Welcome to the third episode of Raising Your Antenna, your source for in-depth insight from leaders in emerging technology. We are excited to have Ryan Cox, Principal at Founders Grove Capital, a real estate investment and advisory firm dedicated to helping clients select and manage real estate investments that work for them. Ryan is responsible for helping clients select and manage real estate investments so they can build a more secure financial portfolio.
Ryan hosts The Real Estate Innovators Podcast and he is a real faculty for drawing out some of the inside elements of the real estate tech world. When he is not hosting his podcast, he is the CEO of Founders Grove Capital!
Tune in as we talk about…
- Multifamily Real Estate Investor
- Real Estate Technology & PropTech
- Design in Commercial Real Estate
- and much more!
VO: You’re listening to Raising Your Antenna, with host Keith Zakheim.
Keith: Welcome to Raising Your Antenna. And I’m your host, Keith Zakheim. Today, we have a guest, Ryan Cox, that wears many hats. Being that this is a podcast, and many of you, like me are podcast addicts, let me give you Ryan’s podcast bona fides first. Ryan hosts the Real Estate Innovators podcast, in which he interviews some of the biggest founders and influencers in the real estate tech/proptech market. I guess Ryan, one of the things we can talk about is what we call this industry because I’m hearing a lot of names for it: proptech, real estate tech, other things. But anyway, Ryan’s podcast is a great listen. And he’s a real faculty for drawing out some of the inside baseball elements of the real estate tech world, that I think is great gold or fodder for investors and professionals in the real estate and the real estate technology space. So anyway, definitely give it a listen. But, when he’s not hosting his podcast, Ryan is a CEO of Founders Grove Capital, where he himself is a super successful investor and advisor to investors. So Ryan, before we get going and kinda get into the nitty gritty of our conversation today, maybe give my audience some of your background, professional background. And also specifically, why you do the podcast. Is that kind of a personal passion? And also, how it helps your business from a marketing perspective. So anyway, welcome aboard and it’s to you.
Ryan: Thanks so much for having me on the show. I’m excited to talk a little about commercial real estate tech and a little about my business. My primary business is to focus on multi-family value-add opportunities, so my core business is as a real estate investor and working with investors to buy multi-family assets here in the state of Texas. The podcast has developed primarily out of a passion and some curiosity. I found it to be, as an investor, a really great avenue on a weekly basis to dig in to all of the commercial real estate tech that is developing around us. The podcast has given me an opportunity, really a calling card, to knock on any door and talk to founders about their background and unique insight that they had in their background to lead them to found a commercial real estate tech company. On the podcast, I’m really just able to ask about their solution and how it benefits and impacts their users and then try to suss out their insights from their work, about how they see the overall real estate market changing and the impact of commercial real estate tech. I think a big driver for me for the podcast is, number one, I’m an advocate for my investors so I feel like it’s a priority for me to be able to have a broad view of all the technology that’s really just starting to make an impact but, I believe, in the next three to five years, will dramatically shift the way that a lot of business in real estate gets done. So, I want to make sure that I’m not flat-footed and that I’m being an advocate for my investors and paying attention to all the real estate tech that is transforming how we do business.
Keith: Being a listener to I think your last two episodes, I think you do a great job of listening to that kind of feedback, and getting really down to the founder’s cores: to both their entrepreneurial side as well as their passions, specifically in this CRE-tech space. So anyway, I enjoy it and I encourage my listeners to download it, become a subscriber, and listen cause it’s really a great listen.
So, let’s dive in. My first question Ryan is that you and I are in the super-exciting space of what we call CRE-tech/prop tech. There are tons of applications flooding the market. So we’ve got big data applications and space as a service as a business, virtual marketplaces, leasing, tenant focus platforms, private management, augmented reality, and others. Clearly, some are getting more ink than others, you know space as a service comes to mind. But, as an investor and an advisor, I’m curious as to your perspective. What are the exciting areas, that may be somewhat under the radar right now. So you know, trying to bring somebody into a Notel or WeWork. Okay, no big deal, lots of money is going there, that’s just aping what everybody else is doing. What are the areas, or applications, that you think have the potential for real disruption and will attract early adopters, so in the next few years, where should the savvy investor who really wants to be part of this space be looking to allocate money?
