9 top real estate and proptech investors: Cities and offices still have a future

Despite the COVID-19 pandemic, many U.S. workers will eventually return to their offices.

But when they do, their big-city workplace will not only have a smaller footprint and operational strategy, it might be in a different town altogether, according to a recent TechCrunch survey of top real estate and proptech investors.

TechCrunch surveyed nine investors who are writing checks today for startups in the sector. Optimism still runs high for startup hubs as well as supercities like New York and San Francisco. However, the move toward e-commerce and remote work — a trend that started before COVID-19 upended the way people live, work and play — has accelerated. 

The responses below get into these and other looming matters, such as the role that government support is playing to support the market … for now. Next week, we will publish the second installment of responses focused on the opportunities and risks for startups that these investors are betting on [update: here is Part 2].

For additional context on where top investors believe the market is headed, be sure to check out our real estate and proptech investor survey from late March and the previous ones from late last year (when everyone thought 2020 would be something different).

Clelia Warburg Peters, venture partner at Bain Capital Ventures

Early evidence suggests that there is a reversal of the New Urbanism movement that defined the past several decades in the U.S., with the pandemic combining with existing trends in this direction. How will this migration affect your investment decisions, especially given foundational changes to residential, office and retail? How does this compare with what you may be seeing in other countries?

There is no doubt that in the United States the pandemic is serving as an accelerant in the “diffusion” of the model where economic activity is concentrated in a few primary urban centers. This diffusion was already underway — so-called “secondary” or “tertiary” cities have been growing in population and economic relevance for more than a decade. But I do think this is a period which will likely cement the permanent significance of many of those cities, where people feel like they can live more comfortably and affordably while enjoying many of the benefits of urban living (jobs, culture, restaurants and walkability). I actually think this in line with the new urbanism movement — which emphasized the need to make cities more walkable, green and friendly for living and not just working.

I also don’t see the pandemic altering people’s feeling or perception about the appeal of the “1950’s suburban ideal” in which someone (usually a father in a grey suit) commutes daily into a nearby urban center of activity — in fact, I think what the current interest in the suburbs confirms is that people don’t want to commute and that they feel more interested in suburban environments as they imagine them transitioning into “miniurban” environments where commuting is limited, ideally, there is walkability and where they have access to restaurants, culture and shopping through a mix of local and digital experiences.

I think technology is going to be a significant part of the transitions in how we live and work in the next few years, and I am bullish about proptech during this period. There was always the anticipation that, across the industry, tech adoption would be accelerated during a downturn because tech can often drive efficiency and bring down costs. I think the pandemic will serve as an accelerant to this as well and will also allow more disruptive models in both the residential and office sectors to gain greater market share. (In an environment where business as usual doesn’t exist, I think tenants and consumers are going to be more willing to experiment). On the office side, so far we are seeing an investment bump primarily focused around technologies that support the back-to-work experience on the office side, but I think we will start to see much more dynamic models evolve.

The U.S. is unique in that we have so many layers of urban models — some of this disruption will not be as great in other countries where the country itself really has only one or two primary cities, or conversely, where the contrast between the economic development of cities and the countryside is really stark. (I don’t think you will see as much discussion of the idea that everyone is going to leave London in the U.K. — there just isn’t another area that has the same multifaceted infrastructure. Nor is this “flee the cities” discussion relevant in China or other areas where it would be logistically difficult to work in the same way outside of many urban environments). This may mean that office and retail are less impacted in these places, and this combined with the fact that these countries are emerging from the pandemic more smoothly, may make international expansion a priority for a lot of proptech startups.

More specifically, startup hubs have been synonymous with superstar cities like San Francisco and New York — do you see the centers of innovation spreading out more widely, to smaller cities, college towns, versus the last decade?

I do believe that startup hubs will continue to spread out more widely, but I do also think that venture is a business that is heavily reliant on networks and relationships, so I think these “hives” will not disperse as quickly as roles in many other industries.

Once PPP loans run out what will prop up housing and rental markets and how will that affect the real estate/property tech industry? Could the implosion and aftermath spark a new wave of startups?

I actually think it is the unemployment bonuses that have been propping up the housing and rental markets — PPP loans apply more for commercial and retail landlords. This is relevant because as the unemployment bonuses expire, we may see more quickly how this will start to play out.

