Welcome to the kickoff episode of the Goodwin Proptech Series, where Minta Kay & Salil Gandhi, co-chairs of Goodwin’s PropTech practice, discuss how the coming technology wave will impact real estate.
Minta Kay is a partner in and chair of Goodwin’s Real Estate Industry group and a member of its Real Estate Joint Ventures, Real Estate Finance and Hospitality & Leisure practices. For more than 30 years, Ms. Kay has represented institutional investors, tax-exempts, real estate funds and owner/operators in connection with all aspects of their real estate investment transactions. She regularly advises clients on joint venture formation and restructuring, senior and junior debt origination, acquisition and restructuring, portfolio transactions, development transactions, and property sales and acquisitions. In the past five years, she has closed over 55 transactions totaling in excess of $8.5 billion.
Salil Gandhi is a partner in Goodwin’s Technology & Life Sciences group. Mr. Gandhi specializes in the representation of emerging growth companies throughout their lifecycles as well as venture capital funds and other private equity funds. For emerging companies, Mr. Gandhi advises on a variety of general corporate and governance issues, including corporate formation, venture capital financing and exit transactions. For venture capital and other strategic investors, he advises on structuring and executing investment transactions ranging from angel to control investments as well as portfolio dispositions. He also advises investors and companies in emerging markets, with a focus on India & South East Asia.
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Salil Gandhi - When you look ahead 10, 15 years and you know this technology is coming, but you're building a building today, you really have to ask yourself, kind of how has this technology that's not necessarily proptech-specific, how is that going to change uses of buildings?
Adam Hooper - Welcome listeners to the first episode of The Goodwin PropTech Series. The intersection between real estate and technology is ever evolving, presenting challenges and opportunities to companies, their investors and consumers. Technology underpins the real estate space in all of its forms, from artificial intelligence to smart cities, the adaptation of existing buildings into tech hubs, the rise in financial modeling and the emergence of cryptocurrencies in shared economies. Follow along as we discuss the key findings and industry trends with a team leading the charge on The Goodwin PropTech Initiative. Our first episode serves as an Intro to the top 10 biggest forces driving the PropTech movement. We're joined by Salil Gandhi and Minta Kay, both partners at Goodwin and experts in all things PropTech. For more information and to stay up to date on future episodes, go to realcrowd.com/proptech. If you have any questions or feedback, send us an email to firstname.lastname@example.org and with that, let's get it. Alright, Minta and Salil, thank you so much for joining us today to kick off The Goodwin PropTech Initiative, we're glad you can come on the show and excited to talk about what you guys are seeing in the space today.
Salil Gandhi - Thanks for having us.
Minta Kay - Likewise
Adam Hooper - Minta why don't you take a minute and tell us a little bit about yourself, your practice at Goodwin and what you're doing on the PropTech initiative.
Minta Kay - Thank you, together with Salil, I am co-leader of the firm's PropTech initiative. I also am the global leader of our real estate business industry unit, which is a unit that spans fundraising in the real estate space through capital deployment, transaction work in the real estate space. Then harvesting the value that's rigged in that space into public company works. It's quite a broad spectrum of what we do at our group, we're roughly 200 lawyers with people sitting in 10 offices or so. My own personal practice is on the transactional side, and that led me into a tremendous amount of interest in the PropTech space because I work with property owners, developers and investors, who work with the hardscape and who handled bricks and mortar and started coming to us with a lot of questions about what all this tech stuff was.
Adam Hooper - Perfect, great, and then Salil, a little bit of the same what you're up to with Goodwin and were you involved or are involved in this PropTech initiative?
Salil Gandhi - Happy to. I'm a partner in the technology group, and my practice really focuses on representing companies through their full lifecycle, so from incorporation through exit, in any number of industries, as long as they are utilizing technology to essentially push that industry forward. As part of that practice, a growing amount of the work we've been doing is around the PropTech space, as we've seen more entrepreneurs entering the space, both from the traditional tech side as well as from the real estate side. It's been a great opportunity to partner with our real estate team and really see where the synergies are coming together as more and more people are crossing the aisle.
Adam Hooper - As introduction to the series, so we're partnering with Goodwin here and we're going to be going over, your verbal episode, essentially of some of the content that you guys are putting out. We'll talk a little bit more about, at the end of this episode, kind of what you can expect to see from the PropTech Initiative and we'll preview a few of the articles that are going to be coming down the line. But Minta you mentioned this came about from your work with the real estate practitioners, identifying technology and trying to get a better understanding of that. Where are we at in real estate technologies adoption? I think we've seen some shifts towards that becoming more of an issue on everybody's mind, and it sounds like that's what you guys saw as well to spur this initiative.