Ryan: First of all, I think that there are a ton of really interesting spaces to play in CRE-tech, tenant project management, like you said, is a great example. As I think about the next two or three years, it seems to me that we’re still just so early. Especially in regards to adoption. It seems to me that the folks that are focused on data and that could be across space as a service, virtual marketplaces, leasing tenant, project management, any of that stuff. The folks that have taken on data first, and able to monetize early, and able to give users actual data to make decisions, whether that’s real estate investors, space users, or building owners, it seems to me like those folks are probably off to the best start, because there’s a value- they can charge users for that data, and the collection of that data gives them the flexibility as they grow the solutions that they are able to provide end-users.
Keith: We see both in CRE and also residential real estate, that a lot of these companies are multi-generational families that have owned, especially in the big cities. They own a lot of the office space, they own a lot of residential real estate, and they’ve been making money in this space for a long time. And as a result, they’re a little more buttoned-up, conservative and less, willing to be early adopters. And we found with our clients that the case to be made at least initially, is surely an economic play- this is how you going to be more efficient and save money. What do you see being the most potent, compelling arguments to CRE-owners in order to get them to take that first leap of faith into some of these applications and areas. And it could be big data, which maybe there is somewhat of an easier leap of faith there since the argument for efficiency and economic savings is probably easier to make and also realized much more quickly. How do you advise your clients? What are your founders telling you in terms of being able to circumvent some of those obstacles?
Ryan: From a founder’s perspective, I think the venture community has great channels into big brokerage, which is definitely an avenue to get widespread adoption across a number of users and geographies. A lot of the big development companies have their own venture arm and are co-investing with venture firms or looking to incubate and grow their own tech. So I do think that there are great opportunities with the right venture partner or being able to seed with the right investment or development company to help scale the platform out.
Keith: So it’s not just about looking for money, but also the strategic value that these investors can bring in terms of opening up new channels and helping with initial adoption?
Ryan: Absolutely. The faster to market in adoption is what you see in the WeWork examples. They are just trying to rise to be the biggest, the best and have a massive monopoly. I think that the faster the routes to market, the more channels you have to deploy the product, the better your chances for success.
Keith: Yeah that’s a great segue to the next topic I want to discuss, which is the basis of service and companies like WeWork, and Notel raising money on previously unthinkable valuations. I have a two-part question. So clearly, there is some type of bubble forming, and this not the first tech-vertical or general investment vertical to experience a bubble. There’s a lot of money-chasing deals and WeWork and Notel, just based on evaluations, are clearly benefiting from all that money that’s on the sidelines looking to invest in this space. So two questions, first- it’s not new what WeWork and Notel are doing. Regis has been around for a long time yet, Regis has been left behind in the dust. And these new companies are gobbling up market share and their valuations are significantly higher. So what’s been the drivers of their growth versus what we’ve seen in the past? And the second question, which i know is coming up everywhere, companies like WeWork and Notel have experienced this growth in a real estate environment in which the market is fantastic. What’s that going to look like when there is an inevitable downturn? That’s what real estate is historically, values are not going to continue to appreciate. With their business model, leasing up a lot of space and upselling that to tenants, what happens when values go down and their existing tenants can lock in space for much cheaper prices? So, 2-part question: drivers of growth versus the history of this space as well as what it’s all going to look like during an inevitable downturn?
Ryan: Yeah, those are good questions. I don’t think anybody can accurately predict but I have some thoughts.
Keith: The beauty of being a podcast, of being a prognosticator, is that they only remember when you’re right and when you’re wrong, no one cares. So we can say whatever we want. Be Nostradamus, right?
