Earlier this month, we had the pleasure of attending the CREtech conference 2019 in New York as an official media partner, and interviewing some of the leading voices, innovators and disruptors in the Real Estate Industry.

Featured on this Episode: Brendan Wallace, Co-Founder and CEO – Fifth Wall

Brendan Wallace is a co-founder and Managing Partner at Fifth Wall, where he guides the firm’s strategic vision.

Brendan Wallace at CREtech / Photo: Twitter @thetylerstewart

Prior to starting Fifth Wall, Brendan co-founded Identified, a workforce optimization data and analytics company that raised $33 million of venture funding and was acquired by Workday (NYSE: WKDY) in 2014. He also co-founded Cabify, the largest ridesharing service in Latin America, and has been an active investor, leading more than 60 angel investments including Bonobos, Dollar Shave Club, Lyft, SpaceX, Clutter, and Philz Coffee.

Brendan started his career at Goldman Sachs in the real estate, hospitality, and gaming group before joining The Blackstone Group’s real estate private equity practice.

Brendan is from New York City and currently lives in Venice. He graduated from Princeton University, where he received his BA in political science and economics. He received his MBA from the Stanford Graduate School of Business.

Also joining us on this episode, as featured on CREtech’s Hottest Tech of 2019 Panel:

Vanessa Anderson, VP of Operations, Truss

Vanessa Anderson at CREtech 2019

As Vice President of Operations, Vanessa oversees Inventory Management and Customer Support, including the creation, maintenance, and automation of Truss’s listing inventory.  Prior to joining Truss, Vanessa was on the investment team at GEM Realty Capital and Landmark Partners.  Most recently, she was the Director of Corporate Development at Uptake, a venture-backed industrial IoT company, where she oversaw M&A and Strategic Partnerships.  Vanessa has a Bachelor of Science from the Wharton School at the University of Pennsylvania and an MBA from the MIT Sloan School of Management.

From Left: Brian Thompson, Anja Bump, Adam Hooper, George Aguilar. Photo: Twitter @thetylerstewart

George Aguilar, Founder & CEO, Trove

George leads the finance and overall strategy of Trove. He founded the company in 2016 after becoming aware of the shifting changes in travel and hospitality. A Texas native, he has lived in Chicago for ten years.

Brian Thompson, Co-Founder & CEO, CRE Simple

Brian Thompson is the CEO and Co-Founder of CRE Simple, Inc., a financial technology company that has partnered with the largest commercial real estate brokerage firms in the United States to revolutionize access to capital for investment properties.

A Silicon Valley veteran, Brian has been starting, building, and investing in “impact” businesses for the last 25 years with a focus on data, marketplaces, financing, energy, and security. He has deep expertise in scaling start-ups, corporate development, e-commerce, product management, and IoT and is passionate about creating simple solutions for complex problems.

Anja Bump, Founder & CEO, Twofold

Our mission at Twofold is to help companies optimize limited space. We do this by focusing on inventive design that’s backed by a strong financial and environmental business case.

By converting idle areas into productive, flexible workspaces, Twofold products can improve efficiency by 25% or more, thereby increasing the capacity of smaller floor plans, or enabling greater density in existing spaces. As a result, Twofold helps organizations get the most from their investments in space.

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Transcript

RealCrowd – All opinions expressed by Adam, Tyler, and podcast guests are solely their own opinions and do not reflect the opinion of RealCrowd. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. To gain a better understanding of the risks associated with commercial real estate investing, please consult your advisors.

Brendan Wallace – You look at our first fund, our first fund appears to be one of the highest performing venture capital funds of its vintage in any sector. Taking real estate tech out, just, it’s a top performing venture fund. While, I think that was a consideration for why so many of our corporates invested from our Fund 1 into our Fund 2. I think it was actually not the main consideration. I think the main reason that they have stayed with Fifth Wall and invested more capital with us is because we’ve delivered to them real strategic value.

Adam Hooper – Welcome back listeners, Episode 5. Final day of our 2019 CREtech coverage. Thank you for sticking with us through this journey. Amazing conversations. Got a handful more for you today. We’re going to start with Vanessa Anderson, Vice President of Operations at Truss. Then we switch to the panel that was fresh off the innovation stage at the conference about the hottest technology of 2019, Jorge Aguilar, CEO and founder of Trove; Brian Thompson, CEO co-founder of CRE Simple; Anja Bump, founder and CEO of Twofold, from right here in Portland; and we round out the episode with none other than Brendan Wallace, co-founder and CEO of Fifth Wall. Stay tuned, great episode, hope you enjoy it. Vanessa, thank you for joining us today here, CREtech 2019.

Vanessa Anderson – Yeah, thank you so much for having me. I’m excited to be on. The conference so far has been fantastic. Great speakers, great networking opportunities, and the exhibitors. There’s been a lot of great and creative potential partnerships that we’ve been finding here, as well.

