For Roelof Opperman, Managing Director on the Real Estate Technology at the Los Angeles based venture capital firm Fifth Wall, there is no reason why the world’s largest asset class shouldn’t also be the largest venture class. With over $1 billion capital under management, Fifth Wall is the largest venture capital firm focused on technologies for the global real estate industry.
He focuses on three main examples of disruption to hit the real estate industry.
The first was the rise of online travel agents (OTAs), which took the hotel industry by surprise in the mid-2000s. Initially, he says, the hotel industry was more than happy to sell off blocks of rooms to firms like Priceline and Expedia at commission rates of 5%—especially during the financial crisis. But as those OTAs began to grab more market share, the hotel chains found themselves facing rising commissions and largely left out of the market for which they were the end service providers.
In response, various hotel chains grouped together and attempted to launch a competitor—Roomkey— which has had nowhere near the same amount of success as more household names, like Amsterdam-based Booking.com.
“So the lesson is, don’t dismiss innovation, because building it yourself isn’t always viable”, says Opperman, who thinks the same scenario is replaying itself with hotel chains and Airbnb as it moves into targeting business travel.
The second example he gives is the “title insurance” market. Mainly a US-based phenomenon, title insurance is insurance against encumbrances on a property. (Opperman pulls no punches in describing it as “a big scam”, because an individual who refinances a mortgage has to get title insurance again. “Which is ridiculous”, he explains, “because you just paid title insurance on the transaction before, so essentially what you’re doing is taking insurance against yourself”).
As a low-margin, human-intensive industry, title insurance was ripe for disruption—in the case of one of Fifth Wall’s portfolio companies, by “machine learning and data analytics”. Instead of dismissing this new entrant into the market, Opperman recounted that a legacy company decided to partner with the startup.
“I think this is going to happen more and more, where you have very antiquated industries deeply embedded inside these real estate companies, and you have this innovator that creates this incredible mousetrap, and the incumbent says, I’d rather own a piece of that new mousetrap than a dying business internally”, Opperman said.
His third example is about multifamily operators in the rental market. In particular, a lot of new space is opening up because “Millennials don’t really have a [hotel]brand that speaks to them”.
Because of this loss of attractiveness by legacy, staid business hotels, there is an explosion of opportunity for people to rent out their own spaces to Millennial travellers—including business travellers. As a result, a host of startups has sprung up to provide services, like watering plants and taking out trash.
“What’s happening now is that you have this older asset class of apartments, and owners are seeing the opportunity to use new services, new technology, in order to get new business lines”, he says. That could mean future trouble for property managers, since the startups are so efficient and so tech-forward.
One thing these startups already have an advantage in, and could continue to focus on, is customer service. Opperman says they are already ahead of the curve when compared with traditional real estate businesses—for example, co-working spaces that treat people not as tenants, but as clients.
“If you don’t pay attention, basically you’re going to get disrupted, you’re going to miss opportunities”, says Opperman, who sees future, as continued opportunity for big growth in proptech.
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