If you have been paying attention to the stream of predictions coming from PropTech world, you would think that we are on the precipice of a seismic shift in how the property industry functions. There are a lot of potentially transformational topics being talked about including blockchain, AI, VR, and autonomous vehicles. While these make for inspirational content they are things that might not affect the day-to-day operations of a real estate professional for quite a few years, if at all. This comes at the expense of other, less sexy topics that are actually impacting how the gears of the property industry turn.
The reason for this is obvious: publications measure success with clicks, events with ticket sales. Topics like robot workers, augmented reality and virtual assistants are more interesting than organizing a CRM or integrating a building management system. Unfortunately, there is often a big gap between interesting and useful. We are, admittedly, one of the many prognosticators of the narrative that real estate is about to be transformed by cutting edge technology. But even though we have swallowed the PropTech pill and drank the Smart City Kool-Aid, we have to be open to the idea that we are completely wrong.
There are many examples of why it is dangerous to be too sure of technology’s ability to change an industry. At the end of the 90’s there was a similar sentiment. Internet companies were being fought over by investors looking for the returns associated with an “internet company” valuation. Everything was going to be bought online soon so the race was on to be one of the retailers of the future. At one point in 1999 the market cap of the 199 internet stocks tracked by Morgan Stanley’s Mary Meeker was $450 billion. Of these companies, the total annual sales only came to about $21 billion and their collective losses totaled $6.2 billion. The result, we all know. From its peak in March of 2000 the Nasdaq, the stock market that houses most of these overinflated internet stocks, was down 34 percent in a month and 80 percent just two years later. Tellingly, it wasn’t the gain-hungry venture investors who were on the receiving end of this downturn. By 2002, 100 million individual (or as they are affectionately referred to “main street”) investors had lost $5 trillion in the stock market. A Vanguard study showed that by the end of 2002, 70 percent of 401(k)s had lost at least one-fifth of their value, 45 percent had lost more than one-fifth.
One of the things that spurred this rapid fall from grace was a slow rise in interest rates and an attitude from institutional investors that technology stocks were overvalued. Sound familiar? Even though there are some big strides happening in commercial real estate technology right now, the test of time has yet to be passed.
To move the industry forward we need to talk about the incremental gains as well as the breakthroughs. This means having often mundane yet pertinent conversations around how to use and improve the technology that exists—and has existed for years. In a recent conversation I had with one of the designers of the ARGUS valuation software, it struck me how they understood that in order to onboard the most users, they needed to import and export into Excel. This goes against the ethos of the tech industry: spreadsheets are old school, having everything on a cloud based app is the future. But, spreadsheets have been around for a long time. Not because of monopolies or walled gardens but because they are a really great tool.
It isn’t just spreadsheet that get dismissed by nascent PropTech culture. CoStar, Yardi, RCA and as well as ARGUS all draw the disdain from startups and investors alike. The truth is that these companies have all created something incredibly valuable, long before most of their competitor’s founders were even out of college.
Small innovations from the creators of the tools that real estate professionals already use every day are silently moving the industry forward. One of the people that shares this view is Jim Young. He is the founder of the Realcomm conference, which has been going on for twenty years now and is by far the most well-attended real estate technology event in the world that we know of. In fact, to this day Realcomm is the only place I have ever seen Anant Yardi, the founder of Yardi Systems, in person (although if anyone from Yardi is reading and wants to invite me to Santa Barbara for an interview, consider my bags packed).
Jim recognizes that many of the stories being told in PropTech are not necessarily representative of what is actually taking place in the boardrooms of brokerages and property management companies around the country and the world. “In one ear I hear a conversation happening about flying cars and in the other people are still talking about setting up an integrated accounting system.” Of course, innovations like AI and Augmented Reality will be discussed at this year’s conference in June in Nashville, but Jim makes sure to also include a lot of very useful seminars, like cybersecurity and valuation modeling—even if it doesn’t have the same kind of sex appeal as some more futuristic topics.
Part of our job as industry observers is to inspire. Talking about bleeding edge technology and changes on the distant horizon achieve that goal, and so those ideas have a place in the commentary. But this should not come at the expense of the innovations in the way the industry is using existing tech or the new products being rolled out from the legacy companies in the space. We want to see the industry move forward as much as anyone but we understand that there is danger in overhyping trends, even though hype can turn heads, sell tickets and bait clicks.