Adam Hooper – Yeah, that’s what’s been great. Again, seeing the space evolved where, we’ve talked about with some other folks too, is integrations, right? All these different technology companies being able to start working with one another, I think is definitely going to elevate the game. So, before we get too much into Truss, why don’t you tell us a little bit about your background and how you got into this space.

Vanessa Anderson – Yeah, so my interest in real estate actually goes all the way back to my childhood. Working for my dad’s residential brokerage shop that he used for his own personal investment for flipping homes and for some rental investment properties. And then I actually started my official career in real estate post undergrad in real estate private equity doing acquisitions and asset management at GEM Realty Capital and Landmark Partners. Then at that point in my career, I was actually incredibly frustrated with the real estate industry. Just there was kind of a lack of adoption of technology and I felt culturally they were very set in their ways so I went back to business school, specifically to transition into tech. Then I left real estate entirely for a few years and concentrated on tech. But when I saw Truss fundraise back in 2017, I just felt like it seemed like a perfect opportunity. So I cold reached out to all of the founders to tell them that, you know, I wanted to work with them and that I think could be helpful to their team.

Adam Hooper – Great. And what were you doing in the technology world aside from real estate?

Vanessa Anderson – So I was at Uptake Technologies, which is a internet of things, predictive analytics company in Chicago that serves all sorts of different industrial industries from aerospace to railroads and mining equipment.

Adam Hooper – Again, I probably sound like a broken record to people that are listening to all these episodes but there’s very much this if it ain’t broke don’t break it mentality in the industry.

Vanessa Anderson – Definitely.

Adam Hooper – Both culturally, technology, you know just very stuck in their ways, right. It’s been interesting to see, again, that change over the last handful of years. A lot more interest in new technologies. A lot more different perspectives. A lot younger people coming into positions of leadership where they can drive some of those changes. And so Truss, tell us a little bit about what you do at Truss.

Vanessa Anderson – So Truss is an online marketplace for commercial office leasing. So we make it really fast and easy for both the tenant and the broker to run through a traditional office leasing process, all the way from search to signature.

Adam Hooper – Traditionally, a pretty friction filled process.

Vanessa Anderson – Incredibly friction filled. Especially for small tenants, who really are our prime focus. The real estate industry has not been great at serving their needs traditionally. So the lack of technology adoption leads these tenants to have very little information at the tips of their fingertips. So they don’t know what’s available, how much it costs. And they really struggle to do any level of self-service or self-education for office space. So it does make it a really challenging process for them and then on top of it all, they’re small tenants, and brokers really spend about the same time and effort to do large deals as small, with a fraction of the check size. So they do spend undo attention to these large corporates, leaving these small tenants just a little bit lost in the sector.

Adam Hooper – Out on their own. Yeah and I think it’s interesting too, from conversations we’ve been having here, most of the technology companies as well are trying to go for those big mega corporate deals because that’s, you know, instant scale, instant distribution. But a lot of these smaller mid-size tenants are, you know, the long tail tenants, are just kind of left to fend for themselves, right. So it’s good to see some attention being paid to the bulk of users of this space.

Vanessa Anderson – Absolutely. And they’re a huge portion of the U.S. economy. Small businesses and scaling companies account for 44% of the U.S. GDP.

Adam Hooper – It’s a pretty big market to go after.

Vanessa Anderson – It’s a really big market and it’s really just that they’re underserved not because it’s not an important segment, they’re underserved because the brokerage process has been traditionally so painful and time consuming and the lack of technology adoption has made it continue to be so. And so it just doesn’t make sense for a traditional brokerage shop to serve these small tenants. So you have to be more efficient to capture this part of the market.

Adam Hooper – Yeah, and I remember even back to the start of my career 15 years ago, was doing small enough market. We were doing everything, leasing, sales, brokerage, all that stuff, and very real having that decision. You know, do I spend my entire commission check on a sign for the building? Do you take a project on that small, right? So there’s a lot of need in that space but it’s just a financially driven decision for a lot of brokers that it just doesn’t make sense to spend their time on that, given fee structures and just how that business model works. So what makes Truss unique in going after that segment of the market, right? There’s not a lot of players that are focusing on that area of the market. Why was that an area of focus or how have you gotten to scale going after such a fragmented, again, kind of long tail user?

