Nick Romito is talking about disruption in real estate. More specifically, he is talking about WeWork. “They’ve had the most significant impact on our industry probably ever,” says Romito, VTS’s chief executive and co-founder, speaking with PERE at the firm’s headquarters in midtown Manhattan in mid-September. “It has changed the whole market and they’ve changed the expectations of tenants; they’ve made every single owner on the planet rethink their entire strategy.”

VTS is no stranger to disruption itself, however. In the area of data and analytics, the leasing and asset management software provider has been one of the most prolific fundraisers among private proptech firms. Since its inception in 2012, it has raised $197 million across five fundraising rounds, dwarfing its nearest competitors, which have attracted between $4.5 million and $68 million in total funding, according to a July 2019 report from New York-based investment bank Keefe, Bruyette & Woods.

VTS’s funding, moreover, has come from a who’s who of private real estate, including Blackstone, Brookfield Asset Management, GLP, Tishman Speyer, Oxford Properties and Starwood Capital’s Barry Sternlicht. All of the investors, except for Blackstone, participated in VTS’s Series D funding round in May. The $90 million round, led by Brookfield Growth Partners, the technology investment arm of Brookfield, marked the largest venture financing in the history of commercial real estate software. With the Series D round, VTS also became one of only 20 proptech firms to become a unicorn – with a valuation of $1 billion or more.

Much of the firm’s success comes down to its vast coverage of the commercial real estate market, with data on 11 billion square feet of commercial space, including 60 percent of the Class A office space in the US.

Timing has also worked in VTS’s favor: real-time performance data ranked as the area of real estate with the most potential for disruption, according to KPMG’s 2018 Global PropTech Survey. “Historically, real-time data have been mostly unheard of in real estate, particularly for commercial assets,” analysts Ryan Tomasello and Jade Rahmani wrote in the KBW report. “Commercial real estate asset managers have benchmarked their performance of data that are backward looking and outdated, perhaps as much as six months to a year old.”

Meanwhile, “as commercial real estate has become more institutional, investors and owners are demanding greater data transparency, standardization and sophistication to empower decision-making and enhance returns,” they wrote.

On its website, VTS touts that its software reduces leasing deal cycles by an average of 41 percent. Managers like logistics specialist GLP have taken note. “There is a strategic link between our core logistics real estate business and technology that can make our assets more efficient for customers and make GLP more competitive as an investor and developer of these assets,” says the Singapore-headquartered firm’s chief executive Alan Yang. “The VTS team has differentiated itself to others in the market through its ability to increase operational efficiency and access real-time and high-quality data.”

Changing attitudes on transparency

The genesis for VTS came from Romito and co-founder Ryan Masiello, both former brokers and users of real estate data themselves. As Romito recalls: “Everything was done on spreadsheets, so from my leasing pipeline, to my updates to the owners that I was working for around where we were with tenant engagement, the entire process was offline.”

The company’s vision was to bring the entire leasing and asset management process – from lead through lease execution – onto one software platform. “Once we did that at scale, we’d also have this unbelievably valuable dataset that our customers could use to understand what’s really happening.”

But getting scale on market data was far from easy. After all, “many incumbents have operated under the belief that controlling data and information is a necessary competitive advantage,” Tomasello and Rahmani wrote in the KBW report. “This has led to limited transparency and information-sharing across the industry.”

When potential real estate clients initially showed skepticism that VTS’s software would help them do deals faster, VTS allowed the companies to pilot the product.

“Once they got that little taste of how much better their quality of life was, it started to snowball,” says Romito. “Data became an asset for them, not a chore. Because data for them, they equated it with reporting. And so, once we removed reporting from their life, and then they had data they could use to make decisions and report to their clients with on strategy, everything changed quickly. The users became our sales force. It became viral, and in a market like this, that doesn’t happen a lot.”

After seeing their own data in updated and aggregated form, VTS’s clients began clamoring for more information. “They quickly started asking, what would be great is if we could see how we’re doing versus the market, which feels like a logical place since you guys have all of our peers on your platform,” Romito says, noting that VTS currently has data rights – where clients agree to have their data aggregated and anonymized as part of a larger market database – for 93 percent of its customers. The firm expects to have 100 percent participation in the near future.

