The Real Market With Chris Rising – Ep. 17 Casey Berman

0:00:50 S1: I had a really interesting conversation today with Casey Berman, the founder and managing director of Camber Creek, which is a VC tech-focused, VC fund based in the Washington DC area. We get into great detail about what’s happening in real estate tech, or prop-tech as it’s known, and go through many interesting discussions about what we’re seeing in terms of software and hardware. I think you’re really gonna enjoy this conversation, especially if you have interest in what the future is gonna bring us in terms of technology.

0:01:30 S1: Welcome to The Real Market with Chris Rising. I’m excited to have Casey Berman, the founder and managing director of Camber Creek, which is a real estate-focused VC platform. Casey, welcome to the podcast.

0:01:46 Speaker 2: Thank you very much, Chris. I’m excited to be here and I look forward to talking with you.

0:01:50 S1: Well, what I’m excited about is, we haven’t really gotten outside of the West Coast for this podcast, so it’s nice to have someone who’s based out in Maryland, give a little different perspective, especially given that the tech scene is so focused on Northern California now, more and more here in Southern California. So thanks for making the time, but maybe you give our audience a little bit of a background on your company and what you guys are focused on.

0:02:18 S2: Yeah, so I started in the real estate space being a president of operations for retail assets, multi-family assets and office buildings. And what we found was, there wasn’t technology. So back in 2008-2009, our company was looking to try to make our core real estate business more efficient and then we looked out into the market, there really wasn’t technology to help solve some of the problems that we were looking for. So we came up with this idea of finding young startups to implement in our core real estate business, and immediately we knew we were on to something. Because when we found an early company, we could use it in our portfolio and we could also help them with our network of real estate owners and operators. And a lot of times the technologists were amazing at creating the technology but would struggle with trying to get the adoption within the real estate market.

0:03:21 S1: So when you began did you consciously say, “We’re gonna be in the venture capital business?” Or was this more, “God, we just aren’t providing certain things, and the only way we’re gonna even find it, is if we go find the tech ourselves.” ‘Cause I think there’s a difference in that.

0:03:36 S2: Right. So, the first step was, we are gonna drive value to our core business, to our tenants, to our residents. And the second step, which quickly followed was, we had never seen and we couldn’t find any real estate-focused venture capital funds or for that matter, a venture capital fund that could really add the value of this network, of this pilot or data lab for real estate tech. So the second step came almost immediately following the first company that we found. And we wrote the thesis for Camber Creek, that number one, we were gonna add value to every company we worked with, and then number two, we would invest money. And that is really what has been our driving thesis for the past 10 years.

0:04:27 S1: So why don’t you give me a little feel for. How does someone who… I think you went to the University of Michigan correct? And you came out and you’re starting to work in real estate. If I’ve learned anything about investing in tech companies, there is a whole different language, when it comes to terms that you lay out for people. I mean, it’s not a typical real estate deal. So how did you… Did you have any crash courses in this, or how did you really put on that hat that says, “Okay, now that I’m a VC, I’ve got to look at structuring deals in a certain way”.

0:05:00 S2: So, when you structure an acquisition of a building, there’s generally five parties all coming to the table with different incentives and different motives. There’s the equity, there’s the debt, there’s the seller, there’s the seller’s potential equity, the seller’s potential debt. The complexity of a real estate transaction has so many parties. Then when you switch to venture capital, there’s the company, and then there’s the financing documents. So the level of complexity on day one was a lot less. But additionally, at the beginning we were partnering with some of the best venture, generalist’s venture funds in the country who would sometimes lead or we would lead the round, and we would offer our strategic value, and by following and being a part of those rounds or leading in those rounds, we quickly received a crash course of what a venture structure was like. So back in 2009-2010, we really got the exposure to the top level best practices for venture capital and this is very on in this iteration of the real estate tech revolution.

0:06:14 S1: That’s a very interesting process, and I gotta imagine at the beginning though, it had to be a little scary making investments without having a strong background in VC. So how did you, at the beginning decide, what was the guiding force on what would allow you to get through your own investment committee to make an investment.

0:06:33 S2: So the biggest differentiator we had is we could try out the products and we could test every single company we were working with to really understand before we made an investment what the value was. So if my company was using a property management software, it was going to be much easier for us to try anything new and compare it to what was already on the market. So an example with property management software, if we try out the best in class new product on the market, we can say, Hey this company is two times better, it saves us 40 hours a week, we can actually put numbers on it, by trying it before we made an investment and say, this is 10 times better than what we’re already using. Right now we’re using Excel spreadsheet. This is 10 times better. And when there’s something that has that much value, it becomes very clear the company is on to something big. So one of our portfolio companies, for example is VTS. Very early on we could see how much value and how much time it saved for the entire team of owners, operators, and the brokers. So, by trying things before we would buy them or before we invest in them, we had so much more confidence going in on day one and additionally we would learn to partner with the company. So we start trying the software, it passed all of our hurdles and at that point we have experience working with the senior team and the CEO. So it really gave us the leg up when it came time to write the check.

