Home Commercial PropTech: One VC Firm Gives its Perspective on Investing in Proptech

PropTech: One VC Firm Gives its Perspective on Investing in Proptech

TechView, San Francisco, Seattle, RET Ventures, UDR, Essex, Starwood Capital Group
Image Courtesy of Tom Rumble

By Meghan Hall

TechView, San Francisco, Seattle, RET Ventures, UDR, Essex, Starwood Capital Group

Proptech has permeated all aspects of commercial real estate, and as time passes, more and more innovative technologies are brought to market. Driving much of the innovation are venture capital firms like RET Ventures, who invest in emerging technologies making an impact in the industry. With so many places to invest, however, VCs need to be mindful of where—and how—they distribute capital. According to Christopher Yip, Partner at RET Ventures, the firm considers a variety of factors before choosing to invest, but among them is that the technology is working to solve a real problem within the CRE industry.

Can you please tell The Registry a little bit about RET Ventures? Why did RET Ventures choose to specifically focus its investment on proptech firms working within the multifamily sector?

RET Ventures was formed in 2017 as a proptech VC firm with a focus on rent tech — technologies for single-family and multifamily rental properties. We were founded in partnership with a group of major multifamily and single-family owner-operators, and our mission is to invest in and guide the growth of innovative tech that addresses specific pain points in the industry. 

Rental real estate was an intriguing sector to us for several reasons. Most importantly, we think there is a tremendous opportunity for technology solutions to create operational efficiencies in this sector. While proptech and rent tech have grown in recent years, we believe that there is considerable opportunity for continued innovations to add real value to landlords and tenants, and we also feel that adoption of these solutions will grow. Additionally, residential real estate is clearly one of the most stable CRE asset classes; it thrives in a good economy while remaining fairly strong in down cycles. Another unique aspect is the fact that a large portion of the industry is run by owner-operators. This means that there’s better alignment and willingness to invest quickly in new technology solutions. 

Now, three years after we began operations, we’re proud to have more than 20 of the largest REITs and private owners and operators as limited partners (“LPs”) and have backed about a dozen startups. 

Historically, it has taken some time for commercial real estate—including those in multifamily—to accept new technology. From your perspective, why has real estate proven tough for technology to infiltrate?

As an industry, commercial real estate tends to be very risk-averse. Investing in technology can be an expensive undertaking (especially for hardware products), and certain players in the industry have been wary about beginning to use technology that may not ultimately pan out. It was widely assumed that this problem would fade as proptech startups matured, and we have clearly seen that process begin in the past few years. As proptech companies continue to prove their long-term efficacy, I expect to see reluctance about technology adoption dissipate. 

In your opinion, how are proptech and rent tech-focused VC firms like RET Ventures working to drive innovation in the industry?

We are major backers of proptech innovation, but what truly excites us is innovation that is poised to directly address real-life pain points felt by rental landlords and tenants. While we always evaluate every potential investment on a case-by-case basis, there are themes that we find very compelling, and our mandate is to back startups that support these themes.

Prime among these is self-touring. Traditionally, when a prospective resident (or buyer) wanted to look at a property, the tour occurred alongside the leasing agent. That process is logical, but it doesn’t always work — the inability for landlords to implement self-touring when necessary has become especially costly in light of social distancing. Besides, many apartment searchers simply want to tour on the weekend, when properties may not be fully staffed or they prefer to tour a property at their own leisure without wasting the leasing agent’s time.

As technology has evolved, it’s become increasingly viable for properties to allow residents to self-tour a property. We have backed a number of proptech companies at different parts of the ecosystem that, combined, create a powerful solution. A foundational piece of the puzzle is an enterprise-grade smart lock platform like SmartRent, which enables the leasing agent to control who is accessing different apartments and amenity areas. Those smart apartments may also include an integrated camera enabled when vacant to ensure safety and security. 

Another key technology is visitor identification. Prior to facilitating the tour and letting someone self-tour the apartment, the property team needs to know that the person is not a bad actor. Our portfolio company CheckPointID is a major player in this space, validating drivers’ licenses remotely to vet visitors before they come in. 

There are also other pieces of the puzzle, including AI-enabled chatbots that answer questions and ease the workload of employees, integration with next generation CRMs (like Funnel Leasing who we invested in) that help landlords target the right tenants, and leasing software that can execute a rental agreement online. 

By backing several companies that combine to solve a larger problem, we feel we’re doing significant work in driving innovation that truly pushes the industry forward. 

