By Jack Stubbs
Just how integrated is technology with the commercial real estate market? That depends on whom you ask.
“I think we’re entering into a consolidation phase now. It’s a unique time where lots of software services are being adopted in real estate,” said Mike Sroka, CEO and founder of Dealpath, a deal management platform designed for commercial real development and investment teams.
Dealpath, a company founded in March of 2014, is an online platform that unifies all of the central information and data necessary to conduct real estate transactions and investment deals. The platform streamlines information as a means to virtually manage one’s acquisitions, development transactions and financing needs. Some of the companies currently utilizing the platform include CBRE, L+M Development Partners, Regency Centers and GMH Capital Partners, according to Dealpath’s website.
Dealpath is part of a larger and growing trend called CRE tech (commercial real estate tech) which, according to Sroka, is really a term used to describe a period of time wherein tech is being adopted into commercial real estate. Sroka explained how Dealpath’s creation three years ago occurred at a time when commercial real estate, a nearly $15 trillion industry, was significantly underserved by available technology and software services.
Sroka envisions several reasons why the industry has historically been underserved by software services—the first of which is pure exposure to day-to-day interactions within the industry. “Commercial real estate is all around us; however, the number of people that are directly involved in the acquisition, development or financing of commercial real estate is relatively small,” Sroka said.
Another factor that has contributed to the lack of tech platforms’ integration within real estate has to do with differences within the distinct submarkets, according to Sroka—with residential real estate having stolen a march on commercial. “A lot of people get exposed to residential real estate when they go and buy a single-family home. Over the past few years, we’ve seen residential real estate really race ahead of commercial in terms of the availability and tools available (like Trulia, Zillow and Redfin), which are more polished than their commercial alternatives,” Sroka explained.
The disconnect between real estate and technology is also due to the size of the industry in relation to other larger industries. There is a discrepancy between people’s understanding of the scale of the real estate industry and the actual numbers in play. “Our understanding is that there are approximately 1 million professionals across 90,000 firms working in commercial real estate in the U.S. But the average headcount of people is actually quite small, particularly on the investment and development side,” Sroka said.
Sroka believes that commercial real estate has been overlooked by legacy enterprises software provides in favor of other industries that operate a larger headcount. “A group of 10-30 people can manage billions of dollars in capital…it’s an industry that’s largely comprised of small, inside teams, which are unattractive to the legacy enterprises software providers,” he said.
Dealpath was created under the premise that the commercial real estate industry was fundamentally flawed and needed fixing, according to Sroka. “There’s a broken workflow in this big market…and we felt that we could revise the process of building value in this complex and competitive market,” he said.
The prominence of tech in real estate is also to some degree geographically dependent, with New York City having long been considered the center of the universe for commercial real estate, according to Sroka. “While CRE tech is very much a local and regional business, the capital that is utilized in commercial property transactions is national and international.” And although the real estate industry transcends local and regional borders, certain metropolitan, tech-oriented cities have attracted more attention than others when it comes to adopting CRE tech.
“With software development, we’ve seen the west coast—mainly San Francisco, Seattle, Los Angeles—as hubs for tech talent and software development talent,” Sroka said. Despite the relatively high concentration of CRE tech in these coastal cities, however, there remains a gap that needs to be bridged between the two industries, according to Sroka. “Historically there hasn’t been a whole lot of crossover between commercial real estate industry and expertise and software development expertise…[but] over the past few years, we’re starting to see those bridges being built.”
And while CRE tech has become more prominent over the last several years, the term will soon imply a contradiction, according to Sroka. “Our opinion here is that that term will actually be dead in a couple of years…[since] tech will have been fully adopted and ingrained…in order to conduct business in real estate, you will have to be an effective user of technology,” he said, also emphasizing his belief that the trend is moving so rapidly that, over the next twelve to eighteen months, valuable capital could be lost or gained depending on industry professionals’ ability to harness the software platforms available to them.