(Photo courtesy of Joby Aviation) Record-breaking VC activity over the past year has fueled innovation within emerging technologies. In this episode, sponsored by Ansarada, we take a look at where we live, how we work and how we might move between those locations by exploring electric vehicles, air taxis and real estate technology with PitchBook senior analyst Asad Hussain and quantitative research analyst Zane Carmean. Listen to all of Season 3 and subscribe to get future episodes of "In Visible Capital" on Apple Podcasts, Spotify, Google Podcasts or wherever you listen. For inquiries, please contact us at firstname.lastname@example.org. For more emerging technology coverage, listen to Season 2 of "In Visible Capital. For more information on mobility, download The EV/Mobility SPAC Handbook and The eVTOL Air Taxi Startup Handbook, and watch the webinar "SPACs in mobility: A detailed look under the hood." PitchBook clients can also find the 2021 Vertical Snapshot: Real Estate Tech analyst note within the Research Center. Transcript Voice-over: Today's episode of In Visible Capital is sponsored by Ansarada. Since 2005 Ansarada has been trusted on over 23,000 transactions, including M&A, capital raises divestments, restructures, and IPOs. The new Ansarada deal smashes the benchmark and deal technology. The secure deal space includes project management tools, AI-powered data rooms, collaborative Q&A, and integration frameworks. It's more than a virtual data room. It's a total transaction management solution across the full deal lifecycle. Start for free at ansarada.com. Adam Lewis: Hello, and welcome back to PitchBook's "In Visible Capital" podcast. I'm Adam Lewis, a reporter for PitchBook News. Alexander Davis: I'm Alexander Davis, editor-in-chief of PitchBook News. Adam: Today we're talking about emerging technologies, which is always a fascinating topic. We spent Season 2 diving into healthtech, foodtech, mobility and supply chain, so be sure to check out those episodes on this feed if you haven't heard them. Today, however, we're going to take a closer look at some of the very real technologies that are shaping where we live, how we work and the ways we might travel between the two. Alexander: Right, Adam, and actually, we're doing a special kind of split version of the show today, because we'll be hearing first from my chat with Asad Hussain, the senior PitchBook emerging technology analyst who covers mobility, and it's a huge space with far-reaching impact. It's going to be fascinating because we are going to cover air taxis, electric vehicles, and how specs have been affecting this market. Adam: Then we will get into my conversation with PitchBook quant research analyst, Zane Carmean, for a conversation about the world of real estate tech. That's maybe not quite as flashy as flying taxis, but those technologies have a much more, let's say, immediate impact, especially as we start approaching varying returned office strategies. First, here's the conversation between Alec and Asad. Alexander: Asad, thanks for joining the show today. Asad Hussain: Thanks for having me. Alexander: Let's start out with one of the industries that you're paying special attention to lately and you call it eVTOL. If I've got that right, what is eVTOL? Asad: eVTOL stands for electric vertical takeoff and landing. It's all part of this emerging passenger air mobility industry, which comprises both aircraft manufacturers of eVTOL, their enablement technologies, and air taxi service providers. The whole idea behind this is replacing internal combustion engine-powered vehicles such as helicopters to dramatically lower the cost of urban transportation while reducing emissions and traffic congestion within cities. The main advantage that eVTOLs have over helicopters is a much lower noise profile, which allows operators to operate [a] much higher frequency of flights and expand routing closer to residential areas. Practically, the result of that is you can operate many more flights during the same amount of time, and so you can ultimately be moving more people and operate a much more profitable mobility service. At the same time, eVTOL have fewer maintenance requirements, compared to helicopters, since they have multiple rotors with more redundancy, and so your operational costs should be lower, since you have fewer maintenance intervals, [and] you don't have to deal with fuel costs. Then, finally, and this is a more long-term benefit of the industry, but it is the issue of autonomy because air taxis rely on multiple rotors, they're much more controllable, and so it's much much more feasible for you to actually think about removing the pilot or potentially augmenting the pilot with autopilot features to lower the bar for who can become a pilot. That's going to radically improve the unit economics of operating an air mobility service. Alexander: It's a fascinating area, which obviously raises a ton of questions from technology, to financial, to environment and regulatory issues. I wanted to just briefly touch on a couple of those with the follow-up. One is you mentioned that it's a lower noise profile. I'm curious, how noisy or how quiet are these rotors now? Then on the market side, how much of the market is seen as really just replacing or augmenting the conventional helicopter service versus say an even broader passenger base, people who now rely on ground transportation to get around a metropolitan area? Asad: On the noise front, it's pretty significant. eVTOL aircraft developers will tell you they're targeting reducing noise level by as much as 20 decibels relative to helicopters and even beyond that. A lot of the reason why helicopters can be so annoying if you live under a helicopter going by, it has to do with their specific noise profile, because they have single rotor and its spinning produces a very low-frequency