Constructing Atlanta’s future
Hello and welcome back! I hope you’re staying warm and haven’t — like me — had your heating conk out on you. Our home HVAC system, which is a tad on the older side, lacks sensors or indicators that point to the problem or recommend maintenance before an issue occurs. Advances in Internet of Things (IoT) and data technology, will likely soon make such shortcomings only memories.
Our physical spaces — where we work, live, play, and relax — have become increasingly top of mind. Due to the pandemic, many of us have spent more time at home. We’ve bought furniture and equipment to help us be more productive and comfortable, undertaken home improvement projects, and, in some cases, even moved. COVID-19 has forced employers to rethink office space and make new investments to alter how it is used. The past couple of years has also brought focus to affordable housing shortages and the impact of evictions. That’s why I thought it would be interesting to use today’s edition to hone in on the Atlanta startups disrupting the real estate industry with technology — so-called “proptech” businesses. These companies’ offerings range from providing more frictionless ways to buy, sell, and rent property to streamlining real estate development and investing.
A survey of the real estate landscape
Let’s begin by taking a step back and examining the real estate market as a whole. Commercial real estate broker Savills estimates the value of the world’s real estate reached $326.5T in 2020, 5% above 2019 levels and a record high. That makes real estate the planet’s most significant store of wealth by far — more valuable than all of the world’s equity and debt securities combined and more than three times global GDP. Residential real estate constitutes the largest sector, but commercial is still big business; MSCI puts the professionally managed global real estate market at $10.5T.
Over the past year, the US residential housing market set record after record due to historically low mortgage interest rates (see chart below) and tight supply — partly attributable to global supply chain constraints limiting builders’ ability to source construction materials as well as the hesitancy of many sellers to list their homes during lockdowns. Even as mortgage rates tick upward with the rise in the 10-year US Treasury yield and as financial markets anticipate changes in monetary policy to combat inflation, the residential sector remains uber-competitive.
When it comes to commercial real estate (CRE), the shift of many companies to work from home during the pandemic led vacancy rates to spike — from 12.6% before the pandemic to 17.4% in Q3 2021. In Q4 2021, office vacancies averaged 16.7% (high by historical standards) across seven major gateway cities, Atlanta included. While COVID’s Delta and Omicron variants delayed return-to-office plans, most commercial tenants have continued paying rent, even as their employees work from home. The continued investment by big tech companies in office space has buoyed many investors’ expectations, as has the upward trend in leasing rates, which rose 9% last quarter.
Many CRE firms are taking the opportunity to retrofit properties and repurpose spaces for alternate use (such as converting office space to multi-family residential). The signing of the $1T federal infrastructure bill last November is also expected to provide a long-term boost in construction.
So what is proptech?
Proptech represents the infusion of technology into the (traditionally analog) real estate industry, using things like online marketplaces, analytics, AI, IoT, robotics, and material sciences. Use cases span employing data to aid investing, leasing, and homebuying decisions; facilitating contactless real estate transactions; using software to design, develop, and manage real estate assets; and making properties “smarter” and more sustainable.
The pandemic accelerated real estate companies’ attraction to such tech-driven solutions. In a Deloitte survey, 82% of CRE companies agreed to some degree that COVID exposed shortcomings in their digital capabilities and affected their plans for digital transformation.
The number of proptech companies has grown by an estimated 300% in the past decade to nearly 8,000. Companies in the space include both market leaders like Airbnb, Zillow, Compass, Opendoor, and Procore and fast-growing entrants like Fundrise, Place, Pacaso, Divvy, Kin, HomeLight, and HOVER.
VCs have jumped in to fuel this growth. Investors pumped $32B into real estate tech companies last year, a 28% jump over 2020. This funding was especially concentrated in residential tech (nearly 50% of investment dollars) and more mature startups (57% of funds went to Series C deals or later). Analysts expect areas like construction tech, real estate embedded finance, and property management software to attract greater investor attention this year.
Atlanta: proptech paradise
Atlanta is well-positioned as a center for proptech and real estate activity more generally. The city is a transportation and logistics hub with crisscrossing interstates and railways and the world’s busiest airport. The metro area boasts multiple institutions of higher learning — including ones offering real estate development and architecture programs — and hosts the headquarters or offices for a number of leading companies. Atlanta is often referred to as a “developer’s town” because of the constant building activity and the city’s unbounded space, which has resulted in the metro area’s infamous sprawl. Over the past decade, regional construction employment increased 43%. By 2023, the city’s annual construction volume is expected to rise to $24.17B.
When it comes to the residential market, Atlanta’s relative affordability compared to other major cities has helped attract new arrivals. According to Nerdwallet, Atlanta’s cost of living is 48% lower than San Francisco and 60% lower than Manhattan. Still, Atlanta’s median home price jumped 21.6% year-over-year as of November, and both home prices and existing home sales are forecast to outpace the national average this year. The city is also one of the hottest markets for iBuying (a practice in which companies use technology to make instant offers on homes and then take on the burdens of owning, marketing, and reselling them).