0:08:20 S1: That’s really interesting, as you know, we’ve had Nick Romito from VTS on the show, and we’ve also had Brendan Wallace of Fifth Wall. I didn’t know that you were an early investor in VTS, and what was it… How did that come about beyond you using the product. Did you sniff out that ’cause at the beginning they were doing something unique, which was taking videos of office space as to allowing landlords to put that up there to give a better look at what they had available. But where did you see the difference from them moving from that to the software that they created. And at what point did you get in to the VTS, what stage.

0:09:02 S2: So when we were first investing New York City had a lot of tech starting to grow around the real estate space. So there was Michael Mandell at ComStock, there is Jason Freedman at 42Floors, there is Nick Romito and there is a number of other ones and they created this group of founders who were really leading the way in the technology revolution based out of New York. And to this day, we feel like there is a huge ecosystem that New York has created based on those early companies. What we saw with Nick when it went from View the Space to VTS was the product was interesting, people were trying it with View the Space and it changed, and there was a dramatic change that occurred that when it switched to VTS and they became a leasing tool, people had to have it. It was no longer a nice to have, it was something that they had to have to have more clarity and insight and data into the most important piece of the process, which is leasing. If your building is a 100% lease, you’re maximizing the value and VTS really unlocked the data and the transparency into that process. So when they switched, we saw the customers’ perspective of the company change, and that’s when we got involved.

0:10:30 S1: Interesting. One of the things that you’re just kinda pointing out in this brief discussion on VTS is how the investment in real estate tech has professionalized and you’ve been doing this for longer than anybody I know with the focus on real estate. Going back to… You said your interest started no way, but actively investing for, I don’t know, about eight years I think. Is that correct, do I have the timeline right?

0:10:55 S2: Yep, that’s right.

0:10:57 S1: So what have been the biggest lessons you’ve learned in your investment cycles now because it sounds like you would have gone through a couple exits or at least a growth capital coming in that was more long term. So what have you learned?

0:11:15 S2: Yes, so I mean through this process we’ve had over five exits, over 20 up rounds. We’ve been through this process a number of times, and there’s two major things that have happened. The first is when we first started investing in this space there was very little money available. So in 2011, there was around $60 million invested in real estate tech. The last deal in real estate tech this month may have been bigger than that $60 million.

0:11:49 S1: Wow.

0:11:49 S2: So back when we started, this industry was in its infancy, and two major things have happened. The first, the large institutional owners and all the way down to the family offices that own real estate are looking to be more technologically advanced, because they know they need it to compete. That change is dramatic. So that actual market for real estate technology, the actual consumer, is growing faster now than it has ever grown. So instead of people trying to make it work with the Excel spread sheet and a cell phone, the customers are now starting to buy and that for us is a huge, huge change in the industry and allows us to have this market that is really the largest market in the world of any asset class. The real estate is largest asset class, that market is now adopting technology faster than it has in the past eight years.

0:12:51 S1: Yeah. My last figure that I saw on the real estate market is somewhere around $31 trillion is the size of the market globally. One of the things that I have also, and I agree with you, is I constantly reflect on Marc Andreessen saying several years ago that software is eating the world and we see it over and over again. In our tenants and how their businesses have changed, from entry level jobs that were high paying that really have totally been replaced from Microsoft or Google products to just things that have become so obvious to us in our daily lives. But we don’t see ’em, whether it’s how you find a parking space in a big garage or… And there’s more and more, we’re seeing… What I see happening, I think, you may see this as well, is that people look at the consumer products that they’re able to use in their own homes and are immediately jumping to, “Well, why can’t I have that in my office environment?” And those employers are then coming to us and saying, “It’s kind of ridiculous that we have to call an engineer to come up and they come up two or three hours later to go change the temperature in a room. And so, why don’t you have a software product?” So these are the challenges we face a lot, but what are you saying that’s exciting in some of the real state tech investments that you’re saying?

0:14:16 S2: Right. You hit on a really great point. The expectation of the tenants of the residents and the consumer is changing. So that’s the other biggest change we’ve seen in the past eight years. The expectations are different. There are now companies that provide the institutional level of service at a consumer level. So, Airbnb was the first iteration of maximizing space. So the physical space of your house can now be listed in a marketplace, and someone can rent it out. The 2.0, the next step is to really institutionalize that and make that a standard brand. When you state an Airbnb, you don’t exactly know what to expect when you get to the location. So now there’s a whole market of companies that are taking it to the next level. One of our recent investments was a company called Y-Hotel.

0:15:17 S2: And what they do is they partner with apartment owners and apartment developers and they help the apartment developer de-risk the most challenging portion of an apartment development. So when you build an apartment, once you start delivering the units, you have the lease-up period, and once you reach stabilization you can get your permanent financing in place on the asset. Well, Y-hotel comes in on day one of the lease-up and takes a majority of your units and can lease them as a hotel with a standard brand that people can expect and offer it to the customer. So now the customer can get a home-like experience in a brand new, class A apartment building with a brand and an expectation of what the service will be like, and in a brand new apartment building and really have an experience in a new city with the comfort of their home.

0:16:18 S1: That’s amazing, I’ll tell you another… We’ve been approached on, and I can’t name the company because it’s kind of not out there yet, but I think it’s an interesting idea, about coming to office buildings and saying, “Let’s take a floor, just a floor, maybe it’s two floors and create hotel-room-like experiences.” Obviously there’s a build out for all of that, but the thesis is really that more and more, you’re gonna see this mix between residential and office and naturally retail as well. I think the problem with something like that is you bump up against a lot of cities’ zoning codes, but these ideas that are coming at us as it relates to real estate, I am just constantly amazed how people are thinking about the world radically different. Radically different than where we were even 2005.

