Site logo

What is Proptech?

The hottest buzzword that nobody outside of VC and Real Estate has heard of.

Me: “I’m gonna shift the focus of my YouTube channel to focus on Proptech.”
Everyone outside of VC and Real Estate: “What’s Proptech?”
…and that’s how I discovered my niche.

I’ve been making videos about proptech for a while and realized I never took the time to explain what it is. In fact, there isn’t a clear consensus on what it is, so I’m gonna give the most comprehensive answer I can. First, there’s a textbook definition.

Proptech is short for property technology, and it’s any application of technology to enhance any part of real estate’s life cycle. And the life cycle can be broadly segmented into 3 parts, Predevelopment, construction, and property management.

But Proptech also has a much broader colloquial usage, where it refers to any VC-backed startups that are tackling old real estate problems in new ways, whether or not there’s any new technology behind it. I’m guilty of using it this way for lack of a better word. It just gets dangerous when the term is tossed around to drum up hype and inflate valuations for an otherwise mundane real estate business model. Case in point- WeWork. It was definitely a real estate play but it was disguised as a tech company and raised money like one too. But by the textbook definition, it wasn’t proptech. On the other hand, Otis elevator, a 168-year-old company, is constantly evolving its product using the latest technology, putting it squarely in the realm of proptech, but nobody will call it that.

Why’s it important to define Proptech?

But step back for a second. Why is it important to define PropTech? This isn’t JUST a frivolous exercise in semantics to work my way up specific keyword rankings as I get this blog going.

I’m actually rebranding the YouTube channel to The Proptech Scout. Because there’s so much proptech out there- some good, some great, but most are pretty bad. And I want to help my fellow real estate developers and landlords figure out which of the best-in-class proptech companies they should use to help build and manage buildings more efficiently. Because the proliferation of Proptech is not only good for our own bottom lines but also for the evolution of real estate itself. 

I’ve made an entire video about how no single proptech company can disrupt real estate. Most of my videos going forward will be about how collectively developers and landlords can speed up the evolution of real estate by adopting Proptech en masse.

The Technology Challenge: 3rd Wave vs 4th Wave Proptech

How effectively proptech can help throughout the real estate life cycle, which is usually over 100 years, depends largely on where the technology is in its own life cycle which might only be a decade or two. To date, the most successful proptech products have been built on very mature and proven 3rd wave (aka 3rd Industrial revolution) technologies – information technology, connectivity, and big data. There are very robust ecosystems here with large development communities and software tools. 

For example, I built theproptechscout.com in a few days with no coding whatsoever. Because web development tools are very mature now. Likewise, there are no shortage of web and mobile apps in the Proptech space because it’s relatively straightforward to build a tool that’s reliable enough for real estate developers and landlords to consider using. Unfortunately for proptech founders, this low barrier to build out tools using 3rd wave technology means lots of people are capable of doing it. The real challenge is actually convincing customers to sign up when there’s so many competitors.

On the other hand, there’s a minority of companies pioneering proptech using fourth wave (aka 4th Industrial Revolution) technologies- quantum computing, AI, nanotech, robotics, and biotech. Each of these fields has come a long way, but they’re still very much in their infancy. So most of the products built around them are on the bleeding edge of research and are generally quite risky for real estate owners. Compared to third wave technologies, expertise is relatively scarce and ecosystems and tools are almost non-existent. But the potential productivity gains are massive.

Proptech founders have the unenviable position of finding the right balance between the potential for wide adoption while doing something that’s uniquely competitive.

The Real Estate Cycle

Now back to the real estate life cycle. I mentioned there’s three big segments- predevelopment, construction, and property management. Within each segment, proptech companies apply different technologies to drive efficiencies. While I won’t highlight specific companies in this article, I’ll be releasing proptech spotlights regularly to analyze companies and their products in detail on this blog.

Pre-Development

In the predevelopment segment, which is everything that happens during the acquisitions process, a developer needs to search for properties. Then underwrite, conduct zoning analysis, title search, hire legal to put together closing docs, secure debt, raise equity, put together preliminary designs, and bid it out to contractors.

So many of the pain points in this process don’t need a whole lot of technology to solve it. It mostly involves either uncovering unknowns or getting various people to agree to something. And that’s why most of the Proptech in this segment is some kind of app or SaaS platform that exchanges information between parties a little bit faster and clearer than prior methods.

Construction

In the construction segment, everything is about execution- sticking to the budget and schedule and building the best product you can within those constraints. We hire General Contractors who oversee demolition, excavation, structural framing, plumbing, electrical, finish materials procurement, and fixture installation. To complicate things, sometimes we set sustainability goals and experiment with new materials. The biggest pain point in this segment is making sure everyone is accountable. There’s so many moving parts and tons of details slip through the cracks which leads to a really annoying punch list phase while trying to get sign offs.

Fourth wave technologies can lead a huge push in innovation for this entire segment, because so much of it is hardware based. I mean, real estate developers call construction costs hard costs. There are a handful of startups focusing on drones and robotics paired with AI and machine vision, as well as companies manufacturing new materials to build with. The adoption curve here is very slow, but eventually I expect human construction workers to be mostly replaced while buildings will take on crazier bigger forms and go up faster than ever.

Property Management

Finally in the property management segment, landlords have to keep everything running smoothly for tenants. That involves marketing, leasing, collecting rent, communicating with tenants, doing repairs and maintenance, maintaining security systems. The whole job is basically dealing with unpredictability while trying to maintain the status quo. Very different from the other two segments.

Likewise, the technology applied in this segment tends to be a little different too- usually third wave hardware and software- nothing too groundbreaking because landlords are on a 100-year product life cycle so introducing a cutting edge technology that’s changing every year isn’t gonna fly. There’s plenty of property management software, brokerage platforms and data services. And there’s also lots of IoT devices and sensors to get a good picture of what’s happening with building systems.

How to Use this Blog

I’ve got an entire section of the site dedicated to recommending proptech in each of the three segments I talked about, but also further segmented for small, medium, and large real estate developers and landlords.

And if you’re a proptech founder, the other half of the site is dedicated to YOU. So it’s not I’m getting rid of all my old real estate for noobs content. I’ll still occasionally put some of that content out too. It’s a resource for founders to learn as much as you can about your customers and what they want, and the blog really exists to bridge the gap between founders and real estate owners.