FinTech & The Built World Economy

As you know, Fifth Wall’s portfolio event was this week in Venice. There were three panels held yesterday at their office, each covering a category Fifth Wall has made big bets on (the majority of panelists were from portfolio companies):

1. Future of Cities
2. Real Estate-as-a-Service
3. Fintech and The Built World Economy

I’ll start with a few thoughts on 3rd panel, FinTech and The Built World Economy (the other two will come next week):

A look at how fintech has disrupted almost every sector of the real estate industry, where it falls short and how it’s expected to evolve. This panel also looked at how blockchain technology is poised to transform the commercial real estate environment.>

Moderated by Jonathan Shieber from TechCrunch.

• Max Simkoff, Founder and CEO of States Title
• Erin Collard, CFO and Founder of Blend
• Assaf Wand, Co-founder and CEO of Hippo
• Josh Stein, President and General Counsel, Harbor

Going into the panel, I knew a fair amount about Blend, Hippo, and Harbor and virtually nothing about States Title. Max was a lively personality, and got a few laughs when he said the attraction to founding a title company was because he realized the title industry (as it stands today) is a scam. Today’s title products are not based on risk, but based on home value. States Title is making a process that formerly took 7 days instantaneous.

Erin at Blend is building an amazing SaaS tech-enabled mortgage business, and part of Fifth Wall’s investment was brokering a deal with Lennar (the largest homebuilder in the US). Regulatory risk isn’t a bad thing for his business, as it acts as a moat to competition in mortgage (not unlike how the challenges obtaining MLS data act as a moat to those who have spent the money and time to aggregate hundreds of MLS’). He believes a major area of opportunity is to strengthen the realtor – loan officer relationship. Especially in markets where homes sell in a couple days, if that relationship is not rock solid, there’s little chance a buyer will be able to win a bidding war and close on a property.

Assad at tech-enabled home insurance broker Hippo mentioned something that really resonated with me given my passion for consumer advocacy is the insurance industry has historically been focused on improving efficiency, but refocusing on the customer is the way to transform the experience. He spent a few minutes outlining the opportunity for home insurance to be much more proactive – monitoring roofs with drones, cleaning gutters, changing water filters, monitoring for leaks, etc – in order to provide more value to the homeowner, and de-risk Hippo’s business in the process.

Josh at Harbor talked about Harbor’s mission to bring the liquidity of public markets to private securities. Real estate happens to be the world’s largest class of private securities. Making trades faster, cheaper, and easier (using blockchain technology) will lead to more liquidity — while remaining compliant with rules and regulations specific to each investment. On the topic of regulation, a mistake made in crytpo was viewing regulatory hurdles as an impediment. Instead, they should (and Harbor does) view the SEC (& other regulatory bodies) as your largest and most important client. He’s bullish on Harbor’s ability to enable un-boundling of ownership interests, and re-bundle them. Even though I hear “blockchain” from all corners of this industry, Harbor is one of the very few blockchain technology investments that makes sense to me (see Fifth Wall’s announcement from a few months ago here). While they are certainly focused on real estate for their early adoption, they are also thinking about hedge funds as a category long term.

While it’s true municipalities across the U.S. are experimenting with blockchain for various uses like reimagining land registries (and there are some startups trying to help them do so), Max hit the nail on the head when he mentioned the need to sell into 3,000 country recording offices being a huge (massive) barrier. Having dealt a bit with county recorders and assessors in Zillow’s early years, I certainly agree that trying to sell software to county recorders offices does not sound like a fun (or lucrative) business.

The panel takeaway in my mind is that the mortgage process truly is a colonoscopy of finance. Consumers give literally everything financially to whoever is doing their mortgage; iIt’s extremely intrusive. As a result, it’s a great place to add other financial services into the equation. A financial wallet (available to be used by any person or entity who needs your financial data) is the major consumer win lurking for someone to capitalize on.

Disclosure: Fifth Wall is a client.

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Geek Estate Newsletter #23 – Investing in Client Amenities

The purpose of Geek Estate’s mastermind community is two fold:

1. Curate the most incredible and diverse membership of real estate innovators, creatives, doers, and creators in the world.
2. Make our members wildly successful in their careers building real estate companies.

In this week’s member newsletter (#23), I discussed taking a page from Fifth Wall’s playbook by investing in amenities for your clients as well as touched on Toys ‘R’ Us and avoiding disruption.

In my “non-industry reads” section, one article included was Welcome to Zucktown, Where Everything is Just Zucky by David Streitfeld in the New York Times. Do people love tech companies so much they will live inside them? Zuckerberg and Facebook are certainly going to find out.

