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.
Dave is a former angel investor (Matterport, Procore, Warby Parker, et al.), startup employee (Bonobos, TellApart), Founder (Floored), CRE Executive (CBRE) who is now managing a new $100m+ PropTech VC called Zigg Capital.
Zigg Capital is a global investment organization with a singular mission: to accelerate the combination of real estate and technology, improving our collective quality of life, work, and community.
Tom Arnold is co-founder and CEO of Gridium. Prior to Gridium, Tom Arnold was the Vice President of Energy Efficiency at EnerNOC, and cofounder at TerraPass. Tom has an MBA from the Wharton School of Business at the University of Pennsylvania and a BA in Economics from Dartmouth College. When he isn’t thinking about the future of buildings, he enjoys riding his bike and chasing after his two daughters.
As Chief Executive Officer (CEO), and Head of Innovation, Taylor leads the NavigatorSRVS and CRE team with a focus on building the ultimate industry platform for data analytics focused on Navigator’s core verticals of Commercial Real Estate, Fintech & Health/Human Services. Taylor oversees the core development of the Navigator platform services and enlightens the market of the most leading edge software services and practices to enhance the industry as a whole. Taylor is the original visionary behind NavigatorCRE. He started developing innovative technology applications while gaining a Real Estate and Finance degree from USC. Nationally recognized as a pioneer in real estate technology innovation, driving significant transactions and success for his clients. Over the past decade he has refined best practices for data visualization and property research, while running his own web development company and collaborating with commercial real estate firms.
As Chief Operations Officer (COO), and Head of Enterprise Engagement, Kevin leads the NavigatorSRVS and CRE Operations and Deployments teams with a focus on client success at the enterprise, scaling navigator across the industry and operational success of the Navigator platform inside the tech stack of modern day asset management, brokerage and CRE enterprises. Prior to joining Navigator, Kevin’s 16-year career includes positions at Deloitte, EY, and Morgan Stanley.
RealCrowd – All opinions expressed by Adam, Tyler and podcast guests are solely their own opinions and do not reflect the opinion of Real Crowd. 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.
Dave Eisenberg – We really like businesses that are transforming services that used to be low margin and we think could be high margin with automation, and we like uncompetitive markets. Not surprisingly, these businesses require less capital, they can grow bigger faster.
Adam Hooper – Welcome back, listeners, to episode two of our 2019 CREtech Conference coverage where we came to you live from Dock 72, Brooklyn Navy Yards. Great conference, another great list of guests today. We talked to Tom Arnold, Co-Founder and CEO of Gridium. We talked to Taylor and Kevin from NavigatorCRE. And we rounded out the episode with one of the OG proptech guys in the space, Dave Eisenberg, Founding Partner at Zigg Capital. Again, one of the first exits in this new wave of proptech space. So really great episode, I hope you enjoy the show. All right, Tom, thanks for joining us at the CREtech 2019 show today.
Tom Arnold – Thanks for having me.
Adam Hooper – Perfect, so before we talk about Gridium, why don’t you tell us a little bit about your background, how you got into this energy space and AI and we’ll start from there.
Tom Arnold – Yeah, I started actually in hard tech doing data networking and very interested in how things work. And about 20 years ago, we started a company that started to do small energy projects on dairy farms and wind farms and that was my exposure to the grid and I’ve always been fascinated in the grid and how certain things like buildings interact with the grid.
Adam Hooper – So energy projects on small farms.
Tom Arnold – Quite literally, like dairies and piggeries. That was 20 years ago. Now I’m looking at condenser loops and lights and peak demand charges and chillers–
Adam Hooper – All that good stuff.
Tom Arnold – So a very different world. But we have about 2,000 buildings across the United States that use our software and our job is to help them get more from what they’ve currently got, either lower expenses or generate new revenue opportunities.
Adam Hooper – Good, and so how has that landscape changed from small farm projects looking at energy consumption there to what you guys are doing today?
Tom Arnold – You know, it’s the same themes. To really understand energy, you got to understand the prices, you got to understand the data and you’ve got to use that data to make smart decisions about how you operate.
Adam Hooper – Yeah, and that’s a consistent theme that we’ve been talking about here and on the show is the availability of data today is infinitely greater than it was even just a handful of years ago in the real estate space. I’m assuming in the energy space, similar, just the availability of data–
Tom Arnold – Absolutely, almost every building in the world now has a smart meter on it. Your work order data is accessible, as well. It’s actually a sea of data. So the challenge is how do you get out of that into making decisions and that’s where AI comes in because you can have a sea of data and deploy AI against it, get the diagnostics and recommendations that you want and focus your time on doing the things that are actually going to build the value rather than the drudgery of analyzing.
Adam Hooper – Okay, so AI, artificial intelligence, that gets talked about a lot in the industry. Why don’t we go 50,000 foot, tell the listeners what is artificial intelligence, at least how you guys use it. What are maybe some of the misconceptions? Are you turning buildings into machines that are going to come eat us? What is AI in your perspective?
