Deidre Woollard: It is two o'clock Eastern Time. I'm Deidre Woollard, Editor of Millionacres, and I am here with Tim Beyers and Austin Smith. In this hour we usually talk a lot about companies that own real estate, or they build real estate, or they sell real estate. I wanted to take things in a different direction today and talk about real estate technology, which connects to all of those things and underlies them. That's why I'm really excited to have Tim and Austin here to talk about that.
Austin Smith: Thanks for having us.
Deidre Woollard: With FinTech, everyone knows FinTech. But not a lot of people know PropTech. PropTech is essentially real estate's Fintech. There's a little bit of not controversy around that word. But there's some people who say, well, it's not just property stuff, but PropTech is the word that people use when we're talking about this. Before the pandemic, as we have talked about before the pandemic, PropTech was really booming. Then obviously last year was last year and it dropped off a bit. I'm going to see if I can share my slides with you Let see, this is always weird. There you go, is that working?
Austin Smith: Roger that.
Deidre Woollard: I wanted to share this because PropTech numbers went down last year. Almost a 25 percent decrease in venture capital funding. The year before that was quite big. It's been interesting to watch. Real estate has tended, in my opinion. I don't know if you guys agreed to lag a little bit behind the rest of the VC universe. It seems in 2019, venture capital is really discovering real estate.
Austin Smith: I would absolutely agree with that, to say it lags behind is probably generous. I would say it had to be dragged kicking and screaming into [laughs] the VC world and into modernization but disintermediation is coming for it one way or another.
Deidre Woollard: Absolutely. Now it's back. There's a couple of reasons that it's back and I think they'll be bigger than ever. A lot of that is so many companies had to be dragged into using data to make decisions. I used to work in real estate with agents and they were very slow to adopt technology. Throughout real estate there has been a little bit of that lag but, last year, no choice. All of a sudden, agents had to adopt more technology. Developers had to adopt more Technology. Investors had to make decisions without being in person. They couldn't go walk around the properties. They're making all of these decisions based on what the data was showing them, what they could extrapolate from using virtual models and things like that. I feel like all of that had a huge benefit for really showing the value of PropTech. The other thing I would say is that we're all talking about reopening. I saw Good Morning America is doing was doing a feature on the reopening of America. [laughs] It's crazy, but that obviously benefits real estate. Austin, you and I have studied real estate and watched, last year it was rough for a lot of our REITs. It was rough, certainly for our hospitality REITs and our retail REITs, rough for real estate in general. That 2021 has shifted that in completely the opposite direction, which is awesome.
Austin Smith: I totally agree.
Deidre Woollard: Exactly. I think the other thing is everyone is ready to spend their money. Being ready to spend your money comes out in a whole bunch of different ways. We have individuals who are ready to spend their money and go eat in restaurants and go to hotels and travel into all of that stuff. Venture capital is looking to spend its money. Retail investors and institutional investors are also looking to spend their money, and that's another factor that I think that we're seeing right now. Then of course you have the SPACs.
Austin Smith: Here come the SPACs.
Deidre Woollard: Here come the SPACs.
Tim Beyers: They are so many.
Austin Smith: It's impossible to keep track. Deidre, I couldn't agree more and I wanted to pause to beat on that point. I know this is very much a real estate technology and software discussion here. But if we saw that the pandemic forced a lot of adoption and more efficiencies and more technologies in the real estate space. Then we now see this mass oxygenation of the market as economies reopen and people travel again. It really does look like the next few years could be absolutely fantastic for real estate as a whole. Industries now had to accelerate its adoption by three or five-years, depending how you think about it. You now have a lot of the inefficiencies that maybe the industry had going into the pandemic have now been shaken out and forced out of the system. Now with all the money flowing through from reopening, it really does feel it's going to be a fantastic time to be involved in real estate, that's real estate management, real estate transactions. It should be a much more fluid and accelerating industry, at least as we see it right now.
Tim Beyers: I think that's right. I'd also just want to add that, I want to double underlying this point you made about venture capital looking for places to invest money. There's too much venture money. There's too much private equity money in search of return. I think Austin's point is right, that real estate has been classically ignored by this part of the market, and because of that, it creates this vacuum that suddenly everybody like, "Wow, okay, let's get in here and fund every interesting real estate tech idea," and they are going to be terrible ones, but there are some good ones. Some of this is chasing the idea. We see Opendoor, pure digital ibuying for example, and that leads venture investors to say, "What else you got for me?" I think I will you see a lot of that happening.
Austin Smith: Deidre, I know you have some excellent slides later on this show, just how volume this space is. I'll probably really illustrate the point that Tim is talking about where there's just been a flood of new entrants and new VC money chasing these ideas getting and these trends. Hopefully, we can help home in on the ones that we think are the most long-term promising and separate. They are absolutely will be some winners and some real monsters in this class of SPACs and classic PropTech IPOs that are coming. But there's a lot of competition out there to be sure.
Deidre Woollard: There is a lot of competition. I'd like to what you said earlier about inefficiencies because that's one of the things that makes me excited about certain aspects of certain companies, certain aspects of real estate technology is that it does get away from inefficiencies. Inefficiencies aren't just annoying in real estate there are huge cost. I feel one of the things that's most exciting about some of the PropTech companies that are out there, they're trying to eliminate some of those costs that come from making decisions without enough data, that come from the old measure twice cut once thing. A lot of people are cutting before measuring in all kinds of ways in real estate. We talk about sustainability and construction ways that factors in too, there's PropTech that we'll talk about later that helps monitor buildings and increased efficiencies with heating and air and all things. A lot of these really is about making the industry itself run better. As Tim said, they're going to be ones that are like, "Why did that even exist?" That we'll probably get funded. But it will also hopefully a lot of the funding will go to these companies that make real estate better as a whole.
