Property owners are experts in the problems that PropTech is meant to solve. Because of that, many PropTech investors have a real estate background. Most of the venture capital PropTech investment firms are either led by former property executives or have major property companies as LPs or board members. This gives them a deep understanding of what kinds of technology the property industry is able (or willing) to adopt. It also gives startups another reason to take their investment capital. Which company wouldn’t want introductions with some of their biggest potential clients? But now we are starting to see a different type of connection between buying real estate and investing in PropTech. Property companies are now increasingly investing in technology, and PropTech VCs are starting their own property investing arms.
PGIM Real Estate (pronounced P-Jim) is the real estate investment management business of PGIM, the principal asset management business of Prudential Financial, Inc. They have been investing in real estate for over 70 years and currently have around $210 billion in assets under management. Their age, size, and corporate connection do not make them a typical candidate to invest in PropTech. But that is exactly what they are doing. PGIM Real Estate recently announced the launch of RealAssetX, an innovation lab that includes partnering with PropTech VC Taronga Ventures as well as a host of major Universities around the world and through these strategic partnerships, it will research, develop, and invest in technology in the real asset industry.
There are a few very different reasons for a property company to invest in technology. One is to make money on the investment. Technology investing is risky, but when done right, it can result in massive returns on capital. The other reason is to help find technology that can be deployed on their portfolios to make them more profitable. When asked if the research produced by RealAssetX will be proprietary or public, Cathy Marcus, co-CEO and global chief operating officer of PGIM Real Estate, said, “Some solutions RealAssetX creates will only be applicable to PGIM Real Estate because we will be solving for a problem specific to our business. In other cases, we will build technology that can be leveraged by our entire industry, whether this be in areas of decarbonization, climate change more broadly, or shifting demands on real estate investments.”
So PGIM Real Estate’s RealAssetX is an initiative that will hopefully find ways that “artificial intelligence and deep tech” can help solve some of the property industry’s problems with help from leading research departments at the University of Chicago, University College London, University of Singapore, and University of New South Wales. When deciding which issues to focus its attention on, “RealAssetX will work closely with its strategic partners to identify key areas of research through various channels such as PGIM Real Estate, the Universities, VC partnerships, and technology companies and prioritize research based on collective feedback.”
Technology investors are also looking at the other side of the coin. Alpaca, a venture capital and asset management firm that has invested in around 100 companies across PropTech and Climate Tech, is expanding its business to include a real estate investment platform. The new business, co-founded by Daniel Carr and Peter Weiss, takes a thematic investment strategy that will leverage Alpaca’s technology expertise. “We think that there will be a repricing of real estate in the near future, and we want to be able to take advantage of that,” said Peter Weiss, co-founder and managing partner at Alpaca Real Estate. So far, they have identified infill industrial and built-to-rent single family properties as their main focus but are always looking for other vertices as well.
The hope is that property investing will benefit from the technology knowledge just like their technology investments have benefited from their real estate expertise. “We will RFP different technology and operating platforms along the way and will lean on Alpaca’s knowledge in the space,” Weiss said. It isn’t just Alpaca’s PropTech expertise that Weiss hopes they will benefit from. “We really wanted to be innovative in how we invest in property, and Alpaca has the right mindset and background to do that, which I can’t say for every real estate investing shop.”
It may seem like investing in early startups and commercial property are at opposite ends of the spectrum. Technology investors have a large appetite for risk and don’t expect immediate income from investment. Commercial real estate investors are looking for a safe haven for their money and are constantly comparing their risk/reward profile to investments like government or corporate bonds. But these two very different profiles do have similar goals. We will see if forward thinking companies are able to blend these two different worlds into a strategy that could be worth more than the sum of its parts.