Publications

- May 1, 2021: Vol. 8, Number 5

Real estate interests using corporate venture capital to underwrite proptech startups

by Jeff Piltch

While the major real estate industry players have been making headlines with a new SPAC announcement seemingly every other day, you may have missed that some of them have their own internal venture capital firms to invest in early-stage proptech companies.

What does that mean and why are real estate firms launching their own corporate venture capital arms to invest in proptech?

Broadly defined, corporate venture capital is the investment of corporate balance-sheet money directly into startups. A good venture capital fund is able to source and identify solid companies from the sea of tech startups out there while also being able to support them and add value outside of check-writing.

The logic behind corporate venture capital is generally threefold.

  • The corporate venture capital team can leverage its knowledge, industry expertise, and knowhow to identify the market viability of a startup.
  • After investing, the firm can support a startup by either becoming a customer, introducing the team to other potential customers, or providing an expert-level knowledge of the industry.
  • Companies can use their corporate venture team to keep an eye on emerging industry trends.

This works great in theory, and the best corporate venture capital arms can be very successful. That said, it is difficult to execute successfully. For example, while it’s nice to have industry experts to give feedback on the market viability of a startup, new tech companies are inherently disruptive and industry-altering. At the same time, if you’re a really early-stage investor, you’re generally betting on the team that's building the startup.

PROPTECH REFRESHER

Property technology, or proptech, is the use of technology to drive efficiencies in real estate, ultimately leading to improved asset returns, reduced friction and greater transparency. More than $30 billion in venture capital was invested in proptech during 2019. Technology is used by every kind of real estate investor, from institutional investor to homebuyer to property manager.

Examples of proptech companies you’ve likely heard of include Airbnb, a vacation rental listing site; Zillow, a home-sale listing site; and Opendoor, an iBuying platform.

HOW THE REAL ESTATE BUSINESS IS USING CORPORATE VC

Going back to the logic behind corporate venture capital in general, it’s pretty clear why it makes sense in the real estate industry. Real estate firms have a plethora of industry knowledge and connections that can move the needle for an early-stage startup looking to scale, and those real estate firms have available square footage for the startups to pilot their technology and scale.

Corporate venture capital strategies are being used both by real estate firms and large construction industry players.

TRADITIONAL REAL ESTATE FIRMS

JLL has its own $100 million fund, JLL Spark. Since launching in 2017, JLL Spark has made more than 20 investments, and co-CEO Yishai Lerner says the company “believes proptech will be the next wave of innovation, and we’re committed to leading this transformation.” Lincoln Property Co. has a dedicated corporate venture capital fund that it calls LPC Ventures. RXR Realty also has its own venture fund.

CONSTRUCTION

Two of the more active construction industry players with their own dedicated venture arms are Suffolk Construction and CEMEX. Boston-
based general contractor Suffolk is investing in “solutions across the building lifecycle, including real estate investment and development, architecture engineering and construction, as well as property management.” CEMEX is a Mexican multinational building materials company investing in “innovative construction startups to drive the construction industry revolution.”

THE BOTTOM LINE

Real estate industry players are dedicating money, resources, and time to proptech. Not only can these firms share in the upside of the industry’s future through an investment in startup companies, but they can also keep a keen eye on what trends are emerging. For real estate investors, it’s important to understand and keep an eye on how the large players are thinking about proptech.

HOW REAL ESTATE BECAME A BILLIONAIRE FACTORY

Real estate has long been the playground for the rich and well connected, and according to recently published data it’s also been the best performing investment in modern history. And with a set of unfair advantages that are completely unheard of with other investments, it’s no surprise why.

But those barriers have come crashing down — and now it’s possible to build real wealth through real estate at a fraction of what it used to cost, meaning the unfair advantages are now available to individual investors.

 

Jeff Piltch writes about real estate technology. He wrote this article for Millionacres, a Motley Fool service. Read the original article at this link: https://bit.ly/2NLoTCD

 

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