Vanessa Anderson – So Bobby Goodman, who was one of our co-founders, he was a broker at JLL and one of his tenants was Trustwave, which was founded by one of our other co-founders, Andy Bokor. And when Andy sold Trustwave, Bobby came to him and just said, “I think brokerage is broken and there’s all these underserved businesses out there that I think we should go after.” And so the platform really focuses on making a broker more efficient so that they can do a higher volume of deals. And so we have brokers doing between 70 and 80 deals annually versus a traditional brokerage doing about 10 to 15 deals. So we really have been able to achieve these efficiencies and do this high volume. And now we’re launching a new product called TrussCRE, which is open to other tenant rep firms to use so that they can take advantage of those efficiencies. Because at the end of the day, if we made it more efficient for small tenants, it can also be more efficient for large tenants. So then just more deals get done and essentially both tenants and brokers win then.

Adam Hooper – Yeah. And now how has the changing nature of the use of space, you know, more flexible and more short term. It used to be just the three year lease or five year lease. That was really your only options, right.

Vanessa Anderson – Do you mean five and ten?

Adam Hooper – Five and ten, that’s true I guess. Yeah, five and ten. But smaller spaces, you could get, you could usually do down to three or five, right? I mean, so I guess what are you seeing in the market now? How is that, again, kind of the we work effect of that more short term flexible usage?

Vanessa Anderson – Definitely.

Adam Hooper – How does that play into dynamics that you’re seeing at Truss or where that goes forward from here?

Vanessa Anderson – Definitely. So we’re gathering really interesting tenant demand data because they fill in, our tenants fill in a questionnaire, dropping pins on where they want to be, showing us their budget, their head count projections. And all of that, then we also see their behavior on what spaces are they favoriting, where are they requesting tours, and ultimately where do they end up leasing. So all of that data gives us a great insight into what they’re really looking for. And we’re seeing tenants favorite at a much higher percentage. We’re seeing them favorite speculative suites, second generation suites, as well as co-working, which is telling us they’re really looking for a no-hassle, move in ready, immediate availability option.

Adam Hooper – Right, especially smaller tenants, you know, you can’t necessarily wait for nine months for a build out.

Vanessa Anderson – Nine months or spend tens or hundreds of thousands of dollars on the build out as well.

Adam Hooper – Yeah. So you kind of touched on there, just the ease of getting into that space, whether that’s, again, from the actual physical space itself or with the product on the technology side. Again, that’s another one of the themes we’ve been talking about is the user experience, the expectation of user experience of this technology. You know, we’re spoiled in so many other areas of technology with just ease of use. How do you guys approach that usability from a tenant perspective from the product side?

Vanessa Anderson – Yeah, so I mean you made a good point. Essentially, these tenants are used to seeing this consumerization in all aspects of their life. Every purchasing decision they’re making, they’re making online in a digital format until it comes to office leasing. And then it’s this super antiquated process, where you get printed and bound booklets of listings and it takes six months and there’s really no digital format for that. So what Truss has done is made it a really streamlined, easy to use platform. When we’re interacting with the tenants directly, the questionnaire that they answer, or they interact with our chatbot, Viera, everything is in layman’s terms. So we don’t expect them to be a real estate expert. We don’t expect them to know how many square feet they need. We instead ask them, what’s your head count? What’s it growing to? Do you want work stations, offices, or a mix of both? So all terms that they understand. And then we translate that into the real estate need. So if they want all work stations, then it’s probably a highly dense office so we’re translating at a lower per square foot per person, and it’s resulting in a requirement that truly fits their needs. And then on top of that, instead of just presenting them a sea of listings, we rank everything from highest to fit to lowest fit for them so that the 98% fit listing is the first thing they see and it’s also the space that they’re most likely to lease.

Adam Hooper – Yeah. I’m sure that’s, again, a pretty dense amount of data that you guys can collect on what those behaviors are, refine the algorithms to make those recommendations that much better.

Vanessa Anderson – Yeah, definitely. We have some really interesting data on tenant behavior. We have heat maps that we do of where tenants are placing pins and how you see that moving over time. And even in short, so we have three years of historical data right now, but even in shorter time frames, like if you look in the last 12 months, you can see real and consistent movement on where these tenants are placing pins. And that’s something that’s useful for obviously the broker, so they can give great advice to their tenant, but also for ownership groups ’cause it will help with their acquisition strategy as well as asset management and really optimizing their leasing strategy.

Adam Hooper – So do you have a data product that you open up to building owners that can leverage some of those insights?

Vanessa Anderson – So we have a beta for an analytics product that we are hoping to launch next year.

Adam Hooper – Yeah, I’m sure that’s going to be very well received.

Vanessa Anderson – We hope so, yes.

Adam Hooper – So outside of that, you know, what can we expect to see from Truss next?

Vanessa Anderson – So next would be really launching our TrussCRE product. So bringing it to other tenant rep firms and making them more efficient so that tenants working with any brokerage group can experience this reduced time to lease. They can experience virtual tours and this streamlined digital experience. And really for TrussCRE brokers, they benefit from being an early adopter because their tenants are dying for this product. 70% of tenants are starting their search online and that’s them telling us that they want to search for office space in a digitized manner. So brokers who adopt us early on will have a huge competitive advantage because they’ll get to serve their tenants in the way that they want to be served. So I think that’s really what’s next for us on the docket for Truss.