Minta Kay - We're still early days in my view. Real estate is an industry that's quite traditional at approach, it's not an industry that will adopt new technology or new ideas without a lot of thought and consideration, it's also an industry that has very familiar ways of underwriting assets, developing and operating them in running businesses, assembling portfolios, Et cetera. However, as I noted in what gave spark to our interest in this sector was a new interest within all of the real estate industry from traditional to more innovative around ways in which technology could help maximize value by improving tenant experiences, by allowing investors and operators to be smarter about decisions they were making and allowing processes to just work more efficiently. As I said, early days with a lot of interest and with a lot of our clients from many different sectors actively looking at lots of the different products that are out there.
Adam Hooper - Great, and then Salil similar, we're from more of the technology side, how have you seen the interest in the real estate space as an industry within the technology world developing?
Salil Gandhi - Technologists have been coming to us because they, for two reasons, first of all, real estate obviously, is a asset class, that everyone knows and kind of participates in and so it's something that people are kind of now looking to more so, than then kind of the direct consumer goods. Two, I think it's obviously a big global business, and so I think when technologists are looking around and saying, "Hey, what are our other issues that we can help solve? Where can we deploy some of the technologies and solutions?" I think they're looking at real estate as something that's both local to them in whatever city they may be in, but also global because obviously, it is truly a global universal business.
Adam Hooper - Definitely, perfect. Well, so let's talk a little bit about the first article that you guys put out, which was The 10 Biggest Forces Driving the PropTech Movement. Maybe tell us a little bit about some of the work that went into developing this, some of the research behind it and then we'll just dive into the top 10.
Minta Kay - Sure, so as I mentioned, I believe I did, we have a very large group that practices in the real estate space. We have a very large group that practices in the tech space. And then we have a large group that's formed out of both of those set is focusing on PropTech. When we began to think about this, we were reacting to incoming calls in both practice areas, asking about what was going on in the other. We took some time to talk amongst our groups and just step back, and at that point think about what was driving activity and interest in the sector that. That led to the publication of our first article. I will say this space moves phenomenally quickly and the minute you publish something it becomes somewhat outdated. That was great when we did it and it still remains relevant, but the lightning speed with which things move keeps us very much on our toes and very much, staying abreast of the latest and greatest developments.
Adam Hooper - Salil and I were talking before we started recording, we've been in the industry now and the real estate side for the last six years and seeing the acceleration of interest in the space and this plethora of new startups and new capital coming in just over the last even, 12 to 18 months, has just accelerated tremendously. It's a really exciting time in the industry and I agree, it definitely moves at a pretty quick pace. We're going to go a little bit out of order here, so Salil, why don't you tell us a little bit about the FOMO factor? What do you guys mean with the FOMO factor?
Salil Gandhi - Sure, I think this is, kind of the first and primary driver given the speed, and FOMO was obviously the fear of missing out. And I think that really has materialized in a few different ways. First, within the traditional tech community, I think we see more traditional tech investors, the VCs looking at this space. Whether they were industry specific or not, I think they're really looking at the PropTech move in the PropTech community as a place to invest dollars. I think more and more VCs are coming to it because they realize that it's a growing marketplace and 2they certainly don't want to miss out. And I think that we're seeing that on the other side of the aisle as well in terms of the real estate community. Coming to this and saying, you know, we also don't want to miss out. I think that's missing out in two ways. One, in thinking about how that actually affects and is changing their business, and we'll kind of be talking about some of those early stage impacts and some of the more global ones in a moment. But it's also to the extent that these technologies are coming, they are going to change portions of the business. They also don't want to miss out in terms of investments and making sure that they're part of the story as it's being written.
Adam Hooper - Yeah, and it feels like there's definitely been a pendulum shift, of our industry was historically one of the slowest industries to adopt new technology. And with this latest kind of acceleration, there's definitely a feel of we're not going to miss what's next, we want to make sure that everybody's in it and embracing and realizing how can this really affect their operations? So it's again, I think a bit of the pendulum shifting to the other side of the aisle there.
Minta Kay - With that. I will comment though, and I will say it's not as if the real estate industry has decided to go 900 miles an hour. They are cautious and they're thoughtful and they're exploring the new technologies out there in terms of deciding whether they're worthwhile deciding how many of them are worthwhile deciding how they impact building operations in what could be a profitable, productive greenway. Deciding how the hardscape should shift and how they should be reacting to technology that's not purely real estate-driven, such as AI and autonomous vehicles. This will be something that I think will evolve over the next several years. The easy technology to adopt on the operational side, and on the 10X side will go quickly, but there will be a lot that will take a longer time to absorb and react to.