Whereas real estate owners previously saw a lack of data transparency as an advantage, they now view it as a disadvantage, he adds: “It’s a total give-to-get model. You don’t have to do it, but it means you cannot access that product. And if your competitors know what rents are doing and you don’t, you’re in a pretty tough spot.”

Romito: making data ‘an asset, not a chore’

One proponent of greater data transparency is Oxford Properties, the real estate investment arm of Canadian pension plan OMERS. “There’s no doubt in anyone’s mind that there’s an enormous amount of waste, in terms of time and process and money, in how leasing works currently,” says Oxford president Michael Turner. “With better transparency, transactions will happen faster,” he says. “I’ve just never seen a marketplace where you’ve introduced transparency and technology and the cost structure has not declined.”

VTS had not initially planned to raise money from Oxford and others in private real estate. “We were always very against taking money from real estate investors,” Romito says. “We felt it would be perceived as a conflict.”

After the firm completed its Series A funding round, led by venture firm Trinity Ventures, however, Blackstone came knocking with a proposal – it would simultaneously run the asset and leasing management software platforms of both VTS and its competitor Hightower for six months across the firm’s portfolio. Whichever company Blackstone ultimately chose, it would also additionally invest in the winner. “We knew that Blackstone is a market-making company,” Romito says. “They’re arguably the most successful investor on the planet and they have a massive portfolio; it was going to be meaningful to whatever company won that business.”

VTS went on to win Blackstone as a customer, with Blackstone additionally investing $3.3 million in the company. “Our claim to fame is that it was Blackstone’s smallest investment in history,” Romito says. “But for us, it was a huge deal.”

Prior to its Series D, VTS had not raised a dollar in three years, and its sole real estate investor had been Blackstone. The main reason for its last funding round was simply growth, says Romito: “We’ve got a lot of fresh gunpowder, so the speed at which we’re doing things is going to radically change. We’re moving way faster.”

The funding will help to accelerate VTS’s product rollout. Last year, the firm launched its first data product, VTS MarketView. This it calls “the industry’s first real-time benchmarking and market analytics tool.”

Meanwhile, VTS also plans to roll out a second product, a commercial real estate leasing marketplace known as Truva, later this year. “It’s hard as an end user of office space, or just as a human being in almost 2020 that I can’t search for office space on the internet,” Romito explains. “That feels a little bit ridiculous to me.”

Josh Raffaelli, managing director at Brookfield Growth Partners, recalls that VTS did not need capital when Brookfield approached the firm last year, noting that such a financial position is uncommon for a proptech start-up.  “This company has always managed very conservatively toward a cashflow break-even profile,” he says. “They could be very profitable if they decided to dial back growth. The tension is always profitability and growth.”

VTS has maintained more than 45 percent revenue growth without adding significant headcount, according to Romito. “People do want to see that there’s light at the end of the tunnel where you can make that switch if you need to, to show profitability,” he says. “When you think about company valuations, you’ve now started to see that shift where the Street is really rewarding folks that can maintain that high growth, but also do it in a way that’s super-efficient, versus the old days where it was growth at all costs.”

One of the keys to running a super-efficient business is having an experienced team, Romito observes. “One really good person can do the work of five inexperienced people,” he says. “We’re not hiring first-time anything anymore. We want scar tissue across the whole organization.”

VTS nonetheless is embarking on a significant expansion that would involve increasing its global staff from 200 to 230 employees by year-end and doubling its coverage area in the next 18 months.  Much of that anticipated growth will come from overseas: the firm, which already has a presence in London, plans to roll out localized versions of its software in the EMEA region next year, followed by a launch in the Asia-Pacific region in 2021. “International is a different product,” Romito says. “If you’re in the UK and use VTS, that user experience is very different from the US. It’s UK-specific.” For example, lease breaks and rent reviews, which are common in UK real estate, do not exist in the US, he notes.