noise. It can be quite annoying. With these eVTOLs, not only is the noise level lower, but the perceived noise level is even lower than that, because you can really tailor the noise to be less annoying. Alexander: Because there's more blades. Asad: Yes, exactly. Volocopter, which is a company in this space actually did a demonstration and they surveyed spectators on how loud or how quiet the aircraft was. Basically, the results were very positive. Spectators were mostly had the reaction of, "Wow, that was quieter than I expected it to be." That's hugely important because again, it will lead to higher frequency of flights and increase routing and that leads directly into your next question, which is, "OK, so why does this matter? Is this really going to be something for just business executives and high-net-worth people who'd be riding around in helicopters anyway or is it going to be something for a much broader audience? I think that question right there really boils down to the fundamental question of, is this a viable industry, and is this an industry worth investing in? Because if you're just replacing helicopters, that's not a huge market, first of all, and it's not really what I think is generating a lot of the excitement that we're seeing. What is generating the excitement is the expectations that the cost advantages of eVTOLs will reduce the cost of air mobility from around $9 per mile, which is where it is today with helicopters to something much closer to a ridehail, around $2.50 per mile. That has huge implications in terms of the total addressable market for air taxis. You're not just talking about business executives or high-net-worth people. You're talking about regular people using it for their commute. Alexander: Well, I understand that a lot of these companies, maybe most of them in the EV toll space are talking about commercializing their product or services by the early to mid-2020s. Is that realistic, given the kinds of hurdles that are out there of technological and regulatory among them? Asad: I think there is a lot of hurdles out there, both in terms of improvements in technology that need to happen, things like battery density, but also external constraints such as charging infrastructure, landing infrastructure, air traffic control, airspace management, not to even mentioned the significant strides that need to happen with autonomous autopilot. Layering all those things together, I'm skeptical that the industry will hit significant scale in the mid-2020s. I think a more reasonable timeline is late 2020s to early 2030s, is when we're really going to see this industry take off. Alexander: Well, building on this issue of the barriers that they have to get over, talk for a second about in comparison to what roughly similar industry has gone through the autonomous vehicle and the startups who have also faced some really big questions, have major technological hurdles, as well as regulatory things to get past. Asad: When you make comparisons between autonomous driving and air taxis, people in the air taxi industry raise their eyebrows, because the technological challenge is so different. At the same time, I see a lot of parallels between those two industries. Both sectors are developing really disruptive transportation technologies that are capital-intensive, will require billions of dollars in investment to develop, manufacture and scale services, but also promise to deliver a multi-billion dollar market that could reshape the landscape of urban transportation. There you have both set really aggressive timeline expectations for the deployment and commercialization of the technology with autonomous driving really targeting 2020 in the early 2020s for deployment, and now air taxis targeting 2025. I think the air taxi industry right now is at a peak of expectations. As we get closer to that 2025 date and the challenges associated with actually developing and scaling the technology get realized, I think it's quite likely that we'll see a timeline reset on the cards as the market, the companies and investors realize the actual complexities and difficulties of actually getting through this process and achieving commercialization. There are so many parallels between these two industries. A lot of the same engineers in the air taxi space have come out of autonomous driving startups in Silicon Valley. Even the recent news of a lawsuit occurring between Wisk suing Archer is somewhat reminiscent of Waymo suing Anthony Levandowski over IP being taken. The same trends are happening. Financing trends are also very similar. You're seeing many of the same active investors in both spaces across automotive and air mobility. The recent SPAC trend has been very prominent across both industries helping both autonomous driving and air taxi startups go public. Alexander: You mentioned the financing side of it and the investment opportunity. Can you tell us briefly about the size of this market, what you expect from it, and for perspective? To put it into perspective, what is that say compared to some of the other legacy segments of the transportation sector? Asad: Yes. We're forecasting the global air taxi passenger mobility market to grow from approximately $1.5 billion in revenue in 2025 to over $150 billion by 2035. That's equivalent to approximately 19.4% of expected global airline revenue in 2021. Initially, we expect eVTOL rollouts to occur in high-income cities in relatively mild climates, at a relatively high price point. However, as aircraft volumes roll out and their technology gets better, we're gradually going to see the price of air taxi transportation to decline until it becomes closer to ridehailing at under $5 per seat mile. Then as far as the investor opportunities, I think a lot of investors are excited by the potential market. What we've seen is that the first quarter of 2021 