Adam Hooper – Perfect. Well, Vanessa, thank you for coming by.

Vanessa Anderson – Thank you so much.

Adam Hooper – We’ll keep our eyes open to see what Truss comes out with next and hope you enjoy the rest of your show.

Vanessa Anderson – Great, thank you so much. It was a pleasure.

Adam Hooper – Next up, we have a panel about the hottest tech in 2019 at the CREtech Conference. Jorge from Trove completely rethinking the vacation rental space. Brian Thompson at CRE Simple completely rethinking the commercial loan space. Anja Bump, founder and CEO of Twofold, completely rethinking how we use space. Fantastic conversation. Hope you enjoy it. Jorge, Anja, Brian. Thanks for joining us today here at the CREtech 2019. You just finished your group panel together. Why don’t you tell us a little bit about kind of backgrounds and then what you’re up to now and we’ll see where it goes. Jorge, why don’t you start.

Panel – Sure. My name’s Jorge Aguilar, I’m the founder and CEO of Trove. Trove is a boutique vacation rentals company. So we are a hospitality and real estate company. My background before this was in software product management and I joined the company full time two years ago. My name is Anja Bump and I’m the founder and CEO of TwoFold. You can find us at twofoldspaces.com and Twofold is all about smart furniture. That’s furniture that responds to your changing needs throughout the day.

Adam Hooper – And a fellow Portlander.

Panel – And a fellow Portlander. Love it there. Best food and wine.

Adam Hooper – And Brian, how about you?

Panel – Hi, I’m Brian Thompson, CEO, co-founder of CRE Simple. We provide capital and software solutions into the commercial real estate financing space with a real focus on brokers and lenders and building a fabric that connects all of them. I’ve been in San Francisco for 25 years. I’m a Silicon Valley vet at this point and just excited to be here.

Adam Hooper – Perfect. So you guys were labeled on your panel as the hottest tech companies of 2019.

Panel – That’s right.

Adam Hooper – How does it feel?

Panel – Pretty awesome. It’s amazing to be here. We’re really grateful. As part of the REACH Accelerator Program, it’s been great exposure for us.

Adam Hooper – So tell us a little bit about that program. So that’s with National Association of Realtors venture arm. How’s the program been? Sounds like you guys are still in the program right now?

Panel – Yeah, it’s still going through November, middle of November roughly. And they’ve done a great job exposing us to new events like this one, for example, and mentors, movers and shakers, and strategic connections in industry. It’s been fantastic.

Adam Hooper – Good.

Panel – I think the insight that we’ve been able to get from all of the mentors, all of the people who are involved in NAR, and every single one of the events that we’ve gone to, it’s absolutely invaluable. They’ve really catapulted us almost nationwide. No, it’s been terrific exposure. I mean, we probably take advantage directly of the broker relationships that they have, more than most. And we’ve already had a ton of success in terms of accessing specific channels and leveraging the PR and access points that they’ve got.

Adam Hooper – Good. And now coming from your background as well, Brian, I mean obviously some deep connections in the brokerage world already. You’ve found this still additive to your process in terms of kind of exposure and new relationships?

Panel – You know, the wonderful thing about NAR is that they reach the long tail of virtually every broker…

Adam Hooper – Everyone, yeah.

Panel – In the United States. And you can come in, and even if you’ve got the top four or five brokerages, they only cover about 25% of the total brokers. So to be able to go have an audience and a messaging framework to go talk to virtually everyone in there without having to go through the larger brokerages to get there is really valuable for us. It makes it cost effective and it gives you a compelling message when you go talk to everyone.

Adam Hooper – Good. And now, Jorge, why don’t we start with you. You guys are operating just in Chicago now, I believe?

Panel – Correct.

Adam Hooper – And plans to, I guess why don’t you tell us a little bit more about the business at its core first. Then we can kind of talk about what’s next for you guys.

Panel – Sure. What we do is basically, we offer a product that has all the charm and all the value of a traditional vacation rental, but all the consistent high-level amenities of a hotel. So we are, we’re building a hospitality brand of basically high end vacation rentals. The problem with things like Airbnb, which are ever more popular, is that quality is all over the spectrum.

Adam Hooper – Right.

Panel – With us, you have that expectation and that delivery of quality every single time you check in.

Adam Hooper – I think that’s been one of the challenges, personally, of doing the Airbnb is you never really know what you’re going to get, right. And so do you roll the dice with that quirk of maybe the cool place.

Panel – It’s a Hail Mary pass. If it works, you’re the hero. If it sucks, everyone hates you.

Adam Hooper – Yeah, right.

