FUTURE: PropTech 2018 - Opening keynote by Brendan Wallace

so I without further ado I'd like to invite up to the stage a gentleman by the name of Brendan Wallace he was a serial entrepreneur and is the founder or co-founder I should say a fifth wall talk about digital transformation and collaboration I think is a bit that this as well so welcome Brendan thanks so much yeah I think we've got the the most energetic sound going down so Dan you'll be running today thank you this is an amazing event I'm completely overwhelmed by how large the prop tech community is here so it's really exciting to be here I'm gonna try of 20 minutes I'm gonna try and cover a few things in that time just quickly who we are and what our approach is adding I think some of the stats and some metrics to what James just talked about because I absolutely agree with the thesis that this is an ecosystem and it touches on many different aspects of prop ducking connect to connectivity tech and construction tech and transportation tech in really meaningful ways and then give some examples of at least how fifth wall looks at the opportunity in what we define is kind of built world technology so basically this is a reiteration of everything James just said I think we are in a golden age right now of real estate technology and we defined kind of broadly as built world technology but just kind of some of the obvious stats of how big an opportunity this is a lot of these are us centric but I think applied to the UK as well real estate is the largest industry in the u.s. it's 13% of the US economy it's the largest asset class it's the largest lending category and just empirically it is one of the least technologized industries so real estate spends about 1/2 of 1% on i.t which embarrassin to pretty much every major industry in the u.s. is very very little and so you really don't have to believe a lot other than to believe that the real estate industry representing 13% of the US economy just needs to spend slightly more to become frankly one of the largest categories of venture and venture investment again I'm quoting some of the inaccurate stats that James just referenced but what I think is actually really interesting is now if you look at scale so this is the number of unicorns created over time in and around real estate technology you obviously see a trend here companies are starting to get very very large in the category and that was frankly the opportunity that that we saw at fifth wall we saw this combination of large real estate corporates looking to innovation in growth and kind of mid stage companies and wanting to collaborate with them and simply not having a vehicle to do so to articulate those investments we also saw this dynamic where large real estate corporates were getting it wrong there was kind of two approaches I think in in the real estate industry there was one the DIY model which is you had a cottage industry emerge of large real estate corporates trying to invest in early-stage tech companies but as you can imagine it's very hard to look at a cash flowing real estate asset one day and then an IP driven you know cash flow negative dynamic startup the next the other approach that real estate firms took was to stick their head in the sand and I think everyone saw the effects of this when you just look at the hospitality industry so the hospitality industry has really been disrupted aggressively twice the first was the OTAs which the hotels were very very slow to react to and when they did react in creating a company called room key in the u.s. it was kind of a categorical failure and over time the OTAs have become more and more powerful and taken more share from the hospitality industry on the other side of that is short-term rentals which for a while the hotel industry denied was having a meaningful impact on their industry and today Airbnb is a larger company than pretty much all of the major hospitality brands out there without owning a single asset and so when we saw this the approach we took is can we drive collaboration can we drive collaboration between these large real-estate incumbents that are looking to innovate and can we articulate that innovation that innovation through an investment strategy and can we structure partnerships to help support the growth of real estate technology companies so that was really why we could have created fifth wall and I'm gonna snip talking through us in detail but our basic model is about half our capital two hundred and twelve million is our first fund half of our capital comes from some of the largest real estate owners and operators in the u.s. so Lennar largest home builder pro logis largest industrial reef Equity Residential CBRE Heinz host and mace rich are kind of the core anchors anchor LPS that we work with and the approach we take is kind of a unique one where we've combined what I would call strategic advisory services so what that means is a large part of our business is actually serving as like a McKinsey or an Accenture to these large real estate organizations helping them think through pain points and opportunities where technology can solve a particular problem for them doing competitive analyses doing research often times hosting RFPs where will literally run an RFP on behalf of our large real estate corporates select a company that they want to partner with a fund to invest in that company so we're kind of this hybrid organization where we both advise large real estate corporates but then we invest in the very companies that was real estate corporates I want to talk this is kind of a cross-section of our portfolio