Is the proptech shake out beginning?

It was not too long ago that property technology, or proptech as the phenomenon is more commonly referred, was being reported as one of the most impactful things to hit the commercial real estate industry in quite some time. After all, some of the biggest names in CRE were embracing proptech, including Brookfield Asset Management subsidiary Brookfield Ventures. Earlier this year, the company invested $15 million in BuildingConnected, which provides pre-construction solutions that facilitate better communications between project owners, general contractors and subcontractors.

CRE companies are not the only entities that have taken interest in proptech, however. Investment firms like Fifth Wall Ventures have also seen the upside to backing this latest tech wave that is geared towards helping commercial real estate owners, often in wireless capacity. As of June of this year, Fifth Wall Ventures was on track to raise an additional $400 million for its second real estate technology fund. Many of the technologies Fifth Wall had backed financially are geared to assist real estate professionals with how assets are being built, managed, purchased, sold, financed and more.

Although money is pouring into proptech companies and more major industry players are embracing it, it never hurts to look at the downside of any new trend. Proptech is no exception. After all, not every company in this industry is thriving, right?

Take Roomi for example—an app that let people create an online profile for themselves and their apartments so they could safely find a roommate match. Despite setting itself apart from other roommate-matching companies and raising $11 million in a Series A round, it was recently reported the company would have to lay off more than half of its staff after it failed to secure another funding round. According to reports, Roomi’s financial troubles were the result of overspending, rather than their concept not working. However, the company’s inability to raise more capital raises the question about how much investors are willing to risk on proptech.

Roomi is not alone when it comes to difficulties raising investment capital however. The real estate crowdfunding startup RealtyShares also reportedly will have to lay off a large majority of its staff for the same reason. The company has raised more than $63 million from a number of venture capital firms it began in 2013, but had to recently inform its customers despite its best efforts, it was unable to secure additional funding to expand.

Now, a couple of companies failing to raise additional funding does not spell doom for the proptech trend, but they could be a valuable cautionary tale for other aspiring proptech companies. It’s important to remember that while a lot of these technologies can help CRE owners more easily manage, sell and finance their properties among other things, there are many managers who are still more comfortable keeping track of things on pen and paper.

“Real estate is late to this party,” said John Gilbert of Rudin Management, told Crain’s New York Business in May. “We saw the disruption with Airbnb, Uber and Lyft, but it is just now starting within the built environment.”

There’s also the competitive nature of proptech to consider. If numerous companies come out with the same idea, chances are only one will secure the funding needed to thrive. According to Crain’s New York Business less than half of all startups across the United States make it to a second round of funding—partly because numerous companies are creating the same product to address the same problems CRE owners have. Financial issues are not unique to startups either—listings website Zillow went public in 2011, but was not profitable as of last year, while flexible office space giant WeWork recently disclosed an approximately $1 billion operating loss.

 

It might be too early to tell if the protech industry is trending down just yet. Although most stories are positive right now in terms of fundraising, it will be worth keeping an eye on the industry as more companies are started and the fight for investment capital becomes more competitive.

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