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Commercial Real Estate Value in the Age of Technological Disruption

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A video of this presentation and Dror Poleg's lecture is available here: https://www.rethinking.re/2018/05/22/video-cre-value-age-technological-disruption/

What role does Commercial Real Estate serve in institutional investment portfolio? What is technology's impact on its ability to play this role? How are the world's largest money managers responding to the threat and opportunities these changes create? And can your company do about it?

Dror Poleg provides an overview of the trends and innovations that every real estate professionals should be aware of.

Published in: Economy & Finance
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Commercial Real Estate Value in the Age of Technological Disruption

  1. 1. Broken Bond Commercial Real Estate Value in the Age of Technological Change © Dror Poleg 2018 Rethinking Real Estate
  2. 2. A video of this presentation is available here.
  3. 3. © Dror Poleg 2018 Rethinking Real Estate Office buildings play many roles. From a financial perspective, their ultimate role is to provide stable returns to institutional owners. 💸 © Dror Poleg 2018 Rethinking Real Estate
  4. 4. © Dror Poleg 2018 Rethinking Real Estate Over the next 20 minutes, we will look at: 1. The role of Commercial Real Estate as an asset class 2. The impact of technology on its ability to play this role 3. How are money managers responding to this impact 4. What can you do about it? "© Dror Poleg 2018 Rethinking Real Estate
  5. 5. RE as an Asset Class
  6. 6. © Dror Poleg 2018 Rethinking Real Estate Real estate is the world’s largest asset class. Source: Savills © Dror Poleg 2018 Rethinking Real Estate
  7. 7. © Dror Poleg 2018 Rethinking Real Estate Real estate is a key component of the portfolios of the world’s largest institutional investors. Source: Preqin
  8. 8. © Dror Poleg 2018 Rethinking Real Estate Large institutional investors have an overwhelming preference for safer assets. Source: Preqin
  9. 9. © Dror Poleg 2018 Rethinking Real Estate Different assets have different capitalization rates, reflecting their relative safety (and demand). Source: CBRE © Dror Poleg 2018 Rethinking Real Estate
  10. 10. © Dror Poleg 2018 Rethinking Real Estate Rates also vary based on the quality of the assets and the quality of the market in which they are located. Source: Cushman & Wakefield © Dror Poleg 2018 Rethinking Real Estate
  11. 11. © Dror Poleg 2018 Rethinking Real Estate Stable real estate assets are key to preserving and growing the value of (our) future pension, government safety net, and insurance claims.
  12. 12. © Dror Poleg 2018 Rethinking Real Estate These assets need to cater to the risk appetite and mandates of their owners.
  13. 13. Technology’s Impact
  14. 14. © Dror Poleg 2018 Rethinking Real Estate Technology is undermining the foundations of real estate value. Location Capital Opacity Visibility Accessibility Regulation Scarcity
  15. 15. © Dror Poleg 2018 Rethinking Real Estate Location and Accessibility are redefined by new modes of transportation and the changing nature of work.
  16. 16. © Dror Poleg 2018 Rethinking Real Estate Visibility is redefined by online marketing channels and the changing nature of business — with tenants using space to attract employees in order to serve virtual customers.
  17. 17. © Dror Poleg 2018 Rethinking Real Estate Regulation and zoning laws are being ignored or subverted by platforms that leverage delighted customers for political support.
  18. 18. © Dror Poleg 2018 Rethinking Real Estate Information and know-how is suddenly available to customers and competitors, and Data analysis creates advantages for those who can put it to good use.
  19. 19. © Dror Poleg 2018 Rethinking Real Estate Capital is abundant and skips traditional gatekeepers to flow directly to new market entrants who tell a compelling story or promise to generate superior returns.
  20. 20. © Dror Poleg 2018 Rethinking Real Estate Stability is no longer a virtue, as real estate users demand solutions that live, breath, and evolve with the people who use them.
  21. 21. © Dror Poleg 2018 Rethinking Real Estate It eliminates Scarcity, by making it cheaper and faster to build, and by facilitating more intensive use of space.
  22. 22. © Dror Poleg 2018 Rethinking Real Estate It shifts the battle for Differentiation and Added Value to new frontiers, emphasizing new dimensions such as Experience, Community, Wellness, Flexibility, Talent, Integration, and Symbolic Value.
  23. 23. © Dror Poleg 2018 Rethinking Real Estate …and that’s only the beginning. A host of emerging innovations are about to change the industry even more. ARAR Machine VisionMachine Vision Autonomous Vehicles Autonomous Vehicles Quantum Computing Quantum Computing DronesDrones BlockchainBlockchain FintechFintech FoodTech
 &
 AgTech FoodTech
 &
 AgTech 3D Printing & Additive Mfg. 3D Printing & Additive Mfg. VoiceVoice
  24. 24. © Dror Poleg 2018 Rethinking Real Estate Real estate challenges are social and development challenges. Sovereign money and government policy will support innovation in this space.