was really a breakout quarter for the space in terms of investment. We saw $3.8 billion invested in the eVTOL or taxi startups, more than triple the investment in all of 2020 which was mostly through VC deals. In Q1 2021, most of that investment went into either specs or their accompanying pipe around of the three companies, Joby Aviation, Archer, and Lilium. I think that's very interesting. I also think it's interesting how the investor base that's investing in air mobility is quite diverse. Major investors include technology companies like Intel, Tencent, Qualcomm and Google, which might see an opportunity to supply software automation in cloud computing, but we're also seeing interest from strategic transportation investors. You'd expect it from aerospace companies like Boeing and Airbus and airlines like Jet Blue and United, but you're also seeing it from automakers and auto suppliers like Toyota, Stellantis, Daimler and Continental. I think that's very interesting to see the convergence of automotive and aviation in this way as both of these industries recognize that this is the future of mobility and they don't want to be left behind. Finally, VC firms like Andreessen Horowitz, Lightspeed [and] Lux Capital Management have been very active in this space. Alexander: I think it's safe to say that almost everybody who's anybody in technology and in legacy companies that are looking for a way to transition to the new economy in the next generation of technology they see this as something they need to get a piece of. Speaking of financing, you mentioned earlier the rise of SPACs and the high degree that SPACs are getting interested in this space in particular. I guess we're talking more here about mobility broadly, but it does include air taxi companies. What is it about the mobility and electric vehicle market that has drawn so much interest from blank-check companies? Asad: What we've seen over the past year has been the perfect storm for mobility startups, because we've had not only the pandemic, which was initially very challenging for mobility companies, but at the same time, you've seen really investors rally around all mobility companies, whether they're EVs, eVTOLs, you name it, as the pandemic has really highlighted the discrepancies and inequities in our transportation systems and highlighted the need for technologies and solutions to improve them and make them more sustainable and equitable going forward. You've seen that realized in the significant amount of investing going into mobility startups with over $25 billion in venture capital invested in the first quarter of 2021. You've seen that with the rise of the SPAC as a financing vehicle, and you've seen that in the soaring valuations of publicly traded EV or mobility companies such as Tesla and Nio, on public markets. I think it's really interesting how we've seen this huge shift in investor mindset, almost do a complete 180 from where it was one or two years ago where there was all this skepticism out there over this transportation space and how capital intensive it is and how a lot of these startups and companies are money-losing. I remember how much scrutiny Uber and Lyft face immediately after IPO over their paths to profitability. Now it seems investors really have this growth mentality, and they're really, as you said, focusing on the future market opportunity and they almost see it like the next smartphone, like, "This is the next big thing, and whether you're a VC or a technology company or a transportation company, you really don't want to be left behind." In the midst of all of this, SPACs have become very popular and they really are a match made in heaven with mobility companies because a lot of mobility companies are characterized by money-losing, cash-burning, highly capital intensive business models. Some of them are even pre-revenue in SPAC, and these tend to be high-risk companies, and they would likely struggle to find buyers in a traditional IPO, but SPACs have really come in to fill that void. They tend to receive less scrutiny relative to traditional IPOs, and they allow these startups to share their vision more easily and provide long-term financial projections. A bit of a question, with the SECs latest remarks, if that's going to be allowed to continue, but at least from what we've seen so far, SPACs have been very successful at bringing these types of companies to market and allowing them to communicate their vision of this large market opportunity to public equity investors and allow public equity investors to gain exposure to a space that has historically really only been in the purview of private investors. Alexander: Yes, and for good reason. I think we're talking about really, really as when it comes to risk about as high risk as you can get, in both the technology and the transportation sphere. It's no wonder, and I have to wonder if the public market investors are really cognizant of what they're in for and, in particular, I think about the projections that are being made by some of these pre-revenue EV startups, take Lucid for example, which is a case I wanted to specifically raise with you, some very high stakes and big market opportunities are being sketched out by their backers. The question I have for you at the moment though is there really enough capital for a company like that going through the SPAC market, particularly companies like Joby in the air taxi industry, these are such capital intensive companies that really still have many, many years to go before they develop. Help us understand that risk profile and how much capital they're going to need, and whether they're really getting enough, and what that means going down the road for future capital raises. Asad: It's an important question. I think it's something that has resonated through the market. Our EV mobility price change index