Panel – It’s like that box of chocolate. Kind of and it shouldn’t be. And that’s exactly the niche that we fill, is we are building a brand that is synonymous with charm, value, and the highest quality.

Adam Hooper – And consistency throughout the experience.

Panel – Correct. Consistency, which is so, so important. So many people that I speak to say, “Well I did it once and I’ll never do it again,” or, “I don’t do it because I don’t know about safety. I need really fast internet.” that kind of thing. And we are very good at providing you a consistent high quality experience.

Adam Hooper – And so are you seeing some of the kind of faster growing consumer brands now as they deliver that consistent experience in new ways, right, more the kind of experiential ways. So what’s on the plate for growth for you guys? New markets, more product?

Panel – We continue to grow in Chicago. There’s plenty of room for growth there. We’re going to the San Antonio market next. So San Antonio, look out for us. We’re currently fundraising. We’ve proven this model in Chicago and we want to fundraise and apply the model in seven, eight other markets.

Adam Hooper – Perfect. Well next time I come to Chicago, I know where I’m going to book.

Panel – Look for us. Discovertrove.com.

Adam Hooper – Okay and Anja, how about you?

Panel – Well, Twofold is going to market now with two products. We have The Working Wall, which is basically like a work station that functions like a Murphy Bed. So it folds away when you don’t need it. So the use case there are all these small spaces that people tend to live in now more and more. Micro units, micro hotels, everything is shrinking in response to the rising cost of real estate and the urban density going up. So that’s going to continue to be an issue. So The Working Wall is our first product. After that, we’re coming out with some others that we’re pretty excited about. On the office side, we have a very collaborative space that we call The Plaza Pod, which is a micro office on wheels. It can seat either two or four people, depending on the configuration. And the wall space inside of it is extremely configurable. So you can have that be a collaborative space and can configure it out of white board or you can have acoustic felt or you can print on it. You can have graphics, you can have photographs. So it can really be anything you need it to be. And the idea there is that as you move through the spaces, through the lifecycle of a company, normally traditionally, you leave behind, it gets torn out and we waste all these materials. These spaces come with you. It’s a steel frame that will never get destroyed and you can have it for the entire lifetime of a company.

Adam Hooper – And so a lot of what we’ve been talking about here at the show and kind of themes are efficiencies, right. Efficiencies and energy or spatialization. So that’s really where you guys are focused on. How do you make that space more efficient from a usage perspective?

Panel – Exactly. We want to have that space work harder for you. And then on a company cycle, we’ve been around for a year and a half to get it from idea to prototype now, launching at this point. So super excited to be here on this podcast. We’re always fundraising so I had to chuckle when Jorge was mentioning that. It seems to never be stopping. But, yeah it’s been an incredible ride and the people we’ve met so far in this journey have been amazing.

Adam Hooper – Perfect. And how can people find out more about what you’re up to?

Panel – They can find us on twofoldspaces.com. The word Twofold. Or they can reach out to me directly at anja@twofoldspaces.com. That’s spelled A-N-J-A at twofoldspaces.com.

Adam Hooper – Perfect, all right. Brian, CRE Simple.

Panel – You know, we are in the process right now of delivering efficiencies into the transaction space for financing. We have been in beta now for about a year with a variety of different capital products. We’re excited to be launching formally later this year with a dedicated product just for mortgage brokers. It’s a SaaS product which will enable them to manage all of their lenders, opportunities, quotes, and clients all in one place. Think about it almost like a purpose built CRM platform but to help them manage their incoming business. We’re excited to be able to provide our own private label capital products into that software package. So it gives them not only the ability to manage the lenders but it also gives them a competitive capital product that’s almost like a correspondent relationship just to that product. So we’re excited to be doing that. We just closed and announced today our institutional financing round in July, which we’re really excited about. We had a bunch of VC firms that specialize both in fintech and in commercial real estate with a couple family offices that came in on that as well. So that’s just been really exciting. But I am excited to not be fundraising. I can say that to everyone here. I’m going to take about three weeks off and then, you know, start getting serious about it again. But so that’s been a lot of fun. We’ve been really focused on just getting this next product generation rolled out here and doing some marketing around it.

Adam Hooper – And so primary user of your platform now is a mortgage broker. Is it and owners of buildings? Is it people who are buying transactions?

Panel – So for us, we really think about what’s kind of in the financing space called the private client market. So it’s about 15 million under transaction size. It’s your blissfully divorced widows in Missouri who are using a mortgage broker to go buy a 7-Eleven or a Dollar General. But we’ll also do some larger items within that. You know, for us, we think about the platform as an entry point for a mortgage broker, but really, the power of the platform is that we’ve got this purpose built functionality for every collaborator and participant in that deal. So if you’re a lender, you can access a platform and see documents and management and specific workflow tailored just to them. We have workflows for appraisers. We have workflows for survey, escrow, title. And we’ve got some new partnership announcements coming out later this month on a national level to also provide some additional information on that.