Another was South Korea’s Capital Is Planning to Launch Its Own Cryptocurrency in Coindesk. The mayor said the “S-Coin” will be used in city-funded social benefits programs. A city backed cryptocurrency is a pretty compelling proposition to ponder; it seems a blockchain ledger would be great for welfare programs in the United States.

If you want to read the entire newsletter, and future newsletters, please apply for membership below.

Geek Estate Membership

Interested in joining?

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Safari & Chrome and Zillow/Redfin/Realtor — and Data

I (finally) purchased a modern MacBook Pro this week. My old MacBook Pro from 2012 finally was too much to deal with in terms of slowness/performance. As a browser, I’ve been using Chrome for years, but have been using Safari the last few days since purchasing my new computer to see how it compares. Last night, I got the following prompt:

I never told Safari to grab data from Google Chrome, least not knowingly. But smart by Safari.

My point is not to talk about Safari and Chrome. My point is that agents/brokers should be thinking about creative approaches to acquire buyer data off previous websites and apps buyers are using. Namely, Zillow (and Trulia), Redfin, and Realtor.com.

What if you could somehow automatically grab all someone’s saved searches off Redfin or Zillow, and import them to your website and saved searches? If you could, I have to image that would be a better user experience than making someone start over from scratch. I suppose the question is whether doing so is possible? I don’t have an answer, but any insight you have on the topic would be appreciated.

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Compass Battling Regional Heavyweights, and Entering Seattle

Tech enabled real estate brokerage darling Compass recently entered the Chicago market. Clearly, the local brokerage community noticed.

Baird & Warner put an ad in the paper (via Geek Estate mastermind member Eileen of Truepad):

@Properties put up the following billboard (via Eileen at Truepad via TheRealDeal):

They are now entering Seattle. My hometown Seattle is the capital of real estate technology, with Zillow Group HQ and Redfin HQ less than a mile from each other, and a range of other startups in the area (including CityBldr & FlyHomes). Market Leader is 20 minutes away, and Ben Kinney’s Brivity is a couple hours north. Point being, there’s no shortage of smart industry technologists and tech savvy brokers in the greater Seattle area (I’m looking at you Sam). As a Seattleite , I’m anxiously awaiting the coming battle between Compass and Seattle established Goliaths Windermere, John L Scott, and Coldwell Banker Bain.

Are you in Seattle, and want to grow Compass’ Seattle team (and battling the Goliaths)? If so, they’re hiring a strategic growth manager (no surprise).

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Right of First Offer When Leasing Commercial Real Estate

The following post is copyrighted by Austin Tenant Advisors - .

When leasing commercial real estate for a rapidly growing company it’s important that you negotiate to have options to expand, otherwise if you run out of space in that building your only option is to relocate your company to a different building. One of those options is called a Right of First Offer (ROFO).

What is a Right of First Offer?

If you have negotiated a ROFO then anytime a space becomes available the landlord has to “offer” it to you first. This gives you the ability to take the space or reject it before the landlord offers the space to anyone else. A ROFO could include only adjacent space, any space on your existing floor, or any space in the building.

How Does A Right of First Offer Work?

Let’s say you negotiated a commercial lease and the landlord conceded and gave you a ROFO. Then 6 months later a tenant who occupied space on the 5th floor moves out of the building. If you have a ROFO on that space or the 5th floor then the landlord has to offer you the space before offering it to anyone else. ROFO’s can be negotiated for a particular floor or space. The key is to understand your current and future space needs and do your best to negotiate rights to space so you have other expansion options other than having to relocate your business elsewhere.