showed a really strong performance, over 90% in the second half of 2020 as all of this exuberance was really occurring, but in the first quarter of 2021, it was actually down more than 20%. I think a lot of that was due to this recognition of the market of exactly what you just laid out is that a lot of these projections are really, really optimistic, and many of these companies are going to struggle to actually execute on those plans. I agree. I think when I look at the extended timelines, many of these companies are going to face, I absolutely think that they are going to need to tap into the public markets again and raise additional financing rounds. To do so, you've already seen that happen with a few of these, including QuantumScape. In my mind, the key question is, will this public market enthusiasm for this EV mobility space be strong throughout that process? I think as the quarters go on, as we get through 2021, 2022, and these targets keep getting pushed back, I think it's going to be really interesting to see how that dynamic plays out, but I agree. Looking at the air taxi space, we call out companies that have raised over $1 billion in capital as being enough to get them through the certification process with regulatory authorities, such as the FAA and EASA. That's really been the focus for air taxi startups so far is just developing the technology and getting it commercial ready, but I think they're going to require hundreds of million dollars more to actually scale out their mobility service offerings and commercialize that scale—much in the same way that Uber and Lyft had to raise billions of dollars to achieve the scale that they have now. I think the capital that these companies have raised may not be enough to get them through a commercial launch, and that's a key risk for investors. Alexander: Which suggests that they would have to at some point go out and do some kind of private placement type of thing, or perhaps turn to government in some cases, or sell a large stake to a private investor. Asad: Or just do a public offering. It's one thing when you're a private company to do that, that's kind of expected, but when you're a public company and you're facing a lot of scrutiny over your timeline and your growth targets, and then you're having to come out and raise additional capital, it's always the risk of investor sentiment turning against you and that having negative repercussions for your stock price. Alexander: Asad, while we're talking about predictions, give us a prediction about the longer term for the viability of these companies in the air taxi space? Asad: I think a lot of consolidation is on the cards for the air taxis face. When I look out at the extended timeline, the high capital needs required, and compare that with the over 100-plus startups developing air taxi technology, I think a shakeout is on the cards. By the end of this decade, I would be very surprised if there are more than half a dozen air taxi startups left remaining in the market. What you're going to see is that the tail-end of the market is just going to drop out as they struggle to raise the money, but you're also going to see a lot of consolidation, especially as the aviation companies enter the space, especially as automakers really start ramping up. I think that's going to be really interesting. Alexander: Who's best positioned to be the ones left standing? Asad: We call out two factors in the report. No. 1 being the amount of capital raised so far. So far the companies in the lead there include Archer Aviation, Joby Aviation, Lilium. Volocopter has also raised a decent amount, but then also No. 2 is the amount of manufacturing partnerships, and the quality of those partnerships, and who those partners are. That's going to be a key differentiator. Joby has a partnership established with Toyota to help them with their manufacturing. I think that's going to be absolutely huge for them. Another one is Wisk, which is founded by Larry Page and is basically a joint venture between Cora and Boeing. They have Boeing as a manufacturing partner, and I definitely would not count them out. That is a huge competitive advantage to have a leader in aviation behind you. Alexander: Totally, great stuff. Been great talking to you, Asad, on this. Thanks so much. It's been fascinating. Appreciate you coming on the podcast. Asad: These are exciting times. Thanks for having me. Adam: Zane, welcome to the show. Zane: Thank you for having me, I'm glad to be here. Adam: You're here today to talk about real estate tech, which is obviously a pretty broad term. How do we classify real estate technology and those areas of investment? Zane: It depends on who you talk to. You could get a lot of different definitions of what falls into that category. Some like to think of it as broad disruptors to the real estate space. You think about real estate from a traditional sense, it's probably the one area of investment that we all touch every single day of our lives, whether it be in your home, in the office, in retail centers, restaurants, et cetera. The way that we want to try to think about it is classifying things into those broader buckets of how one uses space. We have three main categories. One being commercial, the other being residential, and the third being construction which, obviously, impacts the first two. Under the commercial umbrella, it's pretty broad. We have a large set of subtypes that we can go through, but the main food groups would be asset utilization. Think of your WeWorks of the world, Industrious or your supply chain management type of companies on the property management side. That's another sub-group. You have startups that are focused on helping landlords track how their properties are performing and manage their tenure interactions. Then you have real estate transaction solutions, finance and