Adam Hooper – Very exciting. Well, there you heard it. Three of the hottest tech companies in real estate 2019.

Panel – Great.

Adam Hooper – Thank you all for coming by the booth today. We hope you have a great show.

Panel – Thank you. Great, thanks Adam.

Adam Hooper – And to round out our fifth and final day of our 2019 CREtech Conference coverage, none other than Brendan Wallace at Fifth Wall Ventures, co-founder and CEO. We talked about their latest fund, global footprint, what they can learn from, what they’re seeing in the technology space around the world, and also about how the state of technology in the U.S. compares to that of other countries that they are now very active in. Great conversation. Hope you enjoy it. Brendan, thank you so much for stopping by the booth today.

Brendan Wallace – Yeah, thank you for having me. I know it’s an exciting event.

Adam Hooper – Yeah, I mean world traveler. You’ve been hitting the rounds. So here in New York, quiet moment for you now or are you still going to be traveling around quite a bit?

Brendan Wallace – I’ve just been on the road for quite awhile. We have a number of strategic LPs in Europe so I was over there for a couple weeks between Munich and Paris and Madrid and London. So what’s really interesting is actually to see how that technology ecosystem, that startup ecosystem, is really only like two or three years behind the U.S. And frankly, like the corporates over there have a, are kind of undergoing this mindset shift around, you know, where the U.S. was almost like three years ago as well, which is the DIY corporate venture model to kind of investing more in platforms, like Fifth Wall. And that’s exciting to see.

Adam Hooper – Yeah so a couple things you mentioned on the panel. You’ve raised global capital for your second fund. Now over a billion dollars of under management now, which is fantastic. Congratulations.

Brendan Wallace – We are really excited.

Adam Hooper – So in fund one, did you have any corporate investors outside of the U.S. or was it all domestic?

Brendan Wallace – No, so fund one was $212 million and that was focused on investing in North American technology companies. And it was raised from all U.S. strategic investors. It was CBRE, Prologis, Lennar, Hines, Host Hotels, Equity Residential, and Macerich. So all different sub-sectors of the U.S. real estate industry but no international investors.

Adam Hooper – And so now fund two, international investors but still focusing on U.S. based operating companies.

Brendan Wallace – Exactly.

Adam Hooper – And how can that kind of expand that footprint globally for their products but not necessarily looking for international companies to invest in quite yet?

Brendan Wallace – Not yet, no. So exactly, fund two, the $503 million fund, has strategic investors from Western Europe and from East Asia. What we really were trying to do was open up those markets to North American companies that we’re investing in. So fund two is really just an extension of fund one, from an investment perspective. It’s investing in built world tech companies and we want to expand the kind of distribution lanes now internationally. I think over time, we’d like to be able to invest in markets like Asia and Europe because there’s actually amazing technologies coming out of those markets that are relevant both for strategic investors in those particular markets but also, frankly, back in North America. I think you’ll just see a kind of cross border international prop-tech adoption in a way that today, it tends to be very regionalized, I think.

Adam Hooper – Yeah and I think most of us, you know we’re fairly in our own head space bubble here of we know what’s going on in the U.S. but there’s a lot of people and there’s a lot of interesting stuff going on outside of our borders in the technology space, that again, I’m sure there’s got to be some really fantastic opportunities you guys see abroad that will be on your radar in the future, it sounds like.

Brendan Wallace – Absolutely. And I think just, you know, the differences in the real estate markets themselves beget different kinds of technology opportunities. So you know, for example, East Asia is largely a development market. The building stock is newer and as a result, the technology behind assets, so kind of smart building technology, is much further along than it is in the U.S. And that’s just a function of the vintage of those real estate assets. So when you look at technologies like facial recognition technology, it’s actually far further along in Asia than it is here in the U.S. But I think over time, those differences will start to converge and actually collapse on one another because the problems around technology adoption for any market tend to be the same, right. The business, as I was saying on the panel today, of owning an asset in Chicago or London or Tokyo are different…

Adam Hooper – It’s pretty similar, yeah.

Brendan Wallace – But not dramatically different.

Adam Hooper – And so one of the things that we’ve been talking about here just with some different folks and we were just talking about before, kind of the motivations behind some of these investments, right. We were talking, you know, general VCs, purely profit motivated. Some of the early kind of prop-tech investments were maybe somewhat profit motivated but more kind of trying to find interesting tools that they can implement in their portfolio. You guys have a very unique strategy, which I think makes a ton of sense in the real estate space. So why don’t you kind of tell a little bit about how that’s different in your funds with that kind of corporate approach to it and how they can kind of bring these companies in and you guys can be a lot of those connectors for distributions.