Adam Hooper - Definitely, well in the ink what we are kind what we're underlying here is another point on your list is this change in attitude, so maybe we can talk a little bit about, how the attitudes have changed.
Minta Kay - Sure, there's much more of an openness on the traditional real estate side to think about different ways of doing things and to think about how tech can help make investment decisions, and make investments more profitable. There are people who were looking at, as I've said, the operational aspects of it, but those are pretty straight forward. There are others and including governmental agencies who are really looking at how technology for the next five, 10, 15, 20, 30 years, should be impacting in a positive way, the way our communities are shaped, the way our hardscapes are shaped, the way we plan and put communities together. That's a longer term process and that's more of the unknown that no one really can predict at this point in time, as to how it will evolve. But everyone knows it will, and many of the early movers in this space on the real estate side are starting to change the way they look at parking Change the way they look at retail chains, change the way they look at drop off lines, change the way they look at setbacks. They're really starting to think about ways that they can advantage communities and themselves thinking about the hardpiece in a different way.
Adam Hooper - And then Salil you mentioned, venture capital as one of the areas that's kind of driving this desire to get into the real estate asset class. From the technology perspective, how have you seen the attitude change on the technology side towards our industry?
Salil Gandhi - It's still an education process for the technology side. It really is thinking about, what are the issues that we're tackling? How does, yeah, how do those business function and how do we help integrate into those businesses and make sure that were really value-add. There's still a great deal of education that's happening in a very excited way and a very quick way. But I think people will know it's an important segment and we're still at the early days of that.
Adam Hooper - Perfect, well let's move on then to robots at the wheel. Where are we going with robots at the wheel?
Salil Gandhi - Well, so this is a great example of what Minta was just describing. Obviously there's so much development and so much talk about autonomous vehicles, and as part of that, even even how ride-sharing has it has shifted the way that people, transport themselves within cities and moving beyond just the major commercial areas. When you look ahead, 10, 15 years and you know this technology is coming, but you're building a building today, you really have to ask yourself kind of how has this technology that's not necessarily PropTech specific, but more a way of life, how is that going to change uses of buildings? So, is that we need to think about including more dedicated lanes for pickups and drop-offs, since people aren't going to necessarily need parking garages. Is if you're introducing parking garages, do you need to use all those spots? If at some point in the future you don't utilize as many parking spaces, can you repurpose that into retail, into hospitality? Into all other uses? And so I think that's what's really fascinating about how technology that is kind of adjacent to the real estate sector is really changing the way we talk about the hardscape, how we utilize businesses. And you can expand that out then even further to what is a suburb? If people are in autonomous vehicles and they can work or sleep or just use that as a space for entertainment. Does a relationship between suburb and cities change? Where businesses that are actually set up? So I think there's a really global issue that's coming, that I think that if any of us had the answer to,
Salil Gandhi - we probably stopped doing our day jobs and be really really wealthy. But it's a really fun part of thinking about the sector.
Adam Hooper - Perfect, and Minta any thoughts on how that's going to be impacting more from the real estate operator side?
Minta Kay - That's going to be profound. We're seeing clients at this point in time as Salil has alluded to really changing plans for the use of existing real estate, which will need to be repurposed in many instances and thinking differently about the way they're going to plan the development of their real estate going forward. One of the interesting things about this that hearkens a little bit back to the question you asked before, and our discussion around the speed of shift here, is that the money that's coming into PropTech now from the VC space is more frequently coming in from investors and funds that have a real estate background. It ceasing to be just classic VC that's putting money in and watching what happens, and it's shifting to money coming in with investors who can help guide young companies with investors who have a view to how things should shift or where there could be opportunities that haven't yet been realized. That's an interesting thing to observe, and as we look at what's happening in the space, we see the impact of that in a pretty profound way, a bit of a diversion, but reverting back to your question about the hardscape and the change in use, I think buildings will get smaller, I think there will be less parking, everybody agrees with that. There is a jury out on whether with the advancement of autonomous vehicles, the suburbs will become more popular or less popular, that remains to be seen, but it's something people talk a lot about.
Minta Kay - Because the technology that is the result of the digital revolution moving into the mobility revolution is now going to move into what people anticipate to be the transportation revolution, where all of these things are now in service and we can access all data everywhere all day long. The transportation opportunities that will be afforded to have your office in something that someone else or something moves for you, well, present opportunities both locally and I think longer term.