Competitive edge

VTS’s current scale has given it an edge over its rivals. “There’s going to be a first-mover advantage for those who have grabbed the greatest land grab, those that control the most real estate in any particular domain or vertical,” says Turner. “The Oxfords of the world, we’re not nimble. We’re slow and we’re risk-averse as it relates to making technology bets. And the cost of getting them wrong is expensive. Therefore, those that get the lead in the marketplace and grab real estate with the leading largest owners, they’re very well positioned in terms of their competitive set. So, a natural progression for VTS will be to grab more real estate.”

That said, competition has been heating up. “The competitive forces are real,” says Raffaelli. “There’s a lot of investment going into different pieces of this property and asset management equation. That means there’s a lot of dollars. And as those dollars keep evolving, we’re going to see competition into our core business in unexpected ways.” A wide variety of firms – which include Moody’s, Silver Lake, Yardi and Autodesk – have been either developing data-oriented products or buying companies that make such software, he notes.

VTS could also face other obstacles to its growth plans, Turner adds: “Part of their pace will depend upon the pace of the customer, such as the Oxfords of the world, to be able to be a faster adopter of technology, because that would increase their velocity. Hopefully for them that happens over time. If it doesn’t, that could be a potential headwind to growth.”

Turner, however, says VTS also trumps the competition in how it addresses customer needs: “The successful ones recognize that there’s a pain point that the customer has and they take away their pain. The ones that don’t get traction, or market penetration, are those that are described as ‘Let me give you vitamins.’ And when you’re in pain, you want the pain to go away, you’re not interested in multivitamins … so providing solutions that make the delivery process of a lease faster, better, cheaper – that’s taking away pain.”

Yang, for his part, sums up VTS’s industry impact as follows: “VTS has been able to disrupt real estate because of their unparalleled access to real-time data in the market.”

Romito disagrees with the characterization of VTS as an industry disrupter, however. “I think the ‘disrupter’ word is a funny one. If we’ve disrupted anything, it’s probably Microsoft Excel. Listen, when you are adding transparency to an industry, fat tends to get trimmed in lots of places… so maybe we’re trimming the fat across businesses by just giving them easier access to data.”

With VTS, part of the disruption it has created has to do with being one of the first to address the industry’s challenges with data.  “Every single meeting we had when we first launched, the person would say, I had this idea five years ago,” says Romito. “And we would say, well, you should have built it.”

He adds: “I think ideas are worth zero. You learn that the hard way as an entrepreneur. It’s all execution.”

Friends in high places

VTS’s private real estate industry ties has been another key to its success as a start-up

Josh Raffaelli, managing director of Brookfield Growth Partners, says he “can’t overemphasize enough” the importance of Nick Romito and Ryan Masiello’s backgrounds in the real estate industry – what he calls the firm’s founder market fit: “Do the founders speak the language of the owners? If you look at Nick and Ryan, the two co-founders of VTS, it’s almost the perfect vignette of where people come from the industry and they start developing tools for the industry and that then becomes the default standard.”

Barry Sternlicht

Romito stresses his firm’s industry relationships have been critical to its trajectory. “For us, we believe we can change the market because we have the market behind us,” he says. Since the firm’s inception, some of VTS’s most important relationships have been in the brokerage community, including Robert Alexander, chairman of the New York Tri-state region of CBRE, and Peter Riguardi, chairman and president of the New York Tri-state region of JLL. On the owner side, Jacob Werner, senior managing director from Blackstone, Kevin Danehy, global head of corporate development, and Kent Tarrach, vice president of asset management, at Brookfield, also have been particularly supportive, Romito says.

A more recent relationship that VTS has forged is with Barry Sternlicht (pictured), chairman and chief executive of Starwood Capital, which invested both in Hightower and VTS’s Series D. “Barry is probably one of the smartest people I’ve ever met in my life who just understands technology and data better than most people,” says Romito. “He’s probably one of the most forward-thinking commercial real estate people that I’ve ever met before.”

Sternlicht has been “a fantastic sounding board,” Romito adds: “We’re good at knowing what we don’t know. A lot of companies get overeager or overconfident in what they know because you have some successes. But it’s not always going to be that way. So, for us putting things in front of him that we think we have a pretty strong hypothesis about and him validating it is probably the most value that we get out of him.”