Funding in the PropTech space continues at a frenzied pace, and while VCs still contribute the lion’s share of dollars invested, the secret sauce can come to fruition in the form of strategic investors; especially investors who run large companies who can use the solution of the company they invest in. Think of a portfolio holder with 30 commercial buildings totaling 15,000,000 square feet. If they invest in a company that has a solution that can be deployed across their entire portfolio, they can almost guarantee the company’s success by acting not only as an investor, but also as the company’s largest customer.
Nothing is without risk, and it is critical that strategic investors bet on a company that has a best-in-class product or else they could suffer the double blow of a poor investment and a substandard product used across their portfolio. . While this strategy comes with risks, proper due diligence by both the investment department and property management team can deliver tremendous growth potential.
In previous articles, I’ve discussed different ways companies invest through strategic partnerships. DivcoWest, the real estate giant with $12.9 billion in assets of 11.6 million sf, has a VC arm that invests in companies that help optimize portfolio performance, increase tenant satisfaction and improve the way they do business. do to modernize. Fifth Wall, on the other hand, is more of a traditional VC firm, but a significant amount of capital they’ve raised has come from strategic partners, including Lenar, Hines, Equity Residential, and more than 70 other global real estate companies. Another company that takes a similar approach is JLL. JLL is one of the largest real estate services companies in the world with 4.6 billion sf under management. Unlike DivcoWest, which owns their assets, the majority of JLL’s portfolio is owned by third-party landlords, and JLL provides the property and facilities management services to ensure the assets perform optimally. The sheer size of their portfolio makes them an ideal strategic partner and in 2018 they launched their $100 million global venture fund called JLL Spark.
JLL Spark is a division of JLL Technologies. They have made over 30 strategic investments in PropTech startups, including: HqO, DealPath, Open space, and Eden. JLL just released their most recent PropTech report that suggests 2021 could be a record year for PropTech startup funding. After this report, I had the privilege of interviewing the Managing Partner of JLL Spark Raj Singh. We covered a wide range of topics including their investment strategy, disruptive technologies and the state of the PropTech industry. Below the interview.
What is the history of JLL Spark?
JLL Spark was founded in 2017 and announced the JLL Spark Global Venture Fund in 2018. The main goal of the JLL Spark Fund is to fuel and accelerate innovation in real estate technology by investing in early to mid-stage PropTech startups. JLL Technologies (JLLT), a business division of JLL, was founded in 2019 to build and expand the company’s portfolio of technology products and services to shape the future of commercial real estate. JLL Spark is housed at JLL Technologies and also has a dedicated growth team to help portfolio companies leverage JLL’s global business units. This unique offering is of great value to startups with rapid pilots, feedback and distribution to JLL’s core businesses and customers.
Is the goal to grow and close the investments?
We focus on investing in companies that will be financially successful for the fund and create value for JLL’s clients with innovative, cutting edge products. The goal is to expand our portfolio with companies that can serve a specific customer need, expand our service offering into new segments, or be integrated into the wider JLL business to deliver solutions to existing customers.
We recently bought Skyline AI, a leading artificial intelligence (AI) technology company that uses machine learning models to gain a competitive advantage in creating and analyzing real estate opportunities. JLL plans to embed Skyline AI technology and data into products to help clients better predict future real estate values, improve cost savings, identify promising investment opportunities and make critical business decisions. Combining Skyline AI’s data analytics with JLL’s industry expertise, our clients will see faster decision making and greater access to investment trends. Acquisitions such as Skyline AI demonstrate our focus on bringing new offerings to customers and accelerating JLL’s leadership in CRE technology.
After you invest in a company and you find a better solution, do you choose the best option you can find, or do you choose the technology you invested in?
We will not sell technology for JLL that we have invested in if something better exists for the needs of JLL customers. We do our best to pick the companies we think will be the winners in the space, but operate separately from brokers who work with clients on the ground.
I have written extensively about Tenant Experience Apps. A significant amount of funding has recently been put into this space. In my role at Kastle Systems, nearly every portfolio we meet with has deployed or is evaluating a tenant app. Have you invested in this space? Do you believe that Tenant Apps will continue to gain popularity in the coming years?