investment. Then on the residential side, you also have real estate transaction solutions. Everyone's looked at Zillow or Redfin I'm sure. You also have on the residential side home improvements, renovations, and then finance like MortgageTech. Rocket Mortgage are really popularising that space. In the construction side, there's a lot of different categories and new technologies there, whether it be 3D modeling, construction robots, property management. The big players in this space in terms of capital raised have been in the modular construction business. Think of Katerra in that group. Adam: You touched a little bit there on the commercial real estate space. One of the big things we've seen over the last year with the pandemic is, obviously, the shift to remote work. How has the migration out of urban centers impacted what emerging real estate tax is being developed? Zane: That's a great question and one that is probably top of mind for all real estate owners and managers, investment managers, et cetera. Even companies themselves you think about the troves of information technology companies that have announced several work-from-home plans, even post-pandemic allowing X percentage of their workforce to work in some capacity from their homes, like Spotify, Facebook, Twitter and Square, et cetera. There's a long list of different companies that are exploring those options. What does that do to the office market is one big question, but then also, what does that do to the residential markets? We've already seen record-level housing price appreciation over the last several months that has driven off of that, where you have people basically, I wouldn't say fleeing urban centers, but are definitely looking at their rents that they pay in their small one or two-bedroom apartment in an urban center comparing that against what their mortgage payment would be if they were to buy a three-bedroom home 20, 30 minutes from downtown where originally, they wouldn't want to do that commute, but if they're being working from home or working from home two, three days a week, those economics even to make a lot more sense. Seeing that dynamic play out is driving a lot of investment within mortgage technology to help manage the home buying process, take advantage of this huge demand shift that we've seen on the supply side. The reason why we've seen such huge home price appreciation is just the lack of homes available for sale. Then you get into questions of whether construction technology can help speed up the process of the home-building process. There's a lot to be unpacked there on the commercial side. Going back to the office angle full circle, how does the tenant and landlord relationship play out over the next several years? Does the landlord, would they be willing to offer more flexible relationships with their tenants, and what other services and add-ons and things like that can the office landlord implement to help the tenants manage their space? There's a lot of new technologies, and developing sensors and AI and machine learning to track movement and usage of space productivity, health conditions, and air quality—things like that. It's really a breadth of different areas that are impacted. Adam: Yes, it's crazy how the COVID-19 pandemic has created just winners and losers investment-wise. ... Even one asset class here, you got the drop in demand for commercial real estate and the rising demand for residential real estate. You would think that maybe that would balance out. As we get back to normal, is there a thought that that could balance out here over the next one to three years? Zane: Yes. I don't think there's a question. The things have to start to balance out, you could make the argument that we're simultaneously in an asset bubble, when you look at the residential side, and also in a financial crisis when you look at the retail side. Even the office has been less impacted just because of the longer-term lease nature of those relationships and office landlords, as long as the long-term tenants continue to remain in those leases, then they should be okay. On the retail center side, they've been decimated. They were struggling before the crisis, as the shift to ecommerce has accelerated, and that has really impacted on the other side of the coin on the industrial real estate space, think of your warehouses, distribution centers, which has led to a lot of investment within supply chain technologies. Adam: I cover, obviously, the private equity industry for the newsletter and website, and Blackstone, the biggest player in private equity, has been gobbling up millions of square feet of warehouses for the past five years and they've really accelerated it during the pandemic as I guess just a play on is it e-commerce? They want to buy up all the places that you store your Air Jordans before they ship out or is there a thought there? I'm not 100% sure. They're a pretty savvy investor, so I figured they know what they're doing. Zane: Blackstone's a great point. On the traditional real estate side, warehouses, distribution centers were never, the "sexy asset class." They never have been. They're just four walls and a roof. You have some trucks going in and out, who cares? Then mainly after the financial crisis, Blackstone and others that have really noticed that there's a real chance that the shift to e-commerce would hyper accelerate as the internet connectivity, the connection to our phones. We have all of these access points to stores in ways that we've never had before. E-commerce would sit at the very center of that, and therefore industrial warehouses would sit at the very center of that. They've identified the trend early on, and you're right, they've only doubled down on that bet. So far, it's paid off handsomely for them. Adam: Is there any hope for the retail space, hopefully, vaccines roll out, and