Adam Hooper - Yeah, definitely, and to your prior point of the nature of the capital coming into this space. I think that's one of the most interesting things that we've seen as well is this understanding of how the real estate industry works is now behind a lot of that capital. For a long time, our industry is just different than others. Just again, the speed that the caution, some of the different pain points that these companies are trying to solve, has a different profile than what you would expect to see from a consumer scale Internet startup. That is something that we've definitely noticed is the changing nature of the capital that's coming into the space is much more familiar with our asset class, with our industry and maybe more patient in terms of how long it takes to deploy some of these changes. That's been a big shift and I think you again, will continue to grow and change the dynamic of when companies are out seeking funding, who they partner with, how those partners can add value. Which will hopefully change for the better. How these different technologies can be adopted as well, down the line.
Minta Kay - One other comment on that. We are starting to see traditional funds allocate a bit of a fund-raise to the opportunity to do direct investing. They're getting approval from their investors at the fund-raise stage, to be able to put some money directly into tech. We're seeing other traditional investment advisory clients go direct into some of the VCs that are going direct into technology, so the traditional investors are slowly and within their time parameters. But in an interesting way to them finding opportunities to invest directly in tech.
Adam Hooper - Very interesting, okay. Well let's move on to another bullet point. What have you done for mother Earth lately?
Minta Kay - Everyone knows that there's been a tremendous focus paid on being more environmentally conscious with respect to the way that we live our lives going forward. Many of the technological tools that are coming out support those efforts, so some of them on the operational side in particular, are very focused on energy efficiency, on much more laser-like deployment of heat and AC, of movement of waste out of buildings, and of use of space in a way that can add a more healthfully to our environment. A lot of the technology of interest now But we're seeing a lot of that, and we're also seeing groups start to expand the rating of buildings from just the old fashioned lead standards to include a focus on some of these operational advantages that are felt to be warranted.
Adam Hooper - Like you said, going beyond just the traditional for a long time it was just either Leed-certified or Energy Star, but now it sounds like you're suggesting there's other operational measures beyond just how you build a building or architectural issues, and branch operational issues that may impact both of the energy consumption and use of mechanical HVAC and water even.
Minta Kay - It's very true, to give you an example, there are groups out there that have apps. Everything's an app now. They have an App that allows you as an employee within a building owned by a landlord to use your app and to walk around and to change the temperature as you move. I often wonder how this all works when you have competing people doing But I only say that jokingly, obviously there are algorithms that handle all of this stuff. But to be more concrete about it, conference room use there can be dialing up and dialing down based on actual presence of people in a space and desired temperature. If you think about that, we can decrease energy usage people, people in buildings can decrease energy usage based on a more particular laser-like use of HVAC and electrical systems.
Adam Hooper - This was probably four or five years ago, we were in an office in San Francisco and in a conference room, and it had a sheet on the wall that said, change the temperature, text this number. And we thought, wow, this is really cool technology. So we texted the number and then two minutes later someone comes in and just pushes the button. So I think we've moved on a little bit from that is what I'm hearing. Perfect, well so let's keep going here, then let's talk about curated experiences. That something that we've talked about a lot before in terms of, across asset classes, whether it's retail or office or multifamily housing, curating the experience and that use of the spaces is changing pretty dramatically, isn't it?
Salil Gandhi - Absolutely. End users be they tenant or residents, are just demanding more out of their space, It's no longer merely at box to live and work. And I think they're demanding kind of all the accrued amount that go with their general, more plugged in lifestyle. So that's ensuring that they have a high speed internet everywhere, that that they have comfortable workspace since more people are working longer hours or working at home, so they want to to make sure that they have those opportunities in their home. As we move to the coal living facilities thinking about what other kind of communal features that they have, in the old days it was just potentially like one meeting room, but now really expanding that out into thinking more holistically in terms of socially, what do people do? what are they doing? How do they want to spend their time? And really kind of not only allowing them to have that, but really encouraging them to really come together as a community. I think you're saying the same thing in the office space where it's no longer just a place to go work as Minta said, we're just mentioning things like super personalized service within your office, be it heating, HVAC issues, be it lighting, be its sound and sound protection. And so really making sure that the user experiences is as curated as as possible. And I think part and parcel of that is as, kind of companies change and the speed at which companies develop, we're seeing a lot of coworking facilities and not just kind of the traditional coworking facilities.
Salil Gandhi - But be it uses of just conference rooms, or being uses of just temporary hot office space. Because the way we're working is changing, and I think people really want that overall experience and not merely at desk. And I think that's one of the biggest shifts we're seeing across the board, that's creating new companies that are offering this but also causing our existing, kind of real estate clients, to really think about what their buildings are and sometimes retrofitting them and then designing for them as they go forward.
Adam Hooper - And then Salil, what are some of the technologies that you're seeing enable that? It sounds like that might be more from into kind of the, how the space is configured or use of the space, but what are you seeing on the technology side, that that's driving that?
