As its construction crane-dotted skyline suggests, pro-development Atlanta is a real estate town. Meanwhile, the region’s burgeoning software industry has triggered a wave of startup crucibles, such as Atlanta Tech Village and Switchyards Downtown Club.
So, why the paucity of real estate tech companies in metro Atlanta?
Atlanta ought to be teeming with would-be tech entrepreneurs emerging from the region’s robust commercial real estate industry here, noted Brian Dally, CEO of Groundfloor, a real estate lending marketplace open to non-accredited investors.
“Maybe tech entrepreneurship doesn’t seem as viable or as profitable to Atlantans working in the CRE industry, so the ideas don’t get very far,” Dally said.
Real estate tech could be a victim of the industry’s current success, which has been on a tear since 2010, industry insiders say.
“At a time period where commercial real estate talent is busy making money in industry, it’s probably not the most natural time for them to jump out and do startups,” Dally said. “But, when they do start to jump out to do a startup — because the CRE industry is at a top — Atlanta has a good startup ecosystem of talent, lawyers, accountants and investors for them to plug into.”
Real estate is an enticing market for tech companies, but not without challenges to adoption. The industry is replete with complex and antiquated ways of doing things that could be simplified and streamlined by tech. Much of the information in real estate is locked down and unstructured.
“Any time people are protecting their own turf … there’s opportunity for disruption,” noted David Cummings, serial entrepreneur, investor and founder of tech hub Atlanta Tech Village.
A protectionist mentality over information, connections and knowledge has caused the real estate industry to lag behind other tech sectors when it comes to innovation, noted Jake Edens, CEO of REscour, an Atlanta real estate data analytics startup.
“That, combined with the enormity of the market and amount of data generated on a daily basis, makes it prime for disruption,” Edens said. “We are seeing a loosening of the fist, and an understanding that sharing and accessing data on multiple platforms, and from multiple shared sources, can ultimately be of supreme value to the holders and seekers of information.”
The commercial real estate industry presents unique challenges for tech startups looking to sell into that space.
Most CRE projects are paid for by one company, developed by another, and managed by a third party, noted Andrew Eddy, CEO of Sequr, a software platform that replaces building-access key fobs and cards with the smartphone.
“The transactional nature of CRE can create challenges around finding your actual customer,” Eddy said. “It also means that you often have to get buy-in from more than one party.”
Subscription-based software is also a relatively new concept for real estate customers.
“The industry is looking for ‘smarter’ solutions, and startups in the space are providing enhanced functionality, integrated systems, and cloud-hosted solutions, while lowering the total cost of ownership,” Eddy said.
Real estate’s reputation for being a “good old boy” network has made it hard for tech upstarts to shake up the old way of doing things.
There are protections in place that startups have to hurdle when attempting to replace the traditional way of doing things with technology, said Ben Kubic, CEO and co-founder of Atlanta-based Virgent Realty.
Virgent combines technology and the human expertise of a full-service brokerage to streamline home-selling processes such as home valuations, scheduling home showings, negotiating offers and completing paperwork. Licensed agents can also be consulted with via phone, email, or text message.
Virgent, which charges a flat $5,000 fee for its cloud-based service in place of a traditional 3 percent listing commission, targets the more self-directed millennial generation.
“Traditional agents charge 6 percent commission and a lot of what you’re paying for is phone calls to schedule showings and questions and answers,” said Virgent co-founder Jude Rasmus, a residential broker. “We’ve set out to automate all those communication workflows that you’re paying for, but can be done more efficiently online.”
Despite the barriers to entry, real estate tech is an attractive investment because the market is so big.
There are very few industries with millions of professionals and almost a trillion dollars of annual transactions that hasn’t been disrupted significantly by technology, Edens said.
“We are also seeing more real estate tech-specific funds emerging,” he said.
For example, Venice, Calif.-based Fifth Wall Ventures raised a $212 million fund in May to invest in real estate tech and prominent real estate families are teaming up to look for new opportunities, Edens said.
For many tech investors, the real estate sector is tantalizing in theory because the market is so large and ripe for new value creation. In reality, however, the complexities end up dampening some of that enthusiasm for tech investors.
“They question the scalability of real estate tech ideas,” Groundfloor’s Dally said. “Meanwhile, the relative vagaries of venture finance tend to confound real estate experts who are considering their first angel investment in a tech startup.”
Investing in technology startups and ephemeral software can seem alien to real estate investors.
“When people think about real estate investing, they are typically thinking about sticks-and-bricks, they are thinking about dirt,” said Ken Ashley, executive director at Cushman & Wakefield’s Atlanta office.
Atlanta is at the intersection of the real estate — office, retail and multifamily — and the technology industry, said Patrick Ghilani, CEO of Cleveland-based MRI Software.