Austin Smith: I am personally excited for the real estate industry to now have its versions of pets.com and amazon.com. [laughs] Because I think we're going to get both. Out of these SPAC and IPO class, we will get both.
Tim Beyers: Oh men, I want to see what the sock puppet it is then. [laughs] Is it the house sock puppet? [laughs]
Deidre Woollard: This is just the most basic version of types of PropTech, because I started to think about this and I started to think and then I'm like, wait, there's so many more. But trying to break it down a little bit because when you really think about PropTech, there's so many things. First of all, there's data. Buildings create a massive amount of data that for most of history hasn't really been recorded. Even certain things like temperature, we've all had thermostats, but now you see that over time when you're using something like Nekst, you can determine which were the days we were spending more, which were days we were spending less. How do we then use that data? We can reorient buildings in certain ways. We've now got buildings that use automated technology where their shades open and close at uncertain times, or the windows open and shut. All of that saves money, is more sustainable, makes it nicer for people inside. There's all this stuff that data can do. Data tends to seem like something that exists in a virtual world, but has these real applications for the physical experience of real estate.
Austin Smith: Yeah. I'm really excited about this. I don't know what the right analogy is when you're taking local expertise from human brains and premium into bids. I don't know if it's something like Tesla, collecting data on our cars and then the vehicles get better because now all this data is aggregated and you're able to actually act on it in a more intelligent way to improve it. Tesla vehicles improve over the course of ownership and now there's a chance that buildings can actually become more efficient after you own them because you can understand. Like you said, maybe there's a pattern of heating and cooling and occupancy trends. I'm particularly excited about this not just from an energy efficiency perspective, but just a management efficiency and getting better use out of these assets. There will probably, we will see a time where there is asynchronous buildings. There will be evening tenants and there will be daytime tenants. They might occupy the same space, but these buildings now stand a chance to become significantly more productive per square footage once you get this data.
Deidre Woollard: That is very true. Go ahead.
Tim Beyers: I think there's something else to mention here. This is where my two worlds meet. A lot of this is possible because of the Cloud. Like the day you can't do anything with the data unless you have the means to process it, and you'd need to process it quickly. Something that comes up in this a lot is a term you may or may not have heard of called the Internet of things. The Internet of things, the basic idea here is that we want to be able to connect things that are physical plant, things, property, buildings, lighting inside buildings, HVAC units, security systems, on and on, and we want to connect them to some network so that we can collect data and then we can do something with it and take an action. That fundamentally is the ideal of the Internet of things. It's really early. But one of these things that I've talked about many times, I may have mentioned this term more than once called the edge computing. The idea of edge computing is you want to be able to process the data where it exists. For example, inside of a commercial real estate application. Here is probably the most basic. If you had a network inside a building, and that building was designed and it had sensors that were connected to the lights, that were connected to the network, and let's say say there's been no movement for 10 minutes, turned down the lights. So there's an automated script that runs and it's collecting data. There is no movement, the sensors are not triggering, and so we can turn down the lights. We can make a smart decision based on the data. All of that is due because of the smarts of the network. All of this is building its way into buildings, homes, there's a lot of places we could take this and it has multiple layers. Some of it has to do with just how smart can we make the Cloud at the edge of the network. I'm going to go down a really geeky rat hole, so I'm going to stop it right there. Does that make sense?
Deidre Woollard: It absolutely does.
Austin Smith: Absolutely. It seems that's why we once wanted the rabbit holes. Believe it or not, you are taking it to the Cloud. We actually also see that in real estate trailblazers, which is another service we'll be launching shortly. We actually also see a real estate play there with the data and infrastructure to support these massive facilities and all the processing and all of this data. There is, believe it or not, a real estate component on the other side of it as well, that we are looking at very closely.
Tim Beyers: I believe it.
Deidre Woollard: I think the other thing that when you talk about the Internet of things is that you're absolutely right, we're only at the beginning of it because right now all that we're doing is we're mostly customizing larger spaces. But we can get super refined on this. The more sensors that buildings have, the more data you collect, the more customized that space really can be to you. Right now we have smart home technology. You can walk in and the heating is set up right and the lighting is the way you like it. We have the potential to do that with all sorts of buildings and really customize experience for people. I think that's a huge trend. I think that the amount of retrofitting that needs to take place in cities is just massive, especially when you talk about cities that are also making moves toward energy efficiency. We've got New York making new rules about buildings and what they can and can't have to be energy-efficient. There's going to be so much activity there, so much funding needed, and so many systems to be installed. It's just massive when you think about it.
Tim Beyers: Yeah, anywhere there is space. This would be the other way I would talk about it. If you think about property and property tech, expand your thinking about what property is. For example, a curbside is property. It's city property, doesn't belong to somebody except for the city. But how inefficient is a curb? It is massively inefficient. I will tell you this, it is massively inefficient especially in cities. Here's the use case for it. We want to reduce emissions. If we want to reduce emissions, what's the one thing we want to be able to do? Stop vehicles from running their engine on a curbside for 10 minutes while they deliver packages, whatever they're doing. We want to be able to get it in and out. If you can make those curbs more functional, if you could reserve them, if you had limited time, you could get in there and they were actively managed. But you had to do that with some networked property technology. You could create a lot of really interesting use cases and you could probably raise revenue, reduce emissions, name your use case, but you can't do it until you treat that piece of property as something that is space that you could make more efficient and is active instead of something that somebody slugs a car in there and now we're jammed up. That's just what happens.
