One of the most interesting real estate deals announced this week was the investment by Brookfield Asset Management, GLP and Tishman Speyer in a $90 million Series D funding round in leasing and asset management technology firm VTS. The investment round is the largest venture financing in the history of commercial real estate software, and it also marks the first time several top institutional real estate managers have made an investment of this scale in a PropTech company.
What has led these three heavyweights to all become first-time investors in VTS at the same time? It is worth noting that each is among the most active investors in technology – for example, both Brookfield and GLP have dedicated platforms or funds for investing in emerging technologies in real estate. For their ventures, both of which launched last year, it is good to have early wins. A later-round investment in VTS, which is considered one of the top real estate software companies and has already received backing from the likes of Blackstone and other blue-chip investors, is a way to get their track records off to a strong start.
It may seem curious that the three managers, which are also sometimes rivals for assets or tenants, are investing in the same PropTech firm. But the decision to back VTS has less to do with competition than ensuring their own firms remain up-to-speed and relevant in the industry. Indeed, Josh Raffaelli, managing director of Brookfield Ventures, told PERE that “there is definitely a wider recognition” in the institutional real estate industry of the need to better utilize data, which in turn provide insights that help produce better business outcomes. He saw the funding round as enabling VTS to develop more technology products and tools. One can assume that the better these products and tools become, the better off the firm’s customers and investors – of which Brookfield, GLP and Tishman are both – will be.
Moreover, enhanced use of data not only optimizes investment decision-making and performance, but also supports the growing industry view of real estate as a service rather than a product. As a November 2017 KPMG survey on PropTech said: “An opportunity for enormous competitive advantage is in using data to improve customer service to the end users of property – the actual consumers of space.”
To be sure, real estate remains the laggard to other industries like financial services, pharmaceuticals and automotive when it comes to technology adoption. According to KPMG, 56 percent of respondents in its 2018 PropTech survey rated their business 5 or below out of a possible 10 in terms of digital and technological innovation maturity – ticking up from 53 percent in the prior year’s survey.
A ‘bread-and butter’ investment in a leasing and asset management software company is far from cutting edge, as firms in the aforementioned sectors were making similar investments a decade ago. Yet, as real estate and technology expert Dror Poleg of Rethinking Real Estate told us, this most recent funding round of VTS should be seen as “a major leap,” as the ability to get a birds-eye view of one’s portfolio at any given moment, while seemingly basic, is something many real estate companies are still struggling to achieve. Progress, after all, is all relative.