Salil Gandhi - On the technology side it's anything that will facilitate that. So, if you think about the smart lighting, if you think about, the HVAC control, just making sure that your phone is now your proxy for your setting. You can enter a room, it recognizes you, and either by location-based or by a more affirmative check-in, and then adjusting the settings accordingly. It's about big data and understanding kind of, allowing people to understand how the space is being used and then make that space more efficient for those uses. And I think that's the other piece that's really driving it from a technology side.
Adam Hooper - Great, and then Minta what are you seeing on the actual property side, the built environment side to reflect some of these changes?
Minta Kay - Two comments for you. On the office side we're seeing platforms that are now moving into creating a full and experience. Again the employee, who is a tenant? Is a tenant of a landlord, but getting down to that employee level, creating a full blown experience that impacts not only their life within their workspace but their life within the community, outside the workspace. Technology has evolved to deal with all of that holistic live, work, play in a multi mile area. Tenants are being fed information about bargains here and there, about dinners here and there, about services that can be provided to them within their building. There is a tremendous amount of focus on convenience and community that is now being delivered to employees of tenants, tenants of landlords in buildings to make buildings more appealable to the tenants On the residential side, the same thing is happening. This is a bit newer, but I'm seeing it evolve right now. There are groups that are taking on residential communities and are investing in improving the sense of community within them. They're doing internal programming socially, internal programming healthwise, internal programming leisure wise. And each of them has a slightly different take on how to do it, some have employees that are onsite, some don't. But there is an effort being made residentially with communities that attract young people to forge closer bonds among residents. And that seems to be moving quite successfully.
Adam Hooper - Perfect, so we've got office and multifamily covered, let's switch a little bit into the retail space, which is another bullet point there, repurposing retail. A lot of talk lately about the doom and gloom of the retail industry, maybe a shift towards more of that kind of experiential version of the retail, so why don't we talk a little bit about, how retail is seeing some changes both in the technology and the use side.
Minta Kay - Retail spaces are large and there are a lot of them, which leads to consideration of a tremendous amount of potential square footage, available for different uses. And many of those sites are exceedingly well located but also burdened by ex big-box tenants who no longer have use for space. With respect to the retail side, if you just stick with big-box for a minute and you think about strip malls well located, people are repurposing that space. I mean there's adaptive reuse for medical office building, There's adaptive reuse for housing, for education. In other situations where the retail is not so well located, there's a very profitable adaptive reuse for industrial distribution centers. On the other side, there are other kinds of retail prior uses that probably don't warrant reuse. There's some retail centers that are very poorly located, may mean the best use of the X center is as land, to demo and to use for an entirely different purpose. So people are looking at that as well. Some retail centers may be better used as self storage facilities. I will tell you that we deal with a lot of clients who own these assets, who are thinking about all different kinds of ways to reuse them and to and to shift value based on the shifting economy that we're experiencing right now.
Adam Hooper - We were having a conversation recently with a retail owner and developer, and he made a comment that we're not necessarily overbuilt, we're just under demolished in the retail space. I think that's kind of what you're getting to Whether it's a functional obsolete or just poor location, the world has changed, from where some of these boxes were built, strip centers were built and the 70s, 80s, whatever it might be. There's some ability to come in and kind of rethink where they're located, what that ideal use is, which will be interesting to see how that continues to play out. Salil from the technology side, are you seeing anything interesting on the kind of change of use or the change of the nature of how the retail experience is going?
Salil Gandhi - From the technology side I think one of the big things that we keep talking about are now that you have more direct to consumer brands, how they're thinking about retail space in terms of how that supports that there are core kind of online distribution. So I think you've seen some success with that with the Warby Parkers, the Barnobos, amazing. They've launched successful online brands and are now moving to retail, and really thinking about how that interaction for a brand that's natively online but may need to do some showrooming if you will, in stores. And so we're thinking, we're talking a lot with, with those type of clients about that, what that experience is like and what the purpose is. I think the other areas that we think about, are again around some of the data and data collection. How now that we can track better, now that we can understand flows better, how they can get feedback into both design and development of retail space is another area that we're seeing a number of companies to come in with attacking.
Minta Kay - One other comment comment here. There is a lot of vacant retail, and you can just walk down the street almost anywhere in any urban environment and see it. There're a couple of very interesting things happening there, so there are startups that are changing the plain brown paper that covers an unbuilt, unused retail space into an advertisement for something or other, and many of those advertisements are not just another boring store, they are to some really creative funky pop up. There is another thing that's going on where zoning permits, and that is to use some of these retail spaces for very innovative use. We see them for curated restaurant experiences. There has been writing about some of them being done for performance theater areas, musical practice spaces, artistic studios or whatever, but they're not formal. They're not environments to which one must pay to go, but they're just there, so people can look in a window and see something really interesting going on. I think it's fun.