Deidre Wollard: I think that's really true and it's interesting to me because it's a little bit what Google is trying to do with the Sidewalks Lab project in Toronto, that idea of making a system.
Tim Beyers: Yeah. A lot of companies working on this for sure.
Deidre Woollard: Because if you had that, let's say your curb is smart, that connects directly to autonomous deliveries and things like that, you have a sensor built into the curb. The curb and the vehicle can essentially interact, and once you start doing that, the potential for deliveries, for everything is just huge.
Tim Beyers: Yeah. It could also be like Austin's car parks in the city here, and like, hey, Austin, you're not allowed to park here, man. Or I [laughs] roll up, and you're like, hey, dude, this is Austin's space. You're not allowed to park here. Then you get a warning and move on or not, and then you're on your own, then you get a ticket. But there's definitely a lot more that we could do with things. Property tech is pretty expansive. We tend to think of it in terms of homes and buildings, but it's way bigger than that. That is my point.
Deidre Woollard: Absolutely. One of the things that I had on the slide here that I'm really fascinated with, is warehouse tech. I was at Urban Land Institute's conference yesterday, and hearing about some of the industrial projects that are going on. Because when you think about industrial warehouse base, most of it is still just space, just open space. The potential to have robotics for picking up packages, moving things around, making more efficient use of that space, sensors in individual areas to make sure that everything is the right temperature and the right humidity and all of that. The potential for robotics in both industrial and also in storage is just so huge, and such a small portion of warehouse space right now is using that kind of technology.
Tim Beyers: Yeah, for sure. No doubt.
Deidre Woollard: The last part of this that I want to talk about on this slide is residential because I feel like there's with residential, Tim, Austin, you and I have all talked about Zillow and Redfin, and iBuying, so that's part of it. It's also mortgage. It's all about making that process more simple because, I mean, that process is so complicated. I've never heard of a single person say like, oh yeah, buying a home, that was no big deal. It's like, no, I had to find all of my tax returns from years ago and everything was paper and I'm sending things different places and nobody seems to know what's going to happen next. Then I get this inspection reported, oh wait, that's another complicated thing. Then the other part of that too is that, and this is where I think things are going, but haven't gotten to yet, is it there's no single platform. All of the people that are connected to your transaction are all producing documents and they're all sharing them mostly still via email. I mean, you've got things like DocuSign. But the comprehensive platform thing is something that a lot of companies are working on. No one has quite fully solved it yet, but I feel like we're very close to it. What do you guys think?
Austin Smith: Yeah. Nowhere has the appending of the old economy of real estate been more visible than in the residential sector, I think. We think even, as recently as a couple of years ago, wet signatures were the norm, you had to go to a bank and sign documents in person. You had to drive from one side to the other, take a whole day off just to do showing, very inefficient. Now, you can sign remotely, you can tour remotely, you can even get financier remotely without ever having to step foot in a bank. These were all, not impossible to imagine, but certainly unusual a few years ago, we bought our home five years ago and it was like the big joke, it was like the big thing that we bought it through FaceTime. Now people are looking to your home through Matterport, on the other side of the country, and never have to step foot. They don't get on a plane, they don't have to take the weekend off, and they never have to step foot inside the property. I think this is the easiest space for people to visualize the changing digitization of real estate and just how many inefficiencies it brings out. The financing side is an enormous one, the rising of the dedicated e-lender probably doesn't get enough attention in my opinion. But you see, almost all of these lenders are so much more affordable and efficient and better at processing your application than your traditional bank. Where they're like, can you run me down that photocopy of your license. Or, oh no we actually need three forms of ID. Can you come by and confirm your blood type, or whatever the case may be. It's so much easier to do financing online now and we never have to walk into Wells Fargo or JP Morgan. The whole process, end-to-end touring, signing, showing, inspections, can all be done remotely and it's incredibly easy and it oxygenates the whole process. What was normally a very painful, typically 30-45 day process is now a very easy 20-30 day process, and that can go down even lower if you think about iBuyers, and the ability to just sell or buy easily from those entities on your own schedule.
Tim Beyers: I mean, I think the thing that, I'm most interested in, obviously I'm a huge fan of Redfin. Everybody knows that. Confirmation bias for the win here. Austin will appreciate that. [laughs] Glenn Kelman, the CEO, talks about how there is an opportunity in lower-income communities to bring homeownership to those communities. The way you do that, honestly, is rethinking the way you fund some homeownership because it's classically designed, at least in my opinion. I could be wrong, it may be changing faster than I think. But it's classically designed for either a significant one-income or two-income household. You're moving in, you're making a huge commitment on a 30-year mortgage. It's kind of hard. There's mortgage models that existed for a long period of time. One of the opportunities here, I think, is as we get more interested in data and as we get more interested in how we build out homes and where we build out homes, we're going to have different financing models. Some of these property tech companies, and I'm thinking mostly of Redfin here, are going to be really interesting in how they figure out how to get people who classically haven't been in a home into a home without taking us back to the sub-prime nightmare of 2007, 2008. It's a big challenge, but I think it's a really rich opportunity.