0:17:11 S2: Yeah.

0:17:12 S1: Have you, in what you’re looking at across your investment landscape, noticed any differences between what you might see in a New York City, a DC, or Chicago, or San Francisco, or LA, or has it become a kind of a global expectation of the kind of services people want out of tech? Is it a local experience, or is it a more global so that it really can grow across the globe?

0:17:39 S2: So what we see is, it starts very local. And with real estate, the zoning code and the building code locally drive what is possible, what is available. And for the companies who really hit scale, they’re able to navigate using technology. The different codes to go nationwide, and then ultimately globally. So an example there, one of our portfolio companies is changing the way appraisals are done. Appraisals are one of the oldest industries in real estate, and they are automating a large portion of the appraisal process. The company is called Bowery, and they’ve started in New York City and they’ve really honed in on all the New York City standards, codes and comparables, and by doing that, they have a huge amount of data for New York which dramatically speeds up the rate that they can do an appraisal and the consistency and objectivity of the appraisal, so it’s a faster, better appraisal. And as they’ve reached a scaling speed in New York City, they can then use that same automation in other cities. And the key there is, the expectation of the customer is, it needs to be better than the existing option, and this is across all the companies and it needs be faster. These make their life easier, and needs to be a better product. And if the people can nail, the companies can nail those two pieces, they can not only scale locally, but they can then spread across the country.

0:19:22 S1: Mm-hmm. I think it’s a very good point. What… When you’re looking also at the landscape of potential investments, are most of the ones that you look at a software-based potential investment or are you seeing a hardware, real estate hardware-based investments?

0:19:39 S2: Right. So we look at both. The key for us is really leveraging our network to add the most value and with software, generally speaking, the cost can be less because there is a smaller inventory cost-to-cost, the fill-up goods is smaller. So a lot of times you’ll say it’s more challenging to do hardware, however, we look to hardware to solve really big problems. One of our investments is a company called Latch and they started with the idea that the traditional multi-family lock was old-fashion, and it hasn’t been changed for decades. And then they looked at the hotel industry, and we haven’t been using a traditional metal key in the hotel industry for decades, gone to the other way. So why doesn’t multi-family, why don’t consumers have the opportunity to use a smart lock.

0:20:37 S2: And what they produced is one of the best-looking locks on the market, the most functionality. And again it solves two problems for both the resident and the building owner. For the building owners it’s cheaper, more efficient, and better looking than any of the existing products. And for the resident, it provides them a lot more convenience. So if they wanna have their dog walker come in and walk their dog in their apartment, they don’t have to meet them at the door, they can send them a temporary key, and let them in remotely from their phone. So the key again is, with this product, we tried it out, we want to see it first hand, and when we saw how much better it was than the existing product, it became obvious that Latch was on to something really big.

0:21:27 S1: Interesting. One of the things that I’m seeing happening at just a sprinter’s pace, is that technology is moving from a PC-based model to a mobile-based model, and it’s happening very, very quickly. And I think you just hit on that with what Latch gives you the ability to do. And I don’t know if people paid attention to iOS 12 coming out and some of the new Android operating systems, where notifications were being used in a way that’s more dashboard-like, where people are being able to automate the mobile in a way that’s changing, I think, the way an office is being used dramatically, but also most importantly, what the expectations are from tenants and employees as it relates to the interaction. And so whether it’s a product, like Comfy that was just acquired, I think by Siemens. But where you can change the temperature in your little space where you’re sitting, or whether it’s things like the iOS that Apple just announced, where they’re partnering with the universities, where you don’t have to have a student ID card anymore, they won’t even have one any more, and it’s just all gonna be in your wallet, and that gets you into places on university campuses. What is your take on software being made today that is based more for a PC versus mobile?

0:22:51 S2: Right. So, I think you hit the nail on the head with the office scenario with Comfy. The consumer, whether it be a tenant in an office building, a resident, a student at a university, the consumer has the expectation now that they can access everything, wherever they are, whenever they want it. And to be competitive in each of the verticals, landlords and owners need to start addressing those consumer demands. So, we have seen a lot of software now meeting the consumer, whether it be the tenant or the resident, where they are to solve problems. And when you’re the CEO of a company looking to lease space, you’re gonna be picking the place where your tenants are gonna be the happiest and that will generally have a strong technology environment. And similarly with multi-family to Wi-Fi or the Internet service to the apartment really drives resident decisions. So people talk about amenities. What type of Internet a building has is now considered a very high-level important amenity.

0:24:08 S2: So with regard to the mobile world, we see it across every aspect. From the building engineers, they need to be a mobile engaged workforce, to the tenants who wanna be able to reserve their conference room, order their lunch, get their taxi, all on their phone. Every software needs to have a mobile element. And going back to appraisals, our company Bowery, it is again one of the most old-fashioned industries. The appraiser can do the entire appraisal on site with their phone and then once they get back to the office, nearly the entire appraisal is written already. So every company we look at right now has a mobile solution to the problem. There is always a mobile element to it.

