Build and own a home has been part of human life for as long as civilization itself. But over the past few decades, the lens through which we look at real estate and property development has slowly become blurred.
It’s not too hard to say that, as technology continues to permeate real estate development and housing, few but those in the industry can really pinpoint what’s happening in the rapidly evolving world of proptech.
So to pull that veil back, towards the end of 2022 we decided to take a closer look at the trends and technology in real estate development and construction. We spoke to a wide range of investors about finance-focused proptech and the transition to greener proptech.
But since we can’t get a full picture of the proptech space without delving into the tech driving so much of the change, we interviewed Momei Qudirector at PSP growthand A. J. Malhotradirector at Insight Partners. They spoke at length about the latest technology in real estate and residential construction, where the next disruption is likely to occur, and other trends.
(Editor’s note: This interview has been slightly edited for length and clarity.)
TC: There’s a lot of overlap between building technology and proptech. What would you say is the difference between the two? And where do they overlap?
Momei Qu: We didn’t coin this term, but we like to use “built world” or “built environment” to capture both categories. Traditionally, we have referred to building technology as solutions that touch things as they are built (i.e., jobsite, field-level technology targeting AEC as the end customer), and proptech as solutions that touch things after they are already built (i.e., tenant engagement for office buildings, property management for rental properties).
They overlap when there is something of value that applies to the whole life cycle: construction data around plumbing that can be used for facility management, or equipping a unit as a ‘smart home’ during the construction phase.
AJ Malhotra: I think of building technology as a subset or segment of proptech. In my definition, proptech is any technology that touches the full lifecycle of a physical structure, including land acquisition, construction planning, construction execution, financing, leasing, property management, insurance, and repair.
Construction technology would fall under planning and execution in the examples I just gave, and could also include financing (for things like construction loans) and repair.
What is your investment thesis for proptech in 2023? What growth do you expect in the sector?
Question: The industry has been hit, in some ways disproportionately more than others, by the broader tech market reset in 2022. Several proptech companies were valued at more than $1 billion in private financing or through SPAC, and virtually none of them have maintained a valuation of more than $1 billion today.
I think part of what made it worse is the double whammy of general inflated multiples in technology/software coupled with the fact that many proptech companies have a physical component that would prevent them from operating as a software company to begin with to be appreciated. .
I think investors and companies will be much more disciplined in 2023 and probably not raise too much capital until they really find a product and sales motive that works. As a growth stage investor, we usually don’t get involved until we see significant traction anyway, and if they can show momentum and traction in this environment, we’re more than happy to bet big.
malhotra: I think proptech will definitely be challenged in 2023, mainly for two reasons.