Austin Smith: I agree. Tim, I know you and I are both Redfin fanboys here, but it does seem that Redfin has a unique opportunity to also just provide a much better experience to buyers. I mean, it seems so common that agents and banks, although they're supposed to be partners in the transaction, that they speak a different language. Maybe the agent is showing somebody more houses that they can afford or the bank is lending way beyond what's reasonable for that individual, you can imagine a situation where Redfin because they have the financing and listings of the agent capacity, can show you a much more comfortable set of homes. They're not stretching you and showing you this home that's 20 percent above budget and then you have to try and strive for it. I don't know that that's literally what they're doing, but you can imagine that being something that they're able to do a lot more easily. It's just to show people homes that they're already qualified for comfortably with having all that information already available to them.
Tim Beyers: Right. Yeah. I think there's a real opportunity for a more customized experience. That may be, I mean, you guys would know this better than I would. I imagine that might be a little uncomfortable for the traditional real estate agent because there's a little bit of filtering that goes on before you actually get to the agent. My impression is, the agent is like, wait a minute, I'm the filter. Don't listen to the technology, I'm the filter. It feels a little disruptive to the traditional real estate model, but maybe I'm wrong there.
Austin Smith: I'm not sure if it's disruptive. I do think agents, if we talked about adding efficiency to the system and I'm going through a bit of a grenade here, I do think that agents are one of the last holder to the biggest points of friction which is the agent commission. I'm not sure about the attention that you had just mentioned Tim but it seems like so much of the system is becoming oxygenated, and discount brokerages are going to have to fight very hard to get that last highest friction point whittle down which is the agent commission continue from 6-5-4. You've read in certainly undercutting that dramatically, but there's still only a minority of transactions.
Tim Beyers: Right.
Austin Smith: In the US. We have seen agent commissions compress a little bit, but when you look at the dollar amounts involved in the transaction, that friction point it's still one of the largest. People will be a lot more fluid in buying and selling homes, if that area was compressed to a level that Redfin aspires to get it to. At least that's my opinion. Deidre that's a tough one. I definitely want to get your opinion on this given your experience in the sector.
Deidre Woollard: Yeah. I feel like by experience of the sector is that, when I was working with Realtor.com over 10 years ago, there was a lot of talk of like, well, if everyone can find their house online, they won't need a real estate agent anymore. That was the fear 10 years ago. That fear didn't come to pass. I don't think you get rid of the agent that easily on the residential side simply because, it is still that very emotional thing. You still seem to need that guide. It's changed a little bit. But I still see that there are still people that want to have an agent and the interesting thing, all of the NIR data that I see, there isn't a generational shift. Because that was the fear originally was that the digital native would decide to buy a house and they would decide that they didn't need to have an agent and so far that has not proved to be the case.
Austin Smith: I agree with that actually, and I want to make sure that I can clarify my point there. I think the agent involvement in the transaction is incredibly resilient and sticky and important and people do want it. What I'm curious about is the compression of that service as the fee of it and whether or not that's so. Yeah. I didn't mean to mis-speak and I believe agents are part of the transaction for a long time. It's very important and people still want that and benefit from it. Also just keeping people on schedule and telling them, your inspection is going on a Tuesday so we interpret the inspection report. It's very important, but it would seem to me that the fear is going to become a battleground pretty quickly. I don't know.
Deidre Woollard: I think that's very true. I think the fee is a battleground. I think with Redfin treating agents as salaried, we saw that issue though when the market stopped last year. They furloughed 41 percent of agents.
Tim Beyers: A lot of them.
Deidre Woollard: It was this huge problems. Yeah. Big issue but I do feel like the role of the agent is changing and the way that they get compensated necessarily will change. But the agent isn't going anywhere. It's one of the reasons that I still believe in investing in real estate brokerages because I don't see that completely disappearing at all.
Austin Smith: I completely agree, despite the rise of high buyers who have a role to play here. Deidre, I'm sorry, we definitely take you on some tangents here. [laughs]
Deidre Woollard: Back to PropTech, just quickly wanted to go through some of the major players here. One of the things that's interesting is real estate brokerages, which we just talked about, are starting to figure out how to invest in Prop tech. You have Vector group which is Douglas Elliman's parent company. They just announced their New Valley Ventures firm. But you've also got Remax. Remax has bought a bunch of different companies including Bosch and First and other emerging PropTech. Compass. Compass just bought Glide, which it's essentially a way to look at offers online and to look at all of the offers in one place through one platform versus a bunch of contracts spread out on a table. Compasses bought other things before. They've been investing in things like that. You've got Tishman Speyer which has I believed two specs, one of which is taking Latch public. You have Lennar the homebuilder.
Their venture, they invested in Sonder, which is now going public via a different SPAC. Sonder is a cross between Airbnb, and apartment rentals, one of the short-term rental companies that actually made it through the pandemic without suffering too much, and is now getting an opportunity to go public. One of the biggest things has been Fifth Wall. Fifth Wall is venture firm that emerged in Santa Monica three or four years ago. They decided they were going to invest in everything in the built world. They've emerged out of that Silicon Beach culture that's happening in Santa Monica in Venice. 3 SPAC so far, I believe each one has been between 250 and 300 million. First company is SmartRent which does smart tech for houses, and they have a partnership with Lennar's. This industry is massive and also small. Then lastly, Spencer Rascoff with his Supernova SPACs and the first one taking Offerpad public which I have found endlessly fascinating. The idea that Spencer Rascoff is backing his former CEO of Zillow and he is backing this potential Zillow competitor in buying. Probably if Zillow, Redfin, and Open-door the big three, Offerpad to me is the dark course maybe fourth competitor. But they are doing some interesting things and I wouldn't count them out.
