How Proptech Enables Smarter CRE Investments With Ivo van Breukelen

Frank Cottle [00:00:00 ]: Ivo, welcome to the Future Work podcast. Really excited to have you here today and really looking forward to learning more about your opinions and about prop tech connection. Can you tell us just a little bit about prop connection so people know a bit more where you’re coming from?

Ivo Van Breukelen [00:00:17 ]: Sure. And first of all, thank you so much for having me here today. Delighted to be part of this, this podcast. So yeah, on myself. So my name is Ivo, one of the managing partners here at the prop tech connection. And what we do as a firm is quite unique, I would say, at least in the marketplace. We’re an independent strategic prop tech advisory firm and we’re non investors in this prop tech space. But our ability to offer our clients objective and unbiased and independent assessments for real estate companies as well as investors in this space is, is what we do. And we effectively leverage our proprietary market intelligence platforms to deliver those insights. So we have five offices globally across four different continents, and we work with some of the leading institutional real estate owners and operators, as well as some mostly corporate vc’s that are very active in this newly and rapidly growing prop tech ecosystem.

Frank Cottle [00:01:20 ]: And what sort of questions are these clients asking of use, the type of data you’re gathering and how is it used?

Ivo Van Breukelen [00:01:30 ]: So, as a firm, we work across different asset classes and across the entire value chain, right? So design and development, construction, but also operations. So, you know, our clients are quite diverse kind of request, but it’s always around their digital strategy. So a recent project that we had was one of our clients is a Fortune 200 and they build a lot of entertainment spaces and they want to give, for example, their visitors a better experience with haptics technologies, but they don’t understand what that market is or, you know, what companies are out there, different use cases, what tech companies are out there. And then we look at their strategy, we give them insights, what’s happening in the market, and then we overlay that and present the best suited tech companies globally that meet those needs. Or we have another client as a reed in the US is looking how they can reduce their Opex across their office portfolio. For example, leveraging tech or somebody else is a large shopping mall owner operator in the Middle east, and they come to us and say, hey guys, what tag is out there that can drive more food traffic to our shopping malls? Right? So it’s always with an ROI angle.

Frank Cottle [00:02:43 ]: Well, you know, our audience is very interested in flexibility in the workspace, the future of work as we look overall. And who do you see? Mostly because you guys see a lot of bandwidth, I’ve looked at some of your work, you see a lot of bandwidth. Who do you see as being the primary users of flex workspaces and co working centers today versus, let’s say, a few years ago, pre, post pandemic, if you will?

Ivo Van Breukelen [00:03:12 ]: I think it’s a really good point, Frank, and a very valid question. I think there’s a few points to point out, and I think you were spot on when you mentioned Covid. We believe that real estate has fundamentally changed post Covid. If you look at some interesting stats, for example, the genie is out of the bottle in terms of work from home. We won’t go back to normal as we obviously initially we had those discussions. But if you look at some of the data, 62% of all the time Americans are awake, they spend in their houses, compared to 50% pre Covid. Nowadays, people understand teams zoom and obviously having these vertical meetings and they built their life around it. So what you see from an occupier or heads of real estate, you know, they’re looking at these empty spaces, paying whatever, one, two, three, $4,000 a square meter, subject to, obviously where that asset is located, but then escalating inflation, you look at labor constraints, you know, they’re kind of stuck. So what you see, startups are going virtual, right? So obviously the Gen Z kind of population, but we’re seeing a. Also the needs of tenants are changing. Sorry, occupiers are changing. Right. So previously, you know, as a, you would be selling into a large consultancy shop at Hudson Yard in New York, but now actually, as an asset owner, you want to understand their employees, right? So the data and the tech needs that these asset owners need are changing post Covid as well. We can double click a bit more on that, but I think post Covid real estate has dramatically and fundamentally changed.

Frank Cottle [00:05:02 ]: Oh yeah, I absolutely agree. In fact, we’ve been saying for years you used the term occupier several times in the last few sentences. I don’t believe there are any occupiers anymore. We believe there are only travelers. That is really the fundamental change. And that I don’t know where you’re office in today. I’m officer from my home right now from my home office, and I was at my downtown office here in Fort Worth, Texas earlier today. So I’ve been traveling between two locations to work and I think two, three work locations a day or a week, that is the norm. Now, I read a study that was done earlier by one of the major real estate companies in the UK that indicated that by 2030, they felt that as much as 70% of all commercial office space in the greater London marketplace would be flexible workspace.

Ivo Van Breukelen [00:06:12 ]: Right?

Frank Cottle [00:06:13]: Do you agree with that or do you think that’s maybe a little bit aggressive?