Tom Arnold – AI is a big umbrella term for a lot of tools. We use the lower level machine learning techniques that are well established in the industry. There’s nothing going on here that’s out of Terminator 2 or anything. We use a bunch of pattern recognition. For example, one very simple thing that we do is we have taught the computer how to read a load curve and how to match a particular pattern that we’re looking for such as a chill or hard start or a cycling of a unit and feed a message back to an operator that says, “Hey, Thursday it was 58 degrees and the building was cycling.” And that tells the operator, wait a second. My deadband’s probably not wide enough on the control system. Let me go fix that. Now, if you were to sift through hundreds of pages of load curves, you wouldn’t find that on your own. So it’s really about taking that data, turning it into diagnostics and linking it back up with an operator so that it can be corrected and build value for the–
Adam Hooper – And so that’s ultimately the goal of AI or machine learning is being able to sift through vast amounts of data that a human wouldn’t even necessarily be able to find those patterns or just doesn’t have the manpower or time, energy, effort to go find those.
Tom Arnold – Yeah, I think Minta said it on the panel as well. She said it very well. It’s basically looking to take the human out of the awful part of the job and put the human back on the high value part of the job.
Adam Hooper – Automating a lot of those, the grunt work basically so that we can still use our human brain to make insights from that data.
Tom Arnold – Exactly.
Adam Hooper – So what does a building owner get from this? Is it primarily for, with Gridium, is it primarily for building owners? Is there a benefit for the tenants–
Tom Arnold – It’s for whoever runs the building. Our typical user is a property manager or a chief engineer team. It’s a very easy to use SaaS application. There’s nothing to install on the building, so we don’t have to touch the building and we’re going to essentially leverage all the existing data streams to supply that advice to you. From there, we often find pay dirt. So a part of onboarding a new client is doing a series of audits that look at your operations, it looks at your rates, your bills, your energy choices and it’s very common for us to find very strong savings right out of the gate. And that gets you into the Gridium program. And then from there, we continually optimize.
Adam Hooper – And so this is a more efficient way to manage energy, so it’s a savings, cost savings. So there is benefit to the users of the space, too. More efficient usage, obviously, is going to lower their bills as well.
Tom Arnold – Yeah, exactly.
Adam Hooper – As you said, you have about 2,000 buildings.
Tom Arnold – That’s correct. It’s about 200 million square feet all across the US.
Adam Hooper – And so given your start in small farms, are you going for individual building owners or is this more institutional scale roll out? Who’s the target user right now for the product?
Tom Arnold – These types of solutions only really work if it’s a partnership. And so even in a big portfolio, we start at the bottom of the account. We’ll go meet chief engineers, we start to understand buildings and we develop that trust. And that’s very important because if you don’t do that, if you try to roll proptech out from the top, it often never really penetrates the organization. If it’s a bottom up and has support from everybody in the organization as a useful part of their work, then you have the case for persistent value.
Adam Hooper – Good, any geographic preference? Do you see more savings in markets that have more…
Tom Arnold – We’re saving money in Seattle, which is seven cent energy. And they’re saving in Hawaii which is 29 cent energy. There are lots of tips and tricks that are unique to each utility and how it’s priced. For instance, a lot of our customers love our predictive demand alerts because demand charges are such a huge part of the building expense. And that’s going to work in almost every single territory just ’cause of the way commercial energy runs.
Adam Hooper – What are some interesting things that you guys have seen from again operating in Phoenix versus operating in Seattle? Are there any insights that you guys have learned through the system that you might not have expected?
Tom Arnold – Well, one fascinating trend right now is that lots of commercial companies, commercial real estate companies feel like the cities are going to make them turn their buildings into all electric buildings. So a market like Seattle is fascinating because it is actually almost an all electric market. You see these massive literally mega watt scale boilers and high-rises. And that’s very different from Phoenix where it’s so dry that all you need to do is run the cooling tower and you can get away with a lower energy expense.
Adam Hooper – You mentioned the cities trying to bring maybe different regulatory compliance things into place. How much of this is a tool to be able to future proof legacy systems or how does that work playing in with the dynamic from the regulatory side?
Tom Arnold – A lot of what we work with our bigger clients on is the energy strategy, understanding where the policy is going and also understanding what the opportunities are. So last week, we just announced Gridium Alpha. We purchased a unit of a French energy company. And Gridium Alpha helps building owners connect their wasted energy with the grid. So we finance, we originate, we do the project in the building and then we allow the building owner to sell that energy back to the grid. So this is a new initiative but I think smart owners understand that buildings are a part of the solution to both climate change and changes on the grid. And they’re positioning themselves to benefit from those linkages.
Adam Hooper – And so tell me about that acquisition now. So this was you bought a unit of a power company?
Tom Arnold – Yeah, Engie is a large French energy company. They were actually, we were selling software to them for this unit. They decided to make a strategic shift and we said, listen, we want to bring that unit over to Gridium.
Adam Hooper – And was that in the plans or that just happened?
Tom Arnold – It literally just happened.
Adam Hooper – So you didn’t plan on buying part of an energy company when you started this?
Tom Arnold – No, but it’s quite interesting and you’ll hear a lot more about it. We’ve got some new announcements queued up this fall.
Adam Hooper – So you were selling the software to them–
Tom Arnold – That’s correct and now we’re going to do the software and the financing and bring that in to the Gridium customer base.
Adam Hooper – And so are energy companies and producers, are they a potential user of the software going forward?