Austin Smith: No, actually not. This space is growing so fast that they might be the lift to Open-door's Uber, but that's still a great place to be. This industry has so many tailwinds behind it a lot of good money and capital going into it. I agree there are a dark course to watch. Spencer Rascoff, and it's hard to imagine somebody more connected in this space. Definitely a bit of I don't know what we would call it, simply rivalry, or tension I imagine there between Zillow, but it's going to be interesting when they watching. Certainly don't count Spencer out. Zillow had a fantastic run under his leadership and has also under Rich Barton's tenure. But he's well-connected, he understands the space. This one is a very interesting one to keep an eye on.
Deidre Woollard: Just quickly on this slide, what this means for investors. A lot of new companies to invest in, and a lot of need to filter those companies. The thing that I worry about most is the idea of companies going public before they're ready. I think that's the biggest risk with SPACs. We've seen this before when a lot of venture capital comes in. We saw this, the first dot-com bust 20 years ago because people were investing based on a PowerPoint presentation, and there were a lot of companies that got too much money too fast. You'd think we learned our lessons, but no, the same thing happened with WeWork to some extent too. The money, in my opinion, a lot of venture capital money starts to create an obligation in a company to produce results, and it may result in too rapid expansion. I liken it to when you're making bread. If you put too much sugar in there, then the yeast goes crazy, and then it all dies. That happens with startups, where if there's too much money, too much pressure, they're not growing organically, they can implode, which was part of WeWork's problem.
Austin Smith: Yeah. Please, Tim.
Tim Beyers: I just wanted to quickly point this out here. I had a conversation, this is a long time ago, with a venture capitalist who shall remain unnamed, but he said to me, and I've never forgotten this, his point was that money makes companies dumb. It makes them dumb. The strategy for this VC firm, it's not to choke a company and not give them enough, but they didn't like companies that looked at a funding round as an accomplishment, and that is a temptation. When you're a startup, you put out a press release that says something like, ''We've just raised," I'll make up a number, "$125 million in funding,'' or you have a massive IPO. Please remember that is a non-event. If it's a massive IPO, good. The balance sheet is secure for the short-term, but that really doesn't say anything about the actual unit economics of the business and its ability to generate meaningful margin improvement, cash flow over time. It doesn't say anything about any of that. This VC, I thought it was striking when he said it, but it totally makes sense to me now. In hindsight, companies that raise a lot of funds and then consequently get drunk on that and spend a lot of money end up being some of the worst investments. Austin, I'm sorry I interrupted you.
Austin Smith: No, actually, that was a fantastic point. It dovetails nicely. I was actually going to bring in WeWork and say, I can't decide if WeWork was early or over oxygenated, and maybe the answer is both. We're talking about using spaces more efficiently and at the surface level. WeWork Inc. seemed to do that. You use your square footage better. You have efficient access systems, efficient mail systems. It's a really good way to use square footage, but then, when you get down in the actual operations of it, way too much capital, they ran way too fast, their model of sub-leasing was reckless, so it's a case of, the idea itself, executed differently and probably executed with less capital, could be a home run, but the idea executed too early with too much capital, you make the mistakes that WeWork made. Let's try and find the anti-WeWork in this class of SPACs and IPOs, and maybe the new reinvented WeWork is actually one of those. But I think of really good a point that you both made. The idea could have been good, and it almost suffocated under too much money and trying to go too fast.
Tim Beyers: This is a question for both of you. It seems to me, we talk about unit economics, we talk about this a lot in investing, and it's different for every type of company, but it's basically a unit economics is, what's the unit of something that you provide to a customer that they are willing to pay for that gives them value? As you sell more of those units, something we call economies of scale is the more units that we sell, the greater our margins become because we've got some fixed costs in order to serve a customer well and things like that. Do you think the unit economics in real estate, does it always boil down to how efficient you are per square foot?
Austin Smith: I don't think it always does. There's definitely some aspects of real estate. Deidre could speak most qualified to this one better. In a supernatural tier of luxury real estate, that's probably not a unit economics game. But commercial real estate, I think, is going to come down to price per square foot and your expenses per square foot. That's not all real estate, but it's a huge aspect of real estate, and we are seeing that. You think of the hyper-efficiency and warehouses, and fulfillment are already playing that game and have proven that if they can be more efficient per square foot for their customers, they can charge a premium rent. I'd say definitely a commercial industrial for sure. Commercial office is probably waking up to that game, I think, and has a chance to do much better there. I don't know about residential, and I would say, definitely, not luxury.
Tim Beyers: Okay. Deidre, is it fair to say then that especially in the sectors that Austin just mentioned here, this idea of property tack and taking down the cost, basically you're using tack to manage your cost and manage your cost per square foot, this is one of the key areas where prop-tech is so huge?
Deidre Woollard: Oh, absolutely. I think one of the things that you're going to see is not just price per square foot, it's going to come down to utility per square foot of how much space you're getting out of things. Talking about industrial and talking about the merging between industrial and retail. Tim, you and I have talked a lot about this before, about how stores are having to change because you've got Instacart pickers and you've got e-commerce, and you've got curbside, and you've got my favorite acronym, BOPIS. [laughs]
Tim Beyers: BOPIS.