  25. 25. © Dror Poleg 2018 Rethinking Real Estate In short: Technology and tech-driven changes call into question the role of real estate as an asset class with predictable cashflow and inherent value. 💸
  26. 26. © Dror Poleg 2018 Rethinking Real Estate The value of assets is increasingly dependent their operators. The operators of the future will differentiate themselves through technology and focus on the needs of specific customers.
  27. 27. Money Strikes Back
  28. 28. © Dror Poleg 2018 Rethinking Real Estate How’s your (risk) appetite this evening? Commercial Real Estate is no longer a fixed-income product. It is becoming more akin to hospitality and retail.
  29. 29. © Dror Poleg 2018 Rethinking Real Estate This means that value is less about excel files and stable rents and more about free beer, community, and focus on end users.
  30. 30. © Dror Poleg 2018 Rethinking Real Estate It means that in order to be a good office landlord, you suddenly need a variety of new skills…
  31. 31. © Dror Poleg 2018 Rethinking Real Estate But change doesn’t come easy…. Source: Mankof / New Yorker
  32. 32. © Dror Poleg 2018 Rethinking Real Estate …and it’s not just a matter of choice. It is structural. Most real estate fund managers are not allowed to invest in anything other than assets. They are not incentivized to develop tools that will benefit managers of other (related) funds.. And they do not wish to “donate” their fees to initiatives that will only bear fruit several years later. ⛔ Limited Mandate 📉Wrong Incentives 🥂 Comfort Zone 🍖Cannibalization
  33. 33. © Dror Poleg 2018 Rethinking Real Estate But some of the largest nad most creative institutional investors and money managers are starting to make moves. • Invitation Homes, a tech-driven housing management venture • Invested in VTS, Entic • Acquired The Office Group • Invested in Convene • Set up a $300 m venture capital fund to invest in technologies and platforms that affect its assets • Invested in JustCo, a coworking operator • Invested in Nova, a rental / coliving / residential management platform • Set up the Bridge Forum to connect Asia property investors to Silicon Valley
  34. 34. © Dror Poleg 2018 Rethinking Real Estate Specialized Venture Capital funds are popping up, and traditional VCs are popping in. • Cadre, Zumper, Point, and PeerStreet. • AirBnB, Matterport, Zumber, LiquidSpace, Dynasty Marketplace, NextDoor, and Otto. • Ziroom, Urwork, 24tidy, Dongpeng, Linshimuye, Plateno, • Cadre, OpenDoor • Flip.Lease, RealtyShares • WeWork, Kattera, Compass • WeWork, Nextdoor • Housetrip, Duetto, Fabhotels, Hotel Tonight, Hotelogix • AirBnB, Bowery, Cadre, RealtyShares • OpenDoor, CVent, 42Floors, Zumper
  35. 35. © Dror Poleg 2018 Rethinking Real Estate Specialized Venture Capital funds are popping up, and traditional VCs are popping in. • Cadre, Zumper, Point, and PeerStreet. • AirBnB, Matterport, Zumber, LiquidSpace, Dynasty Marketplace, NextDoor, and Otto. • Ziroom, Urwork, 24tidy, Dongpeng, Linshimuye, Plateno, • Cadre, OpenDoor • Flip.Lease, RealtyShares • WeWork, Kattera, Compass • WeWork, Nextdoor • Housetrip, Duetto, Fabhotels, Hotel Tonight, Hotelogix • AirBnB, Bowery, Cadre, RealtyShares • OpenDoor, CVent, 42Floors, Zumper
  36. 36. © Dror Poleg 2018 Rethinking Real Estate Real estate companies of the 21st Century will emerge from two different directions… VC-backed
 New Entrants PE-backed
 Consolidations
  37. 37. © Dror Poleg 2018 Rethinking Real Estate The battle to preserve and enhance the value of commercial real estate will be a key priority for institutional investors over the next two decades. Innovation is at the core of this battle. 💡 Key Takeaway
  38. 38. What can you do?
  39. 39. "I have nothing to offer but blood, toil, tears, and sweat…” © Dror Poleg 2018 Rethinking Real Estate (and free beer) 🍺
  40. 40. © Dror Poleg 2018 Rethinking Real Estate Where can you start? 1. Count your chicken 🐓 2. Pick the low hanging fruit, but don’t stop there 🍎 3. Listen to your customers + 4. Listen to your non-customers 🎧 5. Consider your entire value chain " 6. Start investing in technology — for profit, for strategic reasons, and mostly to just learn 📈 7. Hire differently . 8. …give us a call. 📲
  41. 41. Thank you. © Dror Poleg 2018 Rethinking Real Estate 🚀
  42. 42. Questions?
  43. 43. Rethinking was founded by Dror Poleg, a real estate and technology executive based in NYC. Over the past two decades, Dror took part in developing over 30 million sqf of commercial and residential space, oversaw the expansion of a $3 billion portfolio, and participated in hundreds of negotiations with some of the world’s largest financial institutions, real estate operators, and retailers — including Blackrock, HSBC, PAG, Frasers, China Construction Bank, GIC, Zara, H&M, Uniqlo, and LVMH. Dror’s work draws on practical experience as well as on formal training at the London School of Economics, INSEAD, and SUT. His insights have been featured in reports and events by KPMG, Urban Land Institute, JLL, PERE, NYU, Savills, Estates Gazette, and EPRA. For more information, visit www.rethinking.re Dror Poleg
  44. 44. Did you enjoy this presentation? Share it with your friends. Subscribe to our newsletter to receive up-to-date analysis on the trends shaping the future of real estate. It’s free: http://Rethinking.RE/Subscribe

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