but since this is the residential stage and I think I only have ten more minutes I wanted to give some examples of how specifically 5th wall looks to drive innovation for early-stage technology companies by creating these partnerships with our with our corporate LPS so first example I'll give so there's a company in the u.s. called open door open door you can conceptualize as like our max for homes it's a programmatic buyer of us single-family homes so they have automatic valuation models that are data-driven so if you're in certain zip codes typically track home zip codes in the u.s. so homes that are nearly identical built around the same vintage what they'll do is they'll give you a quote on your home they'll come up with an imputed price on your home within about a minute of you inputting your address they'll say here's what we think the price of your home is they apply a discount to it typically around seven to eight percent and they say we'll buy your home tomorrow all cash no contingencies at a discount at a slight discount so the value proposition to the customer is I can sell my home very quickly on average today in the US it takes about a hundred and forty days to sell a home and you typically pay brokers on either end of that trade so it ends up being about 6% is lost in brokerage commissions so the comparison is sell a home in two days for an 8% discount to fair market value or sell through the traditional brokerage channels at around 6% Lennar is the largest home builder in the u.s. they deliver about 45,000 homes across the u.s. typically in southern markets and coastal states they also happen to have a mortgage company a title insurance company a home insurance company and a big specialty finance arm so when you look at these two businesses they look about as opposite kind of as you could imagine you have a data-driven programmatic buyer of single family homes then you have a home builder which is in the business of you know building homes with wood and nails and roofing materials and what we saw was an opportunity for collaboration because what open door wanted was volume they wanted to be able to acquire more homes from guaranteed sources of inventory what Lenoir wants as a home builder is they want to retain customers if you buy a three-bedroom house from Lennar they want when you upgrade you have an extra kid and you want a larger house they want to retain that customer and keep you in the same neighborhood and sell you a 4-bedroom house so they're able to structure something called the trade up program which now is live on our website and live in about three markets across the US and what that trade up program does is it says if you buy a home in our neighborhood a three-bedroom house for example and you want to get a bigger house you basically have an embedded put right on your home to open door which they actually subsidized so there's a guaranteed right to sell your home very very quickly at a very low discount as long as you buy another home it'll in our neighborhood so it's a really interesting example of collaboration because what Lenore gets is they get to retain their customers they get to keep customers buying Lin our homes over the life cycle as they as they escalate the houses that they they're living in and what open door gets is guaranteed volume the other interesting thing was when you're controlling either end of a home sale transaction that's one of the best points to deliver all these services you have to buy when you buy a home in the u.s. title insurance a mortgage home insurance and when our happens to have captive businesses that do that so additionally it became a funnel to sell all these services as well and the other interesting thing was that Lennar had a financing arm that was in the business of financing real estate risk they took on risk positions credit positions and all different kinds of us real estate open doors a start-up funded by venture dollars including ours so their capital is quite expensive and so the last part of the partnership was we put together a mezzanine financing line where Lenore puts up or opened or puts up very little capital now when they acquire these homes because they have debt lenders that can actually help them accelerate that so obviously quite a complex partnership and I think it's a the kind of example we look to show because it shows where you can identify a large corporate and frankly a disruptive company in their space and early on find those opportunities for synergy so these companies are not in competition with each other they're actually helping one another but structuring that and putting that together is quite a bit of work the next company that I think is interesting is a company called lyric lyric is a hospitality brand within the short-term rental economy so you can kind of think of them as like a Marriott or a Starwood and what they'll do is they'll take ten contiguous multifamily units and they will manage them like a hotel so they will actually change the sheets though to the yield management and market them they'll provide the guests ingress and egress and access control they'll provide some services around that and the reason it was a really interesting opportunity for us is that multifamily owners in the u.s. saw that many many residents were renting their homes out on Airbnb illegally and there is a spread in US markets between short-term rentals what you can rent a home for on a short-term basis on Airbnb in Hawaii and long-term rentals a 12-month lease that typically most multifamily tenants are signing and that there was concerns over security and control and