Deidre Woollard: BOPIS, you know I had to bring in BOPIS. But you've got so much going on there that it's not just about the price per square foot. It's going to be about almost how alive that square footage is. What systems can be put in there? How can it be used? What access does it have to the front edge versus to the back row where trucks could come in or something like that? All of that is going to play a role, and part of real estate getting smarter is real estate getting more efficient.
Tim Beyers: That makes a lot of sense.
Austin Smith: Tim, do you even take it beyond the narrative and maybe for our listeners who are looking for a real use case here. I would look at Terreno Realty, which is not a household name, not a popular stock, but the ticker symbol for anybody who wants to look it up is TRNO. This is an industrial REIT that focuses on buying infill warehouses in major cities where there's not a lot of available square footage, and they buy these, and they make them more efficient for e-commerce and distribution. That's their entire play. They're not developers. They go in, and they make buildings more efficient. This stock has absolutely destroyed the S&P over its tenure. I don't want to misquote it here, but in five years, it's up almost from $20 to about 60. The mark's chart start to get even more incredible, and this is a pure industrial efficiency play. They're not building. They just go in and they make the buildings operate better, and that's exactly what technology does. Maybe they were making these buildings operate better with their own expertise, and now there's a case for other industrial companies to leverage software to maybe operate at the same degree of efficiency, better utilities usage, better throughput materials, and inventory for customers. If people are looking for really use case and how much value can be created just by making square footage more efficient, Terreno Realty, TRNO is an interesting one to look at.
Tim Beyers: All right, noted. [laughs]
Deidre Woollard: All right. Questions to ask when you're thinking about PropTech. Certainly. What problem does it solve, and how big is that problem? Because a lot of things, talking about money-making people stupid. I've found that in the past, sometimes whole companies will start up around solving one piece of a problem and then you see another larger accompany just take that piece and enfold it into them, and then that little start-up has no value. A lot of people are saying to some extent that that's what's going to happen with Clubhouse, and social media like Instagram or Facebook or Twitter is just going to take that idea and enfold it, and I think that happens in real estate too. So it's definitely how big is the problem? How many people will benefit from it? How big is the user base that needs to solve that problem? Certainly, competition also help, but how old the company. We talked about that before, about this idea of not going public too soon. I feel we're already seeing companies go public too soon. I think that's important to look at. You want to see that they at least have enough of a user base, enough of a history that they're actually doing the thing that they said they were going to do. Because sometimes I'm seeing early companies have a small user base, there maybe in one or two markets. They haven't really tested it on the larger front. You could say that iBuying started to some extent that way, although now it proved itself on the larger scale. But in the beginning, iBuying was just starting in one or two cities.
Tim Beyers: I think you could say this is certainly true in technology. I think it's definitely true of most innovators. The younger the company is, the more likely it is you have found a one-trick pony. Beware, the younger the company is, if it rushes to go public, it's not a power law, but it's pretty down in claws. The younger the company is, the more likely it is, it's a one-trick pony and it may not stay a one-trick pony, but if it comes public and its funding it's moved to another market with your dollars a public market investor, just know what you're getting into. That's all.
Deidre Woollard: That's a really good point. Does that make you worried about open door, which is essentially a one-trick pony, but is gradually starting to try to become another type of pony.
Tim Beyers: Well, it did make me worried about it. I think we talked about it here. I know we're going to move on to this slide here, but Deidre, you and I talked about this. It seems awesome, but it does feel like a one-trick pony to me. When I put it in the category of, "Okay, here's Opendoor, here is Redfin and here is Zillow," I know what Zillow does. I don't love that Zillow has this contentious relationship with some of the people who buy its leads, who hate that they have to buy those, I don't love that.
Deidre Woollard: Yeah.
Tim Beyers: But I get that that gives them a huge amount of capital to put to work in other places, and I trust that Rich Barton is putting that capital to work in things like iBuying, and it is the undisputed leader in residential real estate data. It has some clear advantages there. Opendoor's and iBuyer, and so that's different. Then Redfin in the middle between these two, has a vertical value chain for creating lifetime value for a customer that decides that, "Yeah, I'm going to use a Redfin broker," and then use them again and again because they get everything from the Redfin experience. It just feels very different to me. That is not to say that Opendoor is a bad idea. It has a limit, and now what can it do to expand its user base? I think the answer to that is beyond my understanding so far, but you guys may have a better take on it than I do.
Austin Smith: No actually Tim, I agree, Opendoor makes me both nervous and exciting. You and I have talked a lot about iBuying and I feel like we've gone back and forth on it over the years.
Tim Beyers: Right.
Austin Smith: The idea is very good at first impression, the economics so far are still very challenged. It looks like people are still not making or figuring out how to make meaningful money here. But there's so much money in motion. I think as long as there is still growth and adoption and there is still growth in the idea and acceptance of it, that they'll probably do okay. People can get used to the idea that they're buying or selling homes through a company or through an app. There's different way of selling homes. If that idea can get adoption and they can hang on long enough, and they have enough capital, it looks if they can, I think it'll be okay. But of all of them, Redfin is still probably my favorite pick for the very reason you mentioned. They're vertically integrated, they offer multiple services, they can provide value up and down the supply chain, whether you want to use them as a lender or not, they can really offer whatever people are looking for. It feels like Redfin did the hard work of investing in all of these value-add early on, and they can now offer it to all their buyers and sellers in a way that's good for them. Whereas Offerpad or Opendoor is just going straight at one big promising idea as hard and as fast as they can, which could flame out, could not.