Ryan: Right. Well, if we were on video, everybody would be able to see me in my wizard hat.
Keith: (Laughs). Exactly.
Ryan: Running WeWork is a costly undertaking. The company has taken an Amazon approach to spending, investing heavily in growth, in hopes that profits will follow. I think the most likely scenario is that the thing that’s been driving growth in valuations for these companies will ultimately will come to roost. Right now, we’re in a growth at all cost, in negative gross margins. I think that WeWork has gotten so big that we’re seeing a lot more access to their data and, right now, they’re focused on growth in a winner take all mode, similar to some other tech companies we’ve seen out of Silicon Valley. I think that that’s the ultimate challenge, so that goal is that if you can grow to a large size and create a market monopoly, then over time, you’re able to raise prices because you’ve got some type of lock-in with those customers. I think the challenge right now in this current environment is that there’s so much private capital out there and so many entrepreneurs willing to take on the big dogs, which would be WeWork in this case, but a lot of people with unique value proposition in the co-working space. A lot of venture capital, a lot of people chasing it, I don’t see right now that there is a monopoly in place. And then none of those companies are public, so valuations can be a tricky area when we talk about private money. So the question will be, if there is a downturn and you’re not in a profitable place and that money dries up, how do you sustain growth or shift, on a dime, with your users to a profitable model.
Keith: Yeah, for sure. So you mention Amazon and Amazon first of all it’s a 15-year run, and they probably are the exception to the rule in terms of being able to early on stake out, they wouldn’t call it a monopolistic position, but certainly an 800-pound gorilla type of corporation. If you look at ride-sharing, a company like Uber tried to do that but the market was so large, the problems of executions so great and the amount of so much money on the sidelines willing to go into that space, that Lyft has been able to significantly cut into their business over last few years with no end in sight there. It seems to me also, the space as a service industry, the barriers to entry are really just raising the capital. I mean, I don’t know there’s much secret sauce in doing that except for being able to sustain the losses initially and go gobble up property. So it’ll be interesting to see how that shakes out and what it all looks like in a number of years but I know everybody in our industry is watching that closely and it will be interesting as we go forward.
Ryan: Yeah, totally agree. I definitely think the space as a service is creating a value for large enterprise and small businesses alike. It’ll be up to those organizations to find a profitable, sustainable, long-term business model, which is yet to be proven. So, I think that there will be winners, I think that there’ll be losers. I think that there’ll probably be even a few that rise to the top and are able to sustain over the long-term.
Keith: Alright. Moving on. Entrepreneurs and startups and certainly marketing agencies, we love the buzzwords, so when you’re looking to raise money and you can throw out terms like artificial intelligence or augmented reality or blockchain or cryptocurrency and figure out how that fits into your business plan, I think companies or startups are hoping that investors will follow that with investment. Blockchain is a buzzword that is being thrown around in our industry, the CRE-tech industry. We do a lot of work in energy and I thought blockchain platforms is a fantastic application in the energy markets because energy in general is becoming a lot more distributed and decentralized and blockchain is a fantastic application for industries that are going in that direction. We’ve seen a number of companies over the last 6 to 12 months that come to us and claim to have some type of blockchain application in real estate whether that’s for raising money, whether that’s because it can cut out some of the soft-cost involved in transactions, whether it’s because a blockchain application will shrink the timeline for these transactions. There’s a number of reasons why blockchain could be a good application in the real estate industry. Curious what your thoughts are as to what those applications are? Are you seeings things that right now are more substance than hype? Do you think at this point it’s just more hype and people throwing around the word? What’s your take on all that?
