VC Perspective: Jeffrey Berman Discusses The State of CRE Tech Investment

Jeffrey Berman is the general partner of Camber Creek, a venture capital firm that invests in CRE tech companies. Over the years, Camber Creek has invested in CRE tech companies like VTS, CompStak, Fundrise, Latch, 42Floors, Building Engines, Bowery, and many others. We spoke with Jeff about the state of CRE tech, obstacles to innovation, and exciting future developments in the CRE tech space.

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Jeff, tell us the story behind Camber Creek and how you got involved in CRE tech investment.

My partners and I have roots in the real estate industry, and the early part of our careers were spent in operations, management, leasing, acquisitions, and dispositions. The real estate group we worked for is a large owner of multifamily, commercial office, and retail real estate in 5 states. We started looking at real estate tech around 2009; there was no ecosystem to speak of – certainly not what we have now – but there were legacy companies and number of emerging startups that provided the spark of what was to come. The timing was fortuitous as we were in a down market and were searching for opportunities to create a defensive moat around our properties. Our thought was that in a slackening market, technology could help drive efficiencies and lower operational costs.

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We started looking at real estate tech around 2009… the timing was fortuitous as we were in a down market and were searching for opportunities to create a defensive moat around our properties

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What is holding back the CRE industry from pursuing tech adoption to the fullest?

Resistance to technological change isn’t unique to the real estate industry but is likely exacerbated by it being a “legacy” industry. So I think one of the primary factors is the difficulty in changing human behaviors, especially in legacy industries. If things are working well, if trains are running on time, why change the rails? I think that’s the mentality a lot of people in real estate have had until recently. When we started getting into real estate technology the ecosystem was at its embryonic stage. It’s a little under 9 years later and we’re still only in its infancy. But the pace of curiosity and adoption has definitely quickened in the last number of years, and thus, the resistance to the changes that are coming is slowly starting to melt away. But for those of us who have been in the industry for a while, it certainly feels like adoption has been happening at a glacial pace and I think a big part of that is figuring out how people get comfortable with changing behaviors.

When you look at other industries and the rest of the world, it seems like technology adoption is moving at such a fast pace compared to the CRE world. Would you say that some of the slow growth in CRE tech adoption is due to the large liability of adopting new technology in public space or large portfolio?

Yes, and I think it goes back to human behavior. Take autonomous vehicles for example. A few years ago the notion of a computer driving a car was a crazy idea, even though we empirically understood that computers have a vastly greater capacity to process complex calculations, compared to humans. A computer will be able to “see” and reach faster than a human. But the notion of taking that control away from humans is a scary proposition. You can draw an analog to property management. Take the landlord who owns 100 or so units. He or she has probably been collecting rent via check for decades; why trust an online payments company when taking a check works? They’re thinking – why take the chance?

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The danger with landlords entering the investment space is their time and understanding of the market. Unless they are doing this full time or have a venture desk, they’re seeing opportunities in a vacuum

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In the last few years we’ve seen a tremendous about of interest and activity from venture capitalists and even owner / developers, pouring money into CRE tech companies. What’s changed? Why is there so much activity now?

I think we have to segment that into different parts. You have the VC community, you have the services community like the brokers, and then you have the development and landlord community. And those are three different distinct operating entities that are entering.

So with venture capitalists, I think the reason they’re getting interested is somewhat obvious. They understand the market opportunity and they say “hey, this is something we ought to be paying attention to,” because real estate is the largest asset class on the planet, and they can make money investing in this space.

I think one of things you’re going to see in the relatively near term is significant M&A activity in the real estate tech space, driven by larger service providers lie the big brokerage houses.These companies have the ability to deploy a large amount of capital and can buy their way to operational efficiency.

Then you have the developers and landlords who are the end users of a lot of this tech, and therein lies a massive opportunity, but also a massive potential pitfall. Though our roots are with a real estate development company, Camber Creek is a fully independent institutional investor in real estate tech. We are leveraging our experience and background, but we are no longer a part of a real estate organization. The danger with landlords entering the investment space is their time and understanding of the market. Unless they are doing this full time or have a venture desk, they’re seeing opportunities in a vacuum. They may invest in technology that will become obsolete because they weren’t exposed to the wider market, so being able to take a look at the entire landscape is extremely important. The VC’s, they’re doing this full time. The brokerages and service providers, they have the network effect, where even if they buy a sub-optimal technology, it gets implemented across their entire organization. Landlords are better served by finding venture partners, either to invest with or in, and latch on to that train.

What is the significance of getting investment directly from a real estate owner or developer versus almost anybody else?

The initial significance would be that a developer or owner can deploy that tech. But, you have to look at that from a number of vantage points. What’s the motivation for their investment? Is it to use the tech themselves? Is it to make a venture return? Incidentally, those questions underpin The Camber Creek investment thesis: can we use this product/software/service within our and our LP’s portfolio matrix? Our portfolio matrix is comprised of the buildings we own, the tenants and residents who work and live in those buildings, and the vendors who serve all three. Our LP’S own and operate more than 180 million square feet and more than 150 thousand apartment units across multiple states, giving us tremendous insight into whether we’re goin to be able to see mass adoption.

What is a technology or emerging trend you are most excited to see developed in the future?

Oh, there are so many.

I believe that AR AND VR will be transformative for real estate in a number of ways. There are applications from touring apartments, to building out what your office might look like, to billboards on buildings that AR and VR are going to play a large part in… Not to mention, being able to monetize space, the possibilities are almost endless, and that is something we spend a lot of time thinking about and monitoring. There are a lot of people and companies developing AR and VR solutions for real estate; we have not jumped into the fray yet because we’re still in early innings, but we’re very excited about where it’s going.