Ivo Van Breukelen [00:06:17 ]: I think it’s a valid question to us. It’s more difficult to give a proper answer.

Frank Cottle [00:06:27 ]: You have to define what flexible workspace is.

Ivo Van Breukelen [00:06:30 ]: First and foremost.

Frank Cottle [00:06:32 ]: Your apple is maybe my orange in that regard.

Ivo Van Breukelen [00:06:35 ]: But also, how is AI impacting space? Right. We had a client inquiring and we digged into that with our research team. But there’s the pace at which technology is changing. As a society, we’re not used to exponential growth. It was always linear, but the pace at how quickly things are changing. So looking forward in 2030 years, it’s quite bold to make statements, I think. But obviously there’s a trajectory here. What you mentioned about that, we call it debscation, where you say, hey, that intersection between traveling and work. But actually, if people are going on holiday for a week and staying to work for, let’s say, three weeks abroad, when you start extending that further, you have basically build an ecosystem for mass outsourcing. And if you then pull that into the real estate space, then there’s actually another pressure for developers and asset owners. And now this can be done at speed, right? And then you start seeing, obviously folks reducing space, everybody’s looking into that. You see lease periods obviously falling, so there is material risk coming into this domain. And one other point I also wanted to note that you mentioned, I think fairly, is previously obviously dynamic in an asset, was between the owner and the occupier, as I previously mentioned, and then obviously segmented into different industries like financial services, software consultants, etcetera. But now I agree with what you said. As an owner, you actually need to build a relationship with those employees, right? So you need to understand these people, right? And space tracking isn’t just one of them. So in our view, from a tech standpoint, we believe that the best companies, the most successful companies, will know those employees at the gender, age, education level basis. An example I would like to highlight here is a study in the US, for example, showed that people with an advanced degree versus those with a high school certificate were 30% more likely to work from home. Another interesting point was that on average, everyone worked 2 hours less at home than they did in the office. We believe that this type of understanding, and obviously you need to obviously grow much more granular, is really paramount to understanding prop deck and also to be successful as a real estate owner, operator.

Frank Cottle [00:09:01 ]: Well, you know, it’s funny, I wish I could work 2 hours less because I worked from home. It seems to be just the opposite, that you’re always around your work, and if you are motivated, then in fact you pick it up whenever you feel like it, even after what you would consider normal working hours. I think the separation of work and home life is blending more and more. The other thing you mentioned is when you talk about technology and the growth in technology not being linear these days, you can tell I’ve got a little gray hair. So I’ve been through a few cycles here. When the PC was first introduced, or actually when computers themselves were first introduced to the marketplace, that was not linear. So I’m going to call that mid, late seventies PC, mid eighties, early eighties smart devices, early, mid nineties Internet, early nineties pushing through all these were big jumps. Is artificial intelligence going to be a bigger jump than any of those? Is artificial intelligence be bigger than the PC or bigger than the Internet? Because technology doesn’t know borders. There are no borders with technology. It’s everywhere. So how do you see us working in the future, and how will cities evolve, do you think, or will they devolve?

Ivo Van Breukelen [00:10:42 ]: No, I think it’s a really good question. I was actually recently at the Middle east, we do a lot of work there, and I’m sure you’ve heard of some of the large Giga projects that.

Frank Cottle [00:10:55 ]: Are shaping our line in Saudi Arabia as an example.

Ivo Van Breukelen [00:10:58 ]: Yeah, so we have close relationships there and we’re looking at a number of other projects there in the region as well. But we were actually doing a presentation there and one of the other speakers that was there was Tony Blair, former prime minister of the UK. And he actually made a very interesting point on AI, but more in a broadly term. So not necessarily with regards to the real estate space, but I think it was really good how he explained it. So he said AI at the current state has an iq of 50, right? Which is obviously not necessarily really high, right?

Frank Cottle [00:11:34 ]: It’s not high, no, it’s not high.

Ivo Van Breukelen [00:11:36 ]: But in 18 to 24 months from now, that will be lifted to 150, right. And if you overlay that to three years, you’re probably looking at 200 with data, enormous amounts of data sets, right. So just the speed of growth, you know, and it’s effectively uncapped. Right. So what is coming there? We think there is still some hype, and also if you look in some of the deals and you know where investors are looking to come in, in the real estate AI space, I think there needs to come a bit of nuance, but this is different than some of the other buzzwords that I think were in the market a few years ago, like the metaverse and blockchain. This is really material, and we see a lot of inquiries from a network trying to adopt, trying to understand what’s happening in different parts of the world. And one of the things that I think is really interesting, where you see most interesting attack coming in is actually countries like South Korea, Germany and also Japan. And the reason why is because they have the highest percentage of robots and automation because they are car manufacturers. That is quite interesting to make. To summarize this, we think this is a material change. AI is not a buzzword. It is really going to change a lot of things. But a lot of folks are trying to figure out obviously what’s in the market and how quickly it goes at the same point, at the same time, which you mentioned around Excel, Internet, computers, population has always adjusted. There’s obviously a lot of concerns about people losing their jobs replacement. But somehow we always evolved as a society right now allocated time elsewhere.