Ryan: I think there’s a lot of hype. I mean, blockchain is really just a lot of copies of a gigantic excel spreadsheet. I think that there’s some interesting possibilities for blockchain. Clearly, to the number of hands that have to touch a transaction to potentially cut out intermediaries. I think that there are some regulatory things that need to happen as those boundaries get pushed. I think that it’s a move in the right direction whether it’s blockchain, artificial intelligence, machine learning, there’s a lot of entrepreneurs that are tackling that technology and trying to integrate it into their business and part of their core philosophy. When you talk to the technologist about where we are with those technologies and what they’re capable of doing, there’s somewhat of a sentiment that, yes the baseline is there but today they don’t function as they’re being promised or advertised as. So, I think that as commercial real estate technology is playing catch up to a lot of technology innovations from, maybe the past 15-20 years and that started to really grow inside of commercial real estate maybe in the past 5-6 years. I think that this group of entrepreneurs is in the right place and on pace or the slightly behind fintech or other spaces where they’re trying to develop the technology to truly make an impact.
Keith: Yeah, we’ve spoken with a few companies recently who feel that a blockchain and a cryptocurrency solution will enable CRE owners to have opportunities for liquidity and to bring in partners or investors in a way that they can’t with the current financial and legal infrastructure in real estate. So from what I understand from these companies, they think they can be deploying those solutions relatively quickly. I guess the proof will be in the pudding.
Ryan: Yeah, I mean all kinds of things can potentially make an impact, or it’s just that we’re not there today. We’ve got smart entrepreneurs that are working on solutions and are really trying to develop that technology to make it viable. And, where we are today versus where we’ll be in 5 years, is one of the reasons I have a podcast or I’m on this show, talking to you about it because I’m very interested in watching those developments and understanding how people are leveraging the technology and building off that technology to change the way we work, live, and play.
Keith: Yeah, so let’s talk about play. Another great segue, is Ryan, you’re a great host. So, when you’re the guest, you can do my work for me. That’s perfect. I want to talk about apps and platforms and features that companies now are offering to enhance the tenant experience. It seems like a very millennial thing. So, in my company, we’re always kind of our executive team is always discussing. Alright, so, how do we make millennials happy, keep them productive, make sure that we’re able to retain them? When I started my business 15 years ago, I wasn’t really having that conversation. It was more around, let’s just create professional development opportunities, make sure paying them fairly, and treating them with respect. But now, they want things that are going to enhance their social experience, logistical experience. Work is now just not about work but it’s responsibility of companies and now it seems like maybe a building owner’s as well to provide a home-like experience or social experience, cultural experiences within the four walls of the workplace. Companies like Comfy, I’ve seen HQO, Office App, Equium. Again, they’re going out there and trying to convince owners and landowners that their responsibilities transcend just a physical-built environment. What’s been your experience in speaking either with your clients or with founders about the receptivity towards this? Who’re going to be the early adopters? Is this just kind of a fad right now but, we’re going to eventually go back into hey work is work? What do you think on that?
Ryan: I think that broader society is just moving towards more experiences whether that’s the Boomers who are moving out of houses and looking for less kind of ownership responsibilities to give them opportunities to travel, to go and do, to hop on an RV and go across America.
Keith: I’ve got a 19-year old so we’re having these discussions which give me a little me more grey hair than I had prior.
Ryan: (Laughs) And you know the 19-year old’s in the same boat. How do I create more experiences, driven by a very different and very visual world with Instagram, Facebook, Social. It’s a ‘Hey, what experiences are you having?’ And is less driven by material. When I think about the specific applications that are going after a different experience in a work environment, I again think it comes back down to the channel. I think that the appeal to many users will be more applicable if it’s served up more as an amenity that people are able to choose from a la carte or a part of a package. Kinda like a TV dinner. Say ‘Hey, we want to be able to have access to all of these different applications to be able to create this experience in our work environment.’ I think that somebody’s applications are very niche. And so, if they’re not paying attention to the channel or how they’re partnering with other applications to create that experience, could potentially be an uphill battle. I think that experience-driven is what is driving WeWork or Notel or the other kind of space as a service. I think that when IBM is taking WeWork space, it’s a very clear communication to the market that experience is valued and IBM’s one of the oldest technology companies out there so, it’s not just the startups, the millennials, that are focused on creating that experience for their employees.