we get back closer to normal. Obviously, a lot of these retail companies already have pretty heavy debt loads, and then the pandemic happened, and you've got heavy rents on top of that. It obviously was a killer combination for a lot of companies. Zane: It was definitely. You saw companies like Brooks Brothers, Neiman Marcus, JC Penney all hit bankruptcy proceedings. It'll be interesting to see how the shift out of COVID plays out. I think that we'll continue to see more and more foot traffic gravitate more to retail centers. People want to be out and about. A lot of big retail landlords think of your mall owners, like your Simon Property Group being the big one were investing a lot in the experiential side of their properties. You think of a big mall that has a movie theater. It has some breweries or a bar, different things to do for the kids, things like that, that brings families together, rather than just your giant and bases warehouse, essentially, where people try to go find, 30% off deals. That's not really the value proposition for retail centers anymore. COVID has really emphasized that point. Adam: I feel like we're just going to see more private equity firms pour money in to try to that turn around play. It's just like the classic, hopefully, buy low and develop something and then sell high five to seven years. Zane: It raises an interesting point getting back into the real estate technology front. There are startups focused on the space where and within retail centers, that you can install trackers and sensors to measure the amount of foot traffic that your retail center's experiencing, see where the problem areas are coming up, how people are utilizing your space. That offers a lot of capability in terms of new data sets that retail managers and retailers haven't had before. Adam: Does that raise any privacy concerns if you're just being tracked every time you walk into buy a pair of shoes? That's just the first thing that I think of. Zane: Yes, it depends. I guess that you can see a world where you probably need to have some disclosure, just like, "Hey, just so you know, we are tracking foot traffic." I think that for a lot of people, it probably will go unnoticed to them. There are other start-ups too, that access cell phone GPS data to measure the amount of movement at a very local level so you can measure how many people are going to a mall, for example. There may be some privacy concerns around that for sure, just because you're accessing people's location data. It's anonymized, of course, but as we've all seen with cybersecurity issues across industries, you never know how secure that data could possibly be. Adam: Yes, and as a consumer, it just seems like we're so used to giving over all of our information now, either willingly or unwillingly that I guess, it maybe wouldn't be as big of a problem as it used to be. Zane: You can make the argument that installing some sensors around your retail center, your strip mall, or your big outdoor space, is very similar to just latching cookies onto you, as you browse the internet which we've all accepted. Adam: On my iPhone tracking my steps over the course of the day, it's not much different given that GPS-wise, it knows exactly where I'm going. What are some of the new challenges to adopting these new technologies in real estate? I know that it's pretty expensive to replace legacy systems. It has to be difficult to get things off the ground? Zane: Yes, it's really dependent on the organization, really dependent on the technology that we're talking about the end-user. Real estate technology and real estate, as we've touched on is just such a broad space but within each of those different subcategories, there's going to be a lot of supply and demand divergences. I think on the commercial side, some of the more interesting start-ups that are seeing success will be in the property management and tenant engagement data analytics side, where you have some more sophisticated institutional-quality investment managers working for real estate investment firms that are looking for new tools to help them manage properties better or to find their next property, or to help them fill in occupancy for opportunistically invested assets. There's some incumbents in the space that are publicly traded, in that front of AppFolio comes to mind as one that's pretty interesting on the property management, lease management space. Then there's CoStar and CoreLogic, which, interestingly enough, had announced a merger, or at least they were in talks in a merger, but they've recently called that off. Those two are on the data analytics front and helping on the commercial transaction side find properties and data points on various assets within their data sets. For the most part, we probably call those lower-tech type of solutions. They're basically just software wrappers, there is some learning in the background, that's probably done to aggregate some of those data sets, but nothing front and center and really scary for a real estate manager to have to deal with. If you get into the more sophisticated, going back to the sensors and trackers that you can install, not just in retail centers and say you own an office building in downtown San Francisco, do you install thousands of sensors around your building to track how much foot traffic's in the lobby, versus in different conference rooms, elevator usage? All of that kind of stuff has the capabilities of offering a lot of data, but it's hard to really imagine how much you can really unlock unless you start to play with it more and more. Those have been slower to really take off, but coming out of the pandemic, I think there could be a real boon to those types of technology companies, because we're on the health space tracking how your quality is, or how many people are in a room if we continue social distancing. Things