Altus Group’s Jim Hannon Has a Big Appetite for Proptech Startups

Commercial Observer spoke with Hannon in late July from his home in Naples, Fla., about Altus’ role in the real estate investment and ownership world and about his views on proptech in the near and longer term.

The interview has been edited for length and clarity.

Commercial Observer: With a $2 billion market cap, Altus Group is a huge company in the proptech sector, and one with many services. As CEO, what’s your elevator pitch for Altus?

Jim Hannon: In a nutshell, we’re No. 1 in providing valuations via technology advisory services for commercial real estate. We are the No. 1 or 2 player in the core markets that we serve to make it easier to do tax appeals and have successful outcomes in lowering your taxes and getting better returns out of your assets.

We help developers determine when and where, or if, they should invest. And if they choose to invest, we help them project-manage large investments and development. So those are the things we do: valuation, tax appeal, project management, and due diligence. Our clients are investors, asset managers, developers, lenders, and, for the tax business, property owners.

Is Altus too large, or not large enough, for what you’re trying to accomplish as a technology source for your clients?

That’s an interesting observation. I started my career at IBM, so this doesn’t feel very large to me at all. Actually, it’s a very tight-knit community inside Altus. It came together through acquisitions over the years. But it feels like a tightly focused company from my chair compared to the size of the companies that I’ve been at.

How big is Altus in employees and revenue?

We have 2,600 employees. We’re in a blackout period right at the moment, so I can’t get too specific, but I can tell you that last year we did $625 million Canadian in revenue ($485 million today).

As you mentioned, Altus has grown quite a bit through acquisition. What does that look like these days? Is there more opportunity to acquire proptech startups that fit your platform, or have innovative startup opportunities slowed down?

There’s always opportunity to acquire proptech startups. We keep a close eye on the market, as well as on our capital structure, making sure we’re deploying investments in the right areas. 

Last year, we did three significant acquisitions. We purchased a company in Paris called Finance Active. We’re heavily in the valuation business around equity investments in commercial real estate. Finance Active put us into the debt management side of those investments and it significantly increased the size of our international footprint. 

In March of last year, we bought a company called Stratodem, which gave us an analytics engine and thousands of macroeconomic data points to pull into our advanced analytics. And, in November, we purchased a company in New York City called Reonomy, which gave us a significant amount of data on about 53 million commercial real estate assets in the U.S. It also gave us the underlying technology to link attributes of assets to the drivers of performance. 

This year we purchased a tax technology company called Rethink Solutions, which gave us automated workflow and some predictive analytics capabilities for taxes, as well.

What made those proptech companies attractive to Altus?

On the tax side, we want technology that improves workflow, or improves the predictability of a successful outcome of a tax appeal. In the Canadian market, we’re the No. 1 commercial real estate tax appraisal adviser. So, basically, we help make the process of appealing tax assessment easier. In the U.K., we’re No. 1. 

In the U.S., it’s hard to exactly get the size of the market, but our estimate is that we’re No. 2, but still in a single-digit type of market share. It’s a very fragmented market in the U.S. so acquisitions that can help us automate the processes or predict which assets are going to have the highest probability of a successful outcome is interesting technology for us. It allows us to expand our market to clients who want to self-serve, or have a lighter advisory touch if they choose, or if they want to leverage the expertise of our teams.

On the analytics side, our core franchises have been in commercial real estate valuations — mark to market. We are by far the leaders, whether it’s from a technology perspective with our Argus enterprise, our flagship product, or through our advisory services. As we generate valuations, we throw off a tremendous amount of exhaustive data, which allows us to look at the commercial real estate market and say, “OK, what drove performance of various types of assets?”

How do you see the industry in the midst of so much technological change?

The industry is at an inflection point. It feels very similar to me as financial services did over a decade ago, where there’s fantastic technology and expert services to go along with that technology, to say, “What just happened in the market? How do I get a better understanding of what’s going on around me?” The next step is, “Why did that happen?” We can draw correlations using our analytics technology, especially with our recent acquisitions. Then, most importantly, it’s, “What’s going to happen next? Where should I invest? Why should I invest? And how do I think about asset performance across vast portfolios of investments?” That’s where we were going with our acquisitions last year.

What is the most exciting thing you have found in becoming CEO?

It’s the opportunity to be in front of the whole industry. We’re very early in the adoption curve of advanced analytics, in thinking about the investment side of commercial real estate. There are great firms out there, they have their own data strategies, and some of them are significantly larger than we are. 

But this is what we do: Investment firms should have data strategies, and we’re here to enable those data strategies for them. Putting together assets like Stratodem with Reonomy to create advanced offers, and pairing them with Argus and our advisory business, and even the data we split off in our tax franchise, there’s no other company in the world that has our data set and the potential to change this industry like we do. And it was just too much fun of an opportunity to pass on.

On the demand side, how do your clients view the adoption of proptech?

They’re hungry for it. If we put it in context of today’s economic situation: When you look at rising interest rates and headwinds, that’s going to change investment theses and the way owners think about how they maximize their return on their assets. They are focused on the tenant experience, as they should be. I think that side of the business has as much potential as our side, the investment and performance management side. There’s so much opportunity to improve the services inside buildings and to bring all sorts of technology to bear in this current economic cycle.

It’s even more important to be thinking about productivity, efficiency and differentiation. The various proptech companies that are out there, they’re all coming at it with some angle on that. I think the owners understand that investments in technology are going to enable their future growth and the best outcomes with their tenants. We’re seeing strong demand. We’re in about 100 markets overall in six core countries — Canada, U.S., U.K., Germany, France and Australia — and we see the addressable market for those six countries alone at about a $5 billion opportunity. When you add in the rest of the world, our model says that globally it’s a $10 billion market.

What kinds of data questions are clients asking Argus about?

The first set of conversations that I had with CXO-level folks in the industry were surprisingly to me about just the core management of data. “How do I harmonize data from investments in three different countries to get a portfolio view?” I understood that problem. If this is where they’re at now, even the most advanced ones are still trying to figure out how do they corral their data and look at it on a country or global basis.

Then think about all the various attributes of performance. That’s a core problem across the industry, and the technology we’re building organically with the acquisitions that we executed last year directly addresses that problem.

Is there any particular sector of real estate that you’re concentrating on for your clients, whether it be construction or office or residential?

There’s a blurring of the lines that happens. We stick to our core strategy, which is commercial real estate. However, as investors are moving into single-family residential rentals as a commercial asset class, that changes our perspective on what is commercial. The legacy definitions don’t necessarily hold if you’re looking at it from an investor perspective. So that’s not where our core strength is, but we’re building up those analytics capabilities. 

In our Stratodem acquisition, we actually picked up a tremendous amount of data on macro-residential information, which we built into our models. It informs the performance of commercial real estate assets. Across the classes of commercial real estate, we’re building up data and analytics on all of it. We have our tax practices. We look to target and segment into areas of growth like data centers or green energy.

For the rest of this year, or in the near future, how do you view the adoption and use of technology in real estate, and how will that affect Altus’ strategy?

I have to be careful to not answer a specific question about the rest of the year that could in any way come across as guidance. I’ll talk about the industry in general and our positioning. We’re in a great place. In markets that go up or down, you’re going to have investors either looking to buy or looking to sell. We’ve gone through various economic cycles over the last 15 years, and we are very resilient, because buyers and sellers are looking for that next piece of information to determine what they should do next. 

We’ve been there with expert services, information and analytics capabilities, and the adoption of that technology is accelerating. That puts us in a great place as a trusted partner to many of the world’s largest investors.

Philip Russo can be reached at prusso@commercialobserver.com.