Example of a Right of First Offer in a Commercial Lease

Landlord shall, prior to offering any of the space on the 2nd floor of the Building containing 31,211 rentable square feet and described as the “Offer Space” on Exhibit A (the “Offer Space”) to any party (including the then-current tenant or occupant therein), first offer to lease to Tenant the Offer Space in an “AS IS” condition; such offer shall (a) be in writing, (b) subject to the immediately following sentence, specify the part of the Offer Space being offered to Tenant hereunder (the “Designated Offer Space”), and © specify the lease terms for the Designated Offer Space, including the rent to be paid for the Designated Offer Space and the date on which the Designated Offer Space shall be included in the Premises (the “Offer Notice”). Landlord shall only be required to offer, and Tenant may only request to lease, one of the following three options: (a) the entire 2nd floor (31,211 rentable square feet); (b) 24,233 rentable square feet, depicted in Exhibit A as the “DHI Mortgage” space, or © 6,978 rentable square feet, depicted in Exhibit A as “Vacant”. However, if Landlord leases any portion of the 2nd floor, the options contained in the previous sentence shall be revised to be the unleased portion of the relevant space, e.g., if Landlord leases 10,000 of the 24,233 rentable square feet in clause (b), then clause (b) shall be deemed to include only the 14,233 rentable square feet remaining in that section of space. The Offer Notice shall be substantially similar to the Offer Notice attached to this Exhibit. Tenant shall notify Landlord in writing whether Tenant elects to lease the entire Designated Offer Space on the terms set forth in the Offer Notice, within five days after Landlord delivers to Tenant the Offer Notice. If Tenant timely elects to lease the Designated Offer Space, then Landlord and Tenant shall execute an amendment to this Lease, effective as of the date the Designated Offer Space is to be included in the Premises, on the terms set forth in the Offer Notice and, to the extent not inconsistent with the Offer Notice terms, the terms of this Lease; however, Tenant shall accept the Designated Offer Space in an “AS IS” condition and Landlord shall not provide to Tenant any allowances (e.g., moving allowance, construction allowance, and the like) or other tenant inducements except as specifically provided in the Offer Notice.

If Tenant fails or is unable to timely exercise its right hereunder with respect to the Designated Offer Space, then such right shall lapse, time being of the essence with respect to the exercise thereof, and Landlord may lease all or a portion of the Designated Offer Space to third parties on such terms as Landlord may elect. Landlord shall not be obligated to re-offer the Designated Offer Space to Tenant unless Tenant does not accept the Offer Notice and Landlord fails to enter into a Lease Agreement with respect to the Designated Offer Space within 180 days after the date of the Offer Notice. Tenant’s rights under this Exhibit shall expire as to any portion of the Offer Space that becomes subject to a new lease following the Lease Date. Unless otherwise agreed in writing by Landlord and Tenant’s real estate broker, in no event shall Landlord be obligated to pay a commission with respect to any space leased by Tenant under this Exhibit, and Tenant and Landlord shall each indemnify the other against all expenses, costs, attorneys’ fees, and other liability for commissions or other compensation claimed by any broker or agent claiming the same by, through, or under the indemnifying party.

Tenant’s rights are personal to TENANT and shall terminate, at Landlord’s option, if (i) this Lease is terminated, (ii) Tenant assigns its interest in this Lease or sublets more than 20% of the Premises, (iii) Tenant ceases to lease the entire Premises demised as of the Lease Date from Landlord and to occupy at least 80% of the Premises, or (iv) less than 15 full calendar month remains in the Term of this Lease (unless, concurrently with exercising its right, Tenant also irrevocably exercises its renewal right, in which event Tenant’s rights under this Exhibit shall terminate at the expiration of the initial Term).

In addition, it shall be a condition to the effectiveness of the exercise by Tenant of its rights hereunder that, at the time of exercise of the right of first offer or as of the effective date of the addition of the Designated Offer Space to the Premises, (x) there is no existing Event of Default by Tenant, and (y) Tenant satisfies the Net Worth/Credit Threshold, unless Tenant provides to Landlord additional security (either in the form of a security deposit or a letter of credit) in an amount reasonably acceptable to Landlord.

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Right of First Refusal When Leasing Commercial Real Estate

The following post is copyrighted by Austin Tenant Advisors - .

If your company expects to grow rapidly by hiring additional employees sooner than later you want to try negotiate a right of first refusal (ROFR) on any additional space in the building. This could be any contiguous space, non-contiguous space, both or a combination of.

Whether you are leasing office, retail, or warehouse space if you expect rapid growth then you must do your best to secure the option rights to additional space. Otherwise your only option will be to relocate your company. For example, in a hot area like the Austin commercial real estate rental market space is tight so it’s important to create more options for your company.

What is a Right of First Refusal?

A right of first refusal is a negotiated right of a tenant in a commercial lease to match any offer received by a landlord to lease a demised or other premises. Basically on any space that you have a ROFR on the landlord has to give you first dibs on any pre-negotiated deal with another party. You are not obligated to take the space. It’s your option.

Ideally you want to get a right of first refusal on any adjacent or contiguous space however that depends on what the neighboring tenants negotiated in their lease. If the contiguous space is not possible then you want to get a ROFR on any non-contiguous space which is space not adjacent to yours. It could be on the same floor or different floors. If another tenant already has a ROFR then you could get a ROFR that is secondary to theirs.

