Until very recently, there was a strong consensus that Real Estate is fundamentally different from an imagined virtual world. The 2018 movie reference to Steven Spielberg’s ‘Ready Player One’ was used to underline the potential dangerous differences of real vs the imagined: the imagined place being where you can enter with your helmet, and act and triumph within a virtual space while the majority of real humans may be dressed in rags and surviving a slum-like existence.
But the consensus about the difference between the real world vs the imagined seems to be rapidly disappearing. And Proptech discussion is playing a part in merging these two worlds in our investment minds. This is because of the rapidly changing definition of Proptech:
So what does Proptech mean? It is increasingly a vast catch-all label – especially for professionals who brandish their innovation and tech credentials or latest product offerings. Today Proptech is used to cast an ever-wider net over human and business activity. As new property fashions and services abound, many find a quick-buck home under the Proptech label.
Proptech fashions come and go
WeWork is one fashion example: its subleasing of fitted-out space was announced as the brave new world of Proptech as recently as 5 years ago. But a growing body of opinion in real estate realised that it is a modern-looking IWG-type flex-office Landlord that was disguising itself as a tech start-up of a primary order.
Such was the evident lack of Proptech within WeWork, that they bought a Proptech company to strengthen their tech credentials. Discontent in the market grew – at one London RREF (Reading Real Estate Foundation) event a frustrated RICS surveyor blasted a poor WeWork panellist – and mocked their business model underpinning their slogan “to elevate the world’s consciousness.”
WeWork continued to trade on its tech credentials until it stretched all investor credulity via the ill-fated $42 Billion IPO. Remaining Proptech illusions ended when a Property CEO -not a Tech CEO- replaced Adam Neumann.
The next Proptech fashion
Today, there a new Proptech fashion is in full flow: the monumental growth of Metaverse. Interest mushroomed after Facebook’s parent company adopted the name Meta. For simplicity’s sake, the Metaverse (aka “on the internet”) is selling virtual parcels of interactive computing environments users can visit online. For many PropTech enthusiasts, these sales were instantly described as “Property transactions” – and herein lies a new source of major FOMO for today’s real estate executives:
The Place of Property
Metaverse discussions are quickly flowing: e.g. “Property” can be owned inside an interactive computing environment, therefore it can be “leased”. You’ll need Meta-like “brokerage advice”. And interior designers for virtual “fit-outs”. When ready for “occupancy”, you’ll probably pay a Meta-lawyer fee for a similar “lease template” and even have an app to access both your physical office and your Meta-like office -… while you’re at it, why not buy a digital home where you can hang up that NFT wall art to impress the next cyber-date? You can see how a leap of faith in the essential historical power and premise of traditional ‘Property’ can extrapolate into imagined asset values and growth of related services.
Be in no doubt that interest is manifesting at the most senior Executive levels. The Financial Times reported “interest from family offices, hedge funds and wealthy individuals looking to buy up land in metaverses alongside institutional investors” (FT, Would you buy a house in the metaverse?, 28 Jan 2022, London). Take this CBRE initiative to establish its own office presence in the Metaverse:
We don’t judge the merits of the Metaverse in this blog. But we do think it’s worth reflecting on the unquestioned and nascent taxonomy. The liberal use of business legalise and real estate transactions in the real world does not necessarily translate into virtual computing. Many parallels between urban world and the virtual world only work in a playful sense, and we must remain vigilant.
The marketeers of the Metaverse understand the emotive and seductive power of Property. It has powerful social, economic and political power connotations throughout the ages. Fear of being priced out of the market is the greatest common FOMO for generations of young professionals. The Metaverse advocates are only too happy to sell the promised multi-million “footfall” of eyeballs that will soon visit your Meta-paradise office, home or store space.
Fifthwall sticks to Proptech
So much is the institutional pressure building in the Proptech industry, one of the largest and dedicated VC funds in the world, Fifthwall, felt compelled to clarify its position on the Metaverse. At MIPIM 2022, Fifthwall explained they had never received so many requests about one subject.
