4 weeks ago, I wrote about how Nine Four is seeing COVID-19 play out across PropTech. On one hand, it doesn’t feel like I wrote it 4 weeks ago (maybe that’s a good thing!), but on the other, it feels like we’re in a similar spot in terms of how everything is feeling. Jobless claims are still through the roof, industries are all but shut down, restaurants and retail are getting crushed, oil is sending global shocks through the system, etc. etc. Looking back, some things are still consistent – particularly about startups planning to raise capital in Q2 and Q3 being in a tough position and receiving CARES Act support – but there are a few things that our team are observing that might be new, or different, than before:
This time is a catalyst for adoption of some software and technologies across real estate. In the real estate world, anything that would require a person to be on-premise or require physical documents presents an opportunity for substitution. Self-guided tours in multifamily and single-family can replace the clunky scheduling and logistics problem of viewing a space. Wet signatures will hopefully go away. Remote inspections are easier than sending someone out in a truck. Streamlined quotes for home services without someone coming into your house are easier and provide a better experience for everyone. The list is long, but we’re seeing adoption across a variety of verticals and sub-verticals. While we hope these technologies and corresponding growth is here to stay, there is likely going to be some adjusting downwards, as a subset of customers won’t stick around when the smoke clears…but we’re optimistic the “new normal” is a more technology driven one. Over the years there’s been a prevailing sense amongst real estate owners that the change cost for testing and adoption of new technologies was too high. Well, now many don’t have an alternative. Technology adoption is no longer an option, it’s a requirement. It may be just as high as it was before, but the relative impact can outweigh the investment in time and cost.
There’s a slowdown in many companies selling to and through real estate owners. There’s no doubt that there is uncertainty for owners planning for who will pay rent and when. This week Barry Sternlicht announced that across his 80,000+ multifamily units, March rent collection was 93-94%, and perhaps favored towards the ‘smile states’. Rent collections will differ based on market and renter profile (W2 vs 1099, employed by industries impacted, etc.), but there is a clear emphasis that without some light at the end of the tunnel, spending on anything that doesn’t see a clear path to ROI from cost reduction is under scrutiny. Products that aren’t viewed as ‘core’ to their businesses may even see some pullback or slower rollouts if those products were already selected and purchased. In talking to owners that managed through the Great Recession, the five deadly words of “it feels different this time” have been mentioned a lot. “It feels different because banks have capital, the government has learned to step in faster, and this is caused by a virus, not policies”. Despite it feeling different, some of the impacts are the same: if you’re investing in companies that sell to and through an industry that’s being impacted, it’s going to be an uphill battle. Startups need someone to sell to, and that’s being challenged.
We expect this to work its way into valuations. Good companies will always find capital, but it’s tough to defend any meaningful markup if your industry is taking a bath. It’s too early to tell how long or how deep this is going to last, but valuations will be impacted, especially for the companies that had unfortunate fundraising timelines in 2020. Whether it’s smaller rounds, lower valuations, or more investor-friendly terms, things will change.
I don’t know who coined the phrase “don’t let a good crisis go to waste”, but with the chaos that we’re all feeling personally and professionally, we’re leaning on this time as a period for technologies to thrive and push the real estate industry forward, so it comes out of this stronger than when it went in.