The metro area’s rapid population growth is driving the real estate dynamism. Atlanta grew by nearly 19% between 2010 and 2020 and the region is expected to grow by 2.9M people over the next 30 years — largely attributable to job growth.
As is the case with other major cities, with growth and a constrained housing supply has come a struggle to provide affordable housing. Zoning and land-use restrictions on affordable multiunit housing in popular areas — often referred to as “missing middle” housing — play a role here, as does the fact that metro Atlanta’s various jurisdictions have different, often contradicting, regulations, adding complexity and cost for housing providers.
Atlanta’s proptech movers and shakers
A crop of proptech pioneers has blossomed within Atlanta’s fertile real estate environment. These startups range from real estate transaction marketplaces to construction tech tools and businesses offering services to homeowners.
Real estate transaction marketplaces
Real estate transaction marketplaces match property buyers and sellers, renters and landlords, and operators and investors.
Take PadSplit, a Techstars Atlanta alum, which aims to enable workers to afford housing in the communities where they work. As described by the company’s founder and CEO, Atticus LeBlanc, the company is focused on addressing two major constraints: the limited supply of housing in these communities and the lack of workers’ access to affordable options — often due to income and credit requirements. PadSplit helps real estate investors convert underutilized single-family homes or apartments into shared housing as a means of expanding the affordable housing supply. The company’s platform then connects these property owners with pre-screened residents seeking a place to live. Residents pay around 40-60% less than normal rent in their markets for furnished rooms with utilities and other services like WiFi and telemedicine included. PadSplit, in turn, helps property owners with lead generation, resident screening, and rent collection and processing. The company raised a $20.5M Series B in November from investors like Core Innovation Capital, Impact Engine, Citi, Mark Cuban Companies, and Atlanta’s Overline and Cox Enterprises to help expand across markets and better enable non-professional real estate investors to buy and convert houses.
SimpleShowing, a home listing platform and app covering markets in Georgia, Florida, and Texas, offers sellers a 1% listing commission and buyers up to $5,000 in closing cost credit. Toura, which shares founders and team members with SimpleShowing, seeks to make booking and managing home showings easier, enabling buyers and agents to see up-to-date showing information and book and confirm tours.
Nectar, which was a member of last year’s Techstars Atlanta cohort, runs a marketplace that pairs professional Airbnb hosts seeking growth capital with investors. The company evaluates host applications and facilitates financing in the form of revenue share agreements. Investors, in turn, get passive income streams via real estate cash flows.
Finally, there’s MAXEX, a digital mortgage exchange that enables lenders and investors to trade residential loans through a single clearinghouse. The company counts some of the country’s leading mortgage buyers — like JP Morgan, Morgan Stanley, Goldman Sachs, Citi, and Bank of America — as customers, and, in June 2021, garnered a strategic investment from JP Morgan and existing investors AGNC Ventures and Moore Asset Backed Fund.
Construction (tech) tools
Startups in this category help developers design, build, and manage real estate projects.
Cove.tool, for instance, creates software that helps architects, engineers, and contractors conduct energy, daylight, carbon, and similar analyses — allowing them to build more affordable, energy-efficient buildings. In December, the company raised a $30M Series B, led by New York-based Coatue, and joined by Robert Downey, Jr.’s FootPrint Coalition, Mucker Capital, Urban Us, and Atlanta-based Knoll Ventures. Cove.tool boasts over 15,000 users in 30 countries and says it offset more than 28.5M tons of carbon last year.
Flashtract, which launched in early 2020, provides software that helps construction companies better manage their subcontractor billing and payment processes and reduce errors tied to traditional methods like spreadsheets and paper checks. Earlier this month, the company raised a $15M Series A led by Addition and Shine Capital. Longer-established SmartPM, runs an automated project controls platform that translates construction scheduling data into visuals to help project stakeholders easily identify and address project risks. And Document Crunch offers an AI-enabled tool that scans complex construction contracts and related documents to identify common contract issues. The company aims to help small construction firms, which often lack the resources and manpower to conduct deep dives into such documents, make more informed decisions.
YARDZ, founded by two former construction managers, builds software that allows contractors to track their owned and rented tools in real-time and in one place. The YARDZ platform ingests data from sources like supplier networks, IoT-enabled devices, and financial systems to help builders pinpoint what they have in their inventory and where it’s located.
Real estate operations management
This category includes startups like Kairos and LeaseQuery, which help real estate companies manage their properties. Kairos builds smart leak detection and water metering technology to help property managers prevent water damage and save money associated with leaks. LeaseQuery, backed by Atlanta-based Valor Ventures and Panoramic Ventures, provides software to help accountants comply with financial reporting standards for leases and track leased assets like real estate.