0:25:01 S1: So as Camber Creek looks at investments, does it make you nervous about the future of office space? Do you think five or 10 years from now, are people gonna have offices? What do you think?

0:25:13 S2: So, there’ll absolutely be offices in five to 10 years. Our perspective is the way we look at an office space today is dramatically different than it was 15 years ago. And just like speaking specifically here, there’s so much more flexibility now in an office space. The idea of a shared office space has existed for over two decades. Regus is an old company, however the 2.0 WeWork came in and changed the entire feel and community of a shared office space. So in five to 10 years, there will still be office space. The flexibility of that office space, the services and amenities of that office space are gonna be dramatically different, and the usage will be dramatically different. You commented on a short-term stay, medium-term stay, and an office all in one. That maximization of a physical space will continue to be achieved, and the goal here is to maximize every asset. Every owner wants to maximize their asset and we’re moving in the right direction.

0:26:30 S1: Since you’ve been actively investing as a VC for the last almost decade, how have you seen your office change? What do you all use? Are you an email-based or slack-based company? Have you seen that change what your office space needs have been? I think understanding what a company like yourselves does with its real estate would really be helpful just to getting a sense for where we think things are going.

0:26:57 S2: Right, so the first thing you would notice if you walked into our office space is we have a number of locks on our door, and we’ve piloted a number of different options in terms of access control. So we feel like there’s a dramatic shift occurring right now with access control in the office and multi-family space, and that’s the first step. The second is the connected workforce. So everyone in our company has a mobile device. I feel like that is just table stakes at this point and each person’s job can be controlled via their specific mobile device, mobile software. So for instance our property managers, who we work with, they would all have access to software where they can communicate with the tenants or they can communicate with the engineers. And the key for us is flexibility. So traditionally, in a real estate company, if you have an office space for a property manager, that’s just the property manager’s office space. And this idea of hoteling space has really taken on, where one property manager could use the space, an engineer might need to do a project in that space. And the key for us is the flexibility. So within our office at Camber Creek, we keep it very flexible and the idea is creative. We have a very creative space so we can keep our mind open to these big changing ideas.

0:28:37 S1: And then from a software perspective, do you use a project management like Asana? Or do you use… Is there… What do you use so that people can box base? Give us a little feel for how your company runs as it relates to technology.

0:28:50 S2: Right. So within Camber Creek there’s two major pieces, there’s the Dealflow, and we have a Dealflow software we coordinate.

0:28:57 S1: Is that something you created yourself or is it a product?

0:29:00 S2: No, it’s a third party CRM software that’s focused in the venture world. We have another software to manage our relationships with all of our investors and LPs, and then we have a third software where we can manage and access all of our documents no matter where we are across the country. And we use primarily Dropbox, however, a number of our portfolio companies use other software, so we can actually access their documents as well, similarly through their software. So the idea that we started with this, we needed to be flexible, we needed to be able to work no matter where we went and our software allows us to do that.

0:29:43 S1: And do you utilize, are you an email kinda back and forth team member talking or do you use Slack? Do you use a project management software? What do you do just to keep track of things internally that isn’t a CRM-related or file storage related?

0:30:00 S2: So we primarily still use email. We have a number of other channels we use, depending on the urgency of the communication, but primarily email.

0:30:10 S1: And then as you evolve as a company, do you see the need to add more people or can you do it more efficiently as software continues to evolve?

0:30:23 S2: So we are currently a team of three investing professionals with a number of associates and analysts helping us out. We are growing the team, we’re actually hiring a number of people right now and are approximately gonna be double in the near term, in terms of size. This, in our mind, is quite a bit smaller than a traditional VC. However, because of software we can really handle a lot more than the size of the team.

0:30:55 S1: If I had asked most people, would’ve said, “Hey I’m talking to a founder of a VC tech-focus firm who’s on the East Coast, he’s not in New York.” I think most people would have guessed, Northern Virginia. So you’re not, you’re in Bethesda. Tell us a little bit about why you chose or why you choose to operate out of there. What are the advantages and disadvantages of being there?

0:31:17 S2: Right, so one of the best largest tools, is we are very close to the federal government. And my partner Jake Fingert came out of the GSA, which was one of the largest, if not the largest landlord and owner of buildings in the country. And following that, he spent time at the White House. And the government is one of the most old-fashioned of the real estate groups in the world and one of the largest potential customers for this software in the world. And by being and having the access to that customer, it really gives us a huge tool in the industry. And beyond that, it has allowed us to stay very close to the actual customer. So within Washington DC, Maryland and Virginia, there are major real estate owners, operators, and corporate real estate companies base, and it gives us access to all of those as well. So from day one, you could call it lucky, you could call it by design. We’ve had the access to really take a small real estate company and allow them to get access to the largest customers in the world.

0:32:42 S1: And what about from the side of how you operate your business, do you have a fund structure for investments? How do you do that?

0:32:51 S2: Right, so at this stage, we do have a fund. Our LPs consist of real estate owners and operators. And the key design for our fund was that we wanted owners who could pilot, test and experience new software within 30 days. So when we look to our LPs we say, “This is a very interesting technology company, it has passed our preliminary due diligence. It is the best product for X problem.” And that X could be, let’s say, a multi-family marketing tool or it could be a lock. No matter what it is, when we find something that we believe is the best product on the market, we can get it in the hands of two, three, four potential LPs within 30 days and get real data as to, how long do we expect the sales cycle to be. “Well, let’s try to sell it to one of our LPs.” Or we can say, “Okay, they’re already using it. Now how much better is it than their existing solution?” And by having that network of LPs to try things out before we invest, we can make huge leaps forward with our due diligence than just trying to recognize patterns, or guess what might happen.