Tom Arnold – If you’re interested in retrofits, yeah, essentially. Here’s a good example. We have a program upcoming with a utility where they are trying to get rid of a power plant in a metropolitan area in a very congested part of the grid. And they had asked us to go procure energy waste from the buildings next to that power plant. And so we can link those incentives and make it work with a commercial real estate structure so that the entire grid benefits.
Adam Hooper – Fascinating.
Tom Arnold – And we, just to bring it back to AI, you couldn’t do that five years ago because the AI models on buildings weren’t sophisticated or stable or tested enough and now they are. And so the efficiency resource trend is what we’re getting on here, which is you’ve got supply resources on the grid and you also are going to have efficiency resources on the grid.
Adam Hooper – And so how does this scale or how big does this get? I mean, again, if you’re potentially working with the energy companies themselves, how integrated does that system get from production all the way down to utilization in the space?
Tom Arnold – I think there’s a huge opportunity. If you look at what has to happen to achieve the state policy goals, buildings are 40% of our energy use. And if buildings aren’t part of that equation on the reduction, that’s more and more renewables that we have to build on the other side to meet the state obligations. So it’s going to be a lot cheaper to cut reduction to do LEDs, upgrade the chillers, get the air distribution right in the buildings. I mean, we still have pneumatics in a huge percentage of the US buildings. Get all those retrofits done. That’s going to be a lot cheaper than building big solar power plants in the desert.
Adam Hooper – In terms of just reducing the total energy usage.
Tom Arnold – Exactly, for the grid and backhauling that to the city centers.
Adam Hooper – And what sort to efficiencies or savings are you guys seeing in some of these cases?
Tom Arnold – So in these cases, where we can actually bring money to the building and finance things up to 30, 40% total energy use reduction.
Adam Hooper – That’s fantastic. Yeah. And that’s something that’s got to be pretty effective to the bottom line, too.
Tom Arnold – Yeah, exactly. So essentially that allows us to finance your sustainability goals but without you touching the capital stack on the building.
Adam Hooper – Sounds like a pretty good scenario. Perfect, well, so how can listeners learn more about Gridium?
Tom Arnold – Just hit gridium.com, there’s a bunch of resources there, ask your chief if he’s heard of Gridium and if not, let’s come see him.
Adam Hooper – Perfect, all right, well Tom, thank you for joining us today. Enjoy the rest of the show.
Tom Arnold – Thanks, Adam, appreciate it.
Adam Hooper – Next up, we talk with Taylor and Kevin at NavigatorCRE, Founder, CEO and Kevin being the COO. They came fresh off the panel called Data, Data, Data. Very consistent topic we talked about throughout the conference. So here are some interesting perspectives on how they look at the data landscape, how different partners are starting to integrate with one another and again just a really interesting conversation for where we’re at in the space. Taylor, Kevin, thank you both for joining us today. Just got off the panel called Data, Data, Data, which is a consistent theme here throughout. Taylor, why don’t you tell us a little bit about your background. Kevin, you’ll go and then we’ll talk about what you guys are doing with Navigator.
NavigatorCRE – Thanks for having us. So background, I studied commercial real estate and finance at USC in Los Angeles and really was focused on getting into commercial real estate. Started working at Colliers International post school in the research department, moved up fairly fast in that company to be a top researcher in the country for them. And then JOL was next on the path on the research side, the analytics side. And then moved into capital markets brokerage at CBRE for the better part of six and a half years. Ran a large national partners investment sales team with some really, really awesome players who taught me about commercial real estate from the investment side, the landlord side, and then looking at portfolios. So I was education by fire, being thrown into it. And love commercial real estate. Navigator’s a tool I actually built in my dorm room originally at USC when I started to see just the disparate data uses and all the different programs that are just hashed together and wanted to build something that could be a holistic end-to-end solution. So the original architecture came through my brain and the McClintock Avenue in Los Angeles.
Adam Hooper – Perfect, and Kevin, I was just saying last time we were talking, we were waxing prophetic about block chain when you were at Deloitte. So that changed for you.
NavigatorCRE – I was neck deep in the world of block chain and its nexus with real estate. You know, I’ve spent the last 16 years in finance, the most recent nine and a half of those in consulting. And what I noticed over all of those years because there was only real estate clients I engaged with was it was super relationship based, super handshake based and investors are finally starting to say, look, it’s not just about I know a guy, I got a hunch. I need data to back up my decisions because the board of directors is starting to disagree on things.
Adam Hooper – Yeah and now, on your website, you guys say 73% of all data is not used for analytics. So that’s I mean that’s a huge opportunity, right? And tell me again, we’ve talked about it a lot at this show. I think the availability of data in our space is becoming just dramatically more transparent. You can access to every data sources. So are you guys more focused on internal company operating data marrying out with external data? How do you guys look at that?
NavigatorCRE – I think what might make us unique from various other providers in this space is we do not gather, own and monetize any data that we collect from clients. So everyone has their own pond in the data lake of internal data that they gather themselves and external data that they purchase. And so we’re just providing them insights based on whatever they feed us and we don’t use it in any other way. So we want to empower the clients individually. So with that in mind, my advice to any client is consider your sources. Because there’s a huge proliferation like you said, 73% of data is actually being used, people are just doing a land grab. They’re trying to gather as much data as they can because they think data is the new oil. Well, when you gather product out of a ground, it’s sludge, it’s crap. You need to refine it. And so you should need to do the same thing with data. Consider what you’re gathering. Is it done through cold call surveys and services that are just reliant on human intuition or is it actually data that’s being pulled from specific systems and sources that you can fully trust?