Residential services
Atlanta startups like Zeto, MooveGuru and ServeScape provide homeowners better access to home services. Zeto, which emerged from the Atlanta Ventures Studio, uses text messaging to help homeowners obtain services. Zeto pairs homeowners with a “home manager,” who works with trusted vendors to schedule and manage activities like plumbing repair or HVAC system maintenance. MooveGuru works with real estate brokers to help clients who are moving find and select local pros like movers and utilities technicians. And Chamblee-based ServeScape, which was also part of Techstars Atlanta’s 2021 cohort, offers an ecommerce marketplace for plants and landscaping materials and online landscape design services. The company, founded by the city of Atlanta’s former Urban Agriculture Director and currently serving metro Atlanta and Athens, is dedicated to using local designers, contractors, and plants.
Co-working / warehousing
While today’s edition is focused on proptech, not the burgeoning sector of supply chain and logistics tech (see my piece from last October for more on that topic), I would be remiss if I didn’t mention a startup straddling the logistics and proptech line: Saltbox. Saltbox offers a unique “co-warehousing” model to SMB ecommerce companies that allows them to operate as well as store and ship goods under one roof. Saltbox co-founder and CEO Tyler Scriven points to the reality that existing logistics infrastructure was not built for SMBs. The company is thus working to rethink logistics from SMBs’ perspective in a way that is more human-centric and accessible. Saltbox provides flexible warehouse suites for its customers to store their inventory but also office and productivity spaces and amenities like product photography studios, stocked kitchens, and WiFi. Beyond just the physical space, the company offers fully integrated third-party logistics (3PL) services like receiving, picking, packing, and shipping. Saltbox raised a $10.6M Series A last spring and has expanded from Atlanta to Dallas, LA, Seattle, and Denver. It plans to have 18 locations by the end of the year.
VCs investing in proptech
In addition to investing in some of the hometown startups mentioned above, certain Atlanta venture firms have also funded proptech companies located elsewhere. Both Forté Ventures and Engage have invested in Tampa-based Homee, for example, a platform that connects insurers, policyholders, and skilled service providers like plumbers and electricians during home insurance claims processes. Engage also backs ICON, an Austin-based construction tech company using 3D printing robotics and advanced materials to build new homes.
So what’s ahead for proptech?
Among the key trends that Atlanta’s proptech leaders will navigate in 2022 and beyond are:
Increased emphasis on virtual interactions
During the pandemic, practices like virtual home tours and e-signing real estate documentation went mainstream. 72% of realtors have said they’ll likely continue to provide virtual or video tours after the pandemic ends. The growth in VR/AR technologies and the ability of digital workflows to replace real estate transactions’ infamous paperwork will continue to shift real estate away from in-person interactions.
Greater usage of data and analytics for real estate decision making
The real estate industry is expected to continue to shift toward tools and platforms that aggregate and apply data to make it easier for buyers, sellers, and investors to transact. This means the proliferation of platforms that enable more accurate rental and purchase price estimates, predict optimal mixes of real estate assets, and conduct quicker tenant screening. It also means an increase in digital listing and iBuying activity.
More focus on sustainability
The broader societal focus on climate change is changing the way the real estate industry operates — crucial given that the building and construction sector currently produces nearly 40% of overall carbon emissions. Increasingly, investment funds want to back ESG-conscious projects and corporate tenants and residents wish to work and live in carbon-neutral buildings and homes. Proptech is empowering architects, developers, owners, and tenants to design, build, and live sustainably — whether via sustainability-oriented modeling software like that offered by cove.tool; carbon capture services for construction; platforms for monitoring ESG data across properties; or IoT solutions like smart lighting, thermostats, and water meters that improve building efficiency.
Automated property management
New tools are enabling multi-family and commercial real estate portfolio owners to more effectively manage their buildings and respond to tenant needs. Property managers can use solutions like Buildium, AppFolio, and ManageCasa to understand space usage and demand, receive online rent payments, field requests for maintenance, and conduct bookkeeping and financial reporting.
Acceleration of physical infrastructure for eCommerce
Online shopping spend jumped an incredible 32.4% between 2019 and 2020, fueled by the pandemic. This trend is only expected to continue, expanding ecommerce’s share of total retail sales from 11% in 2019 ($600B) to nearly 24% ($1.65T) in 2025. Greater investment in logistics infrastructure — including real estate like warehouses, “dark stores,” and small, distributed DCs — is necessary to enable the resulting economic transformation and has led to something of a “land grab” among tech-enabled logistics providers. As explained by Saltbox’s Tyler Scriven, “We’ve seen half the movie” when it comes to building ecommerce logistics, but “we’ve still got a long way to go.”
Broader democratization of real estate investing
Startups like Cadre, CrowdStreet, Fundrise, RealtyMogul, Republic, and Yieldstreet are offering retail investors a means of sidestepping needing mass amounts of capital to invest in real estate by offering fractional and crowdfunding-oriented property investment opportunities. The movement towards broader access is expected to continue, with the global real estate crowdfunding market projected to grow to nearly $870B by 2027.
In the end, as PadSplit founder Atticus LeBlanc points out, proptech’s real innovation has been the application of tech solutions and processes to a field that has historically been inefficient. As we look ahead, the sheer size of the real estate industry and the industry’s potential for further modernization indicate an exciting future for Atlanta’s proptech startups and real estate incumbents.
