How PropTech is Driving Change in the Real Estate Market 

Zach Aarons, Co-Founder and Partner of MetaProp, is responsible for setting the vision and determining which types of categories and companies they should invest in. As an early stage venture capital investment firm, MetaProp is laser focused on the real estate technology industry. The MetaProp team and venture capital funds have invested in over 100 technology companies. Aarons is the most active early-stage PropTech investor in the United States, having funded more than 60 startups in the space as an individual as well as 40 startups (and counting) through MetaProp NYC's venture capital funds.

At DLA Piper's 15th Global Real Estate Summit, Aarons will moderate the panel titled, The Next Frontier, which explores the technological revolution in real estate, including PropTech, blockchain, and smart contracts. We asked him to share a few insights on PropTech and the larger global real estate economy.

Q: You've invested in over 100 startups through MetaProp's venture capital funds. What qualities does MetaProp look for in a startup when deciding how and when to invest?

When you are investing as early in the process as we are, you look for strong teams of people who are willing to do anything to get their business off the ground. The team should have a strong conviction about their business goals and missions, but they also should be coachable. A good quality is the ability to take feedback and work with investors or customers to build something people want – which demonstrates a willingness to succeed.

In addition to the right team, we look at the market size of their project and determine if it is big enough to generate a venture-type return. And, of course, we look at the product itself. However, in some cases, we are investing at such a nascent stage that there may only be a concept which has not yet been turned into an actual product. In that case, we rely on the team's idea and the market size to decide whether to invest.

We like to invest in markets as they are today, but also look into and try to predict what future markets will look like. Because we invest in early stage ventures, we need to imagine market conditions as the businesses grow up and ramp up to full capacity. We are not necessarily investing in a market-dynamic of today, we are investing in a market-dynamic of tomorrow. We often ask, “no one does business like this today, but in three years when this company has a robust product, are people going to start doing business this way?” That is a prediction challenge we tackle daily.

Q: How does MetaProp's investment strategy for commercial real estate startups differ from residential real estate? Do you anticipate prioritizing one strategy over the other in the next 5 years?

In terms of real estate trends, you used to be able to track trends that would happen in residential and expect them to soon play out across commercial and multifamily. Now it's hazier. Trends no longer begin in residential. Sometimes the situation can be inverted with commercial ahead of residential.

At MetaProp, we set our business to be asset-agnostic, so we will continue to play in both spaces. I see value in every market. When you are dealing with impressive entrepreneurs and investors who trust your instinct, there's always value in the market regardless of asset type.

Q: Where are the emerging markets that are hot spots for PropTech? 

New York City is historically the center of the PropTech market because it is a place of both adoption and investment. Now we are starting to see a lot of PropTech investments coming out of the Bay Area because that is where a bulk of the VC capital funding stems from. Still, we aren't seeing full adoption just yet in the Bay Area.

Emerging markets for PropTech are located everywhere. We recently backed startups in some of the dynamic hubs in the US, like Atlanta and Austin. Also, the DC Metro Area is starting to rise as a PropTech market. Looking on a global level, both Australia and Spain have interesting developing markets. PropTech is truly global and the growing enthusiasm for investment and adoption will continue.

We based our business in NYC because it truly is the sweet spot for PropTech. However, in terms of where we look to do business, we look around the world.

Q: Why is PropTech crucial to the US and global emerging real estate markets?

In the past 25 years, the real estate industry hasn't needed technology to grow, as we have been in a bull market due to low interest rates and steady cap rate compression. As the real estate market becomes more and more competitive, companies are going to need to innovate with technology to grow revenue or cut costs. Sitting back and collecting rent is a thing of the past. Companies need PropTech solutions to keep up with the changing times.

Tech in the real estate business is here to stay. We are aggressively looking at investing in automation and robotics. In real estate, there are many processes that humans can do much faster with basic technological aides. You have to be ambitious; you have to be willing to fail; you have to be willing to experiment. Fundamentally, you've got to be willing to consistently reinvent your business if you're in the real estate sector right now. You can't just sit back like you could in the past quarter-century, the time is now for PropTech and emerging tech in real estate.