Frank Cottle [00:13:29 ]: Well, I think, and I’ll use our own company as an example. Last June, we looked at all of our processes and procedures and our growth. We grown around 35 40% a year. And we looked at our growth, and the executive team sat around and said, hiring freeze. We’re going to go on a hiring freeze. We’re going to see how far we can push it by changing our processes and supporting those processes with technology, as opposed to just hiring one more person per thousand or one more person on a metric basis. And we had our normal growth. Last year. We had two less people than we started with, and we got better reviews from our customers. We got everything. So the adjustments that companies can make are real. Certainly one of the things that we felt in this is our purpose. Our purpose wasn’t to hire less people. Our purpose was to make our individual teammates more valuable to us. So if I have the same number of people handling 40% more business, then those people are worth more to me, their knowledge, their skills, etcetera, not less. And so they can share in that. Now, there may be others that don’t have a job though, because they weren’t part of that team. So that’s the flip side. I kind of disagree with Tony Blair a little bit. I won’t argue about the 50 overall iq is a creative. I won’t argue that a computer can crunch more data faster than I can, or can remember that data longer, or pull it up and relate it faster than I can. But all business, all life, if you will, is not data. It’s perception. It’s connecting dots that otherwise the data doesn’t necessarily see. It’s experiential. And so I won’t argue the IQ numbers so much, but I will argue that a genius isn’t defined well. I’ll use Einstein. Einstein says a genius only needs imagination. Data had nothing to do with being a genius in his view. So there’s going to be a lot of change here, and there’s no question about it. I think it’s exciting, myself, I think it’s very exciting. But how do you see flexible workspaces and other models reacting to this technology change overall? And what are the actual technologies you see that are providing flexible workspace solutions?

Ivo Van Breukelen [00:16:41 ]: No, I think exciting to see, by the way, Frank, that obviously you stick with the trends and also looking, obviously internally within the business, it’s also something that we actively do. But I think there’s actually a lot of ancillary use cases and models that touch on flags and shared space, including obviously hotels, co working and function spaces. Right. We have also seen examples of peer to peer platforms that allow for space higher for non office use, serving practitioners and professionals, such as gym or yoga instructors, for example, or professional speakers. And this is an era where we see emerging potential as these practitioners often operate independently in a rentic space. Is very challenging, especially, obviously, what? It’s not in use. But if we look at the use case comparison, we actually did, we had a mandate from one large client, top ten owner operator in Japan, that had a lot of bets or investments in a number of co working operators, tech companies across mostly Asia, right. And they wanted to consolidate and they were looking, you know, at their strategy and we helped them with that. But, for example, where we see a very competitive environment is around that shared desk space. Right. You have a lot of companies, it’s a very fragmented space. We think. One thing we think will also happen, by the way, is, you know, the global brands will come in. Right. Again, fragmentation means it’s really hard for folks to understand the market and who’s available. Right. So the small meeting rooms is something where we see a lot of activity and need for event spaces, right. As a function of, obviously the work from home events and gatherings with employees is where we see a lot of attraction. Storage. Right. Is something that we see folks looking into. And then obviously the large and medium, let’s say, meeting rooms, and how you can facilitate that at scale in different places. But the key to these models I would say is balancing the level of flexibility, often the level of servicing provided. It’s always trying to balance that. So, yeah, those are some of the things that I would say we’re seeing in markethood.