If wide-scale evictions or foreclosures do start to take place that could spur innovation, both to try to make it easier for people to stay in their homes and to offer tools to what will likely be an increasingly consolidated base of landlords looking to manage their portfolio more professionally.

To that end, it is worth pointing out that economic challenges could lead to consolidation across the whole real estate industry. While there are challenges related to this (real estate has historically been an important driver of local and regional wealth creation), more consolidation in owners across residential and office will almost necessarily lead to greater innovation, as owners look to more strategically optimize their assets and entrepreneurs have a much easier path to selling into big players to scale. The success that Invitation Homes had in building a large portfolio of single-family homes after 2009 and their focus on technology as a tool to differentiate their portfolio is a great example of this.

Brad Greiwe and Brendan Wallace, co-founders and managing partners, Fifth Wall

Early evidence suggests that there is a reversal of the New Urbanism movement that defined the past several decades in the U.S., with the pandemic combining with existing trends in this direction. How will this migration affect your investment decisions, especially given foundational changes to residential, office and retail? How does this compare with what you may be seeing in other countries?

Brad Greiwe: We don’t believe that abandonment of central business districts will remain an issue following the pandemic. Because the concentration of startup and entrepreneurial activity occurring in cities such as San Francisco and New York is on the decline, we can expect smaller metro areas throughout the U.S. to benefit from a surge in innovation, and the pandemic only stands to accelerate this trend, with many entrepreneurs and knowledge workers having already discovered the benefits of remote work and life outside of high-density areas. While this will not alter our investment strategy, we’re spending time with the office landlords in our network considering alternative spaces for work (e.g., flexible workplace solutions, flex passes, smaller and scattered HQs, cross-purpose retail and dynamic food venues), advances in collaboration technology and the ways in which physical assets can accommodate strong connectivity.

In countries that have been able to mitigate the spread of COVID-19 we are witnessing a quicker return to normalcy, for example, China opened its malls in March and office buildings in April. So while we perceive the work-from-home movement in the U.S. to be significant and permanently impacting work culture, what we’re seeing in other areas of the world indicates that once countries are able to better control the virus, there is, in many cases, a return to normal working patterns and behaviors.

More specifically, startup hubs have been synonymous with superstar cities like San Francisco and New York — do you see the centers of innovation spreading out more widely, to smaller cities, college towns, versus the last decade?

Brendan Wallace: While this trend started far before 2020, it was on a much smaller scale. The pandemic expedited the exodus out of cities like San Francisco and New York. In fact, in Los Angeles, we’d already seen the migration away from geographical innovation and suspect that trend will continue. Remote work now available for more has increased global competition, allowed for more movement between cities, and will inevitably create smaller hubs of people pushing technology forward.

The concentration of startup and entrepreneurial activity occurring in San Francisco has been on the decline for some time. Innovation is becoming ubiquitous geographically, meaning it’s occurring everywhere, including cities like Los Angeles that previously didn’t have much of a technology ecosystem, with smaller metro areas throughout the U.S. becoming beneficiaries of this as well. We expect the COVID-19 crisis to further accelerate this dispersion of the entrepreneurs and startups, as the pandemic sheds light on the benefits of remote work and spurs many to reconsider life in high-density areas. Historic tech hubs like San Francisco will always remain, but what will emerge is a welcomed decentralization of startups and innovation.

Zach Aarons, cofounder and general partner, MetaProp

Early evidence suggests that there is a reversal of the New Urbanism movement that defined the past several decades in the U.S., with the pandemic combining with existing trends in this direction. How will this migration affect your investment decisions, especially given foundational changes to residential, office and retail? How does this compare with what you may be seeing in other countries?

We are definitely gravitating toward technologies that improve workflows in asset classes that have seen more resilience throughout the pandemic. Single-family, logistics and essential construction are all major areas of focus right now for MetaProp.

However, we believe that a lot of the “death of retail, death of office” narratives are overblown, and we are actively looking to pull the trigger on at least one investment in each of those more impaired categories.

More specifically, startup hubs have been synonymous with superstar cities like San Francisco and New York — do you see the centers of innovation spreading out more widely, to smaller cities, college towns, versus the last decade?

