2
May 2023

PropTech 2.0 is ConstructionTech: Lessons learned from Real Deal Future City

PropTech 2.0 is ConstructionTech: Lessons learned from Real Deal Future City

I recently attended a conference with some of the largest real estate developers and owners from New York City. Most of them have invested in PropTech. However, they are all first wave investors. They were excited by the deployment of apps to engage with their millennial tenants or improved workflows in their property management organization. But now they have begun to realize that this incremental innovation was just "table stakes," or minimum entry requirement. And to quote one massive investor: the results were okay, but not thrilling.In the first wave of any given area of tech investing, there is a great deal of focus on low hanging fruit--the incremental innovation that doesn't require a big change in workflow. The job losses due to optimization are low to none. But it was amazing to see how participation in the first wave created a burning desire in these investors and owners to do more. Not more of the same, but more to truly change the industry. The first wave of innovation had a moderate impact because it was focused on innovation for owners' and developers' operating budgets. Now in the second wave, the focus is on their construction processes and how to optimize their cap-ex spend.

‍Real estate executives are now focused on climate change and innovation. Instead of making fun of the massive investment that Alphabet put into Sidewalk Labs, they are listening and learning about how they could implement best practices from Sidewalk Labs.With all of this in mind, below are a few PropTech 2.0 opportunities for startups that go beyond the basic workflow.

New Materials: The move to sustainable products requires new processes. While there is a labor crisis around installing the materials that are familiar on a job site, there is no labor for new materials and the unique methods required for installation. Creating technology to implement these new materials will be critical. Mass timber construction is a great example. Mass timber is light, so it sways a bit with the wind and requires a damper to keep it from swaying. Our portfolio company Hummingbird Kinetics solves this problem. Most mass timber will be fabricated off-site and transported. It will need to be installed on-site. How it is transported and installed on-site needs to be figured out. But it definitely won't be a bunch of folks swinging hammers.

Computer Vision: There are a lot of startups deploying cameras on job sites, leveraging computer vision to solve a single problem. Most of them are just scratching the surface on how computer vision can be leveraged. There is still a lot of runway here, with massive computational problems to be solved.

Market Specific Innovation: How do you eat a woolly mammoth? One project at a time, focusing on a specific market segment. For construction, each market has different needs. Building an airport is different than building a residential high rise. Each market has massive addressable markets, so building a product that solves market-specific construction problems is a great place to start.

Disruption: Machines will take your jobs. For this second wave of construction technology innovation, there is very limited sensitivity to machines taking jobs. Mostly because the labor doesn't exist and won't in the future. A value prop of "no humans required" is more interesting than "we make people more effective."

Transparency: Platforms that create transparency for real estate owners across their virtual enterprise (the construction project) are needed. The ability to share institutional knowledge across a project team is being demanded. For every mistake that is made on a job site, there was someone on the team who could have avoided it--if they only knew about it, that is.The Real Deal Future City conference was eye opening for me. I did not expect the level of interest that real estate owners/developers had in improving the construction process. I wrote a book in 2011 called BIM for Building Owners and Developers. It was mostly purchased by architects, engineers and contractors. Very few owners actually cared. That seems to be changing.