What does RET Ventures look for before investing in an emerging CRE tech company?

The most important question for us to answer before we financially back a company is whether it solves practical problems in the industry. To address that question, we are constantly evaluating the daily challenges of our 20+ residential real estate partners. 

Assuming that bar has been met, we examine several additional factors. For example, we generally pursue startups with strong unit economics and scalable business models because those tend to generate the strongest financial and operational returns. Finally, when assessing an early-stage company, which has not fully cultivated a product or client base, we look closely at the leadership skills of the executive team. Do they have the ability to build a company, not just a product? The resilience to inspire confidence when the going gets rough? The ability to connect with potential decision-makers in an industry that has a high barrier to entry? These are all important skills for executives of companies at any stage, and they are particularly key when judging whether a startup will be able to grow in a material way. 

When looking at the rent tech-focused proptech market, what innovations are you seeing that you believe will resonate most with tenants? Why?

There are two groups of innovations that resonate with tenants.

The first includes technologies that address existing priorities. Reliable internet connectivity has been essential for nearly two decades, and tenant-landlord communications for much longer than that. But both are lacking in many properties, and technology can help address them. We have backed proptech firms that deal with both of these issues: providing faster internet (without the typical caps), and streamlining tenant/landlord communications about programming, maintenance issues, etc. 

The second set of innovations provide enhancements – not necessities – for the resident lifestyle. No one has ever rented an apartment and expecteda dog walker or a cleaning service, for example. However, there are now SaaS platforms that provide easy access to these sorts of local services, and that sort of technology is very appealing to tenants. 

Given current market conditions that have resulted due to COVID-19, what types of proptech companies do you think are best positioned to accelerate their growth during this time period?

As long as social distancing continues, there will be opportunities for technologies that can reduce the need for casual human contact in the rental process. In many ways, this crisis is accelerating trends that were beginning to percolate over the past few years. 

For example, companies that provide the ability to find, tour, and lease properties virtually are going to become even more broadly implemented in the coming months. The movement toward self-touring and self-leasing began well before the pandemic, but this situation has thrust them into the limelight.  If they’re successful on a wide scale, these practices may become the norm even once the pandemic is fully behind us.

RET is closely affiliated with UDR, Essex, Starwood Capital Group and several other large companies in the CRE business. How did RET Ventures work to form these relationships?

What distinguishes us from other VC firms that invest in proptech is our relationship with the largest group of strategic investors in the rental space. 

The way we’ve built RET Ventures, our company and our LPs enjoy a close and collaborative ecosystem in which we can mutually add value — their market intelligence guides our firm and portfolio companies, and we are laser-focused on investing in products that create operational efficiencies for them. This approach was central to our getting commitment and support from such a large (and growing) group of leading residential REITs and private owners. 

While we continue to add LPs to our fund, many of these relationships were established well before RET Ventures was founded, and go back several decades. Right now, we have around a dozen investments and a strong track record of success, but it can be very challenging for startup VCs to gain confidence from investors. The connections that our team had with many multifamily players was instrumental in establishing our firm in the space. 

In your opinion, how does this give you a competitive advantage over other proptech firms just bringing their products to market?

Our close relationships with single-family and multifamily real estate leaders has been integral to our success. The biggest risk when you bring any new product to market is the potential for negative user reaction. When we invest in a company, we don’t just have feedback from a couple of bit players — our LPs own roughly a million units, so we have the perspective of a sizable swath of the industry. In many cases, some of our LPs let us know that they plan to adopt the technology. Knowingthat customers will come onboard imminently further limits our downside risk.

Post-investment, our LPs continue to work closely with our startups as development partners to help them refine the product, make sure it is suited to industry needs, etc. It is common for tech companies to have a single development partner from within the industry, but our startups benefit by getting perspective from several leading companies.   

What is RETs future strategy for growth? Why?

We see tremendous opportunity in proptech and rent tech, and we see a lot of room for growth in the years ahead. To that end, we are constantly looking for new strategic investors from within the real estate community, and we are always on the hunt for the next generation of leading technology companies. We recently added new team members to help support this growth, and we also plan to continue to expand our network of advisors and partners.

In terms of our investment approach, currently, our portfolio’s greatest concentration is in multifamily technology. However, we are always open to expanding to opportunities in adjacent real estate classes that offer synergistic overlap. In the near future, we anticipate investing in technologies that cater to single-family rentals and, potentially, other areas of CRE tech.