China has been slow to accept property tech start-ups
Alexei Druzhinin/TASS
“Business to business software as a service is a massive driver of the overall technology world of America,” says Dominic Penaloza, CEO and founder of REinvent. “They have amongst the best valuation metrics of any tech businesses. What’s really interesting about China is that that hasn’t really happened yet.”
Penaloza, formerly the Head of Innovation and Technology for WeWork China, has launched what he calls a “start-up studio model” in Asia that hopes to bring the SaaS model of doing business, amongst other things, to the Asian real estate markets—both commercial and residential. REinvent’s investors include JustCo, a coworking company in Asia with high-profile backers such property developer Frasers Property; Daito Trust (a leading real estate firm in Japan); and Singapore’s sovereign wealth fund GIC.
Even though proptech hasn’t had the presence it has in the U.S. there are early signs the demand is there. A prime example is the China-based real estate firm KE Holdings that earned $2 billion when it launched its IPO last August. “It’s one of the biggest mega-unicorns that nobody’s ever heard of,” says Penaloza. “But it’s essentially the Zillow of China. Even more, it’s essentially the MLS of China.”
The Switch Work Booth has rolled out in shopping malls
REinvent
In the U.S., technology first made inroads into the property world via search sites such as Zillow and Redfin. Then came the bevy of marketing platforms, transaction management platforms and all the associated proptech start-ups. Now that those types of technology already exist, China can leapfrog the early growing pains the U.S. saw and develop a more holistic proptech playing field from the beginning.
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“The [real estate] industry developed with certain incentive structures in place, which is all fine,” says Penaloza. “But the interesting point is the incentive structures are very different than the technology world. If you’re trying to recruit world class technology people, the reward structure of the property industry makes it harder to recruit those technology talents. So there we might have a systemic reason why it’s been slower to develop technology inside the real estate world.”
Their phone app tells you how crowded each location is.
REinvent
“That’s why I started this studio,” said Penaloza. “This studio might be a systemic answer to the systemic problem. It’s a whole different model, including incentive structures. But more than that, it is a different model of innovation.”
The model has groups of people work in squads to address problems or needs within the real estate industry and once a venture is launched, REinvent has full ownership of the initiative with investors owning part equity in the project.
One of the first ventures REinvent launched was Switch—a “workspace-on-demand platform” that lets users rent space via a phone app on a pay-per-minute basis. Currently they have about 2,000 desks in two dozen cities as well as their own branded Switch Booths. These self-contained pods come with Wi-Fi and electrical outlets with enough space for between one to four people to host meetings or get work done without having to go into an office or work from home. Switch Booths have initially rolled out in retail shopping centers near public transportation lines.
A row of Switch booths outside a department store
REinvent
Another early venture is a spatial analytics company called SixSense. Penaloza explains it as the Google Analytics for real estate. “[If] people who run real estate could know how people use and consume [the property], then it should lead to much better decisions over time. And allow us to stop wasting as much real estate as we are wasting today.”
No matter the type of problem the incubator attempts to address, what makes this model worth paying attention to is how it circumvents the piecemeal approach that accompanied the growth of proptech firms in the U.S. Historically those all started as a way to address one individual problem and then they expanded their services as they generated more revenue or investor money. Now if you go to any national real estate conference, entire ballrooms are taken up by booth after booth of proptech firms who provide very specialized services. While this model means there is plenty of variety, it has left in its wake a host of companies who exist in narrow niches within the industry without a way to address the breadth of needs presented within real estate.
A model like the start-up studio, which takes existing technology and applies it in a more integrated fashion, will likely mean a more robust foundation to the proptech landscape. This could very well lead to smarter, more efficient transactions and cost-savings all across the board. America’s real estate industry just might have to pay attention before it starts to lag behind.