How a Right of First Refusal Works in a Commercial Real Estate Lease

Let’s say you are negotiating on 5,000 sf of Austin office space for rent in a particular building and you don’t quite know your future office space needs. To increase your chances of having more space in the building to grow into you ask for a right of first refusal. 

The landlord is still able to market any available space they have in the building. However if the landlord gets an offer from another potential tenant that they are willing to accept the landlord has to present the offer to your first, giving you the opportunity to accept or decline the space. 

If you accept the deal then you have to take the same rates and terms that were negotiated by the other party. If you negotiated an ongoing ROFR then you will be able to exercise a right of first refusal again in the future after that party’s lease expires.

Example of a Negotiated Right of First Refusal in a Commercial Lease

If Landlord receives a bona fide offer from a third party (including the then-current tenant or occupant therein) (a “Third Party Offer”) to lease any of the 14,209 rentable square feet of space on the 1st floor of the Building, or any of the 6,978 rentable square feet of space on the 2nd floor of the Building, in each case designated on Exhibit A hereto (the 1st floor space and 2nd floor space being, collectively, the “Refusal Space”), and Landlord is willing to accept the terms of such Third Party Offer, Landlord shall offer to lease to Tenant the Refusal Space on the same terms and conditions as the Third Party Offer; such offer shall (a) be in writing, (b) specify the part of the Refusal Space being offered to Tenant hereunder (the “Designated Refusal Space”), © specify the rent to be paid for the Designated Refusal Space, and (d) contain the basic terms and conditions of the Third Party Offer and the date on which the Designated Refusal Space shall be included in the Premises (the “Refusal Notice”). Landlord and Tenant hereby agree that: (i) if the Third Party Offer is for less than all of the Refusal Space located on the 1st floor, Tenant must exercise its right hereunder as to all of the Refusal Space on the 1st floor (not just that portion subject to the Third Party Offer) and otherwise on the terms and conditions of the Third Party Offer, (ii) Landlord may not accept any Third Party Offer for any portion of the Refusal Space located on the 1st floor prior to March 1, 2012, and (iii) Landlord will not require Tenant to respond to a Refusal Notice for any Refusal Space on the 1st floor prior to March 1, 2012. Nothing in the previous sentence shall pertain to the Refusal Space located on the 2nd floor of the Building.

The Refusal Notice shall be substantially similar to the Refusal Notice attached to this Exhibit. Tenant shall notify Landlord in writing whether Tenant elects to lease the Designated Refusal Space subject to the Third Party Offer on the same terms and conditions as the Third Party Offer in the Refusal Notice, within five days after Landlord delivers to Tenant the Refusal Notice. If Tenant timely elects to lease the Designated Refusal Space within such five-day period, Landlord and Tenant shall execute an amendment to this Lease, effective as of the date the Designated Refusal Space is to be included in the Premises, on the same terms as this Lease except (1) the Basic Rent and parking charges shall be the amounts specified in the Refusal Notice, (2) the term for the Designated Refusal Space shall be that specified in the Refusal Notice, (3) Tenant shall lease the Designated Refusal Space in an “AS IS” condition, (4) Landlord shall not be required to perform any work therein, (5) Landlord shall not provide to Tenant any allowances other than those contained in the Third Party Offer (e.g., moving allowance, construction allowance, and the like) if any, and (6) other terms set forth in the Lease which are inconsistent with the terms of the Refusal Notice shall be modified accordingly.

If Tenant is unable to exercise its right hereunder with respect to the Designated Refusal Space, such right shall lapse, with respect to the exercise thereof (it being understood Tenant’s right hereunder is a one-time right only as to each Designated Refusal Space the first time it is offered to Tenant hereunder), and Landlord may lease all or a portion of the Designated Refusal Space to third parties on such terms as Landlord may elect. Landlord shall not be obligated to re-offer the Designated Refusal Space to Tenant unless Tenant does not accept the Refusal Notice and Landlord fails to enter into a Lease Agreement with respect to the Designated Refusal Space within 180 days after the date of the Refusal Notice. Unless otherwise agreed in writing by Landlord and Tenant’s real estate broker, in no event shall Landlord be obligated to pay a commission with respect to any space leased by Tenant under this Exhibit, and Tenant and Landlord shall each indemnify the other against all costs, expenses, attorneys’ fees, and other liability for commissions or other compensation claimed by any broker or agent claiming the same by, through, or under the indemnifying party.

Tenant’s rights under this Exhibit are personal to Tenant and shall terminate, at Landlord’s option, (i) if this Lease or Tenant’s right to possession of any of the Premises is terminated, (ii) if Tenant assigns its interest in this Lease or sublets more than 20% of the Premises, (iii) if Tenant ceases to lease the entire Premises demised as of the Lease Date from Landlord and to occupy at least 80% of the Premises, or (iv) on June 30, 2012.