Many technology companies are now becoming fully distributed workforces. This means they are dispersed across the world. We believe, however, that many of these companies will still want to have an office presence in New York and therefore New York remains a focus of ours. We have also invested in California as well as many smaller markets not often thought about as tech hubs like Chattanooga, Miami, Tampa and Atlanta.

Once PPP loans run out what will prop up housing and rental markets and how will that affect the real estate/property tech industry? Could the implosion and aftermath spark a new wave of startups?

There are new proptech startups created every single day globally because entrepreneurs will never cease to create them, no matter how challenging the economic climate may be.

John Helm, managing director at Real Estate Technology Ventures

Early evidence suggests that there is a reversal of the New Urbanism movement that defined the past several decades in the U.S., with the pandemic combining with existing trends in this direction. How will this migration affect your investment decisions, especially given foundational changes to residential, office and retail? How does this compare with what you may be seeing in other countries?

Perhaps the defining element of the past decade-plus of real estate development is the focus on walkable, community-oriented downtowns, which is, on its face, at odds with the social distancing protocols stemming from the pandemic. On the other hand, it’s not realistic to assume that that will translate into a mass migration to the suburbs; for a variety of reasons, including affordability, urban living will undoubtedly continue. And, in fact, many of the startups that enable social distancing are much more viable in denser locales, e.g., meal delivery services. In light of this, the real question is how can we make urban living compatible with the new normal?

Ultimately, the home is no longer just the home. It’s the home, the office and even the storefront. This new reality gives greater primacy to the sorts of technologies that make the home a more pleasant and productive environment for living, working and entertainment. Several of our portfolio companies help residents turn their homes into optimal workspaces (e.g., GiGstreem improves web connectivity; Fernish lets them temporarily lease office furniture), and companies that meet these needs will receive the greatest focus from entrepreneurs, capital and end users alike.

On the building management side, a greater concentration of people at home means that the physical building is working harder than ever. More air conditioning, electricity and water usage means more frequent issues with the building infrastructure. Technologies that address any of these issues directly — or streamline operations for an overworked building staff — are increasingly attractive.

More specifically, startup hubs have been synonymous with superstar cities like San Francisco and New York — do you see the centers of innovation spreading out more widely, to smaller cities, college towns, versus the last decade?

There’s no denying that the bulk of innovation has taken place in Silicon Valley and Silicon Alley, but I actually think that has been overstated to some extent, and it is certainly changing.

We started RET Ventures in 2017, and while we have backed companies based in New York and California, we’ve also invested in those based in significant, if less-publicized, tech hubs in Texas, Florida and Utah.

We expect this trend to continue. As more people show that working from home can be productive, location will become increasingly irrelevant, and innovation will be decentralized from the existing tech hubs.

Once PPP loans run out what will prop up housing and rental markets and how will that affect real estate/property tech industry? Could the implosion and aftermath spark a new wave of startups?

With the pandemic disrupting daily life and businesses across the country, it is hard to overstate the importance of the various government programs that have served to stabilize the economy. The National Multifamily Housing Council tracks rent payments in apartments across the country, and the figures have consistently shown only a minimal drop-off in rent payments this year, despite the pandemic. But as these programs expire — especially in the absence of another stimulus bill — we can’t expect that trend to continue.

Within the proptech space, further economic instability would clearly have negative consequences. The current situation has made it extremely challenging for many companies to raise capital, and has even shuttered the doors of several startups — trends that would continue if additional government support doesn’t materialize. While there is a real possibility that some proptech startups will fail, we expect the shakeout to separate the stronger business models and weaker ones. We certainly do not anticipate a large-scale industry implosion of the sort that would require the entire landscape be recreated.

Adam Demuyakor, co-founder and managing partner, Wilshire Lane Partners

Early evidence suggests that there is a reversal of the New Urbanism movement that defined the past several decades in the U.S., with the pandemic combining with existing trends in this direction. How will this migration affect your investment decisions, especially given foundational changes to residential, office and retail? How does this compare with what you may be seeing in other countries?

I think up until the pandemic we were largely believers that Gen Z and millennials would continue to move into large, coastal cities — San Francisco, Los Angeles, New York, Boston, etc. — the most. As such we’ve liked companies that have a notable focus and presence in these regions. We continue to see these cities as the most recession resistant in the long-term, but I think the next few years will require a bit more conservatism when it comes to the financial projections for businesses that have a heavy concentration in these locations.