0:34:10 S1: Have you had just from a… And I don’t need too many specifics, but using that process, have you had an investment or two that you said, “Oh, this is gonna work great based on this testing,” that just didn’t? And what would be kind of a broad reason why that would be?

0:34:26 S2: Yes, that’s a good question. So I’d say we have huge wins from that process. So an example of that would be a TaskEasy where we introduce them to one of the largest single family home aggregators in the country during our due diligence. And from there, they have gone to grow to almost all of the single family home aggregators. So they’re providing the landscaping for the vacant units, sometimes they provide landscaping for the occupied units. And just by making that connection during our due diligence, it checked so many boxes for us and we were able to comfortably make an investment early in that company.

0:35:05 S1: But can you describe that company before we move on to one that didn’t work? But how was that a tech company and not just your basic landscaping business?

0:35:12 S2: Right. So they work like Uber in the sense that they are a marketplace for the landscaping contractors across the country. So they mow lawns in all 50 states via third-party contractors, and they connect those contractors with the customers. And for instance, a large single family home aggregator might own 10,000, 50,000, 100,000 homes. And how do they manage the mowing for those 100,000 homes across the country? Well, they have a dashboard and TaskEasy, and the third-party contractors across the country can mow the lawn, take a before and after picture and really ensure compliance. So not only is it a way to manage disparate real estate assets’ landscaping needs, but it’s a tool that hasn’t existed in landscaping. You can actually ensure compliance and actual execution of what you’re paying for. So they are the 2.0 market place. So there is traditional medallions and taxi cabs. Now there’s Uber. There were traditional asset heavy landscaping companies, TaskEasy is the asset-light model.

0:36:24 S1: Interesting, that’s great. And then, what has proven to be more challenging?

0:36:27 S2: So what we find is a lot of real estate tech companies might be a little bit better. And really defining how much better this can be are the hardest part of venture capital investing. So if you are using a marketing tool for your apartment and someone else presents a new tool, well, is it 20% better, 30% better, 200% better, 10 times better? How much better is it? That can be very challenging and a lot of times it’s obvious. So let’s say you don’t have any software. You just have to manually post all your listings online. Well, now you have one of the best… If you start implementing your best in class software, that is gonna be potentially 10 times more efficient. The challenge becomes when there are very narrow benefits. And that’s where we see the hardest part of venture capital in real estate, really defining how much better a new software is.

0:37:32 S1: I agree with you. I think it’s easy to get caught into the trap of 5% or 10% better, and well should we make it. It really does have to be demonstrably 200% better for people to start making investments. Let me ask you this, one of the things that we are seeing, especially internally, is a demand for better dashboards amongst all of these different softwares, software opportunities. So whether it’s your CRM combining it with your project management, combining it with… And I think as strong as Slack has been and I think it’s really a good tool for software engineers, I haven’t seen anything that really jumps out that could… Go across operating systems. Are you seeing a demand for some sort of dashboard or some easy way to manipulate data, and if so, have you seen any companies doing it very well?

0:38:21 S2: Right. So we are right on the same page with you. There are now… There now is enough data that is worth having a dashboard to view that data. And we are doing diligence, we are exploring a number of different companies in this avenue. I don’t have one to present to you today. But the ideas you really hit on is two major trends. One is more efficient communication tools. So there’s no… Today, there’s no Slack for real estate. And real estate is a very focused work flow. So by creating a communication tool where all the data is in one place, there is a huge opportunity there. We have seen that happening within very specific verticals as you’ve described. So VTS has a dashboard. One of our other portfolios, Measurabl, has a dashboard for your high level ESG, for your sustainability data. So Measurabl can really provide that access, that insight to sustainability across gigantic portfolios. And what you’re describing is the umbrella, the one that can really bring everything to the highest level, and you can communicate with everyone you need to communicate through that one platform. We have not seen the company that does that at scale today. But we think there’s a couple that are very close.

0:39:52 S1: Well, that’s good to hear ’cause I think one of the biggest frustrations that we see is, some of the bigger… I’ll just use property management software that’s out there, whether it’s Yardi or MRI, some of the ones that have been around for a long time are still very close systems. And so it makes it very hard to use an API and create a dashboard. Do you see people out there challenging the more established software companies? Are we destined to do this like we were for so many years with a Microsoft product until they finally are starting to open up? What’s your take on some of the older, more traditional but very highly valued companies who have a large usership? What are you seeing on the property management side? And just keep it on the commercial as opposed to the residential.