Adam Hooper – Yeah, and so how do you guys approach that of now that we have access to infinitely more data than we might have in the past, how do you turn that into an actual insight? That seems to be the key is how do you sift through that noise of the data to come up with something meaningful?
NavigatorCRE – I think it’s part of the design of our engine is obviously we can aggregate all these different data sources together and even programs and functionality together but the end of the day, we are a data visualization solution. So we’re giving you the ability to map your portfolio, to visualize it in a cloud grid, to visualize it in interactive state-of-the-art dashboarding, which is infused with commercial real estate acumen. That’s part of where I think Navigator really separates itself from the pack is that we have over 75 years of commercial real estate experience on our team. So we are real estate experts first and then a tech company second. And so oftentimes these institutions we’re working with who are very well known Fortune 500-esque and below, they’re looking to us to provide them with what should we be looking at, what’s important, what are best practices? If I want to acquire a portfolio of industrial properties, what should I be looking for, where’s the right markets to go in? And so our engine is actually breaking down those barriers and leading them to knowledge and insights, not just data.
Adam Hooper – And so as a building owner or investor, how should I be thinking about my set of data? How should I be structuring that, are there different ways to store the data so that I can have the cleanest either interface or import into a system like what you guys are doing?
NavigatorCRE – Yeah, I think step one usually is that process is that a majority of the clients that we do engage with ironically they’re living in Excel, they’re living in Access databases and several versions of it, at that, which means that they don’t even internally typically have a good source of truth of their whole portfolio, what fund it’s in, what JD partners it’s part of, what they bought it for, what the cap rate was on the entry, what their hold period was initially when they underwrote it. Those are on an OM or in an Argus model that’s thrown in a drawer in a file somewhere. So by bringing that knowledge forward, what we typically like to do with a client is it’s to look internally first, rub your chest, your arms will take care of yourself. That’s Batman Begins. The whole idea there is if we can get your whole portfolio into the Navigator engine with all of those key insights that drove you to buy that asset, we can now help you understand why you own it, where you intended to exit it, how is your portfolio doing, what was your intended IRR that you wanted on it against your actual rent roll that’s flowing in. We can then start to look in comparison of how are you, a health check, how are you actually doing on your portfolio based on what you underwrote it for. ‘Cause so often, you’ll do a portfolio recast in Argus or something like that every quarter but it’s individuated to each property. It’s not giving the portfolio wide, how are we doing. And so the idea is Navigator’s team on the front end actually, our data team walks you
NavigatorCRE – in the door with a white glove service and aggregates your data for you and then when we throw you the keys, the engine is literally running with your data live. And then you can start breathing into it with your operators.
Adam Hooper – And so there’s it looks like a going in look at the data, there’s also an ongoing monitoring of the data, which I think seems like that’s very underutilized. You buy a building and you’re operating it, and you just go with it, right?
NavigatorCRE – Exactly.
NavigatorCRE – Well, what often happens is these especially at a large, an institutional owner operator or asset manager, there are key departments that are responsible for different aspects of the life cycle and each of those aspects contributes to the overall ROI of the building. But the acquisitions team doesn’t really care after the transaction–
Adam Hooper – Right, they’re done with their part.
NavigatorCRE – The redevelopment team doesn’t care until the building is in their hands and then they have some sort of project to manage and redevelop and finish out. Well then, once their project is redeveloped and then they’re going into lease up, well, that team doesn’t care. Well, then the leasing team comes in and then the accounting and finance teams comes in and then we’re reporting out to the street. If all of those groups were able to collaborate with one another across the entire life cycle because all of the data is in the same place, it adds a ton of value and potential to increase ROI.
NavigatorCRE – Oftentimes, we’ve even gone deep with clients where we’ll have their whole portfolio and I pushed it into Navigator and they’ve now mapped their entire portfolio for the first time they’ve ever done it in their life.
Adam Hooper – That’s got to be just completely mind opening.
NavigatorCRE – Yeah, it’s bananas but it is what it is. And oftentimes, it’s a funny happenstance is you’ll find a dispositions lien or a portfolio manager, even a CEO go, wait a second, those five buildings were supposed to be sold three years ago. Why do we still own them? Their hold period was seven years and we’re on year 10, which means that that’s something that needs to be dispoed right now. And we’ve seen it happen where they’re suddenly getting those optics of what were they originally underwrote it to, and they have a fiduciary responsibility to their LPs to make sure they’re operating that portfolio and what they’re investing on. Again, gaining those knowledge and insights from your own data oftentimes is a revelation. And we enjoy it, it’s a fun process to take clients through. And again, Navigator’s philosophy is we’re not just a SaaS service, we throw you the keys and it’s over. It’s a partnership and a relationship where our data teams become intimate with our client’s data and actually effectively help them build their board presentations, investment committee books. We get to go deep with them and we act as a data swat team for them with every client. So we get to see a lot of really cool dynamic portfolios and clients, occupiers, tenants, you name it. So it’s really fun on our end.
Adam Hooper – What are some of the interesting things that you guys have seen in doing these portfolio analytics or just getting under the hood? What are some of the insights you guys have either seen yourselves or have helped your clients see?