More specifically, startup hubs have been synonymous with superstar cities like San Francisco and New York — do you see the centers of innovation spreading out more widely, to smaller cities, college towns, versus the last decade?

I think the jury is still out. Yes – if the top companies will allow their most critical employees to work remotely into perpetuity then I think we’ll see some softening and decentralization of these hubs. However, we’re already seeing signs that some of these firms are doubling down on offices in dense cities despite the pandemic. For example, Facebook and Amazon have just signed big office deals in New York City. On the other hand, Palantir is moving to Colorado so that is a bit of a counterpoint there. In my opinion, it’s ultimately going to come to do leadership of these firms in aggregate and whether or not they think large in-person office arrangements are critical for their firm’s culture and efficiency going forward.

Once PPP loans run out what will prop up housing and rental markets and how will that affect real estate/property tech industry? Could the implosion and aftermath spark a new wave of startups?

More so than just the PPP loans, we believe it’s been the government stimulus checks and unemployment benefits that have generally supported the rental/housing markets. PPP loans have been more beneficial for commercial and retail tenants. Yes, once all of these benefits run out there will be a reckoning of sorts for these respective asset classes if their underlying demand fundamentals cannot come back (Malls, Restaurants, Hotels, etc). At that point, we do think it’ll be up to technology companies to once again find a way to repurpose these assets and spaces.

Casey Berman, founder and managing director, Camber Creek

Early evidence suggests that there is a reversal of the New Urbanism movement that defined the past several decades in the U.S., with the pandemic combining with existing trends in this direction. How will this migration affect your investment decisions, especially given foundational changes to residential, office and retail? How does this compare with what you may be seeing in other countries?

Our view is that is it too early to say with any certainty whether the pandemic is reshaping the basic spatial configurations of metropolitan areas. While it is true that the pandemic has encouraged some millennials to move to suburban areas, it is also true that historically young professionals moved into cities and then moved out to suburbs when raising families. Nor has COVID-19 necessarily impacted the basic market demands for locations that combine living, working and playing.

The “winners,” whether in the suburbs or in urban centers, will meet the growing demand for safety, health, and wellness. That means safe streets, recreational opportunities, and built environments that inspire confidence for residents and workers. Technology will play an important role in all of this: screening for infection, bringing fitness into the home, and adapting space to new purposes.

More specifically, startup hubs have been synonymous with superstar cities like San Francisco and New York — do you see the centers of innovation spreading out more widely, to smaller cities, college towns, versus the last decade?

Camber Creek believes that there is enormous entrepreneurial talent around the U.S. Our founders hail from places like North Carolina, Maryland, Texas and Virginia. There are strong secular tailwinds pushing innovation away from those “superstar” cities. Costs of living in top-tier cities skyrocketed over the last decade. Zillow reports that even secondary cities such as Austin, Raleigh and Denver experienced 80%+ rent growth over the last 10 years.

The pandemic reinforces the trend by normalizing fundraising by Zoom, breaking down a geographic barrier that has long pushed founders to locate where venture capital firms are based. More broadly, defining exactly where a business is located is going to get a whole lot trickier as small and large companies move to fully remote workforces.

Once PPP loans run out what will prop up housing and rental markets and how will that affect the real estate/property tech industry? Could the implosion and aftermath spark a new wave of startups?

If the federal government stops playing such an active role in economic recovery, it would likely impact the real estate market. In terms of the proptech market, an economic slowdown will likely help some and hurt others. For example, tech companies that are helping automate processes, like Funnel or Measurabl, could benefit, as could companies for which the demand is countercyclical. On the other hand, companies that are providing “nice to have” services, like high-end amenities in multifamily buildings, would likely see further drops in revenue.

Florian Reichert, partner, Picus Capital

Early evidence suggests that there is a reversal of the New Urbanism movement that defined the past several decades in the U.S., with the pandemic combining with existing trends in this direction. How will this migration affect your investment decisions, especially given foundational changes to residential, office and retail? How does this compare with what you may be seeing in other countries?

With the pandemic hitting countries (globally) and even states (across the U.S.), with significantly different degrees of intensity, decentralized solutions are being increasingly adopted in sectors that are integral parts of the New Urbanism movement, like retail (e-commerce, food delivery, etc.) as well as education (online tutoring, remote classes, etc.) and are contributing toward a reversal in the New Urbanism movement. However, considering the effect the pandemic has had on remote working we are convinced that the core concept of community building will be more important than ever in order to compensate for the lack of in-office social interactions.

