Which Real Estate Sectors Are Ripe for Proptech Disruption?

More than a decade into proptech’s disruption of real estate, many greenfields for industry adoption remain.

Even as proptech — and especially artificial intelligence within the field — spreads increasingly throughout real estate, founders are finding some sectors need intervention more than others, seemingly none more so than residential, particularly multifamily.

“We think about the big buckets of sectors,” said Eric Walsh, executive managing director for North America at MRI Software. “One of the things I’ve seen change is they’re all ripe for some level of disruption. But, if I’m going to get to the heart of the question, and I look at the sector that is most ripe, hungry and ready for disruption, it would be the world of residential real estate.

“If you think about why residential is the most hungry and ripe for value creation from proptech disruption, I would say that it continues to show positive signs of growth. We have very high occupancy rates, but the cost of construction materials is up, and new construction starts are down. Everyone’s fighting for the same properties, the same vacancies, and it is way less expensive to retain and renew an existing tenant and resident than it is to get a new one.”

Another issue for residential owner-operators is portal engagement, said Walsh. The lead-to-lease process, as well as the renewal process, primarily happens through a digital experience. Prospective and existing tenants increasingly expect more satisfying business-to-consumer interactions, similar to what they’d get by shopping on their phone.

Proptech intervention is also needed to prevent fraud in the residential sector, Walsh said. 

“It’s up 30 to 40 percent, and with the number of interactions you have with residents versus commercial tenants or prospects, or industrial tenants or prospects, it’s to a greater magnitude,” he said. “And it’s become so expensive. Two years ago, evictions caused by fraud cost anywhere from $5,000 to $10,000. Now we’re looking at anywhere from $5,000 to $30,000 or $35,000, because the cost of litigation and eviction has significantly increased in the last 24 to 36 months, making the return on investment for proptech to fight fraud even more valuable to the residential marketplace.”

In the New York City multifamily market, there’s been significant growth of proptech platforms over the last few years, but finding effective solutions amid redundancy, along with the disconnect between tech and real estate, remain challenges open to better solutions, said Andrew Steiker-Epstein, the chief data officer and brokerage president at Queens-based Charney Companies, a development, brokerage and management company.

“About two years ago, we were launching our Gowanus project, Union Channel, and in January, I was demoing three platforms a day, quite literally,” said Steiker-Epstein. “Over the last two years, I’ve demoed hundreds of proptech platforms, and a lot of them are very redundant. You see a lot of Parity across the board, people doing the same exact thing or people doing a fraction of one thing, and a lot of point solutions. Meaning, people are trying to solve for one specific thing. But the reality is it’s very hard to get them to all work together sometimes.”

The thirst for proptech continues unabated in multifamily, though with some disconnects between the owner-operator and tech provider, he said.

“A good disconnect example was one platform I demoed that had an application platform,” said Steiker-Epstein. “It was a rental platform where basically people could apply and then they would bid live on units. It was a cool idea and cool tech, where you could actually sort of auction-style be bidding on rents and whatnot. But the reality is that in New York, no landlord will ever use it. That’s one small example, but there’s many.”

Despite such disconnects, Steiker-Epstein has found a number of proptech companies that have added value to Charney Companies. These include Brooklyn-based Venn, a ​​platform that manages tours, as well as screening, payments and renewals; Queens-based Urban Mix, which provides software for urban redevelopment using 3D models and machine learning; and Zuma, a San Francisco-based AI leasing agent that Steiker-Epstein said has doubled his tour volume.

At the same time, he believes there is too much money flowing into proptech.

“It is just oversaturated,” he said. “I think it’s getting ahead of itself a little bit. One of the big reasons is that a lot of the proptech that I’m seeing that’s really AI-focused is not super complex. People are going to want it and it’s useful, but I also think it’s very easy to build. As a developer . . .  an AI leasing agent like EliseAI, which is the biggest AI leasing agent on the market right now, [is] a good product, but as a company we could very easily build something like that in 30 days, just given how easy it is to build tech.”

So, why don’t you?

“We probably will,” he said. “But it takes a lot of time to perfect. It’s infrastructure, and there’s real steps. Also, we don’t really have time to test it out while we’re in the middle of our lease cycle. But I would say, in a couple years, 100 percent we will have this on our own.”

Some proptech founders take a broader view of sector disruption.

