US real estate ranks among the world’s largest asset classes with a total market cap exceeding $27 Trillion (by comparison, the US Stock Market is almost half the size at $14 Trillion). In 2012, close to $1 Trillion worth of US real estate traded hands and this number is expected to increase in 2013.
However, despite being a massive market, real estate is stuck in the past and those in real estate don’t know or don’t care (business as usual is in their best interest) how disconnected real estate and technology truly are. This has created lack of access, market inefficiencies and also tremendous market opportunity. It isn’t surprising that those making the most progress towards eradicating these inefficiencies are innovators rather than core real estate people. And their entrance into this market has in some cases been accidental and in others simply because they haven’t been tainted with how real estate works today and thus see an opportunity to disrupt this multi-trillion dollar market through technology.
As a founder of RealtyShares (www.realtyshares.com), a real estate crowdfunding platform focused on eradicating the inefficiencies of investing in and raising capital for commercial real estate investments, I have had the pleasure of engaging with many of these innovators personally. Although they come from a variety of backgrounds, they have one thing in common: they are all leveraging technology to disrupt real estate and make it more efficient. And after careful consideration, below are my picks for the five that I believe are (or will soon be) the most disruptive.
AIRBNB: Annual revenue for the global hotels and resorts industry is in excess of $550 billion and Airbnb, an online marketplace for short term rentals, has been busy disrupting this industry since 2008. And its success speaks for itself. As of November 2012, Airbnb had over 250,000 rental listings in 30,000 cities and 192 countries and had raised approximately $120 million in funding at a valuation north of $1B. The concept behind this P2P short term rental marketplace is simple: individuals want greater choice on where they stay when they travel or are away from home than hotels. The Founders aren’t hoteliers, leasing brokers or landlords. Rather, they are innovators, techies and designers that understand that lack of choices for consumers beyond hotels has created tremendous market opportunity. And it isn’t surprising that their biggest critic is the American Hotel & Lodging Association, an association pegged as serving the interests of hoteliers both on the front line and behind the scenes.
DOTLOOP: The US residential real estate market is over $16 trillion in size and purchases of existing homes in 2012 increased by 2.1 percent to a 4.79 million annual rate. Yet, if you have ever bought or sold a home you know first-hand how inefficient and broken the process really is. Dotloop, a company that assists agents, buyers and sellers through this process, is on the verge of changing that. Dotloop’s value proposition is simple: make the residential real estate transaction process efficient and paperless. Dotloop does this by utilizing a cloud based technology focused on inviting people to the transaction documents rather than passing around multiple versions. As of 2012, Dotloop served more than 200,000 agents in 700 cities in the US and Canada and had raised over $7 million in funding.
STOREFRONT: In the US alone, there is more than 9.9 billion square feet of leasable retail space with an average rental rate of $15.15 sq. ft/year (a market cap in excess of $140B). Although there are a growing number of startups giving brick-and-mortar retailers an avenue to build their own online ecommerce stores (i.e. Shopify), the process for retailers to find and lease space offline is inefficient and lacks transparency. San Francisco based early-stage startup and Angelpad grad “Storefront” seeks to change that. At its core, Storefronts product is an online marketplace for short term retail leases. However, the coolest thing about this startup is that it propagates the pop-up shop phenomenon (i.e. giving online retailers a presence in the brick-and-mortar market). You can find a video of one of their latest pop up shops here: http://www.youtube.com/watch?v=P7ponQ6JeNs.
42FLOORS: 42Floors is for office space what Storefront is for retail space. The demand for office space is on the rise and in 2011 was at its highest level since 2007 with 50.4 million square feet of net absorption. 42floors is a search engine for the office rentals market that is turning the inefficient office leasing process into a transparent online user friendly experience. The founding team is a group of coders, developers and innovators (rather than brokers or real estate professionals) looking to capitalize on an inefficient yet huge market. To date, this Y Combinator-Backed startup has connected over 1,000 businesses with over 2 million square feet of office space and has raised more than $17 million in funding and is now looking to expand internationally.
ZUMPER: The US Apartment rental market has not only fully recovered since the start of the real estate recession, but is now expanding (with vacancies expected to fall from 5.5 to 5.2% in 2013 and 5.1% after that). However, anyone that has ever looked for an apartment knows the apartment hunting process (especially in SF or NYC) is time consuming, unreliable, overly competitive and inefficient. For the last decade, craigslist has been the only real online solution (although lack of consistency, spam listings and its utilitarian design have left users wanting more). SF based early stage startup Zumper vows to change that through a more efficient, user-friendly online apartment rental marketplace that will help apartment hunters find their next great apartment. Zumper is currently operating in NYC, San Francisco and Chicago with expansion plans into additional markets in the very near future.
Real estate is ripe for disruption and each of the above listed companies are a testament to the fact that this disruption can come from anywhere. Personally, I am excited for their prospects and they are worth keeping an eye on. You can catch a few of them at RealTech SF 2013 at the end of April (www.reesio.com/realtech). The event will be hosted by Reesio, a realtech startup that streamlines the real estate transaction process through an interactive online workflow.