Landlords have realized that tenant experience apps are a necessity to attract people to the office. We have invested in a few companies in this space, including HqO and Livly. Tenant apps will become increasingly important, but I predict that there will be an emergence of platform-like companies hosting a wide variety of services in one space. The overarching trend seems to be that we as consumers want to have seamless access to all goods and services. Integrated technology solutions will drive employee experiences, facilities management, sustainability efforts and more as companies explore their return strategy to make the workplace more attractive to employees.
A recent JLL study found that 74 percent of employees want to work from the office in some way. Offices are not disappearing, but are taking on a new role in the hybrid workplace, powered by innovative technological solutions. The combination of how employees enter and exit the building, frictionless access to flexible solutions and tenant amenities will have to be implemented to make people want to come back.
What are the biggest opportunities you see for PropTech in the near future?
In addition to the experience of tenants, the greatest opportunity lies in the field of sustainability. Customers are very concerned about their carbon footprint and want to see landlords making progress towards becoming carbon neutral. It is easier to implement sustainable solutions in new construction, but the reality is that new construction is a very small part of the total number of buildings that exist. One way we can renovate buildings to be more environmentally friendly in both older and newer buildings is greater energy efficiency. We’ve made a few investments in this space, such as: Turn time the creator of a smart motor system that can reduce energy consumption by almost 64%.
Another huge opportunity lies in real estate financial services. As an industry, we need to finance buildings more efficiently. For example, a landlord has all his money tied up in a building and only earns money when the building is sold. But what if they could sell shares of the building instead? Or what if they could earn money earlier because they could secure the building with their financial instruments? We see interesting things happening in this space as people think creatively about how to make the building a little more fungible and flexible.
Real-time occupancy drives so many decisions in the commercial real estate space. It’s such an important statistic and many companies are marketing products that claim to produce the most accurate data. What is your take on this challenge and have you made any investments in this space?
The approach of using real-time AI sensors to help companies better understand how space is being used is creating headwinds. We have invested in VergeSense, which uses IoT sensors aimed at determining occupancy rates. We’ve collected tons of data on occupancy rates and now we need to determine how best to use this data. Questions we hear from customers are: How does this information change the way a building is managed? Or how can we make a new building more efficient by interpreting this data? These are the kinds of questions that will shape the future of real-time occupation.
When you make an investment with plans to implement a solution across the entire JLL portfolio, do you encounter resistance from your key competitors? Are they hesitant to recommend the solution to their customers because you have invested in it?
We take competitor information very seriously when working with our portfolio companies. There have certainly been instances where competitors have invested alongside us, but we have put in place a specific process to ensure that we do not see competitor information from our portfolio companies.
I recently interviewed the Fifth Wall team and I asked them how sustainable the pace of funding was for the PropTech space. Even though there is so much money flowing into PropTech, they felt like we were still in the early stages because real estate technology had been so underfunded for so many years. What’s your thought? Is PropTech funding overheated or can this pace continue?
PropTech funding has seen tremendous growth in recent years – in fact JLL released recently data stating that the landscape has grown by 300% in the last ten years. In addition, the research suggests 2021 could be a record year for PropTech startup funding. M&A activity is above $18 billion so far this year, and as industry consolidation continues, we’re likely to see fewer companies advance in the PropTech space. We are still in the early stages of technology adoption in the real estate sector and there is great growth potential for the sector to come.
I am a big proponent of flexible real estate. I think flex represents the biggest disruption that has happened from an office standpoint as long as I’ve been in the industry. However, short-term commitments put flex operators under disproportionately compared to landlords during the pandemic. Are you optimistic about the future of flex?
We are currently looking for a few deals in the flex space. Over the past year, office habits have changed dramatically and new ways of working have adapted, leading to the emergence of new trends such as flexible office spaces. There will be several iterations to enable flex in a way that makes sense to both the building and the landlord, but ultimately I think employee habits have shifted to allow flex on a broader scale.