CEO – Fifthwall
It was a relief to hear that Brendan Wallace, CEO at Fifthwall, decided they will not be investing in the Metaverse today. Many of their Limited Partners are focused on the business of real bricks and mortar. Their Partners are pooling money for the first time into serial tech investing dedicated to supporting the ‘urban environment‘ – luckily, this term has not been hijacked by the Metaverse… yet.
Fifthwall is to be applauded for resisting a Metaverse investment within current Proptech-defined fund strategies. Public opinion would not have blinked twice had they jumped on the Meta bandwagon – with a new $160 MM fund backed by the likes of Segro, BNP Paribas Real Estate and Knight Frank. This position marks a welcome reminder of the past ~5 years of emerging discourse: leading Proptech funds are raised from the likes of Redevco who are “your trusted partner in urban real estate”. Fifthwall’s own brand name comes from 4 walls of a physical property complemented by a Fifth Wall of assisting technology. Nothing in this Proptech field was a focus on technology for computing’s own sake.
Other Proptech investors like PiLabs, Metaprop, Proptech1 have also been focused on technology that complements the real world. Instead of Proptech, perhaps any Metaverse “property transaction” can be defined has a TechProp investment, or VirtualTechProp investment.
Defending and defining the taxonomy of Proptech is important as in any other professional sector. Otherwise fraudsters and bamboozlers will simply benefit from blurred terms and lax usage of language in a fast-growing industry that appeals to the world’s largest investment funds.
Oxford University: Defining Proptech
Andrew Baum and the team at the Future of Real Estate at Oxford University published one of the most read pieces of research to define Proptech. The great thing about this academic-oriented report is that it is backed by practitioners like Andy Saul and others who are involved with strategy at CBRE, CBRE Global Investors, Newcore Capital Management, Pilabs etc. Plus they benefit from a raft of advisors who are practitioners in the field.
The first version of their report Proptech 3.0 attempts to define Proptech. It helps explain why Property is real and “the true third asset class” (Proptech 3.0: The Future of Real Estate, www.sbs.oxford.edu, p.14) compared to equities and bonds. It provides a grounding for the definition that constitutes the amalgam of Property + Technology = Proptech. Just take 3 examples from the Oxford report:
• Property is a real asset, and it wears out over time, suffering from physical deterioration and obsolescence, together creating depreciation. This does not apply in a virtual world. Unless they invent deterioration rules in the Metaverse coding – but why would any Meta designer encourage the risk of unnecessary degradation?
• Property supply side is highly inelastic. Not so in the Metaverse where the constitution of the owning entity (e.g. a DAO) could decide overnight ‘to issue’ new land or expansive additional territories faster than an IKEA kitchen extension.
• Property is highly illiquid. It is expensive to trade property. This is not the case with an imagined virtual space. There are no obligatory registry searches (Web 3.0 transactions are supposed to free us of the mundane Web 2.0 due diligence searches, right?!), no essential building surveyor reports to determine the structural quality or dimensions of the virtual space – and no real-world taxes… at least not yet.
Not even New York has the power to issue all the land it wants and any time it wants like Decentraland or other Metaverse owners. Land Reclamation is as good as it gets in the real world…! Like New York City’s plan below:
Keeping it Real: language matters
“Real Estate investments” in the virtual space are a misnomer. They can be dangerous and misleading. Providing a false sense of security by appealing to the sacred property rights many of us cherish in the real world. Electronic Real Estate Investments or Virtual Space Investments would clearly not sound like “Property Transactions” for the average layperson on the street. Professional terminology is best to be respected.
Let’s build on the Proptech taxonomy and good work completed by Property’s senior researchers and investment fund practices over the past 5 years. And may investors be as clear as Fifthwall about their stated goals within Proptech boundaries, and we wish everyone else the best of luck in defining, explaining and promoting the virtual reality of TechProp adventures in any Metaverse coming to your screen.