Tim Beyers: Yeah, it might. Deidre, I want to kick this to you here, but I would say the difference between those three, the way I see it, I think Redfin is the one that built a flywheel. I think Redfin has built the flywheel really hard, lots of hard stuff that Austin was mentioning here, and so as the elements of the flywheel start to feed each other like you come in for mortgage, you get title, you get a home, you're in the home, you sell the home, you move to the next home. There's a real flywheel effect there. Zillow has a decent chance to build one too. But I think Zillow's still building it and I don't think Opendoor has one yet and maybe Offerpad and Opendoor might get one someday.
Deidre Woollard: I think you're right to some extent. I think with Zillow they didn't decide that they wanted to be in the brokerage business until relatively recently, and their business was fairly mature as Spencer Rascoff used to call it a media company. That was originally the idea. We're going to put out all of this content, and that's how we're going to make our money and that's how we are going to sell these leads and that's still the primary engine, but now they're building all these other engines at the same time, and so there is definitely a catch-up process there. The only thing I want to bring up from this slide is just this idea of a lot of players doing the same thing. Because that's something I think it's going to be really important for investors to keep in mind. When we think about PropTech, there's a lot of duplication here. You don't necessarily need to pick the winner in any of these segments in my opinion. You just have to pick one of the winners. It's not like a horse race. You don't have to have the winner. You can make plenty of money on the place of the show. I wanted to bring in Thomvest Ventures. I recently interviewed one of their founders and it's going to be on the Millionacres Podcasts. But they do these market maps and I've got three of them I want to show you. The first one is construction. You could just see how many of these companies are here. Most of these, I haven't really heard out, but there's a few I've heard of up ranging in all kinds of sizes. What the things I like about the market maps that they've created here is they divide them into segments. You look at this construction map, it gives you an idea of what types of companies. You've got the things that design and plan. You've got tools that you use in the field. You've got things that benefit developers. You've got virtual models. There's so many different types of things that are out there. Some of these will become big companies, some of these won't. You've got things like Katerra in their and factory, OS and Blokable companies that may be the next big thing, maybe really huge. Interesting to see just how big the market is.
Austin Smith: Deidre I really love these visuals. I think you're actually have more than one, but they really do a good job in my mind of showing the breadth of this space. When we talk about real estate people, they pull on wherever their immediate reference point is. It might be their primary home or making their office. But really it's infrastructure, it's warehouses, it's your home, it's your office, it's retail, it's restaurants, it's everything in between, it's hospitality. There's so many different ways that this industry is changing. If people look at this and they're looking for a homing mechanism to figure out which aspects of real estate PropTech that we're looking at on Millionacres, now we're excited by the areas that have caught our attention are iBuying, home viewing and data.
Tim Beyers: That would be amazing by the way. I'm looking forward to your startup that does that.
Austin Smith: Home buying and dating.
Deidre Woollard: Match for Zillow, it's a winner.
Austin Smith: It matches just a precursor to Zillow and mortgage lenders. This is one that we talked about a little bit here. But online lenders and mortgage lenders probably don't get enough attention because it's considered an old industry product. But really the addition of tech inefficiencies to that space are really promising both investors and lenders.
Deidre Woollard: Yes, so let's dive into that a little bit. Because our last slide here is these investable ideas. We've talked a little bit about the iBuying, and the online marketplaces. One of them in here also is CoStar. I've been following CoStar for a while. I get more and more excited about it, finally bought myself some. Just because I feel their CEO really fascinates me. He's been pretty aggressive in the past. He's coming for the residential market in a huge way by buying homes.com and Homesnap. He did it with apartments.com. It's very interesting to see what's going to happen there. What do you guys think about CoStar?
Austin Smith: CoStar has been the, I don't want to call sleeping giant, because if you're in real estate, people certainly know who CoStar is. But I still think that term might be appropriate because people still, even though they are aware that CoStar exist, don't appreciate how dominant they are. CoStar really just absolutely is the leader here so far away.
Tim Beyers: I'd agree with that. I didn't realize just how large this gorilla is, and it is the 100-pound gorilla here. In considering, Deidre, the thing that scared me about CoStar is when we were on the Saturday shows and you were talking to me about how litigious CoStar can be, how they really do literally throw their weight around. They are not timid and that is scary. Potentially if you are an investor, it potentially creates some artificial tailwinds there in the sense that if they're going to throw their weight around they can make in some cases some of their own market opportunity. But I wouldn't just say it's guaranteed win here. They're just throwing their weight around and they got a lot of weight to throw around.
Deidre Woollard: Yeah. Absolutely. I think a lot of people are saying that nobody can unseat Zillow as the traffic leader in residential real estate search. I don't believe that. That's partly because I've worked for realtor.com when they were number one, and then Zillow came along and ate our lunch and that was awful. Zillow came in and they had a better strategy than we did. They created the Zestimate and they started doing all these press releases using their data and they just gradually got more and more market share. It would be a hard road for CoStar or any other company to unseat them. But you look at Redfin, Redfin was a distant fourth, distant fifth for a long time. Now they're in the top three of residential search. Redfin is getting very active with their ad campaigns and spending a lot of money. Glenn Kelman talked about that on the recent call. So it's going to be a race right now for all of those eyeballs of everyone who's trying to buy a home right now.