0:40:39 S2: Right. So the… On the commercial side, the large, a lot of times it’s accounting, first software companies really provide an amazing value for accounting and have branched out and started providing much more complete solutions. And as you mentioned, they don’t play well today with some of the other solutions. They aren’t that umbrella data tool. And what we’ve seen is, in order to go head to head, so to speak, with the incumbents, it takes a long time and a lot of scale which ultimately takes funding. And we see that transition happening just now. So at the beginning of this cycle back in 2010, there just wasn’t enough money invested into real estate tech and there wasn’t enough money looking to buy those solutions. People were comfortable. People weren’t looking to be innovative. Today, where we’ve gone, 2012, 2013, ’14, there was potentially a peak. And then it slowed down a little. Now we’re again accelerating where there’s more money in real estate tech, and the customer base is larger than it’s ever been. We feel like this is one of the most impactful times and Will be the most impactful times for the disruption of real estate across major asset classes, an office being an important one. So we see that the time is right. The weather, so to speak, is all lined up for this major disruption to happen.

0:42:19 S1: We certainly sense it, internally, that there are some things that are happening with that, I agree with you, the accounting base, that is just… Either they’re gonna change and adapt, or they’re gonna get overrun, mainly because of my comment earlier about this shift to mobile that has happened. And so many of the accounting software is based on a PC kind of user interface, as opposed to a mobile interface. But just kind of moving on the conversation a little, we’ve talked a lot about interesting technology, but let’s get a little bit into yourself. So you graduated from University of Michigan and did you move back to the DC area after that, or… What got you on this path where, all of a sudden… Not all of a sudden, where… No, wait, you’re going, “Jeez, technology is important.” And then now, by ’18, you’ve got a VC firm.

0:43:09 S2: Right. So, I actually moved out west and spent some time in Utah in Park City after college with my wife and then, after that, I went to work in my family’s real estate business. And that business was… I was part of the third generation in the real estate industry. And what we determined and what we really came to in our… The ethos of our company is, we have been successful because we add value and we look to improve at all costs. We look to try to enhance, we look to try to be more efficient, we look to try to maximize our team, our employees, and the glaring change that had never happened was technology in real estate. So our team, our assets were really maximized, and this is coming out of the back of the great recession.

0:44:07 S2: And we felt like everything was in-line, however, technology was non-existent. And then when we started doing the research, we started digging in, it really was pretty obvious that this was a huge opportunity in a market that was the biggest market, and there was almost no money invested in it. And if you looked at the decade before, there was very little money invested in it. So, huge market, no money invested in it, and within our own company, we weren’t maximizing it. It seemed like, what’s going on here? And it’s one of those times where it seems so obvious. Then it took some time to really get rolling, but now, now we’re in the height of it, which is great.

0:44:54 S1: Well, give us a little indication. Were you… Growing up, were you a video game fanatic, were you computer science based? Somebody had to have that initial… Either you, yourself, or in your family, or your team going, “This is pretty interesting, regardless of whether it’s real estate tech.” Tell use a little about your interest in technology.

0:45:14 S2: Right. So I grew up, I liked to tinker with things. I built model airplanes, I did remote control cars, video games, I also liked sports. Really, the truth is I like trying new things, and I really thrived on experiencing something new, learning it to great detail, and then having fun, enjoying it, being a part of it. So whether it was model airplanes, I went from buying a model airplane and flying it, to building one from scratch and having it almost like a drone and, back in 2010, that was pretty rare. With sports, similar. I liked to try new sports, and then I would dive right in and try them out. So the key for me was the venture world of trying something new and very quickly trying to gain an expertise, was very enjoyable.

0:46:10 S2: I just love getting to know with passionate founders who really believe in their product. And when we can meet with them and say, “You know what? We believe in your product too, and you’re on an incredible path. We’re gonna help you out, we’re gonna partner with you,” and open the keys to this city of LPs who can be customers, it really fit. And the key there was, there’s more of what I like doing. I really enjoyed getting to know things and I’ve brought this experience of real estate. So growing up, I was a security integrator and I was installing network operation centers. I went from there, all the way to the other end of the spectrum. I spent a summer pouring concrete. So things that aren’t necessarily sexy, there’s a lot of value, there’s a lot of money to be made there too. And it allows, that experience has allowed us, has allowed Camber Creek to really have our eyes wide open to where the opportunities are coming.

0:47:12 S1: That’s terrific. Well, let me ask you this, about just the evolution that you’re seeing, that we’re all seeing here, who’s driving, in your opinion, in terms of what generation that is driving this? I know that it’s tough for a lot of people to change, especially people who have been doing things in one way or the other, but when you’re meeting with, whether it’s from your investor side that are mostly real estate firms, or your portfolio of companies who are saying there’s a user demand out there, who is it that you see making the demand in this push? Is it the millennial generation, is it the Gen X, people more my age that, somewhere between, born between ’66 and, say, ’80, or the people between ’80 and 2000? What’s driving this so quickly, this acceptance.

0:48:02 S2: Right. So, the way we see it today is there’s both sides are driving. And what I mean by that is the customer and the owner. So, when we first started, the customer started to push for this. So, real estate owners and operators managed real estate, owned real estate, they had very little technology and they were okay with that. That was the status quo, it worked. And what happened was the customer… So you could say millennials or people in your generation, started to have access to both mobile applications and got more comfortable with technology and started to say, “Okay, I have all this opportunity, I have all this convenience for my personal life. I want this in my office, I want this in my apartment.” And the consumer slowly started to push. And today that really had a fever pitch, it’s a must-have.