like that will be only possible through those types of technologies. Adam: Can't be cheap to set up all of those sensors in every room, I would think? Zane: No, absolutely not. Adam: That's a big investment from a company standpoint. I know we want to be healthy, but. Zane: Yes, definitely. It's interesting, there are some companies that are out for good examples of how you can go about doing that. There's VergeSense, which has raised $21 million in 2020, and they've announced the partnership with real estate firm JLL to install sensors in several buildings across the country as the tester program. So far, through the first quarter of 2021, VergeSense has about 40 million square feet of space that they're currently tracking. If they find some success and can unlock data analytics for JLL and their other clients that they're working with, I think that you'll see that type of technology take off across the space. Everyone's looking for their next edge. Adam: Certainly their timing could not be better. I wonder if they started during the pandemic or it was an idea before that maybe they were one of those companies that really, not locked into but were fortunate to have developed this very specific technology that would come in handy during a pandemic. Zane: Yes, it is a very specific technology. I'm just looking at the PitchBook platform right here, and we have their first accelerator around in 2017. They're a very new player in this space. Adam: Wow, that's impressive. Zane: First Series A, and Series B was in 2020 and were able to raise a couple of rounds there too. Definitely seeing some acceleration in terms of investment there. Adam: Zane, are there uses for blockchain technology in the real estate space? Is this really a thing that's going to happen that I'm going to be reading about and hearing about? Adam: Is there a Dogecoin equivalent to real estate tech? Zane: Blockchain is something that I've had some conversations with. I've talked with a few different startups that are in this space. The most interesting application of blockchain that I've seen is the tokenization of individual assets. There are other startups that are looking at putting whole assets or property databases onto the blockchain. Think of your property database that is basically housed at your local county office and putting that data onto the blockchain rather than just having it sit in those folders or Excel 2003 files. Trying to increase the sophistication and doing the smart way. There are some starters that are focused on that, but like I said, I think that the most interesting area of blockchain within real estate would be the tokenization of assets. We've seen some properties that have been tokenized to try to see how that proof of concept would play out. There's one startup called Meridio, which is a part of the consensus umbrella and they tokenized an asset in Brooklyn a few years back. To my knowledge, they haven't done a whole lot since I was just actually looking at their website yesterday in prep for this conversation. They haven't really updated anything in terms of new press releases or blog posts in like a year-plus. It seems to me that that experiment hasn't really played out as swiftly as they think that they had originally thought. It'll be interesting to monitor for sure especially as now blockchains and crypto, in general, has really seen this third, call it, "wave of interest." We may start to see things pick up again. Adam: Zane, is part of the push to tokenize the real estate tech world, is that to simplify things in some degree? As somebody who's bought a condo or dealt in real estate, you have to sign so many documents. It is the most convoluted, sometimes frustrating process that you could imagine going through as a human being who's trying to buy something. Zane: No, I'm with you. Can the homebuying process be simplified? My fiance and I at the very start of COVID actually purchased our first home as a condo, and it took weeks, miles and miles of paperwork, and I mean miles of paperwork. This is the beginning of COVID, too, where everyone is very, very very self-conscious about social distancing. There obviously weren't vaccines around, but the only way that we could go through the signing of those documents was we had a guy from the mortgage company come to our apartment that we were living in, we were in [the] lobby and just signing documents for about 45 minutes. Adam: I had the same experience. Zane: Is there a better way to do that? We think yes, but it's tricky in the real estate space. Think of it in terms of the breadth of human history, real estate's the oldest asset class there is. Inherently, there's just a baked-in skepticism for new developments, new technologies. We can get into a lot of that within the construction space as well. Sticking with the blockchain tokenization question, it is an effort to simplify the process and also to make it more accessible to access apartment buildings or office buildings to individual investors, or at least smaller investors. Part of the value proposition for those types of startups is, normally you would need to be able to write a multimillion-dollar check in order to invest in a high-rise apartment complex within your urban center that you're living in or you want to invest in. Instead, if we can tokenize that asset and break it up into pieces, then you can buy essentially shares of that asset on the blockchain. Adam: Democratizing finance. Zane: There you go. You took the words right out of my mouth, yes. Adam: What could go wrong? Zane: Yes. Democratizing the real estate buying experience from the commercial side. You could theoretically make the same argument for homes, but who wants to tokenize their house? When I've heard that argument that you could blockchain the entire residential library of supply available, it just doesn't