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"Technology is definitely the key to making sure that the next time we have something like this — and we will have something like this — that we're way, way better prepared and businesses can survive." — Abe Somani
If it ain't broke, don't fix it. And real estate in America hasn't broken since the early 1900s. But in the last 10-20 years, real estate as a physical asset has morphed, a trend the pandemic has exacerbated and accelerated.
Thirty years ago, warehouses were the inferior asset class and retail the hottest. Now, no one wants a mall. Because these transformations happened so quickly, investors could not adapt fast enough. As soon as investors started to get burned, it was time to innovate.
What we talked about:
"Ridiculous amounts of administrative work real estate professionals go through the lack of documentation, software, processes, workflows. I was dealing with all these excel spreadsheets and sometimes things were written on paper, scratch outs on leases. Going through 10 people to get a very simple answer. So, I saw a lot of different issues there, and I kind of think that's kind of where proptech emerged from anyway, the issues on the administrative side." [2:35 – 3:10]
"Real estate as an asset class is one of the highest performing asset classes, at least in America and globally, and there are so many benefits just as an investment, from depreciation, taxes, especially in America it has been a very real estate friendly country. When your returns are that high, and that consistently high, where your beating the smp 500 over any 10 year period since the early 1900s there is often very little need for innovation. If it ain't broke don't fix it mentality, because why put in effort to improve our systems or processes when without doing anything we can churn out a 12-13% rate of return net to our investors every year." [6:01 – 6:45]
"As soon as investors start to get burned, as you stop spitting out 12-13%, they put a lot of pressure on the property managers, asset managers, the owners, you gotta figure something out, you gotta turn this around. Typically, an individual technology component by itself, for example, even our technology, isn't enough to move the needle. We can save you time, we can save you money, but we're just one component. You need an ecosystem of technologies that are talking to each other, working together to actually change alpha; alpha is profit." [7:27 – 8:03]
"The younger generation is stepping up and taking over and if you look at millennials who are approaching 40-45 and even the generation after them, this a generation who essentially for most of their life has grown up on their mobile phone. They want everything to be mobile, they want everything to be clean UX clean UI. They want to be data-driven decision makers, and as the passing of time goes on, more of those types of leaders are going to look at processes and say look we can't be doing stuff on a paper and a pad, we can't be hunting for information for 5 days, it's just not efficient, and we just don't have the attention span." [11:20 – 12:00]
"I think AI is really anything that we ask a computer to do that replicates the behaviour of the human mind." [12:42 – 12:54]
"AI requires a tremendous tremendous high quality of data-sets and so the period that we're at, everyone is trying to solve a specific function using AI and they're trying to collect as much data-sets as possible, because what they're doing is they're basically replicating a brain, and that brain is IP, and once you create a collection of memories, it's very valuable, it can't be destroyed or corrupted. It's this thing that ya you can automate it. [14:02 – 14:35
"If you drop a residential lease into our application over the past 5 year, we have seen so much data that we can pull your rent charges, pull your critical dates, we'll pull your renewal options because we've done it so many times. What it also does is create barriers to entry, because if I've already done that, built this great sophisticated AI to read residential and commercial leases, and i'm already automating 80% of that, why would anyone want to recreate that? No, go solve another problem in AI." [14:36 – 15:16]
"The expectations of AI have often surpassed the realities of it. It's still a very slow and cumbersome process, it's complicated, and a lot of it exists inside a black box so it's hard to sometimes figure out why did it behave that way?" [15:59 – 16:16]
"People who were using our software had all of that data structured, easily accessible, they didn't have to call their lawyers, they didn't have to talk to anyone. And when you're dealing with a very sensitive situation like a long-term tenant, who has been a great tenant, all of a sudden says,"I'm sorry I can't pay this month's bill. My business is shut, I'm not earning any money – on the residential side – I can't pay you." That's a really hard conversation to have. And I think the people armed with data, who had technologies in place, were able to quickly to run queries and analysis, and say okay this is our exposure, 20% is protected by this insurance, 30% is protected by that clause, let's go into these meetings with compassion but also be armed with data, because we have to survive also." [17:01 – 17:46]
"It's not just AI, it's everything from zoom meetings, and virtual meetings, the real estate companies who were used to that, were able to get a lot of stuff done and able to be productive and get stuff done through the pandemic, instead of the guys who everyday you have to wear a suit and come to the big boardrooms, like that's just the way we do things they had a tougher time earlier on." [18:02 - 18:20]
"We helped companies do their utility bills through the pandemic, they couldn't figure out who they owed, what they owed, there were some facilities that were turned on and the lights weren't turned off, and nobody was there though, they couldn't figure out why their bills were so high. They just threw all their utility bills to us, we used our AI, extracted all the data, and gave them a trend analysis. We did that for cell phone contracts, vendor contracts, we've done it for so many different things, beyond just a traditional lease document and we continue to see more and more use cases come up." [19:29 – 20:04]
"It's future-proofing for the next pandemic also, and I think technology is definitely the key to making sure that the next time we have something like this, that we're way more better prepared and businesses can survive." [20:18 – 20:32]
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