How Fintech and Proptech are Changing the Face of Real Estate Investing
From how we source, track, manage and exchange various assets, the world of commercial and residential real estate is quickly changing, thanks to changes in technology. The commercial real estate world is as broad as it is deep.
Understanding all the nuanced impacts of various up-and-coming technologies on the sector is too much for a series of reports, let alone a single itemized list. However, critical changes are afoot as various tools emerge that are not only disrupting the industry, but changing the way investors source, close, transfer and manage real estate investments.
Here are a few ways which real estate is being impacted by some of today’s emerging property and financial technology tools.
Capital: Compliance, Sourcing & Management
Thanks to changes in regulation, the ability to source capital for real estate projects has been greatly enhanced in recent years.
For instance, changes in regulation regarding general solicitation of securities with exemptions, including Regulation D 506(c) and Regulation A+ have altered the way issuers and investors are able to interact when it comes to issuing equity securities to both develop and acquire residential and commercial properties.
Thanks to changes in regulation, issuers are now able to expand their marketing efforts in the raising of capital for real estate projects while still playing within the rules. Such changes have also caused an equal increase in internet-enabled investment platforms for various commercial and residential real estate offerings.
The ecosystem and market for such platforms is vast and in a constant state of flux with numerous providers seeking to establish themselves as the “go-to” for market dominance within their given niche or sub-sector.
Regardless of where some of the platforms may eventually land, it is expected that more private real estate equity transactions will occur as a result of both changes in regulation and the introduction of online real estate investing platforms.
Blockchain: Tokenization & Liquidity
The hype and potential of blockchain and crytography as it relates to the real estate markets cannot be understated. The impact of this tech will result in numerous offshoot solutions for the real estate market, each with its own relevant market demand.
One area in blockchain with potential large implications is the opportunity to tokenize real estate investment assets.
Tokenization of equity or other real estate assets allows owners of those assets to have confidence in ownership (thanks to a distributed, immutable ledger) as well as the ability to (with some restrictions based on investor type) to trade in and out of the tokenized security at will.
This liquidity option allows for secondary trading in a private-market scenario that significantly alters the way real estate is transacted. It is likely that more and more real estate assets, including many of the funds that manage them will use smart contract technology on a blockchain to both secure the assets as well as provide investor liquidity to interested investors.
Blockchain: Title Records, Multiple Listing & Commercial Leasing
Similarly, real estate title and title insurance companies will also feel the impact of blockchain’s rise.
Because blockchain allows for disintermediation among parties as to the understanding of ownership of specific real estate assets, title records as well as commercial contracts are very likely to be placed on a distributed, immutable ledger, allowing buyers, sellers, leasors and agents access to a decentralized database of real estate records.
Distributed database ledgers like these will give users the ability to view, buy, sell, lease, rent and otherwise transact with confidence without the need for a trusted third party.
Big Data: Analytics & Comparables
Certainly blockchain holds a great deal of promise. However, other big data and analytics tools on the tech side are changing the way we analyze trends and make decisions as it relates to real estate.
For example, understanding trends in buying behavior, including relevant comparables has become much easier with tools from companies like Zillow and Redfin on the residential side and Loopnet on the commercial side.
Big data will continue to improve not only how we react to market trends, but also how investors are able to predict where things are headed in a given market based on historical and projected data trends.
Smart Buildings: Facility/Energy Management & IOT
One of the areas that is having the greatest impact on commercial owners and investors is facility and energy management software tied to smart devices (often referred to as Internet of Things devices or IOT).
Combining smart devices tied to the network with advanced analytics, property and facility managers are able to make relevant decisions as it relates to things like energy consumption, demand and supply.
For instance, smart meters in large buildings can give data on peak load and usage, allowing managers to offset and adjust outflows and inflows of power, saving organizations countless dollars on a recurring basis. It is at least one of the reasons the energy management software industry alone is expected to soar to over $70B by 2022.
The growth in property and financial technology that can and will impact commercial and residential real estate is not limited by this shortlist. No, there are vast areas and ways in which advanced tools will change the way various investors, managers, owners, tenants and leasors buy, sell, manage and analyze real estate.
As more areas abound for both process and efficiency improvement, we will see even more real estate owners and operators adopt technologies that have the ability to significantly impact their businesses. Let’s just hope the technology is used as a means to an end and not the end itself.
Nate Nead is an investment banker and Managing Member of InvestmentBank.com and EstateInvesting.com. He works with business owners looking to raise capital for or divest ownership of commercial real estate properties. Nate is based in Seattle, WA.