actually if you could have a short-term rental unit in a multi-family building it could be an amenity for the residents of that building so if they had a guest or their parents come they could actually stay in that unit so lyric was a company they started they had very very few units when we first met with them we said look this is a really exciting platform that we think large multifamily owners will want to partner with and they're going to want to identify one partner to deploy across the portfolio so we have Heinz which is a major developer of multifamily units Invesco as well in our multifamily and actually host hotels which has some longer-term stay hotels and we structured a partnership between them and lyric where now lyric will take units in a Heinz building on a guaranteed basis and they will run them like a hotel with inside a multi-family building so the benefit to the multifamily owner is they're able to capture that upside of what's happening in the in the sharing economy and the benefit to lyric is guaranteed inventory but again another kind of partnership that we actually structured here to help accelerate the growth of lyric and provide a service and a benefit to an early stage company I'm actually gonna go to one more and then I'm probably gonna run out of time but this is I think another really interesting business more around disruption than anything else so States title is a title insurance company I actually don't not familiar with the title insurance industry in the UK but the title insurance industry in the u.s. is basically legalized fraud you get to sell and in an insurance contract on something you already know doesn't need to be insured so you check to make sure that someone appropriately owns their home then you sell them an insurance policy that they actually own their home and you need to get this every time you get a house and every time you get a mortgage so imagine you have a house you have a mortgage on that house and you want to get a new mortgage you have to get a brand new title insurance policy to prove that you own there at the home to show you also how borderline fraudulent this industry is of the premiums collected in the u.s. of title insurance premiums 4% are paid out in losses so basically you're just giving money away to title insurance companies where does all that money go so all the money in the title insurance industry goes to sales and marketing to pay for baseball games and you know boondoggles for the mortgage brokers that they sell through and number two two people actually checking the title checking the actual that you have a claim to your house so we invested very early on in a company called States title which is doing what all insurance does they actually underwrite so they don't check the title they use predictive data models they predict what an expected loss rate is how likely there is to be a claim that someone else owns your home or how likely there's an outstanding lien on your home and they give you a policy very very cheaply very very quickly and instantly so this is an incredibly powerful tool and as you can imagine a home builder like Lennar is looking for solutions to make it easier and more digitally native in in acquiring a home they want to provide mortgages and home and surance and title insurance in a digital fashions the same way you're closing a mortgage you don't have to leave that process and go get a title insurance policy in an analogue way and we're right now in the process of structuring a big partnership between them but again this is an instance where you have a very very disruptive technology that depends in large part on distribution and we were able to structure a pretty powerful partnership there I'll give one last one which i think is super interesting and super quick and might leave more questions and then then then answers on this one but built robotics I don't know if anyone's familiar with this company they're a robotics excavation company so which is a complicated way of basically saying it's a Roomba like a Roomba vacuum the digs so it just digs out a trench it works 24 hours a day its unmanned you geofence where you want it to dig you tell how how big a trench you want it to dig you effectively excavate a home site and you can move these units from home site to home site very very powerful technology Lennar the largest home builder in the US we're able to structure a partnership now where they're deploying this on a number of home pad across Southern California so again a robotics company as you can see by the the cross-section of these companies and we've done 25 investments we've structured they've been close to 60 partnerships across fifth wall between large real estate corporates and our portfolio companies exactly as James said this is an ecosystem this wouldn't probably really strike you as real estate technology you know a robotics company or a title insurance company we've invested in a bike sharing company that intuitively don't seem like their real estate technology but they're companies for which real estate distribution and partnerships can be deterministic and that's really our philosophy and our approach to how we invest but I think that's probably all the time that I have so I'm going to turn it back over to James

Channel: FUTURE PropTech

Views: 13,241

Rating: 4.8208957 out of 5

Keywords: PropTech, Real Estate Tech, Property Technology, Real Estate, Innovation, Digital Transformation, Space As A Service, Smart Cities, Brendan Wallace, Fifth Wall, Build Environment

Id: qhiaTfZYSK8

Length: 17min 41sec (1061 seconds)

Published: Fri Jun 22 2018