make a lot of sense to me. I don't want to have some random investor in Singapore or something owning part of my home or something like that. It'll be interesting. I think the commercial usage is probably the place where it makes the most amount of sense, but then you can also make the argument that we already have the tokenization of commercial real estate assets, they're just publicly traded REITs. You've talked about Simon Property Group, you have Equity Residential on the apartment side. You have Prologis on the industrial side. Adam: Credit default swaps, right? Zane: Yes. We won't get into that. Adam: That's getting too far afield, but in a way, they're trading mortgages, basically. Zane: Well, they own individual properties, and they are essentially a portfolio of office assets or apartment assets. Then if you buy shares in those, you essentially own shares within those assets, you get your dividend payment from the rents that they collect. Like I said, in a lot of ways, we've already tokenized those assets. We've already unlocked that piece of [the] puzzle through public markets, but we like to talk about private markets, and a lot of people like to focus on private markets. Taking that concept, but then making it apply to the private real estate market would be, I guess, their goal. Adam: Which part of the real estate tech space are you most excited to watch develop over these next few years? Zane: There's a lot that we can unpack. We've touched on a lot of different areas. I think one area of interest that I have is on the construction side, seeing if some of these construction startups that are focused on modular technologies, robotics, AI and machine learning applied to the homebuilding property development process, if those can really find some legs to start to run, this may be a great opportunity for them as we've seen. We've talked about the home price appreciation because of the insatiable demand that people have had for new homes. It's become a real supply issue, especially in places like California and the like. It'll be interesting to see if these companies that are marketing themselves as reducing costs and the time to put up four walls and a roof, if they can find success in supplying those pockets of demand that right now have not been satiated. That's one area. I think that the most interesting though, just it being one of the largest asset classes, would be the office space. How does the commercial relationship between a tenant and landlord play itself out? As we come out of the pandemic, you have all these companies that are experimenting with work-from-home. We've all done some experimentation with work-from-home, and it's worked really well. I think a lot of companies have found that their workforce is very productive in that capacity. How does that change the demand dynamics for your Class A office building in New York, or San Francisco, Seattle, Chicago? If you can have a workforce that can be more disparate and located in secondary or tertiary markets, think of your Salt Lake City, your Austin, San Antonio, Las Vegas, Miami—you can go down the list of these markets that are a lot cheaper on the real estate front for a tenant to come in. If I call it an Apple, and I want to open up a new HQ, or a new regional center, I'm going to go to a cheaper market, and my talent will just flow there because they can work from anywhere, or take that out of the equation entirely, I don't even need [an] office, and everyone can just work from their homes because we've done it so well already. A lot of people want that flexibility. To see how that dynamic plays itself out will be probably the most interesting because it will have the longest-term impacts, just given the nature of those lease structures within the office-commercial space. Adam: We'll definitely have to have you back on the show here as that story unfolds as the narrative plays out, and we get back to something resembling normal. Real estate tech is not the only thing, obviously, you write and research about. What do you have coming down the pipeline next that we can get excited about? Zane: Thank you for having me on. It's been a great conversation. Real estate technology is super fun to talk about. We have other things that we like to focus on, on the quantitative research front. We have some quantitative perspectives, reports that are becoming across in a couple of months, and those will be free to download for the general public. We definitely encouraged you to check those out. What we try to do there is bring more data analysis and tell a visual story of what's happening in private markets. I believe the next one that we'll be putting out on that front will be in the venture capital spaces, highly relevant to this conversation but across industries, not obviously just real estate technology. We also have one that we put out for the private equity space, which we actually published a few weeks ago by a colleague, Andrew Akers, which is a really interesting read. Then we're also working on a report focused on the private equity industry's performance, versus a basket of your 60/40 equity bond split and seeing how private equity venture capital real estate, as a fund performance plays its role in a portfolio for an institutional investor. Interesting, not as exciting or as flashy as talking technologies, but definitely highly topical. Adam: Something tells me the private equity firms will find a way to make a profit. I'm just going to throw that out there. Zane: They usually do. Adam: Yes, they do. With that, I just want to thank you for coming on the show today, Zane. This was all great stuff. Zane: Really appreciate coming on and talking real estate technology with you. It's always good to get into the weeds a little bit. Adam: That's right. That's what we do here. We're all back into the weeds. Until next time.