Brendan Wallace – Yeah, so I mean, just to kind of put a backdrop behind, you know, when we started Fifth Wall and what the original premise was. We saw that there was this opportunity in built world technology. And we saw that before we started, there was, as I said, this kind of cottage industry of corporate venture investors that were trying to do venture on their own. Now, you kind of don’t need to know that much about the history of venture to know that corporate venture capital has been a very challenged opportunity for corporates. I mean, the funds shut down all the time. It’s very hard to get great talent. There’s kind of a stigma associated with corporates investing…

Adam Hooper – On the operating side.

Brendan Wallace – On the startup side. They don’t want necessarily like corporates in their companies and it’s just created kind of worse outcomes. So corporate venture capital is always challenged in the real estate industry, which is probably the industry that’s furthest apart from technology. It’s especially challenged. And if you just look at kind of the corporate venture funds in the prop-tech space, they’ve really struggled to get into great deals. So when we started Fifth Wall, we said, “Well how can we blend being both financially motivated and independent with delivering strategic value to corporate investors?” And we really had to have that mindset, which is corporate is investing in us both because they want to generate a really strong financial return and they believe that we can underwrite opportunities to that, but they need to get strategic value. So we actually bifurcated our team between a true kind of investor team, like any other venture fund, and almost like a strategic investor relations team, which we call our advisory team, that supports our corporate investors in a way that I would almost describe it’s like unlocking the strategic benefit that the active investing brings. Meaning, like you need to invest to really have a unique point of view on innovation but it’s not sufficient to just invest. You need a team to like unlock the learnings and the insights and the perspective that that should give a corporate, and that’s half of our team. We’re very clear that like that is why we have long term relationships with corporates.

Brendan Wallace – It’s not just the financial return, it’s that strategic dimensionality too.

Adam Hooper – And that way the startups get the benefit. They get the capital and they get the relationships. And then the corporates get the potential financial return and they get the interesting technology.

Brendan Wallace – Exactly.

Adam Hooper – So I mean that’s really, it’s good for everybody.

Brendan Wallace – Yeah and look at our first fund. Our first fund appears to be one of the highest performing venture capital funds of its vintage in any sector, taking real estate tech out. Just it’s a top performing venture fund. While I think that was a consideration for why so many of our corporates invested from our fund one into our fund two, I think it was actually not the main consideration. I think the main reason that they have stayed with Fifth Wall and invested more capital with us is because we’ve delivered to them real strategic value. Like take a firm like Macerich. We started that relationship with $15 million of commitment. Now we’re at like $85 million of capital into Fifth Wall. Firms like Lennar, it’s over a hundred. And so it hasn’t just been the fact that we’ve made great financial returns. It’s been that those financial returns beget lots of strategic value for those corporates. And I think more so than other funds, like we’ve been able to juggle that to some extent because of our size. Because you need a lot of fees to support the scale team that we are. I mean, we’re 40 people in Los Angeles and now a growing team in London, and like you need a lot of capital to support that.

Adam Hooper – So I know you also, again, speaking of team, just formed an ESG advisory board. Are you seeing that more? I mean it’s, I think, a bigger topic in kind of the general investing world at large, not so much necessarily in our space yet. Was that a reaction to general investment trends or was that specifically from some of those LPs asking you to kind of explore how they can make those decisions with that in mind?

Brendan Wallace – You know, I think we’ve tried to stay abreast of what we think are the big trends in the convergence of real estate and technology. I think the first kind of dimension of that was what we did with our technology fund, which is just bringing corporates together, investing in these new disruptive companies. I think the second dimension of that was like what we did with our retail fund. Kind of investing in these offline occupiers of space on behalf of large retail landlords. And I would say the new thing that we are really focused on is ESG and sustainability investing. The reason is, is real estate is actually one of the biggest contributors of carbon to the environment. It’s one of the most pollutive industries out there. It’s up there with the transportation industry. It just doesn’t get a lot of airtime and I think that will change. And I think it’s both good business for real estate owner, operator, developers, to have ESG standards from a business and from a risk perspective, but also from a cost perspective. And I think public market investors, I think, like meaning the buyers of their public equities as they trade in different public stock markets, their tenants, so the occupiers of their space, and frankly their employees, are all going to start demanding that real estate owner, operator, developers have ESG standards and consider themselves and are investing in a sustainable future.

Adam Hooper – And so is that from your perspective then in terms of, you know, sourcing operating companies to invest in, is there going to be more of a, you know, energy utilization and efficiency? You know, maybe what are some of those new avenues that opens up for you guys to bring portfolio companies in with that mandate or that mindset going forward?

