Getting the value out of data and app-based interactions among PropTech trends
CHICAGO–JLL Spark, the PropTech investment arm of commercial real estate services firm Jones Lang Lasalle led by veteran Silicon Valley entrepreneurs Mihir Shah and Yishai Lerner, is in the business of transforming, and quite possibly disrupting, the commercial real estate sector.
So far the $100 million fund has helped to finance more than eight PropTech startups ranging from a machine learning and data science platform, Skyline AI, that helps institutional investors make better decisions about which properties to buy to a mobile app, HqO, aimed at meeting the needs of tenants while leveraging data analytics for focused product development.
Spark’s recent investment in Honest Buildings, a commercial real estate (CRE) project management platform designed to reduce construction costs, is one of several made in the past year.
We caught up with JLL Spark’s co-CEO Mihir Shah for a one-on-one discussion about the trends and technologies most likely to transform the CRE sector in the coming years.
Shah, whose accomplishments include identifying early-stage startups like Uber, selling his own mobile app development shop to Groupon and leading a project management team at Yahoo, identified several key factors that are driving investment.
Factors driving investment in Proptech
“WeWork’s success at providing better work experiences has driven both investors and owners to understand that occupant experience does matter,” said Shah who expects that more investment dollars will continue to flow into co-working.
Shah added that the convergence of demand from millennials for amenities, flexible work and the reduced costs of computing power and IoT devices is revitalizing CRE industry with new possibilities for growth that can now be measured and quantified.
However, according to Shah, the most significant impact to the industry has been in the mindset of owners and investors.
“While there has been steady growth and investment in PropTech in the last six to eight years, owner-investors weren’t quite as ready and open to trying new things as they are now,” Shad said. “In our conversations with investors, we’ve seen a pretty dramatic acceleration in their desire to try new technologies.”
Shift in mindset and catalysts for change
The catalyst for this shift has been both a change in the technology procurement process and perhaps, more importantly, personnel.
“Traditionally building owners would go through lengthy RFP processes, which required checking every box before deciding on technology application. Today owners are picking a few companies to work with on pilots to find what works and doesn’t,” said Shah.
Spark has initiated what it calls “building labs” or small pilots for startups that test the product or application in one or two buildings and, based on performance and adoption measures, is later scaled to an entire portfolio.
“It’s a different style of decision-making that gives startups the chance to prove impact on ROI and also enables owners and investors to let the market dictate what is working,” Shah said.
Another factor driving innovation has been a shift in the who is actually building the technology products.
“The DNA of the people in the industry has also flipped to technology people building real estate products from real estate folks trying to build technology products,” he said.
Top five Proptech investment trends
Shah identified five Proptech areas in the commercial office sector that are generating interest from investors.
1. Building apps- Enhancing the tenant experience in entreprise-owned and multi-tenant commercial office buildings through apps that can give occupants building access, ability to control the environment and accessibility to services.
2. Data for investment- Leveraging insights from public and private data to enable more profitable investment by offering valuation tools for commercial buildings and other assets.
3. Leveraging building operations data- Using data generated from the building management systems, IoT sensors and devices to gain insights on how to better operate buildings for both the occupiers and operators.
4. Online first office leasing – Re-imagining the commercial office leasing process to an online first experience for smaller square footage buildings and co-working spaces.
5. Bringing liquidity to CRE markets- Making commercial real estate into a more liquid sector by enabling the selling of parts or shares in buildings.
Shah also emphasized that unless Spark sees a “clear path towards growth” for a startup within JLL’s existing core client-base, it’s not likely to be of interest to the firm.
Among the core technology innovations, AI and machine learning will continue to dominate the sector, while blockchain and augmented reality – still in earlier stages- if applied to the right use cases can become breakthrough applications in the future, Shah said.
“At the end of the day, there has to be a use case to leverage that technology, otherwise building technology for the sake of technology is useless,” he added.