Proptech Needs To Solve Human Problems
Contents
I have ranted all over this blog about my issues with proptech founders without real estate backgrounds. My main gripe is that proptech founders who haven’t put serious time into real estate only see and understand the surface of the problem they’re solving. And when those founders are software engineers, they’re a hammer in search of a nail- they want to solve everything with software.
But the core of most real estate problems I’ve encountered are human problems with cultural grounding. An app or SaaS platform will fail miserably, no matter how much the customer interviews indicate otherwise, if it doesn’t solve the human problems underneath.
So this post kicks off a series of articles journaling my observations of real estate, proptech, and culture as I travel around the world this year. If you’re a proptech founder without a real estate background, I hope this series gives you some insight into how to get to the core of a real estate problem.
Note that I am writing in very broad generalizations and observations about these cities’ respective cultures, and that there are always exceptions.
New York City Culture and Behavior
I’ll actually start off with some observations about NYC- the city I call my home. I have a love/hate relationship with this city. It’s the densest, most expensive real estate market in the US and where I built my real estate career. Every single block has a unique personality. And it’s one of the most difficult places in the world to be a landlord.
The city is loud, fast paced, and unapologetic. Its diversity is a blessing and a curse because the people are equal parts amazing and terrible. And the most terrible 0.1% of people do much more than their share of making New York the dirtiest city in America. For example, it would only take less than a dozen people defecating in the subway each day to ruin it for the other 8.6 million people. And defecate they do.
If I were to distill the NYC attitude into one phrase, it might be “everyone out for themselves.” There is a strong sense of community, but it revolves around the idea that the city makes us tough, independent people.
How Culture Affects New York City Real Estate
The buildings are just as diverse as the people, but I’m not sure if it’s a good thing. Modern supertall skyscrapers are abutted by early 20th century low rises. There’s very little architectural consistency across the city because it’s always evolving.
The city skyline is a visual representation of New York’s capitalist, yet highly regulated real estate market. Nimbyism and city officials do their best to create and enforce rules to maintain each neighborhood’s livability. Everyone has an opinion on what should be allowed for any particular block and lot. But ultimately it’s the developers that get it done, and the most industrious developers always find a way to push buildings to new heights in the name of profits. A select few neighborhoods are preserved quite well, but given that not many buildings in NYC exceed 200 years old, it’s only a matter of time before the developers come knocking.
The New York City Proptech Scene
Although NYC may not match the quantity of top tech talent as SF and the Bay Area, its real estate market surpasses SF’s on almost every metric. Most proptech companies dream of deploying their product here because of the sheer density of customers, and it’s the location of choice for many proptech companies’ HQ’s. There are also a number of VC’s with either offices or HQ’s here. It is arguably the #1 destination in the world for proptech.
Why Proptech Has Traction Issues in NYC
The traction issues that proptech founders largely encounter in NYC isn’t due to a lack of technological sophistication. It’s just not a priority. The majority of a deal’s profits are made at the negotiating table before closing.
The shrewdest real estate titans know how to time a market and squeeze sellers. They know they’ve locked in profits for their eventual exit. These deal makers solve human problems- assembling lots, negotiating interest rates with banks, appeasing activist neighbors, bending zoning rules. It’s the polar opposite of following algorithms, so technology can only be ancillary to this process. And if proptech solutions come along after this process, they often just present minor optimizations to already healthy deal financials. I created an entire playlist of historical real estate deals on YouTube:
You can also see the traction issues by looking at brokers on a deal. Tech enabled brokerage has repeatedly failed to change the commission based structure. And at this point in the article you should know why. Proptech doesn’t solve human problems the way the top 5% of brokers do.
What Proptech Founders Should Do
As a proptech founder you shouldn’t, and probably won’t be discouraged by these revelations. But you still need guidance. There are plenty of opportunities to enhance and supplement every aspect of the real estate life cycle with technology. There are some real opportunities with digitization of assets and greening up buildings. AI is beginning to blur the line between human and machine capabilities. But if you’re early stage and haven’t gained traction yet, you need to keep learning and reading this blog, and reach out to me for consultation.
More City Insight articles:
Hong Kong
Tokyo
Iceland
Stockholm
Amsterdam
Berlin
Vienna
Derek is the founder of The Proptech Scout, as well as an NYC landlord and real estate developer. In a former career, he bootstrapped and exited an e-commerce business while side hustling as a strategy consultant.