“The real estate sectors most ripe for proptech and AI-driven disruption are the ‘niche’ operating businesses that already produce strong cash flow, but run on deeply manual, fragmented and outdated systems,” Katharine Lau, the CEO and co-founder of Stuf, a Manhattan-based, self-storage startup, said in an email.

“Categories like self-storage, RV parks and campgrounds, marinas and parking share the same structural traits: highly decentralized ownership, limited institutional modernization, inconsistent customer service and operations still reliant on phones, paper processes and on-site staff,” Lau said. “These are already great businesses, but they haven’t yet captured the efficiency and revenue upside that automation can unlock.”

AI has the potential to transform these categories more dramatically than traditional sectors like office, retail or multifamily, Lau concluded. She noted that those categories are more operationally intensive, require more human capital and involve higher-touch, in-person workflows. As such, AI will streamline tasks, but is less likely to redefine those core operating models.

While hotels are more complex than storage or parking, they still have large swaths of guest communication, booking workflows and service coordination services that are primed for intelligent automation, Lau noted.

Seeing a need to disrupt what he calls “stagnant real estate listing platforms,” Eric Benaim, a co-founder of Queens-based Klipster alongside  Arlinda Dine, brought Klipster’s residential proptech startup out of development three weeks ago.

“Klipster is like TikTok meets Zillow,” said Benaim. “It’s a video-first and live streaming listing platform for real estate, so real estate professionals, agents, brokers and properties can create accounts and profile pages. They can either upload videos or create videos using the platform.

“And consumers can search for properties according to their desire, whether to rent or buy. Basically, they scroll through properties like video content as they would on TikTok or Instagram. They can follow properties, real estate professionals, real estate agents or brokers, and get fed what they want.”

Benaim and Dine started Klipster because they saw a need to update real estate listing platforms that have been around for 20 years with few changes, he said. The existing platforms have different names, but are essentially the same. What’s different, however, are the business-to-business users — real estate brokers, agents or property owners — and the consumers.

“Some 75 percent of all home shoppers are millennials and Gen Z, and the way they shop anything nowadays is either through social media or video content,” Beinam said. “We’re basically addressing the needs of both. What we’ve noticed over the last few years is that real estate agents, brokers and properties are spending a lot more money focusing on creating video content and on their social presence. And known leads or consumers are coming in from video and social platforms. We marry everything, basically.”

Funded by angel investors and strategic partners, Klipster is targeting millennial and Gen Z apartment hunters, while gaining traction with 1,000 agent profiles and more than 3,000 listings on its platform, said Benaim.

Brad Pilgrim agrees that, within the residential sector, multifamily is the area ripe for disruption. Pilgrim is CEO of Parity, a Toronto-based remote HVAC software platform that manages energy and tracks savings for buildings.

Outdated infrastructure and low technology penetration — only 15 percent of North American buildings use tech to control HVAC systems — makes multifamily a vast market for proptech, said Pilgrim.

“There’s been a lot of limited levers on how multifamily owners can introduce technology into their buildings without a significant amount of upfront cost, which has always been a big barrier,” Pilgrim said. “That obviously becomes a big problem when trying to combat things like carbon emissions, high energy prices and building performance standards, [and overall]moving into the 21st century of operating your building efficiently — not just from an energy perspective, but also from a staffing perspective. Any business owner will tell you that when you add more bodies it’s very costly, and there’s only so much that you can get out of that.”

Further afield, the construction industry is a major proptech adopter as that sector’s disruption continues unabated, said David Homola, general manager of U.S. operations at Vienna, Austria-based PlanRadar, a construction and building condition assessment platform that specializes in safety and compliance documentation.

“The real estate sectors most ripe for proptech disruption share one characteristic: mounting safety regulatory pressure meeting outdated documentation systems,” Homola said in an email. “This spans healthcare, industrial, commercial office, multifamily residential and institutional facilities — anywhere safety compliance isn’t optional.

“Digital platforms are primed to disrupt the status quo of safety documentation, which involves fragmented paper logs and hours spent manually compiling audit-ready reports. Digital solutions replicate the processes used by compliance consultancies and facility teams, making compliance significantly more efficient and transparent. With severe labor shortages, digital platforms will be the solution, allowing [time-]limited, skilled professionals to focus on actual work rather than paperwork.”

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