0:49:00 S2: You have to have technology-enabled departments, you have to have technology-enabled office buildings. At the same time, what we have really seen is the ownership of real estate companies has started this generational switch. Where some of the older generation is retiring and the new leaders of real estate companies are not only ready… So the retiring generation, you could say, is hesitant if not resistant. The next generation is ready but more importantly, they’re interested. They want technology. So two forces that are happening today that are making this shift is, the leadership of real estate companies is diving in head first now into tech and the customers demanding it. So we really have the two most important parts of the market that, supply and demand side, are really pushing up and creating this new technology push.

0:49:58 S1: Well, I noticed, too, that what I find interesting about from the investment side is we cross over, we don’t know it. I’m an investor in Fundrise, as I think your firm is as well, been an obviously a big fan and followed VTS. What are you finding that… Of the things that you all are looking at today, if you had to make a little prediction say over the next 12 to 24 months, what do you think the biggest product or what’s gonna be exciting to the world on product that you’re seeing?

0:50:33 S2: So that’s always a tricky one. For me, what’s exciting might not be exciting for people not in the real estate space. So we’re really excited about single or apartments and the way apartments are changing. So every day, you’ll start to see more and more of this connected apartment. So whether it’s Latch getting a lock or really even further the thermostats, lights and the full access control experience, and then taking that a step further, the maximization of apartments. So, we feel like the apartment boom that’s happening across the country is really undergoing a technology make-over, and that’s a major trend that we see across the board. And then another one, it’s really a big bucket that we think is changing dramatically is blockchain. You can’t avoid blockchain and crypto-currency and this is changing the way real estate is transacted. It has the ability to add liquidity to a market that has never been liquid. Real estate is one of the most illiquid asset classes, REITs were a major disruption. Now, this next disruption is gonna come from blockchain and crypto-currency. So, we see a major shift occurring and with any major shift it takes time, but it’s already happening and it is important for people to know where they fit into that mix in order to stay ahead of it.

0:52:07 S1: Well, on the block chain, I’d like to just spend a few minutes on that because this is a major topic that comes up quite often. I think there’s a couple things about it and I’d like to get your reaction to what I’m about to say. I think there’s a lot of people who are crossing their fingers, hoping and praying that all of a sudden, there’s going to be this whole market for investor capital out there that I can just come up with a strategy, just kind of replace the fund raising of the institutions and just throw up an ICO and all of a sudden I’m gonna have $100 million in my account to go invest. And that’s one side of what I see people thinking about with blockchain. Another side, people, I think are… And by the way, I’m very pessimistic on that first one. The second one, is that we’re gonna take all these big buildings, and we’re just gonna fractionalize them and people are gonna have instant liquidity for whatever, it could be a 100% of the building or 20% of the building, you could create some debt product out of it.

0:53:02 S1: I think there’s elements of that, that are reflective of just kind of the 10 uncommon phase we went through, or maybe even elements of it from how we’ve done some getting multiple ownership in the GP or the LP. I think that’s got some legs to it. I think the interesting space is, “Does the non-traded private REIT space get totally wiped out and it becomes a blockchain-focused distribution model for that?” And I’d say the last piece that I find very interesting, which is much more technical, is whether we see things like title insurance change drastically. Leases, we have smart leases, better smart contracts that kind of important to making the block chain work. When you look across it, let me ask you, the first one, do you think that ICOs now represent a piggy bank for people that is different than the traditional fund raising?

0:54:04 S2: Today, no chance. That is not how business is done, that’s not how it will be done in the near term. And people are uncomfortable with that. So no, not today.

0:54:14 S1: So we’re on the same page there. Okay. If one more person knocks on my door and says, “Hey, you should do a co-GP fund and just create your own currency and then go out and raise money.” That’s where a lot of people are knocking the door. And I’m not saying we won’t get there down the road, but I just don’t see that yet.

0:54:31 S2: Right. That’s right. Not today.

0:54:33 S1: It reminds me of… If you saw one of the last episodes at Silicon Valley where like, they had this great idea to go raise $30 million and they’ll price it in the coin. They said, “Oh, price it 10 bucks and they’re priced at 7 cents.”

0:54:43 S1: So, the second though that I find interesting is this idea that we’re gonna take the Empire State Building or buildings like that and then we’re gonna fractionalize it up and sell it out. I think there’s some elements to that, but if anybody lived through the tenant in common debacle, where all of a sudden… The issue with that is, what happens if we ever have to have a capital call and things like that? Do you see the fractional ownership issue? That section of blockchain jump into the scene any time soon?

0:55:15 S2: So again, we don’t think that is the most likely first step. And it’s a progression. There’s a real progression. We actually view the third one you mentioned, where private REITs have the opportunity to manage their company more efficiently. And the way we measure it, we’re exploring the disruption that blockchain is bringing, is around the interested parties. How many stakeholders are involved in the transaction? The larger the number of stakeholders, the lower probability blockchain will disrupt it. Or as said differently, the longer it will take for blockchain to come in and make and disrupt the existing model. So if you have… With title insurance, you might have five different stakeholders, the owner, the debt, the seller, the seller’s debt and the recording jurisdiction. Those five… There’s actually more, but those five stakeholders all have to buy in to the transaction being over a blockchain methodology. And if they don’t buy in, it’s not gonna happen.

0:56:20 S1: Mm-hmm.