In other regions, like Asia and Latin America, we expect the reversal effect to be less pronounced considering that digital models are increasingly being built around communities, like social commerce and hyperlocal marketplaces. Hence based on our current, and still evolving, point of view, we see the New Urbanism movement as one that is adapting to the changing ecosystem of human interactions in both private as well as professional settings and pivoting toward a not-yet-defined new normal, rather than fully reversing. We will be considering this in our investment decisions, while not redefining our long-term hypotheses that were formed prior to COVID-19.

More specifically, startup hubs have been synonymous with superstar cities like San Francisco and New York — do you see the centers of innovation spreading out more widely, to smaller cities, college towns, versus the last decade?

There is definitely an ongoing trend of startups and innovation diversifying more broadly across the U.S. into large cities other than San Francisco and New York (e.g., Austin, Denver, Chicago). Having said that, we believe that this is a trend that was accelerated rather than initiated by the current COVID-19 situation with founders seeking the opportunity to work remotely from the city of their choosing.

However, looking ahead over the next decade, we believe startups and innovation will largely remain in superstar cities, which we see as constantly evolving. In our view, there will remain an element of physical interaction, at least to some extent, as part of the new way of work while these cities will remain the most attractive living option for young talent in terms of social life. Hence, while the teams will become more distributed the startup and innovation hubs will stay within the superstar cities, not least because of the proximity to capital and investors.

Once PPP loans run out what will prop up housing and rental markets and how will that affect the real estate/property tech industry? Could the implosion and aftermath spark a new wave of startups?

Once PPP loans run out it will certainly have an impact on the ability of many renters and property owners/buyers to maintain living/working arrangements and more broadly the current quality of living/working. In particular in the context of this being an election year, questions arise around which other government-supported stimuli will replace and/or supplement PPP loans. Irrespective, the core underlying dynamics of increasing unemployment rates and the broader economic downturn will clearly accelerate solutions offered by startups helping struggling tenants and property owners/buyers. In our view for the rental market, this will come in the form of flexible solutions reducing upfront/bulk capital expenditures like rent deposit insurance players (e.g., Jetty, Rhino, etc.) or asset (i.e., furniture, electronics or software) leasing/rental players (e.g., CasaOne, Feather, Lendis, etc.).

For property owners/buyers this will come in the form of solutions enabling customers to access equity locked up in their properties in order to finance other purchases (e.g., Figure, Selina Finance, Point, etc.) or through granting customers increased access to property ownership (e.g., Divvy Homes, Unison, StrideUp, etc.).

Stonly Baptiste, co-founder and partner, Urban Us

Early evidence suggests that there is a reversal of the New Urbanism movement that defined the past several decades in the U.S., with the pandemic combining with existing trends in this direction. How will this migration affect your investment decisions, especially given foundational changes to residential, office and retail? How does this compare with what you may be seeing in other countries?

The reversal of New Urbanism is overstated and the early evidence from the pandemic is actually not so clear. Despite the anecdotal conversations on Twitter and the public narrative of people fleeing cities, as prices for rental units drop in cities, historically, new demand backfills quickly. Younger demographics who were once pushed out of the more expensive cities flock as newly available supply comes available. This was the case for the last three major recessions and also follows the logic of the 500-year exponential trend of urbanization. It can seem like a lot because so many voices in tech are amplified, but that largely ignores the data. When a COVID-19 vaccine gets here, and rent in cities is lower than before and people remember that FUN: nightclubs, bars, restaurants, CULTURE: fashion shows, art exhibitions, concerts, INTELLECT: universities, incubators, co-working, etc. are all concentrated in dense locations, the trend will reverse back to the mean, just as it has every other time in history.

People like to be close to each other. Can anyone say they really enjoy being on Zoom all day? No. It’s pretty brutal. But we HAVE TO now. We don’t have a choice. When we have the choice to party, have fun, go out, gather, collaborate, build and connect in person, humans will revert to the mean and move in droves again to where a disproportionate share of that stuff is concentrated: cities.

