The Intersection of PropTech and Innovation – with Brendan Wallace (Fifth Wall)
On this episode of REALtalk, Brendan Wallace, Co-Founder and Managing Partner at Fifth Wall, joins REALPAC CEO Michael Brooks to discuss the intersection of PropTech and innovation in the age of COVID-19 and beyond.
The episode covers:
- The evolution of PropTech
- What the future of PropTech looks like in a post pandemic world
- The WeWork crash and its impact on real estate
- Fifth Wall’s $100 million Retail Fund
- Accelerating brands beyond brick-and-mortar expansion
- The online to offline trend
- How to move towards achievement of sustainability and climate goals within real estate
About Brendan Wallace:
Brendan Wallace is a Co-Founder and Managing Partner at Fifth Wall, where he guides the firm’s strategic vision.
Prior to starting Fifth Wall, Brendan co-founded Identified, a workforce optimization data and analytics company that raised $33 million of venture funding and was acquired by Workday (NYSE: WKDY) in 2014. He also co-founded Cabify, the largest ridesharing service in Latin America, and has been an active investor, leading more than 60 angel investments including Bonobos, Dollar Shave Club, Lyft, SpaceX, Clutter, and Philz Coffee.
Michael Brooks (REALPAC): Hello, everyone, thanks for listening and welcome to REALtalk, the show that brings you unique insights from leaders in Canadian and international commercial real estate. I’m Michael Brooks, CEO of REALPAC. Our guest today is Brandon Wallace of Fifth Wall, who will be talking with us about the intersection of PropTech and Innovation in the era of Covid. Brandon is a co-founder and managing partner at Fifth Wall, which is the largest venture capital firm focused on the global real estate industry and property technology for the built world. It connects the world’s largest and most influential owners, developers and operators, redefining how the world interacts with its physical environment. Prior to starting Fifth Wall, Brendan co-founded Identified with a capital “I” – a workforce optimization data and analytics company, as well as co-founded Cabify, the largest ridesharing service in Latin America. So a very entrepreneurial, technological and future thinking mindset. Welcome, Brendan.
Brendan Wallace (Fifth Wall): Thank you so much for having me.
Michael Brooks (REALPAC): All right, let’s get to the discussion. Brendan, it seems like long ago we started hearing about PropTech, and a lot of us started attending conferences with panels of startups. It’s got to go back to 2017-2018-2019. Maybe that was PropTech 1.0 in your world, but it was it was almost a must have session at every real estate conference. And we heard about many great early successes, VCs, Airbnb, Convene, Honest Buildings and many others. And I think actually that many Canadian companies were early investors in some of those. Then we had a WeWork crash and probably all of our attention’s diverted away by the pandemic. Where do you think we are now? And what’s the way forward in PropTech following the end of the pandemic? Is it back on like it never left it? Will it be somehow different? How do you see this market now?
Brendan Wallace (Fifth Wall): Yeah, I think PropTech, just as a category, has matured enormously. And I agree with much of what you said in terms of just like the history of PropTech, there was kind of something around 2015 – 2016, which was kind of like a age of enlightenment moment for the real estate industry, where owner operator, developers of real estate who previously never really had any clear or discernible point of view on technology, recognized they needed to. And I know that sounds like something that is obvious. Of course they should have. You have to contextualize this in the real the context of the real estate industry, the real estate industry as an industry which is the lowest spender of any major industry on it. The real estate industry is probably the biggest tech laggard, major industry. And it’s also an enormous industry in the US. It’s 13% of US GDP. It’s the largest asset class, the largest lending category. And basically that whole industry missed the entire Internet and all of mobile. And then around 2015 – 2016, this light bulb went off. And so the demand for tech was voracious. And you had this kind of leapfrog effect where you went from analog solutions, you know, Excel models or literally spreadsheets and kind of pen and paper to fully mobile cloud enabled data and analytics and powered software.
Brendan Wallace (Fifth Wall): And so demand was voracious and it spawned a lot of enterprise value creation over really the period from when Fifth Wall started, like 2016 until 2020, pre pandemic. With that said, I think one of the things that the real estate industry never fully embraced was that, you know, tech is not decorative, meaning it’s core to the business of owning or operating real estate at a operations level. But it’s also pretty core to informing which kinds of real estate assets you should buy, meaning technological trends, as well as sociological and demographic trends to inform asset class and geography. But I don’t think most real estate owners truly got that so prepend. I would still describe PropTech as kind of somewhat theatrical in some cases for real estate firms. I’d say they’re starting incubators or doing one off deals, but it wasn’t the core part of their business. So it was it was just gestating that real estate needed to be this core. I think what the pandemic did is it really highlighted for thoughtful, self-aware real estate owners that tech is not decorative, it’s not theatrical. It doesn’t need to be the small incubator program. It needs to be at the core of owning and operating.
Brendan Wallace (Fifth Wall): Real estate is actually at the core of being a real estate company. And I think that’s partially because a lot of the assumptions that have kind of girded the real estate industry and allowed it to ignore the onset of technology in every other industry were questioned. The kind of anchor of those assumptions was questioned when we don’t know if people are going to return to. In any form like they did pre pandemic, we really don’t know how oversupplied retail we are, we might have thought we had an understanding of it, but clearly we don’t. And I think we’re about to see that we clearly did not anticipate the demand for industrial real estate and data centers. We clearly did not anticipate the demographic reshuffling that has been affected by this kind of work from home or work remote dynamic. And so all of those existential questions are now colliding with the real estate industry. And I think tech is it provides tailwinds to all technology, the PropTech in particular. So I think what you’re seeing right now is a maturation of product from being somewhat decorative and theatrical in terms of how real estate companies engage with it to be existential and core to their businesses.
Michael Brooks (REALPAC): I think they’re you think they’re a certain kind of buckets. When I think back to the early days and there were platforms for use of your boardroom, platforms for use of your house, Airbnb, and then there was stuff that would help you operationally like leasing platforms. And it seems like that was so different than the dotcom boom bust of 2000 – 2001 where everybody talked about disintermediation. It’s like no one really got disintermediated on this one. But everybody’s business model could be enhanced by technology. Do you think of it in terms of major buckets of innovation that we’re the first generation?
Brendan Wallace (Fifth Wall): You know, I understand what you’re saying and I think we’re just at different stages across different asset classes. So the kind of disintermediation dynamic you’re talking about is kind of one the OTAs cropped up and Hilton and Marriott basically were disintermediated from their end customers by the price lines and the expedients. And obviously those companies have gone on to create enormous amounts of enterprise value and price transparency, none of which is actually good for the underlying hotel industry. And I think we saw permutations of that in office. You can kind of think of we work as, frankly, being just a decent mediator for this kind of SMB, more granular tenant base. Airbnb was kind of the same thing in a different way, just kind of almost re-enfranchising a certain asset class, in this case residential, as actually being hospitality. Right alongside that, you’ve also seen enormous growth of enablement technology, which is like the voices of the world that are just simply rendering more friction, less the process of leasing space or buying space or financing space in the business of doing real estate. So this kind of technology enablement, I think the other major buckets that we think are really exciting is just financial service innovation. So real estate capital markets are the largest capital markets