Adam Hooper - Definitely, it's interesting to see again, all these new ways that the space is being utilized where again, these nontraditional facets. So that is definitely interesting. Salil you mentioned earlier, big data is playing a huge part in a lot of this, another one of your bullet points, big data is the decider. How big can data get in the real estate industry? Is our version of big data the same as some of the other industries' versions of big data?
Salil Gandhi - Big data will be a major driver because it can be utilized across the entire real estate continuum, so, and what I mean by that, is certainly in terms of deal sourcing, use pricing, I think more and more decisions are being made using more advanced algorithms, more advanced data. I think in terms of design, both from architectural design to an interior design, data is coming into, incoming in and in a big way. So how do you maximize a building for light? For sound? We have clients that are working through that, using broader data inputs and helping, architects actually make those decisions and helping them drive the creative process. And then I think obviously the final piece of that is obviously we can now track, and gather information in a much bigger way when it comes to use of space. I think everyone has a beacon in their phone, people have a smart card entryway. So really managing traffic and use, and even within a space manning use. One of the examples Minta gave, is location-based advertising. I think what's important to think about in big data is not just the use but are the privacy concerns that may come with that. And I think we spent a great deal of time talking to our clients and educating them on that piece of it, because those laws are both federal and the European Union recently enacted it's new initiative, but also at the state level. So really helping to navigate that piece of it, because with bigger data comes more use, but making sure that we are collecting the data in a way that's legal and privacy protective
Salil Gandhi - and then using it in a similar manner.
Adam Hooper - Great, and then Minta, how are you seeing some of this data that's being collected then manifesting itself in decisions that the owners or managers or architects are using for their decisions going forward?
Minta Kay - We're still early stages with that and there is a nervousness about the use of it and a desire to make sure that there is compliance with law and with solid procedures around how all the data is maintained, and used. People understand, every time you go in and building, you click in or out, your data is there every time you walk around you know your data can be gathered when you click in and out of a door, go in and out of a garage, walk by a camera that's taking pictures. There is just an incessant amount of data that is gathered. And there is a desire at least on the real estate ownership side to be very careful with that. Property managers must be aware, owners must be aware and with some of the groups that are now offering tenant experiences and apps to landlords, we are in a dialogue about who owns the data? Who is responsible for making sure that it's dealt with appropriately? That's on an operational level, a concern. I would also pause it to you that there are groups that we have been talking with that are looking at data, citywide or community wide, and they're able to track where people go and when. If the idea of real estate, which has historically been location, location, location, remains relevant at all, if you look at these heat maps that are developed, you can see in blinding color, where are people are going and why, and where they feel appealing communities are. That's on a much higher scale, but that sort of thing I think is going to be informing development
Minta Kay - and portfolio building going forward.
Adam Hooper - Salil as you mentioned, I think we often lose sight of the fact that these devices we carry in our pockets, in our phones, are just phenomenal data tracking tools. And I think to create those heat maps Minta, that you're mentioning, everywhere we go, somebody, somewhere knows. Through these devices in our phones and then again, how do we responsibly use that data to make better decisions is going to be the interesting part and see how that plays out. Okay, we're moving on, I think talking PropTech here 2019 we'd be remiss if we didn't mention blockchain. Let's dig a little bit into blockchain, and I guess we'll preface this with the understanding that bitcoin is not blockchain. So we'll talk about more the kind of underlying fundamental technology and some of its applications here for a minute.
Salil Gandhi - Yeah, that's an amazing first point to start with, is that cryptocurrency or bitcoin specifically, is not blockchain, blockchain is really a set of rails that a whole host of technologies can be built upon, and it really allows, people to transact in a way that that's fairly seamless. So, because of the number of transaction in the real estate industry, there's a great deal of hope for it to ease some pains, and I think a few examples of that are property deeds, which are kind of an old traditional business, but given the distributed ledger that is blockchain, you can imagine that the ability to review those deeds as well as to transact in those deeds could happen on a blockchain in a secure going-forward manner. In terms of smart contracts with a number of leases that that's some of our large multifamily developers transacting it would be a storage solution that again can be privacy prohibitive for them. But allows them to transact easily with their customers, allows a blockchain to actually host that rental history, to understand the terms of lease and to execute the lease on a smart basis, I think are some great examples of how the blockchain can really revolutionize, some of the lower level, more transactional nature of the business.
Adam Hooper - Yeah, I think there's a lot of different facets that it can touch. And there's been a lot of focus on the, in our space, the funding side, the tokenization, your digital representation of these physical assets.