0:56:21 S1: So the more stakeholders, the longer it will take for adoption. And with what you described, the different options, with the private REIT, you start to have fewer stakeholders. And you start to see more precedent for companies, like Fundrise, who have taken a group of assets, turned it into a private REIT, and can manage the large number of owners via their platform. Well, if you wanna add liquidity, if you’re a private owner of real estate, if you wanna add liquidity to a group of investors into your private REIT, a blockchain would be an amazing way to organize and create that marketplace. So again, it goes back to the number of stakeholders. Potentially the owner and operator of that private REIT could have a proprietary blockchain marketplace just for their REIT. There’s real value when you can create a public market place for private REITs, where any retail investor could invest. However you gotta take one step at a time. So, we feel like that’s the first path into this the next iteration.

0:57:33 S1: Yeah. From my perspective, I think there’s a real opportunity, but it could also just be a total road block because now the private REIT spaces and the couple of people who’ve convinced some brokers, “Hey, let me get my platform on the Schwab platform or whatever, and that way we can get to your clients.” It’s now… I mean Blackstone owns this space now, has driven a lot of people out of it. Hines has been in it. They’ve just pulled a yellow flag and said, “They’re out selling their REIT assets.” So the question I have is, is it, does it benefit, I think I know the… Where I fall on it, but I’ll put it to you. Does it benefit a Blackstone, to say, “Look, even though we’ve invested millions and millions in dollars in trying to own this platform of the non-traded private REIT space, it’s gonna benefit us more if we go to blockchain.” Or they say, “You know, we are such a big player in this. We can do this very, very slowly and you know.” That big gorilla on the corner really makes me nervous about how quickly we can change the non-traded REIT space with blockchain. What do you think?

0:58:39 S2: So the largest beneficiary to the blockchain will be the smaller private REITs. I think Blackstone has an amazing opportunity to receive a ton of value and a ton of value be created for Blackstone and the same with Hines, and really any large company has that value. The smaller companies, the smaller REITs, who don’t have the same levels of access to capital, who don’t have the access to debt that the large organizations have and don’t have nearly the liquidity, the general liquidity, really benefit the most from a blockchain system, from crypto-currency in the long run, because they will now have access to the liquidity, to the debt, to the equity that the large players have had. So in our mind, the most value is created for the smaller guys. However, across the board, if you add liquidity, if you add more access, more transparency, it increases the value of the market. The market is more efficient.

0:59:49 S1: Yeah. My one hope, one of the guiding hopes I have for a Blackstone wanting to be a leader in this, is I think we could all… When you don’t have liquidity, you really suppress the value of the assets by 20%, 30%, 40%, 50%. And my hope is that Blackstone sees it as an opportunity to make big investments and open it up to the rest of the investing universe because the amount of value created by the liquidity overcomes any sort of monopolistic goals they may have. And I think that they had great leadership over there and they’re looking at it very closely I know. But I agree with you. I think that’s where you’re gonna see the first block chain success story is gonna be in this non-traded private REIT area. Just kind of as we wrap up here, I think this has been a… We could talk on time as it relates to real estate tech. So I really appreciate it. But as you’re looking at the world today and it’s a challenging place, and I always like to ask someone like yourself whose built a wonderful business, that is forward thinking with technology, if you were advising a young person out of school today on a career in real estate or real estate tech, what would you tell someone… What would you tell a young person coming out of school today about how you access the business and get into the business?

1:01:08 S2: First, let me say thanks Chris, I really enjoyed coming on the show. This has been great. Loved talking with you and answering the questions, and hearing your perspectives. The number one thing in real estate and in venture capital is adding value. And it really across the board, a young person, someone coming out of school, old, it doesn’t matter the age. If you add value, people will take notice. And not just making a phone call, or answering an email, but really add meaningful value, you set yourself apart. And from day one, that’s how we approached Camber Creek. Number one, we were gonna add value. Number two, we would invest. And by focusing on adding value, people will see what you can do and what you can create and you’ll create a demand for your product. And in the case of an individual, that product is you. So by adding value, you’ll help get a new job, you’ll help move up within the company you’re working in. And by going out of your way, by taking that extra step, by doing that extra meeting, by making that extra call, and doing that extra research, people notice. And in the long run, that really pays off. So the key really across in, our mind, business is add value. Make a difference and it really goes a long way.

1:02:36 S1: Terrific. Well, we’ll leave it there. Casey, thank you so much. I appreciate your time. I’d love to check back with you sometime in the future and have you back on the podcast ’cause I think the issues we talk about is really where the business is heading. So thank you for your time, and your honesty, in answering all the questions.

1:02:53 S2: Thank you Chris. It was great.

1:02:54 S1: Terrific.

1:02:56 S1: Thank you Casey, that was a terrific conversation. And I really enjoyed it and I appreciate you taking the time to be on the podcast. For those who’d like to follow Casey on Twitter, you can follow him @CaseyABerman, @ C A S E Y A B E R M A N. You can also follow his company, Camber Creek @camber_creek. So that’s @ C A M B E R_C R E E K. And as always, we’d really love you to follow us and subscribe to our podcast. You can go to any of the podcast services, but it’s always easy to go to Apple iTunes and hit subscribe. It would be great if you could leave a review. We always appreciate that. You can also go to my website, chrisrising.com and subscribe there. Thanks so much.