A Blog by Jonathan Low


Mar 19, 2019

The Next Frontier In Real Estate Technology - And Its Legal Vulnerabilities

As technology becomes more associated with levels of real estate value from design to safety to functionality, to marketing to enjoyment, its performance relative to expectations can both improve perceptions or detract from them.

And either of those reactions may result in higher costs, bigger fees, and/or some type of legal action related less to the property itself and more to the way technology enhances it or not. JL

Patricia Nakashe and John Lin report in Tech Crunch, and Frank Ready reports in LegalTechNews:

The three rules of real estate are location, location, location. But the fourth might be technology. “Prop tech” is where real estate and technology meet, from software that automates lease corrections to an app that instructs a tenant where the pizza parlor closest to their new apartment is. Tools can directly impact the bottom line by measuring key variables inside a property such as energy efficiency. "But the tools that are being created actually make the end-user’s life harder.”
Tech Crunch From entertainment to transportation, technology has upended nearly every major industry — with one notable exception: real estate. Instead of disrupting the sector, the last generation of real estate technology companies primarily improved efficiencies of existing processes. Industry leaders Zillow/Trulia and LoopNet* helped us search for homes and commercial real estate better and faster, but they didn’t significantly change what we buy or lease or from whom or how.
The next generation of real estate technology companies is taking a more expansive approach, dismantling existing systems and reimagining entirely new ones that address our growing demand for affordability, community and flexibility.

The increasing need for affordability

Home ownership has long been integral to the American dream, but for many young Americans today it’s an unattainable dream. A third of millennials live at home, and as a cohort, they spend a greater share of their income on rent than previous generations did — about 45 percent during their first decade of work. This leaves little money left over for savings, much less for home ownership, the largest financial expenditure of most people’s lifetimes.
The increasing need for affordable housing is driving some creative tech-enabled solutions. One segment of startups is focused on making existing homes more affordable, especially in high-cost markets like New York and the Bay Area. Divvy helps consumers, many of them with low credit scores, rent-to-own homes, which are assessed for viability by a combination of contractors and machine learningLandedfunded by the Chan Zuckerberg Initiative, helps educators afford homes in the communities in which they teach. Homeshare divides luxury apartments into multiple more-affordable units, and Bungalow takes a similar approach with houses. Both companies have built technology platforms to manage their tenant listings and to allocate tenant expenses and streamline payments.
Consumers aren’t just craving affordability, they’re also seeking company.
Another segment of startups is aiming to reduce the costs of building new homes, such as with modular, prefab housing to reduce construction costs. Katerra, which just raised $865 million, is aiming to create a seamless, one-stop shop for commercial and residential development, managing the entire building process from design and sourcing through the completion of construction. Taking a “full stack” approach to every step of the building process should enable them to find efficiencies and reduce costs.
If the economy weakens, the need for more affordable housing will only grow, making these startups not only recession-proof but even recession-strong. Collectively, they’re helping Americans right-size their dreams to something more broadly attainable.

In search of community

Consumers aren’t just craving affordability, they’re also seeking company. More than half of Americans feel lonely, and the youngest cohort in their late teens and early-to-mid-twenties are the loneliest of the bunch (followed closely by millennials). Millennials are the first generation to enter the workforce in the era of smartphones and laptops. While 24/7 connectivity enables us to work anywhere, anytime, it also creates expectations of working anywhere, anytime — and so many people do, bleeding the lines between work life and personal life. Longer work hours make community harder to build organically, so many millennials place value on employers and landlords who facilitate it for them.
Airbnb and WeWork were early to capitalize on the demand for community, with one changing how we travel and the other redefining the modern office space. Co-working companies like WeWork, as well more targeted providers like The Assembly*, The Wing and The Riveter, offer speaker series, classes and other free member events aimed at building connections. Airbnb, once focused only on lodging, has broadened its platform to include community-building shared experiences.
Shared living and hospitality startups are also investing in community to attract and retain customers. StarCity provides dorms for adults, Common and HubHaus rent homes intended to be shared by roommates and Ollie offers luxury micro apartments in a co-living environment. These companies are leveraging technology to foster in-person connections. For example, Common uses Slack channels to communicate
with and connect members, and HubHaus uses roommate matching algorithms.
Within the hospitality sector, Selina offers a blended travel lodge, wellness and co-working platform geared toward creating community for travelers and remote workers, complete with high-tech beachside and jungle-side office spaces. Meanwhile, experience-driven lifestyle hotel company Life House* connects guests through onsite locally rooted food and beverage destinations and direct app-based social introductions to other travelers.

Modern life requires flexibility

Life can be unpredictable, especially for young people who tend to change jobs frequently. Short job tenures are especially common within the growing gig economy workforce. People who don’t know how long their jobs will last don’t want to be burdened with long-term lease commitments or furniture that’s nearly as expensive to move as it is to buy.