Salil Gandhi - Correct.
Adam Hooper - But there are, like you said, deeds kind of low-hanging fruit. One of the things that I think is super interesting is lease administration, CAM reconciliations. Smart contracts can just automatically do all of that, without human intervention. I think it'll be interesting to see some of these more. Every day kind of bread and butter challenges from an administrative perspective that blockchain will be applied to. I'm curious to get your thoughts on timeline for adoption there. I think we're seeing in this kind of big pendulum shift where everybody's interested in blockchain and trying to figure it out. But as Minta was saying before, the speed to adopt some of these more kind of esoteric out there technologies might take a little while, so I'm curious to get both of your temperatures on how long will it be before we start seeing some really fundamental applications of a blockchain technology to the real estate industry.
Minta Kay - It would be my prediction that it's going to take a couple more years, but there will be steps taken in advance of that properly foster people's comfort and education around familiarity with the technology. There are clients we are working with right now that are doing smart contracts and doing smart leases, that automatically upload to a property owner's systems. A lot of information that previously had to be manually uploaded or was not in fact. That is going to begin to occur with greater frequency and speed at this point in time. But I don't think you're going to see, title insurance companies and property transfers occurring regularly by blockchain for the next several years.
Adam Hooper - And so what was your take on that?
Salil Gandhi - I would agree with that. I think you're going to see some of the lower level uses and certainly, I think deeds is one that people really like to think about, but I think that'll be much further out when you really think about that it also has an element of government interaction, as well as the private sphere. So I think, that that will take much longer to make sure that there's some security there, there's some general comfort. And I think what we're seeing in the more early days is certainly around the tokenization and kind of the ownership. Because it we certainly in New York we've seen a building or two kind of release like that and I think you'll see more of that to gain comfort in the overall technology, to let her have broader uses.
Adam Hooper - Perfect, and that segues into one of the last two bullet points, which is government getting up to speed. You know a lot of these things we've talked about, are either going to push the kind of traditional notion of use that has an impact with regulatory in zoning and different usage laws. What do you guys see on the kind of regulatory or governmental bodies adoption or reaction to some of these technological changes in the industry?
Minta Kay - Many governments are interested in looking at all of this and thinking about the way in which they should be shaping their communities. There is a very broad range of technologies and impacts that they can think about, and many of them are pursuing them in quite different ways. People, governments are looking at a change in zoning law, for example to loosen up, use for pop-up hotel, to loosen up use around residential, and to loosen up use just for different purposes in buildings that were not initially contemplated for one particular thing. Governments are looking at changes in zoning requirements around set backs and height to allow for buildings that have different needs, and that will going forward need to be shaped differently. There are a whole communities, look at Toronto, along the waterfront that are being revisioned, as smart cities and smart communities. Very, very early days, as I've said a few times before on this call, with respect to other issues, but that will be something that communities will continue to look at. Infrastructure is another area that is so challenged in so many communities in our country, that will get government attention, and that will be an area in which I think privatization and governmental impact, will begin to look at us or transportation as a service.
Adam Hooper - And then Salil, technology disruption and current regulatory environments don't necessarily always pull that well together. What are you seeing in that space? Obviously, the easiest one to point would be Airbnbs and Ubers or those kind of disruptive technologies that have a really significant impact or challenge against kind of the regulatory norms. How are you seeing that dynamic play out? Or is that going to change? Is there going to be more acceptance to figuring out from the regulatory bodies how these technologies fit in or what do you seeing there?
Salil Gandhi - I don't know that we're seeing a great deal of change on that front, I think for those companies that we're working with that are in regulated spaces, we're working with them being conscious of the regulations and understand where the bright lines are to the extent that there are, and then where the gray areas are. And working with them to kind of scale out. I think what some of the Uber and Airbnb examples have shown us that governments are paying attention, and they will kind of interject when the time is right. But I think because of the speed that technology moves and we don't, not only in terms of growth of the technology, but actually adoption about what could be Mainstay Technologies and what will actually have an impact more broadly on the way we function, I think. I think what we're seeing is governments will, are paying attention, they're watching, they want to come in at the right times, but they also don't want to inhibit innovation and don't want to kind of pick winners or losers just based on what may be outdated regulations. And so it's a little bit of And then once we've had some substance and some real taking power, then let's figure out how we work together.
Adam Hooper - Perfect, oh then to wrap up our final point here, in the day of recording this, we saw the announcement that Airbnb is going to be acquiring HotelTonight. You guys mentioned this wave of consolidation, in the paper as well. How do you guys anticipate this space going to evolving and as some of these companies mature and other newer startups come in, what are you going to see in the consolidation space?