Austin Smith: Absolutely. Deidre, I want to call a GHVI here. This is the SPAC that's taking Matterport public. I just have to mention this because I think this is some of the coolest technology that I've ever seen. To anybody who liked scrolling through Zillow for the past few years or Redfin and just dream hunting for homes, this adds a whole new layer of depth to it. Anybody who has not experienced a Matterport tour should search Matterport M-A-T-T-E-R-P-O-R-T, and just fully appreciate how much this improves the buying experience here. This technology is so cool, it's so fun to use. It's integrated with a lot of listings including Redfin and mass here. This is the ticker symbol for the SPAC that's taking it public, which is Gores Holdings. People don't recognize that, that's why. It's a SPAC. It's still new on the market, but the technology behind it is so cool and so fun.
Deidre Woollard: Well, the thing that I'm really excited about with Matterport is they are the number one in residential, but they've got a lot of potential to get better at commercial too. Talking about digital twins and really the value of having a complete virtual tour for commercial. We talked before about all of those spaces that are not being utilized correctly. Something like Matterport that can create a digital twin of something. It makes it so much easier to plot out how to use that space, what systems you can put in. It's really just at the very beginning of what it can do in my opinion.
Austin Smith: I totally agree. They may actually already be doing this, and I'm not sure, but I think the potential to make an architect's life easier or designer's life easier with Matterport data and converting it to CAD drawings is such an efficiency gain in utilizing that space better, coming back for our theme again and again, just using space better and more efficiently, more effectively. Simply the process of measuring a building to figure out and that process you have to go through to figure out where it makes sense to put an addition, or a new loading ramp, or how much room do you have to get boxes in and out? It's so much easier if you can have that building 3D renter walk through and then have all the blueprints for anything. You can do the productive work of figuring out how to use the building instead of spending all your time measuring it.
Deidre Woollard: Absolutely. As we wrap up here, we've got about two minutes left. I want to get into that last bullet there. Austin, what are you seeing in that space? We talked a little bit before about making the mortgage process faster.
Austin Smith: Yeah.
Deidre Woollard: Go ahead.
Austin Smith: I think the trend here is getting overshadowed by people just moving in mass and taking on mortgages as quickly as they can get them right now. That's a migratory trend. But as far as the actual lending industry itself, it's so much faster and easier and more efficient. I haven't seen the data, so I don't want to misquote it on the average close time, but I know it's compressing. It's just faster to close on a loan today than it was five years ago because these lenders, they have an assembly line and it can be all digital and you upload your tax returns and all your documents. You can upload all your material effectively in an evening and be underwritten really easily without having to go to your bank and worked with your former lender. What we're seeing here, aside from just a huge wave of mortgages that people are taking out because there's a migratory trend, the process is faster, and because it's faster and more efficient, there's also just better lending rates. Some of that, of course, is macroeconomic and it's not just a product of efficiencies, but it's there underneath both of these other bigger trends. It's just how much faster you can underwrite and how much more affordable you can lend as a result.
Tim Beyers: Do you think there's any chance in this last minute here we could answer Stephanie's questions about our favorite prop tech stock? I can come up with one.
Austin Smith: [laughs] Sure.
Tim Beyers: [laughs] I know you will both guess it, but do you guys have one each to give a favorite prop tech stock?
Austin Smith: Deidre?
Deidre Woollard: You guys know it's going to be CoStar [laughs].
Austin Smith: Yeah.
Deidre Woollard: For some reason, that has just become the stock that I'm really most interested in, and partly I think it is the fact that they are able to acquire things and then build them into their system. It's one of the reasons that makes me excited also about Redfin is I feel like Redfin right now has this tremendous opportunity with RentPath. They've never really bought something and integrated it, I'm very excited to see what they do. But I still believe that CoStar really has a potential to make some big waves in residential real estate and make a lot of money at the same time.
Tim Beyers: All right, so CSGP. Austin, what do you got?
Austin Smith: I have one, but I also have a disclosure with it. This is Latch, and it's going public through a SPAC TSI Innovation Acquisitions. I think their symbol will eventually be LTCH, but right now it's TSIA. Now, what's so exciting about this, this company is very small, which is great. They are looking to basically be the platform of building. To do what people thought Apple HomeKit or Google Nest could have done for residential, Latch is really looking to do for all buildings and largely commercial. Deidre, do you know the big apartment development that they work, is it MidAmerica? No, it's Alexandria, isn't it? They work with one of the largest multi-family operators in the USA. The name escapes me now. But Tim, what's unbelievable here is this company has never lost a customer since 2014. They have 100 percent gross dollar retention and existing customers are spending more, I think about 30 percent more each year. But I don't want to misquote that, so I will say it's approximate. Basically, the best customer retention you could possibly have. The promise to become a platform of buildings. Now with that said, and my asterisk, my disclosure is, a lot of people have tried to become the one-stop-shop solution for building operations and it hasn't gone very well. I think Latch has what it takes, but the big companies like Honeywell, and Google, and others have tried this and nothing has stuck. It's really hard to become the de facto platform leader here. I think what they are doing, which is smart, is partnering with some of the biggest multi-family operators and getting that early mass adoption at that scale. Now, I know we're two minutes over and we've taken time for Brian and Toby. I have to apologize now on behalf of Millionacres.
Tim Beyers: No, look, it's important to ask that question. The obvious one for me is Redfin. I'll just say, of course Redfin, but I also I'm a big fan of the Gores Holdings VI, which is GHVI. And that's the one that's taking Matterport public. I got to say, the more I look into Matterport and the tech behind it and how it works, I am fascinated. I am completely blown away by it. I love Redfin, but I'm definitely interested in what Matterport is going to become. Sorry Toby and Brian, we threw a monkey wrench in there, but I wanted to get the favorites. We had them all, but we should get the favorites out there because we're member-first.