Enterprise Community The Latest Real Estate Player To Become VC Investor In Tech Startups

Billions of dollars have been poured into PropTech startups in recent years, and it has not just been traditional venture capital firms funding the booming sector. Legacy commercial real estate firms that spent decades focusing their investment on physical properties have begun launching venture funds to invest in technology companies, aiming to solve problems in their portfolio and bring in big returns. 

Investment in real estate technology companies grew by 92% in 2017 to nearly $12.6B, according to a report from research firm RE Tech. This has been driven in part by real estate giants like Brookfield, Blackstone and Simon Property Group investing billions into PropTech startups over the last few years. 

Most of those companies focus on commercial office and retail properties and invest in tech companies that solve problems in those sectors, but one of the nation's largest affordable housing developers is now getting into the space. Enterprise Community Partners Vice President of Innovation Matt Hoffman tells Bisnow the nonprofit plans to launch a fund next year to invest in early stage technology companies addressing housing affordability. 

“We’re pursuing more disruptive change,” said Hoffman, who will speak at the Dreamit X Bisnow Innovation Summit taking place Nov. 6 and 7 in Tampa. “We would like to see the housing sector get exposed to a disruptive technology platform much like Uber was to the taxi industry or Airbnb to the hotel industry.”  

New York-based Rudin Management Co., a 93-year-old real estate firm with roughly 15M SF of office and residential properties under management, in 2015 launched a venture fund to invest in real estate-related technology companies. The company has now invested in at least 13 companies, including VTS, Nestio and Honest Buildings.  

“We used to be a real estate company that dabbled in technology, now we're a technology company that dabbles in real estate,” Rudin Chief Operating Officer John Gilbert said.

Gilbert, who also serves as chief technology officer, said the first thing Rudin looks for in a potential investment is the problem it solves. If Rudin has been addressing that problem with an analog solution, he said it looks for a digital tool that can improve the process. He also said Rudin wants companies to which it can add value by leveraging its real estate.  

“We’re interested in companies that we can collaborate with, that we can make part of our ecosystem and that we can make them smarter and faster simply by integrating within our leasing and operations and construction teams,” Gilbert said.  

In addition to planning a venture fund, Enterprise Community Partners has also built its own technologies to address housing affordability. It launched online impact investing platform ImpactUs Marketplace, which it then sold in February to MissionPoint Partners. 

It is now developing an app that connects residents to a variety of resources to assist with housing, wellness, health, financial education and other areas to help them move up the socio-economic ladder. The app, Rezility, is currently being piloted in New York, Cleveland and Maryland. 

The majority of the well-funded PropTech companies focus on the commercial office sector rather than residential, Hoffman said, and the investment in multifamily-focused technologies isn't addressing the issue that Enterprise sees as its primary mission: housing affordability. 

"The money coming into the residential portion of the real estate sector a lot of it is solving for what I'd call amenity-level problems, such as how to unlock your door remotely, concierge-type services and other things that are market problems but fundamentally don't address the systems-level problem we have of undersupply in affordable housing," Hoffman said. "We are looking for financial returns generated by companies that are solving systems-level problems." 

The financial returns startup tech companies have the potential to generate can be as attractive to commercial real estate companies as the underlying problems they solve.

"Although we are a mission-driven organization, obviously we require a significant amount of capital to advance the mission," Hoffman said. "Certainly a component of that strategy is to invest in companies that are going to yield venture-like returns when we're taking venture-like risks."

Since the real estate market is cyclical and many economists see a potential downturn on the horizon, diversifying a real estate portfolio with high-growth technology companies can be a way to counteract the negative effects of a recession. Gilbert said the primary goal of investing in tech companies is to solve problems, but he acknowledged that portfolio diversification is a factor.

"There is a hedge strategy here," Gilbert said. 

Real estate developers with large-scale projects underway can help assist the growth of urban-focused technology startups by giving them a place to test out their products. Strategic Property Partners is doing that with its $3B Water Street Tampa project, a 50-acre development planned to include 9M SF of commercial, residential, hospitality, retail and other space. 

SPP Senior Vice President of Digital Innovation and Technology Steven Fifita said the developer is planning to utilize a variety of technologies at the development. It is looking at smart city technologies around traffic safety, congestion and public WiFi. It is exploring operational technologies that provide building-level analytical information, such as occupancy, temperature and lighting, to help save money through efficiencies. And it is looking at consumer-facing products like navigation, ride-sharing, concierge-type services and others that improve the experience of it residents and office tenants.  

"One of the key roles we can play is acting as a test bed; we have levels of control across our development so you can bring in big or small companies and move new technologies beyond the pilot phase," Fifita said. "It speaks to why you're seeing more technology emerging in this space. A development like ours where we are representative of a city in size is really important to help scale these companies and solutions which will further drive adoption in the industry." 

SPP is looking at creating co-development partnerships with technology companies, but it has not invested in any tech startups itself. Still, Fifita sees the increase of commercial real estate companies investing in tech ventures as a logical trend. 

"I think it is an evolution we're seeing in many industries, especially in commercial real estate, where it's an industry that's comfortable with investment to begin with and the notion of risk," Fifita said. "The industry is learning what it means to be an investor in technology." 

Hoffman, Gilbert and executives from SPP will speak Nov. 6 and 7 at the Dreamit X Bisnow Innovation Summit at the Tampa Marriott Waterside Hotel and Marina.