and Masiello lived these challenges as brokers, they have been able to craft relevant solutions in Apto and VTS.

But why now? Why have we seen such an upswing in innovation within commercial real estate since 2008? We all know that commercial real estate took a turn for the worse in the recession, but what is interesting to think about is whether or not the technological advancement in the CRE industry would have occurred without the recession?

I was reading this article by Mark Suster, and this passage jumped out at me:

"Great companies are built in downturns. It’s where the truly innovative separate themselves from the pack. It’s when the game slows. It’s when the noise stops and you can actually get customer attention, press articles and VC meetings.”

Perhaps this might explain the lag in CRE innovation as my colleagues, Joe and Noah, described last week?

For the sake of argument, what if the lag in investment and innovation was because of the following: Before the Great Recession, there were few CRE technology start-ups because there wasn’t much of a need. The real estate market was booming, brokers were inundated with their day-to-day work-leasing space, tenant prospecting, deal-making, and negotiating. Why solve a small problem, or streamline a process, when everyone is making money? The Great Recession provided the catalyst for innovation. As the real estate market imploded, and brokers had to work harder for the next deal, they looked for ways to gain an edge over the competition. That is where technology enters. Brokers realized that there was an opportunity to change the industry through technology, which the CRE industry had yet to fully adopt.

The founding stories of VTS, Apto, (and CompStak too!), back up this theory. McGraw holds that CRE is a cyclical business and suddenly with the recession, brokers were forced into looking to new technology. McGraw believes that more companies started in the downturn as brokers now had the time to look into new opportunities. Moreover, the recession brought the usual broker pain points to the forefront of brokers’ daily activities. Since “most brokers are entrepreneurial in nature,” McGraw asserts that they used this down time to try to find solutions to the CRE annoyances, which they previously did not have time to address. This was a way for the younger brokers who didn’t have a big book of business to find a way to compete through the use of technology.

Similarly, Masiello theorizes that since the CRE industry isn’t a tech market at its core, it wasn’t an industry that ever needed to adopt the newest technology to gain an edge. Because the technology and product adoption process is not CRE focused, it does not resonate with the target users. “CRE is a challenging market to navigate and most don’t understand the market or its players,” Masiello explains. Masiello jokes that most CRE tech is built by people that have “never leased a space,” underlining the importance of industry leaders paving the way into the future.

So what does this mean for the future? Will more CRE professionals see the need for technology in their day-to-day and start innovating with their own tech companies? Or is the market saturated with CRE start-ups that relieve typical pain points? I don’t know, but it’s an exciting time to be in the CRE world as the cross between technology and real estate continues to reach its peak. You’ve heard my thoughts and it would be great to hear yours-please comment below!

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