It’s no secret that many industries have experienced disruption from technological innovation, from Uber’s effects on the taxi industry to Amazon’s impact on the retail sector. Yet, the commercial real estate industry has been slower to embrace the shift. I decided to look at three companies that are revolutionizing the commercial real estate industry through technology. I asked each CEO about their experience as an innovator in the space and what they predict will be next.
The CEOs are:
• Zac Rosenberg, founder and CEO of TapCap – A digital-driven nationwide multifamily lending company.
• Rich Sarkis, CEO of Reonomy - A commercial real estate data company.
• Guy Zipori, co-founder and CEO of Skyline AI - An artificial intelligence asset manager for commercial real estate.
Robert Reiss: What was the flaw in the industry that your company is working toward correcting?
Zac Rosenberg: Too many assumptions. Historically real estate investors and lenders had limited amounts of information to work with, so the industry designed "rules of thumb" to offset this. These models were "good enough," most of the time. Today, information is plentiful. The flaw in the industry is that it still hasn't figured out how to capitalize on the increased availability of data to replace assumption-based modeling with data-driven reasoning.
Rich Sarkis: Despite being one of the world’s largest asset classes, information and insights on commercial real estate have never been easily accessible. This is due to the disparate, fragmented nature of how data in this industry is recorded, and the inherent difficulty in connecting that information at scale.
Guy Zipori: The main flaw I’ve seen is that real estate investors have been depending on the limited reach of humans to find the best opportunities throughout the entire course of the real estate investing cycle. In 2017 at a real estate conference I asked a speaker from a major asset management firm what technology they were using. He answered, “a tremendous amount,” and when I pressed him, he explained that they had computers and Excel spreadsheets. This is the moment that I realized the commercial real estate industry needed a tech overhaul.
Rich Sarkis, Zac Rosenberg and Guy Zipori
Kate MillnerReiss: How would you describe the industry’s reception of your idea or service? What has been the ratio of nodding heads versus dropped jaws?
Sarkis: In the six years Reonomy has been around, we’ve seen an acceleration in the reception of our products. In New York, where there is already open access to data, we got more of the 'head nod' - that we were helpful, but we weren't doing the impossible. When we expanded nationally, I think we get a lot more of the 'jaw drop' response - especially from those have been in the industry a long time.
Zipori: Even the nodding heads often have dropped jaws. The early adopters are in awe of the promise of what the tech can do. They’ve been anticipating this disruption as they’ve seen other sectors be completely transformed by advanced technology. And frankly, they understand that the speed that tech can facilitate in executing deals is a game changer. But an equal amount of people are conservative and cautious to the influx of AI into their world. And I get it; it’s an industry based on the long term, where people tend to tread carefully and are wary of major disruptions, whether economic or technological. Naturally, warming up to AI can take some time. I do believe though that in the future, AI will have a seat at the table for every investment decision in commercial real estate -- no one will dream of relying on human analysts alone.
Reiss: As an innovative leader in this industry, what are the plans for the future of your company? Which business strategies do you believe will lead you to success?
Rosenberg: Optimistic skepticism. When this industry cracks open, there will be so many opportunities! We'll see changes from new methods of constructing assets, to management, operations, investment, insurance, financing, servicing - all of it. It's easy to get caught up in fantasy and "what it could be like,” but in such times it is equally important to remain grounded. Companies must be adventurous and experimental. But they also must keep a disciplined approach to evaluating their position and cut failures early.
Zipori: Our business strategy, which I would describe as ambitious, yet humble when approaching disruption, will ultimately be what paves the way to further success. My partners and I are fortunate to have two successful exits together already in two different industries. Tackling now three huge ventures together, we truly understand the mistakes (through experience) that entrepreneurs can make when approaching a new industry.
Reiss: People love to state that the tech-train is going to disrupt every industry, and that the commercial real estate stop is nearby. Do you believe there are certain characteristics that keep the industry from innovating?
Sarkis: I don’t think there are characteristics that will stop the industry from innovating, but there are barriers to entry that make it a lot harder. Many disrupted industries are direct to consumer or traditional B2B. Commercial real estate in many ways is its own vertical, with its own unique nuances. It’s an industry with extremely deep-rooted linchpin processes. Outsiders looking to innovate or disrupt the industry have to take an entirely different approach in evolving those processes. There’s a heightened degree of difficulty due to the level of knowledge you need to acquire preemptively.
Zipori: Commercial real estate isn’t broken for not rushing to adapt – I prefer the term “patient.” This is one of the oldest and most valuable asset classes in the world. It’s important to wait for the right train with the right engine, and not just jump on the one with the flashiest lights going at the fastest speeds.
Reiss: What do you predict will be the impact of technology on the commercial real estate industry 5 to 10 years from now?
Rosenberg: I think we'll see a lot more creativity in every facet of the business. Technology will remove a lot of the mundane, redundant work, freeing us to focus on the unique pieces. For instance, instead of analysts spending 90% of their time building an analysis and then 10% of their time looking for ways to optimize the asset, technology will be able to build truly deep analysis, rich with information, freeing the analyst to spend full time on looking for creative, novel ways to optimize the asset.
Sarkis: I think there will be two key trends. First, technology will add literal value to buildings. We’ll likely mainly see this within multifamily. Everything from IoT to property management software will improve the tenant experience, and therefore the value of those assets for property owners. Second, technology won’t replace commercial real estate professionals, but it will determine who is the most successful. Those who are first to adopt new technologies will naturally be a step ahead of slower movers.
Zipori: Because real estate is one of the last industries disrupted by advanced technology, I believe that in five to ten years from now, that no one will dream of approaching real estate transactions without tech. Ultimately, tech will be such an integral part of how investors find deals, underwrite reports, and manage or thoughtfully dispose of assets. Hopefully, technology will be integrated smartly; instead of building walls, advanced technology will help teams work together.
