Fifth Wall announced $1bn proptech investment fund, sector not awake

VC outlet Fifth Wall Ventures has announced that the oversubscribed second funding round of $503mn has closed, giving the firm over $1bn to invest into the proptech sector. However, much of the market still understands proptech to constitute websites and applications that make renting or buying property easier, and are asleep to the opportunity that smart building technologies could provide.

Founded in 2016, Fifth Wall is the largest proptech-focused fund in the market, and has substantial clout when it comes to crowning victors. However, if all it focuses on are mechanisms to better facilitate leasing and selling, then it will miss a raft of opportunities in using smart building technologies to improve the retail and rental value of property on the market.

Over the past few years, there has been a general reluctance to invest in hardware, with VC and PE firms favoring software-based approaches, as there is less overhead and fewer sunk costs. Being saddled with manufacturing or workshop equipment is more of a burden than having to offload a dozen coders and a ping-pong table, and the software developers might just spew out some patents and IP that you can use to recoup your investment, even if the startup burns to the ground.

Fifth Wall isn’t disclosing what it has actually invested in, or plans to in future. It does say that it has over $1bn in assets under management, with 50 investors in the second fund, from 11 countries. It says that this is now the largest fund in the Los Angeles area, and that since the first round of $221mn in May 2017, it has grown from 8 to 30 employees. It even has a fawning quote from the mayor of the city, gushing over how the fund has driven LA to new heights.

So for all the tack of technology, the announcement doesn’t actually provide any examples of the types of startup that the fund is interested in. The Fifth Wall founders have backgrounds in ridesharing and online leasing platforms, with Brendan Wallace co-founding Cabify and Brad Greiwe co-founding Invitation Homes, respectively.

Based just on those credentials, one would expect their focus to remain on rental services, using web-based technologies to facilitate easier or better transactions. However, with $1bn to splash around, a lot of hardware-based technologies could get a leg up with just a fraction of that pot.

In most proptech discussions, which tend to overlap strongly with fintech, there is no focus on hardware; it is all about platforms, commerce, and acting as a middleman between the property and the person interested in paying for its use. In terms of retail transactions, where a property is sold and changes hand, technology in the property doesn’t really factor into the equation, besides perhaps adding some value to the worth decided by the buyer – such as a fancy lighting system, security monitoring, or rooftop solar.

However, in any environment where there is a landlord, physical technologies within the home have a huge role to play in proptech. These are devices that could make checking in to a holiday home that much easier, or a voice-based smart home control system so that the tenant doesn’t have to learn the ropes and can simply ask for what they want.

Security is an obvious benefit, with the landlord able to use non-intrusive cameras to ensure that no one is abusing the ‘no parties’ rule, and insurance claims might be easier to make if there is video or data from the home to use as evidence. In time, insurance providers are going to begin mandating some level of smart home technology in place, such as smoke alarms and emergency water shutoffs, and some might even use these to lower the price of their premiums.

For larger properties, such as commercial or retail space, these connected devices could go a long way to reducing the operational costs of the building. Occupancy sensing might suggest better rental pricing schemes, or footfall could be monitored to better advertise to those within the building. Joined-up HVAC and lighting systems could use these presence sensing capabilities to optimize their output, and a connected access system would provide additional security features too.

The in-building devices are foundational, as they generate the data needed to supply the optimization applications with enough information to start making good decisions. Analytics tools are useless if they don’t have the raw materials to work with, and no amount of cloud-based processing horsepower makes up for that.

The larger the building, the bigger the potential benefits, but simply piping up all the data generated by the devices and systems within its walls is not efficient. There is a big opportunity in this sector for machine learning based analytics, for spotting patterns within the myriad of data generated by domiciles and places of work.

“As the real estate and technology industries increasingly converge, Fifth Wall has become central to that convergence, fostering a level of strategic collaboration that has never before characterized the real estate industry,” said Brendan Wallace, Co-Founder & Managing Partner at Fifth Wall. “Fifth Wall sees powerful network effects in our unique fund model as it becomes a centralized platform for the world’s largest real estate companies to share insights and access new technologies to enhance their businesses. For our entrepreneurs, Fifth Wall efficiently opens distribution channels for their products to more than 50 corporate strategic investors globally and we have dedicated a team to support the success of those partnerships and integrations.”

Fifth Wall counts the following as investors: Gecina in France, MERLIN Properties in Spain, British Land and SEGRO in the UK, Kenedix and Mitsubishi Estate in Japan, Keppel Corporation in Singapore, and many in the United States, including CBRE, Cushman & Wakefield, D.R. Horton, Equity Residential, Essent, Hines, Host Hotels & Resorts, Hudson Pacific Properties, Lennar, Macerich, Marriott International, MetLife Investment Management, News Corp, PulteGroup, Starwood Capital, Related Companies, and Toll Brothers.