Brendan Wallace – That’s a great question and I think we’re still figuring that out. But traditionally, we’ve looked more at really software and hardware for the real estate industry. I think what investing with more of an ESG sustainability lens would open up is like traditional green tech opportunities. So alternative energy, energy efficiency, which we’ve actually invested in as a category already but I think we’ll actually do more of it, and then frankly things like materials tech, which is a space we’ve done nothing in to date. And as much of a hard science venture practice, we’re going to have to build that out because it’s going to become very important for corporates to make the right decisions around smart materials. And making the wrong decisions in that particular space can be fatal. So we just want to build an amazing practice so that if you’re a developer, you just want to see the right sustainable technologies for your development and you want to make sure that those companies are going to be around for awhile and that you’re investing in the best entrepreneurs. And so when I think about what ESG and sustainability means for Fifth Wall, in support of our corporate investors, it’s just helping them make those right adoption decisions with investment capital.

Adam Hooper – I’m curious, again, now kind of getting back to fund two. With more of a global awareness or footprint, are you seeing many opportunities to learn from, again, on the ESG side? Whether it’s, you know, again, sustainability or building materials? There has to be some pretty interesting prospects abroad to kind of inform maybe what we’re seeing here in the states. Again, talking about the phase of technology, where we’re at, compared to some of the other countries. Have you seen anything exciting? What gets you excited about that space?

Brendan Wallace – I mean, I tell you, in Europe, the focus on ESG and sustainability from real estate owners is many years ahead of where it is in the U.S. And I think it has been that way for awhile. I think that there are a lot of things that, you know, European real estate owner, operator, developers have done internally in their organizations and how they’ve developed and redesigned their assets with the sustainability mindset that North American firms can learn from. And in many ways, like that’s kind of the cross border learning that we’re trying to instigate with our fund two. That’s exactly why we internationalized. We believe that, you know, firms like British Land, who invested in our fund two, could learn from Hines, who has invested in our fund one and our fund two. But I actually think there’s a lot that Hines can learn from British Land around sustainability. In part, because they’ve been focused on it, I think in a way that North American firms have not or have not to the same extent, for frankly a very long period of time. And I think the public and public opinion in Europe, it just has a more demanding stance on what is incumbent on real estate owners to do around sustainability. And I think that will shift also here in North America and I think with that shift, you’ll see more focus from North American firms on like what is our posture on ESG and projecting that in the right way.

Adam Hooper – And yeah, even at the core of defining, like you said, defining what that posture even is, right.

Brendan Wallace – Exactly.

Adam Hooper – Just becoming aware of what that is and how that affects operations.

Brendan Wallace – Absolutely.

Adam Hooper – Great. So what’s next for Fifth Wall? What can we expect to see from you guys in the future?

Brendan Wallace – I mean, look we’ve got a lot of capital now to invest. We’ve got a lot of corporates to support. We’re operating now in many geographies. So I think we just want to ingest what we have. You know, I think what has kind of underpinned our success has always been these long term enduring relationships with corporates. And so while I do believe that the bigger Fifth Wall gets and the larger our consortium gets, the better it is for any individual strategic investor and it is for our startups. We want to balance that with growing at the right pace so that we always have these relationships, right. We never feel kind of on our heels. We’re always like really investing in real estate owners that want to do more with us, want to take this kind of more technology forward posture, and we’re just thinking of the most creative ways to support them. Whether that’s around regional investing. Whether that’s around ESG and sustainability investing. Whether it’s around retail investing. Really anything, we just want to support them.

Adam Hooper – Perfect. Well Brendan, thank you for stopping by the booth today. Hope you have a great rest of your conference.

Brendan Wallace – Definitely. Thank you for having me.

Adam Hooper – Thanks. Well Tyler, we did it.

Tyler Stewart – We did it. Big thank you to Michael Beckerman and the entire CREtech team. This conference was a lot of fun and it was great to be able to share with listeners. And Adam, 25 interviews over the course of two days. Awesome job.

Adam Hooper – That was quite the journey. Just so many great conversations, so many amazing people. Amazing, amazing conference. So grateful for the crew at CREtech, Bethany and Michael, the whole team put on an exceptional event. So huge thank you for the opportunity to come, bring our podcast gear, and share this event with everybody that wasn’t so lucky to be able to be there.

Tyler Stewart – Yeah, it’s fun for us to show the event. It’s even more fun to attend. If you’d like to make it to a future CREtech Conference, just head to cretech.com to learn more.

Adam Hooper – Yeah and again, another huge thank you to Rudin Management Company for hosting the event. Their incredible building in the Brooklyn Navy Yards. And listeners out there, hey let us know what you think. Did you like this format? Do you want to hear more? Send us a note to podcast@realcrowd.com. We’ll send you a special gift. With that, gosh, Tyler, I think I’m all talked out. Thanks again for listening. Make sure you subscribe to this podcast to hear more great real estate technology and investing conversations. And with that, we’ll catch you on the next one.