The next frontier in real estate technology is as boundless as it is exciting.
Companies like FeatherFernish and CasaOne rent furniture to people seeking flexibility in their living environments. Among consumers ready to buy their homes but looking for some extra help, Knock, created by Trulia founding team members and which recently raised a $400 million Series B, provides an end-to-end platform to enable home buyers to buy a new home before selling their old one. Also emphasizing flexibility, OpenDoorvalued at more than $2 billion, pioneered “instant offers” for homeowners looking to sell their homes quickly, leveraging algorithms to determine how much specific houses are worth.
It’s not just residents who seek flexible leases; many companies do as well, particularly those accommodating distributed employees or experiencing periods of uncertainty or rapid growth. To enable flexibility, several commercial real estate technology companies have developed platforms that balance pricing, capacity and demand.
Knotel, a “headquarters as a service” for companies with 100-300 employees, builds out and manages office spaces at lower risk and with more flexibility than is typically possible through commercial real estate leases, enabling tenants to quickly add or shrink office space as needed. WeWork allows members to pay only for the time periods when they come in to work. Taking flexibility to an even greater level, Breather lets workers rent rooms by the hour, day or month.
The next frontier in real estate technology is as boundless as it is exciting. A whole new generation of startups is designing innovative solutions from the ground up to address our growing demands for affordability, community and flexibility. In the process, they’re fundamentally reimagining how we live, work and play by transforming the modern workplace, leisure space and even our definition of home. We look forward to seeing — and experiencing — what lies ahead.
The three rules of real estate are location, location, location. But the fourth one just might be technology, especially for lawyers who are looking to remain or become the go-to resources for the growing number of clients taking an interest in property technology (“prop tech”).
For the uninitiated, “prop tech” is an umbrella term for the place where real estate and technology meet. Standing under that umbrella you might find everything from software that automates lease corrections to an app that instructs a tenant where he or she can find the  pizza parlor closest to their new apartment building.
To be sure, such tech isn’t just for attorneys. After some initial hesitation, developers, landlords and other real estate professionals are finally arriving at the technology party and would really like to help plan the next one, too.
“Our clients… are learning about and implementing more evolved technologies and as they do so want to get in on those technologies at the ground floor both to make sound investments but also to better the real estate experience at an earlier stage,” said Benjamin Hittman, an associate at Goodwin Procter.
Goodwin launched a prop tech practice last fall after noticing a substantial amount of cross-utilization between its technology and traditional real estate practices. The firm’s website includes statistics taken from CRETech that show global venture capital investment in real estate technology growing from $1.8 billion in 2015 to 11.2 billion in 2018.
So why is prop tech suddenly so hot? Blake Liggio, a partner in Goodwin’s Real Estate Industry Group, think that it’s due in part to the accelerated development of technological assets geared toward innovations in real estate.
“It’s sort of this last frontier from a technological perspective from an industry that obviously is the largest industry on the planet, and so I think its just a spot where venture capital sees a lot of growth in the next several years,” Liggio said.
Better development could help to drive adoption of prop tech inside law firms too. Gabriel Safar practiced as a commercial real estate attorney before co-founding LeasePilot, the company behind the lease-drafting solution of the same name.
He thinks that many real estate tools aren’t designed with lawyers in mind. “Most technology is created by engineers and people that have an understanding of some big benefit or the generic concept of efficiency. But the tools that are being created actually make the end-user’s life harder,” Safar said.
That doesn’t mean that law firms won’t continue to try and incorporate prop tech, though. Giving up isn’t exactly an option. Safar pointed to an increasingly crowded marketplace and the desire—or need—for a competitive edge as drivers that make both law firms and real estate companies more willing to look to the future.
Pressure from clients doesn’t hurt, either. “[Clients] want stuff done fast, and they can’t understand why lawyers can’t do it faster. They don’t realize that lawyers are using a cell phone from 1993, and they think that lawyers are using an iPhone. There’s this fundamental disconnect,” Safar said.
In this case the “iPhone” is automation software that can make key changes inside a 100-page lease while potentially cutting down on errors. Still, lawyers aren’t just going to get away with delivering faster leases.
Clients who approach the prop tech team at Goodwin are looking for a more holistic understanding of how technology can be a boon to their business. For instance, a landlord who wants to distinguish his apartment complex from all of the others on the market might inquire about tech that can be used to enhance the tenant experience, like an app that lists all of the nearby restaurants or attractions.
There are also tools that can directly impact the bottom line by measuring key variables inside a property such as energy efficiency. Hittman said that because real estate can be a very narrow industry, those clients look to them to gauge what’s available and what’s just around the corner in the world of tech.
“There’s a lot of real estate investors and developers who are looking to do whatever they can to get ahead of it,” Hittman said.


Kathy said...

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