So we’re still predicting long-term growth for cities globally. The global population continues to grow, landmass is staying the same, and our awareness of the environmental, economic and social benefits of density persists. What we’re seeing in the short term in the U.S. and in other countries is a flight to (mostly smaller) cities. And as evident from our deal flow, more and more founders are showing up for the opportunity to reimagine residential, office and retail.

More specifically, startup hubs have been synonymous with superstar cities like San Francisco and New York — do you see the centers of innovation spreading out more widely, to smaller cities, college towns, versus the last decade?

In the short term, yes. And this will result in the revitalization and the birth of the next great cities. With that said, the concentration of investors and startups will still be in San Francisco and New York. So investors and startups in other regions will still follow their lead when we return to in-person interactions.

Once PPP loans run out what will prop up housing and rental markets and how will that affect real estate/property tech industry? Could the implosion and aftermath spark a new wave of startups?

The real estate/property tech industry is focused on reducing costs and improving the quality of life for residents and tenants. These will be even more important in what will be an increasingly competitive market, where tenants have more leverage. One benefit to innovation is that the return to affordability in urban centers will mean a new infusion of talent who will help build the next generation of great startups.

Andrew Ackerman, managing director, DreamIt Ventures

Early evidence suggests that there is a reversal of the New Urbanism movement that defined the past several decades in the U.S., with the pandemic combining with existing trends in this direction. How will this migration affect your investment decisions, especially given foundational changes to residential, office and retail? How does this compare with what you may be seeing in other countries?

It isn’t yet clear to me if this is a reversal or a temporary headwind. My gut says that the underlying strength of the pull to cities is still strong. Should we get an effective vaccine within a reasonable time, people will largely “get over” their concerns and change will be limited (e.g., new residential will be designed to be more work from home-friendly).

The big wildcard for me is crime. In the 1970s, the presumption was that you enjoyed the city despite the crime and filth until you had kids and had to leave. As we turned cities around in the 1990s on, the mentality shifted. People saw cities as clean and safe enough for families so the presumption that they would have leave faded. If that mentality shifts back, we could lose an entire cohort of potential urban families until the cities get crime back under control.

That said, the long-term trends for brick-and-mortar retail were not good pre-COVID and this just accelerated things. They remain screwed as ever.

More specifically, startup hubs have been synonymous with superstar cities like San Francisco and New York — do you see the centers of innovation spreading out more widely, to smaller cities, college towns, versus the last decade?

There are actually three parts to this question: (1) Will people still work in offices? (2) Will those offices still be in “superstar cities”? (3) Will the innovation groups still be in “superstar cities”?

I don’t believe that work from anywhere will kill the office. Without going into too much detail, in-person interaction is the highest bandwidth form of communication. Even in VC where we can do a lot virtually for an extended period of time, there is still no better way to develop new relationships, acculturate new hires, etc, than face to face. And in most industries and for most roles, the tipping point where remote work becomes less efficient is far lower.

So teams will still need offices … but they don’t need to be in “superstar cities.” Back-office functions have been moving to less expensive cities for years and we could see that accelerate and move up the value chain. Cities as a whole may still win but Cincinnati (for example) may pick up jobs at the expense of SF or NY.

That said, innovation teams need to bridge the gap between the innovation supply (typically startups) and demand (e.g., the line management). Startups tend to be concentrated in key cities — often SF, NYC, Boston but sometimes in other regional hubs next to large concentrations of their customers’ HQs. In my not-so-humble opinion, innovation teams need to be near those startups so they are likely to stay in “superstar cities.”

Once PPP loans run out what will prop up housing and rental markets and how will that affect the real estate/property tech industry? Could the implosion and aftermath spark a new wave of startups?

It’s way, way broader than PPP loans running out. Pandemic unemployment benefits, eviction moratoriums, BLM, defund the police — there are more potential large changes on the horizon now than I can ever remember seeing.

Bear with me on this one: Stability leads to less innovation. As a VC, one of the critical questions I ask is, “Why now?” If there is not something specific for a startup to point to (e.g., technical advances, regulatory changes, industry trends at an inflection point), odds are that there are dozens of startups who have tried (and failed) at the same thing. Stable environments mean there are fewer “why now” moments. Rapid, disruptive change, painful as that can be to the world as a whole, ultimately may mean more possible answers to “why know.”

Hear more about co-living, home offices and other pandemic trends in Part 2 of these answers.