MRI develops software for real estate owners, operators and investors and is expanding in Atlanta — its second-largest office. The company, which employs about 80 locally, recently consolidated its Atlanta operations into a 16,000-square-foot office at 2 Live Oak in Buckhead, with room to grow to up to 100 employees.
“Atlanta is a progressive city, it is pro-development, both around greenfield development and renovation development,” Ghilani said. “Look at the renaissance of Midtown, and the establishment of businesses in that area.”
While Atlanta is the Southeast hub for commercial real estate, it lacks the real estate density of a New York, Los Angeles, or even Chicago. Consequently, those markets also have a higher density of real estate tech companies because that’s where the customers — landlords and real estate services firms — are.
“If you’re looking for waffles, you probably want to go to the Waffle House,” Cushman’s Ashley said.
But, while Atlanta might not have the density of customers, the region has competitive advantages, especially for startups.
“In tech, it’s all about talent,” Ashley said. “That makes a strong case for Atlanta.”
Georgia Tech and other Atlanta schools are churning out droves of technically skilled workers. Companies in Atlanta also don’t suffer the expensive and time-consuming employee churn tech companies in the Valley and Northeast must endure. Atlanta’s lower cost of doing business, meanwhile, is attractive to bootstrapping early stage companies.
Atlanta’s biggest advantage is its real estate industry talent pool here.
“We noticed it right away when we moved to Atlanta from Raleigh in 2014 — our access to the industry talent we need at every level has been amazing.” Dally said. “The challenge is combining these two very different worlds — real estate and tech — in every aspect of company building. Tech is growing in its prominence and influence here, but there is still quite a gulf between the two cultures.”
While Atlanta does not have the deep local capital pools that the West Coast has, real estate tech startups are likely to find a more receptive investor class in Atlanta, said Patrick Braswell, a CRE broker and entrepreneur.
Braswell launched Ten Eight in 2012. The startup, which replaced the paper-bound tour book tenant brokers use with a mobile app, was acquired by RealNex two years later.
“Atlanta investors have made their money in real estate,” Braswell said. “So they see it, they get it, they understand it, and if you come to them with a technology that makes sense, they will invest in it, like they did with Ten Eight.”
For Atlanta’s real estate tech ecosystem to flourish, it will require involvement from people who understand the real estate business, but also can bridge the gap with the technology community.
“Support from the business community at large is always what spurs growth, and ultimately it comes full circle as the support is rewarded through valuable innovation that can have a material impact on the bottom lines of various companies,” REscour’s Edens said. “The CRE industry is changing via technology, and the established CRE professionals and companies in Atlanta should be helping to drive that innovation.”
Ashley suggests an effort by Atlanta real estate developers and landlords to develop a real estate innovation center, or incubator. The project could help tech entrepreneurs identify big problems and find investors, customers and partners.
“The real estate industry can be rather opaque and problems that you think need to be solved might not be the right problems or big enough problems to build a business on,” Ashley said. “The fact there aren’t many entrepreneurial real estate tech companies in Atlanta, maybe it’s because we haven’t set up the infrastructure for them to be here.”
Groundfloor finances real estate projects by raising capital from a large number of investors, also known as “crowdfunding.” Groundfloor bills itself as the first and only real estate lending marketplace open to non- accredited investors. With investments starting at $10, Groundfloor connects independent developers seeking alternative funding outside the traditional banking structure with retail investors who want the higher risk-adjusted returns associated with secured real estate lending.
Addressable market:$700 million
Investors: Fintech Ventures and Tony Catalfano (former CEO of WorldPay)
REscour provides an internal property and comp database to CRE brokers, owners, developers and lenders. The database is created by integrating a CRE firm’s existing dataset from multiple siloed sources and REscour’s more than 10 million-property database.
Addressable market: More than $1 billion
Investors: San Francisco-based super angel investors Chamath Palihapitiya and Jason Calacanis; Atlanta- based Mosley Ventures; Tom Cousins’ Nonami Investments and former AutoTrader.com CEO Chip Perry.
Sequr is a cloud-based access control software platform that allows organizations to efficiently and securely manage access to their space. Office administrators can manage employee, contractor, and visitor access through a web dashboard. Sequr can also replace the building-access key fob and card with the smartphone.
Addressable market:$16 billion
Virgent brings home selling to the digital age and caters to the millennial market. Virgent is a full-service licensed real estate broker that streamlines home selling processes such as home valuations, scheduling home showings, negotiating offers and completing paperwork. The startup also provides access to licensed agents via phone, email, or text message. An online dashboard allows clients to view and manage the transaction — from valuation to closing. Virgent charges a flat $5,000 fee in place of a traditional 3 percent listing commission.
Addressable market:$3.5 billion
Atlanta Business Chronicle