Minta Kay - We are already starting to see this. There is friction in this space because there are so many young tech companies, emerging companies competing with very, very similar products and it's difficult for the real estate consumer industry to differentiate among them. We expect to see tech-to-tech M&A and we're starting to see that already. Additionally, we are at the table with a number of very large companies that are looking to bring some of these tech solutions in-house. So we have traditional real estate groups looking to buy tech and buy some of these younger companies, so that they can capitalize on what they perceive to be the value of innovation. Longer term, as this grows out private equity is going to get interested and we're starting to see that a little bit too in some of the more mature tech companies. So there is a convergence that happens with check real estate and private equity that we will see in this space. But we project tech-to-tech, and real estate to tech convergence happening pretty significantly soon over the next five years.
Adam Hooper - Good, and then Salil from the technology side. We'll cover this on one of the future episodes of an upcoming paper, how are you seeing from the technology perspective, some of these consolidations? Is it going to be more of the younger stage startups kind of consolidating and try to go after the bigger players? Or do you see it more of kind of the more established, picking up different components of so many startup companies, on the kind of buy versus build analysis? Where do you see that going from the technology?
Salil Gandhi - I think it will be a little bit of both. And one of the things that we often talk about with our seasonality clients is that are you a full business? Or are you more of a product or an offering? Because so many of these great companies have smart technology, really great use cases, but they may not make sense as a standalone business. That's one of the ways you'll see kind of the tech-to-tech mergers happening, is when a few of these products say hey, here's our full offering. And it may be a more complete solution, be it to a landlord or to a tenant or to a leaser or whatever the case may be. And then certainly a lot of the features will be more applicable to some of the real estate clients more specifically. And you know, you see us already teasing that in the amount of investments that we're seeing from strategic investors. And when we were on the technology company side, we're very thoughtful about how those investments are made, with the idea that they will often result in an acquisition by that company, and so I think people are kind of laying their bets now in kind of minority positions for the idea that if this works and this is really crucial to our business, we may ultimately buy you. So I think you're going to see both sides of it, and I think it'll really be driven by what is the offering of that technology company and where does it fit into the overall ecosystem?
Adam Hooper - Very, very good, well I think that gets us through the top 10. Maybe you can take a minute and just talk a little bit about as a real estate company out there, what are some of the things that they might be able to do to prepare for this? All these changes that we talked about today, so how do they position themselves to really take advantage of this new wave of technology and some of these changes that we discussed?
Minta Kay - Open-minded, seek what they don't know, and get educated. And not simply sit back and say we're good with what we do. Even though that may have been phenomenally successful over a period of years or generations.
Adam Hooper - Perfect, and Salil what are you seeing from the technology side? I guess maybe for entrepreneurs out there that are trying to get into this space. What are you seeing from that aspect of how they can better understand what the needs of the real estate operators are?
Salil Gandhi - Education is crucial on both sides of the fence, I think obviously in order to help someone, aid in their business, we really understand what the drivers are? How does that business operate? Making sure that you've done your homework, making sure that you have a clear vision for what the product is and how can it help. And then two, working with your potential customers to help implement, and drive, and really develop and continue to alter the product in a way that is the most useful for each a use case. And I think you're certainly seeing that, as the industry starts to come together and people are more in open dialogue. We've seen from our tech side clients, they have a great deal of interest, people are reaching out to them formally, to have these conversations. And I think it's really helping, again, as we talked about before, just the ability to change and the want to change and at least look in and understand is really driving things forward, in really fun way.
Adam Hooper - Great, well, why don't take a second, tell listeners what they might be able to see coming up here with The Goodwin PropTech Series and how maybe, how they can learn a little bit more about the practice and what you guys are up to within Goodwin.
Minta Kay - Sure, so we have about seven additional publications coming up in the PropTech series that will range from governance, to new products, to incorporation of technology within an established platform, Et cetera. In terms of contacting us, Salil and I, together with our colleagues are extremely available. We look forward to communicating with anybody who has additional questions or would like to brainstorm some ideas in this space.
Salil Gandhi - Yeah, and to add to that, all of our materials, you mentioned are which is available on our website, www.goodwinlaw.com/proptech and you can find us there and you can find both Minta and I there and, also signing up for those as emails to get a direct distribution.
Adam Hooper - Perfect, well we thank you both very much for coming on today, we've got a very exciting series here to continue to roll out, so thank you both for joining us and we look forward to digging into the next pieces as they become available. Thank you for joining us on the first episode of The Goodwin PropTech series. Join us next time, as we discuss the rising presence of tech experience in C-suites and board rooms of real estate firms. If you have any questions or comments, please send us an email to email@example.com or go to realcrowd.com/proptech to stay tuned for future episodes.