NavigatorCRE – The first thing that I noticed is especially on the I’ll call it acquisitions side, if someone is doing deals in a particular region and they really know that region well, they assume the metrics are the same everywhere else. Oh yeah, cap rate spreads must be about, they’re definitely between a six and an eight in my region, so they’re also a six and an eight somewhere else. Not at all true. Also, government tax incentive structures, infrastructure upgrades in a particular area where they might be selling, pushback from local communities. They all think that whatever issues are happening to them locally or regionally are happening the same across the country or globally. And what Navigator has uncovered when we take all these data sources in is that people now know what they don’t know and it encourages everybody to collaborate together. It’s especially helped C-level executives because they’re the same way. They’ve been doing things for 20 years, they know their market, but if you’re going to acquire a competitor or bolt on a portfolio, which may have very, very different operational metrics than you’re used to, you just need to have all that data in one place so that you can understand that it’s not all uniform and then change up the strategy as you go.
Adam Hooper – And so that sounds like if I again operate in Dallas and I’m looking to acquire something in wherever, Kansas City, nothing from my internal data set is really going to be that insightful for Kansas City, right? So it sounds like you guys are also pulling in external data sources to help reform that. So you guys have some partnerships, so data providers or how do you look at that landscape of pulling external data?
NavigatorCRE – We’re growing our partnership network at Navigator. We are happy to be Switzerland. We are a data agnostic company. We don’t care where your data comes from. Our clients have a plethora of different systems that they like to pull data from or services they use and they license. But those services ad hoc on their own, they don’t use. But once they’re brought into Navigator in concert for underwriting and they know how to use the dashboards for analytics and underwriting an asset and where cap rate specs should be, that’s where it starts to play. One we’re really excited to announce is our partnership with Moody’s and Reis. So we’ve been added to the Moody’s and Reis network and we’re going to be integrating with them on being essentially a data provider inside our engine where you can search for data sets and pull them right into your Navigator environment. So we’re really excited about that–
Adam Hooper – That’s a big win, yeah, congratulations. And there’s other providers out there that we talk to all the time that are data providers for commercial real estate. And most owner operators are starting to look at, okay, well, we want to integrate with Navigator so that we can use your data more effectively and not have 10 different software tools. So oftentimes, we’re thought of as the user interface for all their data.
NavigatorCRE – Well, I think what’s interesting especially for a company like Real Crowd, because you’re literally opening up the market to investors who might not have invested in what was in a liquid and expensive asset class before. So you’re also likely dealing with slightly less sophisticated investors that need visually appealing, easy to understand, on one page information about an investment that they might make. We are trying to use that same philosophy for large scale clients. You are global portfolio managers but you’re spread across the place with a lot of systems that don’t talk to each other. The new normal is bring everything in, have it serve as a hub and instead of it taking six weeks for you to produce a report and make a decision, we want it to be done in six minutes.
Adam Hooper – And so that’s always again something that we’ve had a challenge with is our asset class can be incredibly complex if you want it to be. How do you distill that down, how do you visualize it, how do you make it simple enough that again in our case, retail investors or in the case of a real estate owner, everybody across the organizational structure can understand that data? So how has that been a challenge for you guys again taking in all these different disparate data sources?
NavigatorCRE – Navigator’s designed in a way where essentially we have the US patent for structured and unstructured data visualization for commercial real estate actually.
Adam Hooper – Oh, there you go.
NavigatorCRE – So that’s pretty cool. The way I design our engine is we have a periodic table of commercial real estate terminology that covers all asset classes, office, industrial, retail, multi-family, land, construction and then the way our engine’s designed is it’s a come as you are approach. We call our ingest ETL API, we call him Pac-Man. It can eat literally eat data from anywhere and it’s a come as you are approach. Meaning, you may have a set of data that you want to bring into Navigator. You can literally drag and drop it into the uploader and the data that you’re bringing in, all those fields become your own data model. You don’t have to map any data where we’re a unique solution for people to understand how that works where you can just drop it in there and it becomes the engine. Our approach is allowing you to use your own nomenclature. So from firm to firm, it is an entirely different exercise to try to standardize an industry and the way they call things. It’s not going to happen until it’s mandated by the SEC or something like that. Everyone likes to call things a different thing. Everyone looks for different metrics. Some people sell for IOR, some people sell for five year cash on cash, some people will sell for a cap rate. And that’s what’s going to be in their investment model. So we allow you to come as you are with your data sets and our engine wraps around it in a really malleable fashion and allows you to use your nomenclature that you use internally at your company and then even personally hone that nomenclature and standardize it
NavigatorCRE – to yourselves first.
Adam Hooper – Got it. And then we can use ML on the upside, upstream to aggregate it together if we ever wanted to do high level reporting in an opt in basis.
NavigatorCRE – I remember the first time Taylor explained the solution to me. I was still at Deloitte. I was getting pitched multiple times per week for all these different companies. And when he described the platform, I thought this guy is full of BS. There is no way a tool can bring in all these different sources of data and then just spin it out and have a heat map view and a grid view and run analytics. There has to be a big data governance project, there has to be the meeting of the minds, it’s going to take six months. And so I brought him a client. I said, all right, you know what? I’m going to put your money where your mouth is here. I brought you an institutional owner, their entire exported feed from JD Edwards. It was like 17 spreadsheets, I think 900,000 rows. It was horrible, 16 hours. The next day, everything was in the Navigator platform. And then we had our client’s IT team jump in and try to poke holes in it. And they were just dumbfounded. And that’s when I knew. I was like, okay, there’s something really here. This is truly unique. And then four months later, I left Deloitte and here I am as COO of Navigator.
