Insight

How Real Estate Heavyweights Harness Tech Talent

Real estate leaders have a lot on their plate. As Bain & Co write in The Firm Of The Future, “to thrive in this environment, firms will need to dial up their ability to see around corners, spotting trends before they are well formed and mobilizing resources quickly to adjust to changing circumstances.”

Yet, organisations innovating around the core of their business offering is nothing new. Harvard Business School professor and author of The Innovator’s Dilemma, Clayton Christensen refers to these as ‘sustaining innovations which bring steady, incremental improvements to a firm’s performance, value or market lead’.

It is innovations which flip entire industries we should watch. The mega-success of seven year old co-working space providers, WeWork, is a prime example. From October 2016 to October 2017, WeWork raised over $8 billion in investment (with SoftBank investing over six billion, according to Crunchbase). Their staggering growth is a direct result of data gathered, analysed and put to action. But WeWork is not alone and real estate leaders would be arrogant to think that this kind of market disruptor is a rarity. WeWork is doing to commercial real estate what Airbnb is doing to the hospitality industry.

What is the significance of managing tomorrow’s world today, and how is it done?

I asked three forward-thinking executives in real estate how they are leveraging technology today so that it can incorporate new customer needs, new competitors, and new business models. As one of property’s leading advisory firms, CBRE sits at the forefront of almost all new trends in the industry. Their acquisition of PropTech start-up Floored in the US sent a strong message to market that they want to be at the forefront of tech advancements, but also that they need to integrate tech knowledge throughout their business.

Martin Lewis, Chief Operating Officer, CBRE

CBRE’s acquisition of Floored is known as an acquihire, and is common with large firms across all industries. Martin Lewis, Chief Operating Officer of CBRE explained they bought Floored for their product and the talent that built it. Like many global businesses, technology based innovation is often driven by the USA, and Martin was tasked with implementing their agenda. As Floored already had smart software that both benefitted and complemented CBRE commercially, they were equally interested in bringing in the development skills to develop new software – to improve internal efficiency and leverage off Floored’s existing customer base.

Martin revealed CBRE’s biggest challenge with the acquisition was managing the cultural differences between them and Floored – it’s tricky to mix a sea of suits with a jeans and sneaker crew.

Andrew Baum commented at Holtby Turner’s PropTech breakfast panel, that some of the most commercially viable ideas come from the ‘converted blue suits’ and not PropTech startups. Martin agreed with the sentiment and felt some of the very newest, early stage start-ups could benefit from running their concepts past some of the older heads in the industry as a pre-launch perspective check. “However good an idea can seem, there may be some commercial or practical reasons that mean the business will never get off the ground. All the big firms are now interested in investing in tech, but there will be a lot of failures.”

Indeed. BCG Henderson Institute recently pointed out in What Deep-Tech Startups Want From Corporate Partners that ‘deep-tech startups’ need a strong research capability “since their innovations rely mostly on fundamental and advanced R&D supported by highly developed skills, knowledge, and infrastructure.”

Raimondo Amabile, Co-Chief Executive Officer, PGIM

As global investment managers, it’s no surprise PGIM have invested in a series of start-ups. Co-CEO Europe, Raimondo Amabile tells me that their aim is to “benefit from the knowledge and skills of the leader and their team, as well as potentially develop a valuable new product. Our view is that we will get more value from a CTO or CIO if they are concentrating on developing their own product, one they are passionate about.”

With technological advances moving so quickly, it is a very real challenge for an internal Head of Innovation or Chief Technical Officer to keep pace with the latest innovations. Raimondo would rather invest in a start-up and have it sit outside the business, and retain a degree of freedom. This outlook reflects a growing trend amongst PGIM’s competitors to invest in what’s known as ‘deep tech’ research (i.e. large scale, transformative technologies at the concept and pre-market testing stage).

A member of PGIM’s executive committee then shares what they’ve learnt from the start-up to the organisation more broadly. While PGIM’s younger employees are clearly aware of that need, Raimondo is keen for everyone at PGIM to be aware of technology and have it stimulate internal discussions about innovation. Naturally, as is the case across real estate in general, the challenge is frequently getting buy-in from senior team members who are used to certain things, done a certain way.

Whilst BCG Henderson Institute urges entrepreneurs to consider beyond the technical development of their product, and how ‘to jump-start nascent or non-existing markets’, so must those on the inside think beyond their existing business model and market share.

Oli Farago, Chief Executive Officer, Coyote and Chief Technology Officer, M7

M7 and Coyote is an excellent example of an investment management firm that decided to create their own start-up.

In 2009, during the downturn in the market, they made the strategic decision to look at all the areas of their business and see where they could improve efficiencies. As founding members of M7, Richard Croft and Oli Farago always had a keen interest in technology. They concluded that the products already on the market didn’t do exactly what they wanted them to, nor were very user-friendly – plus they were expensive.

Frustrated yet determined, they developed and built ‘Coyote’ – an online platform that accumulates all the data from M7’s portfolio of properties, and puts it into a versatile format. Coyote helps the M7 team when presenting to investors, and lets them manage their internal business systems more efficiently.

Whilst solving a problem cheaply and effectively sounds like a no-brainer, how on earth do you set about doing it? Well, Oli is fairly unique because he started his career in software development as a developer. In fact, he wrote every line of code in the original 2009 software! Oli’s completely different to most real estate fund managers, REIT managers and advisors who have traditionally come through Reading University and qualified as surveyors. In this instance, an entirely new set of skills would have to be learnt and put to use to create their own digital solutions … which is a whole heap of hassle most firms would be wise to avoid. Yet, to their credit, Coyote recently decided to go solo and sell its software to third parties, not just M7. Time will tell whether they can succeed and gain growth in the market.

“M7 has always been very tech savvy, so the cultural difference between Coyote and M7 has not been as difficult as it may be for other businesses” Oli explains. “If businesses are not dynamic and agile, and get too bogged down in the detail, then it could be difficult to get a new product off the ground. Tech innovation is an accepted part of the business strategy throughout the entire business of M7.”

“The biggest challenge for other businesses who now want to adopt a similar strategy to M7’s … is that there is now huge competition for software developers and product managers. However, even with these challenges, you need to start taking action because if you are to just bury your head in the sand you will be left behind” Oli urged leaders in the sector.

His feelings about innovation in real estate? “Going forward, I hope we will see more collaboration across the industry. There are currently hundreds of very niche start-ups, all developing their own products which results in a very inefficient flow of data. Data should be fully open to the market and have a more efficient integration into everyone’s systems.”

Read more about PropTech & Innovation in our Insight Report here, A Brave New World? Innovating Real Estate