The following interview was originally published Propmodo and is reproduced here with the publication’s permission.
Five years ago, tech companies griped often and loudly about the need to educate real estate companies about how to buy technology. Entire conference tracks were designed around how to find and vet the emerging startups digitizing, modernizing, transforming (enter buzzy verb here) the stalwart commercial real estate industry.
But in 2022, it’s difficult to make an argument that real estate companies, especially REITs and large corporations with corporate real estate arms, are doing anything but embracing technology. They’re building entire tech teams, doing their own product development, and accounting for a significant percentage of the $32 billion in venture capital funding that fueled growth in PropTech companies last year.
Modern real estate organizations get technology, no question, and are ready to buy new solutions that can improve how they work. Now it is the technology companies that have to educate themselves on how real estate companies find, vet, and adopt technology.
Enter the innovation team
Most large real estate companies have a Head of Innovation today. Fair to assume that these leaders are setting the technology agendas and buying priorities? According to Sara Shank, Managing Director and Head of Innovation at PGIM Real Estate, it’s not that obvious.
For context, PGIM Real Estate is the global real estate investment arm of PGIM, the investment management business of Prudential Financial, and is one of the top 3 global real estate investment managers with $209 billion in assets under management and administration. It doesn’t get much more ‘enterprise’ than that.
Shank’s 50 plus person team at PGIM Real Estate which spans systems, data, and innovation/technology is more focused on how to enable innovation, helping the organization vet, select and deploy solutions, rather than dictating what technology the company should buy.
Instead, 14 innovation councils set technology priorities by defining problem statements that outline the operational challenge they’re looking to innovate. These councils are defined by sectors and reach, including a U.S. Office Innovation Council and a Global Transactions Council, and are chaired by the corresponding functional leader, not a member of the Innovation team. For example, the Head of U.S Office Assets leads the U.S. Office Innovation Council.
This separation of powers is key to PGIM Real Estate’s innovation successes because it creates instant buy-in and validation from the teams who will actually be tasked with using whatever tech is selected, mitigating two major tech adoption issues: executive sponsorship and user championship. Shank explains, “If the innovation team went to a particular functional area and said, ‘Here is something new, go implement it,’ that wouldn’t work. We let the business determine what the problems are, supporting them with a toolkit to vet solutions and a database of vendors to consider.”
PropTech’s selling problem: Being too informal and too impatient
This type of buying process (formal, detailed, and committee-driven) is common for large companies, but foreign to most startups, causing friction in the buyer-seller relationship starting as early as the first demo.
Shank cautions treating these early touchpoints as informal conversations. “One mistake PropTech companies make is not preparing a formal pitch. They just want to talk, but we really need a presentation and a demo to understand what you’re trying to sell. We look at technology every day, but we can’t read your mind.”
Another misstep is underestimating the time large corporations need to go through their buying process, especially for technology that will be used company-wide vs. at the property or asset level. A solid rule of thumb: think in terms of quarters, not months, when estimating the sales cycle, and let the buyer dictate the timing, not a sales director.
Capitalizing on VC partnerships
For startups, one of the best ways to begin a sales conversation with a large corporate prospect is through their investor connections. For example, PGIM Real Estate has three venture capital partnerships mirroring their global footprint, MetaProp in the U.S., Taronga Ventures in APAC, and Fifth Wall’s European Fund. These VC firms boost partnerships with many of the biggest names in commercial real estate, some of which have taken their venture capital play to the next level by launching their own funds in-house such as JLL Spark.
Beyond the obvious financial opportunities, these CRE-VC partnerships have a symbiotic nature. The real estate shops get a built-in filtering mechanism to understand which emerging technology solutions have the most promise with less pressure to keep up with what has become a very crowded real estate technology market. The VC firms get insights into what actual buyers think the potential of a particular solution is, creating a real-time feedback loop on product-market fit for future investments.
Shank sums up this mutual benefit. “Our VC partners look to us and say, ‘we found this cool technology – what impact would this have on your organization?’ and we get to share our problems statements with them so they can be on the lookout for solutions that could solve these challenges.”
Innovators in the commercial property sector turn to another obvious source for vetting technology: their peers at other real estate companies. Because if there’s one thing everyone knows about the CRE industry, it’s certainly a small world. So as a PropTech provider, if a company is piloting your solution, it’s a safe bet to assume that their experience will be shared with other logos you’d love to have on your customer list.
In some ways, the technology vetting and buying process at large real estate companies isn’t actually that complicated: a problem gets elevated to a priority, decision-makers vet options influenced by people they trust, and eventually, a solution is picked based on what’s most important to the business.
What makes this more complex for prospects is the sheer number of solutions addressing real estate companies’ biggest concerns. (Think about the dozens of startups trying to improve the so-called tenant experience alone.) Without a doubt, large real estate companies are supporting and investing in this industry growth but they’re also feeling its growing pains.