Adam Hooper – @hat is the typical user for you guys? Is it smaller regional managers, is it institutional scale, where are you looking in the market for that?
NavigatorCRE – We’ve got a pretty wide scale. Obviously, being in commercial real estate since early 2016 or so when we really launched the platform, we’ve got small brokerage teams across the country and all the big firms that use us ad hoc. We’ve got large enterprise global corporate services companies that are now using us for their entire global corporate service for tenancy, occupancy, facilities management. We’ve got the middle market guys that are the private family offices managing their portfolio of 60 or 70 buildings. So it’s pretty fun. We have a pretty wide spectrum.
Adam Hooper – Like you said, it’s Pac-Man. You’ll eat it all.
NavigatorCRE – You’ll eat it all. I would say the two big sweet spots that I’ve seen just in my short time here have been institutional money managers and developers and operators that have just so many different systems and so many different groups of people sharing data that it’s tough to keep track. We act as that hub. That’s been great for large clients. For the smaller and middle market clients, they would like to represent that they are larger and more sophisticated than the market may be expecting. And so they are using Navigator as a very, very sophisticated and visually appealing platform so they can go to market.
NavigatorCRE – With that polished look– Yeah, for some deals that they may not have competed in. And then for raising capital, we’ve had several clients. And part of what we do with Navigator, too, is we’ll even white label the engine with your company’s logo, brand, color schema, fonts.
NavigatorCRE – It’ll look like it’s your own in-house software. We have companies raise a billion dollars in capital on our platform as their LP tool to show what they’re doing, their portfolio, where their use of funds will be, whether capital is going to be allocated, what’s in their pipeline and what’s their performance on the current portfolios and funds they’ve got. And so we’ve got a pretty fun spectrum of uses of Navigator. And that was definitely not the intended use case when this platform was first launched. But what we’ve noticed is that if we get all the data in one place and we allow our clients to just run with it, open API, they provide us with all the feedback and knowledge that we need to improve the platform. They tell us everything that they need and then two weeks later, that feature is added to the platform. Yeah, we’re an evergreen cloud based platform. So there’s no patching, there’s no versioning. Everyone’s always getting the latest and greatest software. And we definitely have a community build model where we’re never sharing direct insights from client to client ’cause we keep that siloed. But ideas, features, things that would be great to use, if you could do this tool or if you could run this kind of report or be able to overlay buildings or whatever it might be, those are things that we actively engage our clients on
NavigatorCRE – and add to our sprint model and every two weeks, there’s fun little feature releases. It’s super fun because the client will get these little text messages and hey, it’s in, it’s awesome. We’re using it right now.
Adam Hooper – Nice.
NavigatorCRE – That client driven approach where you’re not developing in a vacuum I think has been the reason why Navigator’s actually been very successful is that the customers and even new customers in the pilot periods giving us feedback of if you can do this, then we’re in. We’re enhancing the platform in the community, not in a vacuum. And again, while we do have commercial real estate experience and significant experience and technology experience, a counsel of many is wise. So if we can work together with our customer base, we’re going to have a really, really cool innovative solution and stay in the leading edge.
Adam Hooper – Perfect, well, maybe we have to plug in our data, see what kind of insights we can get.
NavigatorCRE – Love to.
Adam Hooper – All right, guys, well, thank you for stopping by the booth today. Hope you have a great show. Why don’t you let listeners know how they can learn more about Navigator.
NavigatorCRE – Absolutely, you can reach Navigator’s website at www.navigatorcre.com or stop by one of our offices in Seattle or Los Angeles.
Adam Hooper – Perfect. And for those wanting to connect with Taylor or Kevin on LinkedIn, it’s Taylor Odegard and Kevin Shtofman. We are open people. We’ll answer any questions you might have. Perfect, Taylor, Kevin, thanks for stopping by.
NavigatorCRE – Cheers, thanks.
Adam Hooper – And to round out today’s already amazing episode, I had a chance to sit down with Dave Eisenberg, Founding Partner of Zigg Capital. What an amazing journey this guy’s had through the proptech space. Very early on, Floored exit to CVRE, which we talk about. He’s been an operator, an investor, back to an operator, now back to investor. Just an awesome guy, really, really interesting journey and a very unique perspective that we talk about how that’s shaped his perspective and how he looks at investing in the space now.
Tom Arnold – So I think we’ll let Dave tell his story. All right, Dave, thank you for coming to see us here at CREtech 2019.
Dave Eisenberg – Thank you.
Adam Hooper – How’s the conference been so far?
Dave Eisenberg – So far, so good. Came in on the Red Eye last night, so I’m running on fumes but I’m getting there.
Adam Hooper – Perfect. Well, we appreciate you coming to spend some time with us.
Dave Eisenberg – Thank you.