Keith: Yeah, that’s a really good point. So, a lot of our listeners are themselves founders and entrepreneurs. I thought maybe, we’d just end, Ryan, with just your observations of the common denominators between the companies and founders that succeed, those that don’t. That really can be anything from leadership skills to how to manage money, to operations, to figuring out audience, marketing. Whatever the case, but again I thought that your advice would be compelling to the people listening.
Ryan: I think that those with a good product and user experience, some fintech apps like Robinhood comes to mind, it’s like very easy to use, it’s very visually appealing, applications that are focused on great user-experience. They have some sort of data or value that they’re able to charge customers from day one and create sustainable profitability. They have really low overhead, low volume revenue targets to keep them accountable to grow. I think that they’re going to have, those that start with that business model will have early adopters that are potentially more forgiving of the product, and able to receive feedback, to really shape the product, to listen to customers’ demands and pay attention to their roadmap in a unique way that keeps them from over-building or steering the roadmap in a direction that is actually not a demand or want of their customer base. Which is, back to my earlier thought, was those that are due to a really good job of aggregating and creating actionable data, will be able to build off that data in a meaningful way, and create a roadmap that is really impactful for their users.
Keith: That makes sense and I think for every founder and businessman and entrepreneur, what Churchill always said to his people, ‘Keep buggering on KBO.’ Just gotta stick with it, right? And, there’s going to be lots of ups and downs and challenges. But, if you believe in your vision and you believe in your product and believe in your ability to execute, then you gotta keep going. Certainly, until the bank account says zero. So with that Ryan, I think we’ll end there. Was there anything else that you wanted to add or tell our listeners?
Ryan: One thing I would add is I am co-hosting a commercial real estate tech event in Austin on October 25th. We’ve got a great panel of tech founders that includes Michael Mandel with CompStak, Arie with WiredScore, Ryan Turner with Refinery, and Doug Shenkman with Tenax. As well as a panel of venture capitalists from Fifth Wall, Navitas, and Metaprop. So, it would be a great event downtown Austin with food and drinks and some great founders and venture capitalists to give you much of the same conversation about the state of the world of CRE Tech and the state of the market, and what’s coming up.
Keith: Great and I will be there. So if you want to scream that from the rooftops as well, enables you to add one more person to the event, feel free. Maybe, if you tell enough people, my mom will come as well, if I’m going to be there.
Ryan: We’d love to have you and we’d love to have your mom.
Keith: (Laughs) It’s an exciting event, I will be there. I’m going to be travelling from New York to Austin for it. And, goodluck with that. I’ll see you there, Ryan. Thank you for being our guest today. And just again, for our listeners, Raising Your Antenna is a podcast dedicated to bringing on venture capitalists and founders who are transforming B2B technology spaces including today’s CRE (Commercial Real Estate) technology. Antenna Group which is the primary sponsor of Raising Your Antenna, is a digital marketing and public relations firm which services companies from startups all the way to Fortune 100 companies that are in the B2B technology space. So Ryan, thanks again and look forward to seeing you in Austin.
Ryan: Looking forward to it. Thanks, Keith!
Keith: And another episode of Raising Your Antenna is in the books. I hope you enjoyed today’s episode and look forward to connecting again next week. Raising Your Antenna is a weekly podcast hosted by yours truly, Keith Zakheim, that features the movers and shakers, and key influencers of the B2B technology industry. Our guests are leading revolutions and disruptions in the mobility, clean energy, healthcare, and real estate technology industries. Raising Your Antenna’s brought to you by Antenna Group, a full-service digital marketing and public relations agency that focuses on the B2B technology industry. Please be in touch with me on Twitter (@czakheim) with any feedback about this podcast. And check out Antenna Group at www.antennagroup.com if your organization is looking for really smart and good-looking marketing and public relations partner.