In addition, it shall be a condition to the effectiveness of the exercise by Tenant of its rights hereunder that, at the time of exercise of the right of first refusal or as of the effective date of the addition of the Designated Refusal Space to the Premises, (x) there is no existing Event of Default by Tenant, and (y) Tenant satisfies the Net Worth/Credit Threshold, unless Tenant provides to Landlord additional security (either in the form of a security deposit or a letter of credit) in an amount reasonably acceptable to Landlord.

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A Few Thoughts on the Parker Principles

A manifesto, the “Parker Principles“, came from Inman’s Disconnect conference last week in Palm Springs. There’s been a fair amount of chatter already in Facebook groups (and likely on Twitter too, but I’ve dropped off in terms of Twitter engagement recently), Rob’s already penned a post on “open data”, and I wasn’t there — so not sure I have too much to add to the discussion. That said, a few comments about several of the 12 principles:

Transform our industry from a sales profession to a service business (#1)
Incentivize real estate agents to focus on quality and service over volume and sales by obsessing over the needs of the consumer to drive innovation and best practices.

This sounds like Disconnect’s attendees believe Redfin (and similar models) are the future of the industry. I wouldn’t disagree. That said, commission models do work quite well to incentivize great people to go above and beyond for their clients (because those people want word of mouth referrals from clients). I’m not sure the path that’s going to lead to a broad shift by consumers away from commissioned agents (see here for a long discussion on the topic of commissions).

Create a transparent chain of industry accountability to benefit the consumer (#3)
From associations/MLSs to brokers, brokers to agents, and brokers and agents to consumers, we must hold the industry to a higher standard of service, transparency and responsibility. The core of accountability is transparency across the industry.

What about a “receipt” of who made how much for every deal? Tell the consumer in simple terms that the agent made X, the broker made Y, the franchise made Z, the title company made XZ, etc.

Free up property data feeds and remove barriers for innovators  (#7)
We should create a world where property data can be used, reused and broadly distributed. Remove artificial and overly protective barriers to property data access and utilization via a universal licensing agreement. Remove artificial barriers to new ideas, inventions and business models that improve the real estate experience.

Having consulted on several projects requiring MLS data and experienced the pain first hand (and spoken to countless founders who dealt with similar data issues) — this is a great aspirational goal. That said, as long as MLS data is owned by agents/brokers, I’m not sure this issue is going to change anytime soon — at least not willingly. The established players have all the MLS data figured out already (years of pain and lots of $$), and they view it as a moat other startups/products will have to overcome to compete. They are not incorrect. Beyond that, take the “remove artificial barriers to…improve the real estate experience” quote. The question is whose perspective? As long as we’re not defining who is determining what a reasonable barrier or, or who is defining what an improved real estate experience is — we’re not going to arrive at any real solutions.

I’d love nothing more than to be proved wrong for my skepticism.

Fight for more “available” housing (#9)
We must bring key stakeholders to the table including builders, policymakers, associations and real estate professionals to build more entry-level units and mixed-housing projects to create more balanced, affordable markets and bring relief to the many Americans on the verge of homelessness.

Make our communities better places to live and work (#10)
We should use our influence as real estate leaders to give back and advocate for and support education (even if it means higher taxes), marginalized communities and policy that will promote affordable housing and access to homeownership in the long term.

Selflessly give back to the world through service  (#11)
We must recognize the importance of building service into our companies, organizations and our brand to authentically give back to the world beyond our own community.

If you’ve followed this blog for any length of time, you know giving back and service is near and dear to me. It’s why I’m such a huge fan of Giveback Homes, New Story, socially conscious agents/brokers, and it’s why we recently launched Stay a Night, Give a Night (PS a huge thanks to longtime readers City Bldr and Rentalutions for sponsoring). You know I’ve written about affordable housing (most recently in a weekly mastermind newsletter). You know community is what makes me tick, and what I believe the world needs more than ever before. Point being, I’m a huge fan of principles 9-11, and will do whatever I can to help anyone advancing those goals. If you believe deeply in community, giving and service, I’d love to have you as a member of the mastermind group alongside passionate founders like Caroline working day in, day out to create a larger “do good” community in real estate.

That’s all I’ve got. All that said, props to Brad and the Inman team for helping guide us forward with aspirational vision for a better future for our industry.

I’m curious, what principle do you like the most? Which one is the most clear? The least clear?

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