Adam Hooper – You know, as we were just talking, I think you’ve got a really interesting journey through this proptech real estate space, operator, investor, back to operator, one of the first exits in our space, now back to investor. How has that journey through seeing all sides of this landscape inform what you’re doing now and what perspectives does that give you?
Dave Eisenberg – Yeah, I think the early employee experience at both Bonobos and Delabar was super helpful. I encourage most people that think that they want to start a company one day to try not just as a founder but to try as an early employee. You’ll get much of the same experience without all of the responsibility and you’ll have a lot of the learnings that you would get if you were the founder of the business. So those businesses were in the online retail space. I think there I learned about a lot of the long term secular trends run, how people are changing where they shop which is obviously a big cornerstone of real estate. And how owners are responding and thinking about becoming in pursuit of omni channel tenants and not just thinking about the offline experience. When it was time for me to start my own business, I got quite enamored with a particular technology innovation which I don’t always think is the right catalyst for starting a business. I think I ended up learning a lot about commercial real estate in the process. We were very fortunate that we got a toehold within the class A, well branded commercial real estate space. And ultimately, that’s what led to our sale to CBRE, the office services giant. I’d say as an investor, you get a ton of breadth, as an operator, you get a ton of depth in whatever you’re doing. And ultimately, everyone’s got to make their own choice about where do they derive their energy from. And for me, it’s knowing a medium amount about a large number of topics, sometimes not that much on that topic,
Dave Eisenberg – rather than being exceptionally detailed on one or two categories whether they’re fashion or ad tech or 3D modeling, for instance. And so I think that’s what led me to believe that being an investor over the long term was the right call for me. But each of the things that I did contributed to a piece of my worldview about some of the themes that I’m most excited about.
Adam Hooper – Yeah, I know Floored was I think one of the first real exits in the proptech space.
Dave Eisenberg – I think there have been exits that precede us for sure. Luke Noe was a big acquisition by CoStar and there have been others. I think we were part of a different type of crowd. We were very modern with our design, with our software and of that vintage, we’ve not seen a lot of exits. And especially not exits to the major incumbents. And so I think CBRE to their credit decided to take a swing at bringing a very different type of talent into their organization as well as a new type of product that they thought could give an edge to their brokerage community. I think that has played out very nicely. They really do have a differentiated product suite now. The division that’s called CBRE Build, which was compiled of the Floored team plus some people that we had in Texas and in Seattle, as well as now overseas, that division adds a lot of different energy and positive energy to the company. And so I think the company now is really on the journey to becoming a tech enabled services firm, which I think would be quite separate from the rest of the brokerage business.
Dave Eisenberg – And that’s a big firm to have that kind of cultural shift at that scale, right?
Adam Hooper – And do you think the pace of acquisitions or M&A, that means it was 2017, right?
Dave Eisenberg – Yeah, at the end of ’16, we started that team, yeah.
Adam Hooper – I feel like a lot of us would have expected the pace of M&A and acquisitions to probably quicken where it still doesn’t seem like there’s a ton of M&A activity in our space.
Dave Eisenberg – I’ll say for the public companies, it’s very difficult. It’s difficult to look at these businesses that don’t generate the level of profits that they do, that are software businesses rather than people businesses primarily. And I don’t think the public markets are that pumped about them going and buying a bunch of businesses that don’t have the same earning structure that these businesses have. So I think there’s been hesitance for the big public companies to go and do this. And the tech giants I think have not been particularly inquisitive in this category. And I think that there’s a bunch of reasons around that. You know, I would say Amazon buying Ring is interesting. If you think of Ring as a portal to your home, that is a proptech acquisition that I don’t think typically gets lumped into because it’s not sold to an institutional landlord. Our definition of proptech is not one that exclusively requires that existing owners were to adopt a technology and really transform their own processes. We think it’s anything that touches the physical world. And that could be a new construction technology company, it could be a new type of retail operator, it could a new type of financing solution or a fintech solution that touches a real estate asset class. And so with that, I think you’ll see a broader set of potential acquires. But yeah, it’s not quite like the SaaS industry.
Adam Hooper – Yeah, and now, so taking all that experience and both that breadth and depth that you’ve been able to acquire, why don’t you tell us about what you’re up to with Zigg?
Dave Eisenberg – Yeah, with Zigg, so Zigg is a focused early stage oriented proptech venture firm investing in deeply technical teams. It’s one of the things that we think we’re particularly capable of underwriting are on some of the harder tech businesses. We really like businesses that are transforming services that used to be low margin that we think could be high margin with automation. And we like uncompetitive markets. Not surprisingly, these businesses require less capital, they can grow bigger faster. And so we’ve got investments in the investor relations software category like Juniper Square. We have a stealthy investment in the mortgage servicing space. We have an investment in energy inflows and outflows of buildings, a company called Blueprint Power. These are not where large numbers of entrepreneurs are flocking to. And we think that these businesses have a slightly higher incidence of success because they’re so focused and so unusual.
Adam Hooper – And you mentioned Juniper Square, obviously a friend of the firm. They’ve been on a pretty good tear lately. I think that’s again the less sexy side of software but it’s a huge need and there’s a really large market for it if you do it right. And there’s I guess I’d be curious what other avenues are you looking at or maybe some contrarian plays that you guys are seeing that again because of the background maybe most investors or operators aren’t really paying attention to right now?
Dave Eisenberg – We love Juniper. You can just observe how quickly they are growing and you can easily benchmark that they are in a very, very elite category relative to any other SaaS business in the space. We have a deep interest in companies that are automating things that were not previously thought to be automatable. So we have a software investment in a property management company in the single family home space called Grid Jones, a company based out of New York with also with operations in Florida. And they’re really doing it. They’re taking a business that used to be really low margin, not well branded, very, very poor implementation of technology and from the ground up, they’ve built something truly original. And you see that reflected in the quality of their business. A more recent investment we’ve made deals with areas of the economy where there are labor shortages. And one of the areas where there’s a big problem in finding labor is in the landscaping space, specifically commercial landscaping. So we’ve backed a really, really talented software and hardware team with deep computer vision expertise, deep AI expertise and they’re basically building an outdoor automated electric quiet lawnmower. The company’s called Scythe Robotics. We were super impressed with the technical prowess of the team. The early commercial demand is unbelievable. And we basically created a window with which we could put some money into the company in between rounds and I think they respected our deep enthusiasm for the category. This is one that we went outbound to go and find
Dave Eisenberg – and we’re thrilled to be in business with them.
Adam Hooper – Good, and so that would be an example or I guess maybe you can clarify a little bit some of those historically low margin businesses that you’re able to convert through technology automation and other I guess pretty fundamental tech–
Dave Eisenberg – Yeah, low customer acquisition costs to high virality, high degrees of referral business. All of those things make the quality of the businesses better and we believe make them into extremely attractive software businesses.
Adam Hooper – And so do you see where we’re at in the I guess the evolution of proptech we’ll call it, in some instances, there’s companies that have been doing it for awhile now. There’s some companies that are making incremental improvements. I think the industry as a whole is still fairly nascent, but are you seeing a lot of big game changing technology or is most of it incremental improvements to efficiencies right now?
Dave Eisenberg – I don’t know that I would put the whole mess of businesses into one category or the other. I think we do see some very innovative applications of AI, of computer vision, of cyber security, even crypto. We see some really impressive technologists who are building new concepts in this category. That’s a piece of where we spend our time. We also spend our time in areas where it’s not a technology innovation so much as it is a great technology application. And so you’re not inventing something in software per se but you are designing an amazing user experience or you’re designing a new workflow or you’ve even just come up with a business model that allows you to gain customer share very quickly. And so I think we spend our time 50-50 on things that I would put in technology innovation is their primary identifying characteristic versus things that are just great businesses that happen to be technology businesses but it’s not necessarily what they get up and think about all day.
Adam Hooper – Yep, so what’s on the horizon for Zigg? What are guys looking at that is most exciting out there right now?
Dave Eisenberg – Yeah, we’ve made an investment in a medical retail business called Tend. Tend is reinventing what it’s like to go to the dentist. This was not a category that we had a pre-existing thesis around. We just met this founding team and they are so exceptional that we were just bending over backwards to give them our money. And I just tried the user experience myself and it truly is a 10X improvement over what you think of when you go to the dentist. So I would say medical retail in general is a category that we’re pumped about. It’s something that is unlikely to be disrupted by e-commerce. You will likely need to go and get your physical person treated.
Adam Hooper – They do have some Smile Direct rights, some that are chipping away at some of those legacy systems where there is no in person there.
Dave Eisenberg – Yeah, services that can be delivered virtually or delivered remotely will be. There is a whole class of services that can’t be delivered remotely and those are the ones I think we’re quite bullish on in the well branded retail form factor with a high degree of hospitality, high net promoter scores. And so that’s one area where we spend our time. I think we spend a lot of our time at the intersection of fintech and real estate tech. So people that have new lending businesses, we’ve invested in a construction finance business called Handle. They have used automation to decrease the default rate of people who want to advance payments for payments for which they’re due, for which they’re owed for a business called Factoring. And so I think whether it’s mortgage origination or mortgage servicing or home equity loans, a lot of the things that we spend our time looking at are right at the intersection of proptech and fintech.
Adam Hooper – What’s your tech on the whole iBuyer world?
Dave Eisenberg – I believe it is going to be very, very difficult for iBuyers to compete with Zillow in the long term. I think Zillow has both the distribution and the traffic and they also have this data science muscle that they’ve honed over such a long period of time. They’ve now, anytime you see the original founder coming back to run it with gusto, you got to take notice. I’d say we’re probably pretty long on Zillow. I think that the Open Door team is very formidable. I don’t know that it’s going to be the type of business that we’re going to want to invest in simply because of historically how capital intensive it’s been to early investors. Our model is a better fit for businesses that don’t require a lot of capital.
Adam Hooper – Yeah, perfect. Well, Dave,
Dave Eisenberg – Cool. Appreciate you coming by.
Adam Hooper – Thank you. Thank you for sharing your insights.
Dave Eisenberg – Appreciate it.
Adam Hooper – And I hope you can catch some rest.
Dave Eisenberg – Thank you. Take care.
Adam Hooper – Well, that’s it for episode two of our 2019 CREtech Conference coverage. Stay tuned for the next episode where we’ll check back in with friends of the show, Steve Weikal and Minta Kay. As always, if you want to learn more about what we’re up to at Real Crowd, head to realcrowd.com or realcrowduniversity.com if you want to learn what we have to say about investing in commercial real estate.