Frank Cottle [00:19:09 ]: Well, you know, you see external service providers. I don’t know if that’s the right term or not. I’ll use companies like industrious companies like IWG, Regis Spaces, WeWork are large brands, then 85, 90% of the rest of the industry are small brands. So there’s outside providers of that. But I think one of the major shifts that we’re seeing is larger companies managing their own coworking, flexible workplace structures independent of those brands. And two examples, they’re old examples, so they’re almost pre Internet examples. Sprint, the old telephone company that’s now been sold and broken up and everything, they had 185 facilities back in the early nineties across the United States that were all hot desking, what we would call today co working facilities. They were the largest operator of those type of facilities, regardless, just for themselves. Another would, the term hot desk. Well, that comes from hot bunk, which was an old navy issue of rotating shifts on ships of sailors. Deloitte was doing that in the early nineties. Again, this is two or three levels of technology that we’re using today. So the concepts of maximizing space utilization for efficiency overall in operations and in cost efficiency is not new. This is not new at all. I think sometimes we just relabel what’s old and call it new. And I think we need to understand that these are proven concepts that finally are now becoming common overall. And you might look at food trends even, and say, in your town, wherever it is, at one point in time, there was only two asian restaurants, let’s say, or latin american restaurants or french restaurants. And now they’re everywhere. Okay? People absorb anything they can and then redistribute it. And I think that’s what’s happening right now. Technology is allowing us to accelerate this process overall. But it’s not just external providers that are doing this. I would venture that there’s more space with internal creators of space for themselves than there is externally. And I’m part of the external industry, so I don’t like saying that right now. But I really think there is, from what we see, particularly when you come to the redeployment of meeting rooms and structures around the difference between remote work that comes into the office occasionally. So work from home versus hybrid work, which is work from a third workplace, and come into the office occasionally. Those are totally different structures as they happen. The biggest change that has to come as a result is how does commercial real estate deal with it? How do cities deal with it? If you take all the commuters and you don’t send all the commuters into New York City every day, what happens? New York City, does it? Is it still New York City? No, it’s not. It imports its workers every day. London, same thing. Many cities, same thing. So if we even cut off ten or 20% of those commuters and redeploy them physically, what happens to the cities and what happens to the buildings within the cities? We’re hearing all sorts of things about this building, $100 million building being devalued to $30 million and the bank having to sell the loans. We’re hearing a lot of scary stuff really going on. What’s your view on those changes and how they impact us?

Ivo Van Breukelen [00:23:40]: No, I think there’s a few things to unpack and I think it’s a really good analysis. I think maybe starting with the final point, the future of cities. Also, we work with one of the two leading management consultancy groups that is effectively the leading researcher, I would say, in this space, or one of the leading researchers. And it’s quite interesting also here, if you look into example, you mentioned the line, right? So what they’re trying to build there is the future city, right? And if you look at effectively, you know, the upgraded version of Singapore, right, that was the futuristic city 30 years ago. And if you look at some of the lessons or some of the objectives they have there, the future city, everything should be accessible within 15 minutes, right? That’s one of the kKpis. Sure.

Frank Cottle [00:24:33]: The 15 cities as a term has been around for almost two decades, but.

Ivo Van Breukelen [00:24:38 ]: I think if you then look into the US, I think there is, we as a firm have identified eight different strategies in terms of how you want to position yourself as an asset owner. We think that the attempt to reburst of grade b and grade circumental will continue to evolve. We think there is going to be, and continues to be strong demand for grade A office space and CBD’s. Whenever, wherever around Central park you’ll get that space, like pop up stores in retail. Similar concepts you’re going to have for folks working in these cool places. Let’s say brand distinction is then also obviously a differentiator for asset owners. And I think that also ties in to what you mentioned around that flexibility as an owner. We actually see a lot of tech companies. And one of the challenges we see, Frank, is we as a firm are tracking 18,000 prop tech companies, 18,000 tech companies in this space globally. We have mapped 10 million data points in that space. So we think we have the most robust market and talented platform in the world in this particular domain. But the challenge you see in markethood, that there is so many companies doing similar things, it’s very hard for people to understand who’s in market, who’s doing what, what are the different models, right? So when you talk about flagspace, every REIT needs, you know, needs that. Some, some are trying to build something proprietary in house, whereas, you know, you can just plug in with one of these tech vendors and a lot of them are now also white labeling it. Right. So we see a lot of folks.

Frank Cottle [00:26:15 ]: It’S more like software. You say some people house and some people, you know, I shrink wrapped, and some, some people use outsourced team, you know. So I think that’s definitely. I think that will continue. But I wonder, in your comment about a class a space in the central business districts, we all like it. We all like a nice central business district in a town. It’s got the best restaurants, it’s got the best hotels, it’s got the nicest office. Who’s going to be able to afford to live there? And if you can’t afford to live there, how are you going to get there if you’re not commuting? And if you’re commuting, is that really what people want to do? Even senior executives, 80% of the senior, most senior executives of the Fortune 100 are spending more than two days a week out of the office. So if the bosses don’t like it, how is that going to work for those that aren’t in that position?

Ivo Van Breukelen [00:27:16 ]: No, I think, for example, if you look into transportation, it’s something that I’m also fascinated with. If you look really, from a macro lens, price of energy is trending to zero energy. Infrastructure is extremely expensive. That’s why it’s still kind of expensive. But also there, if you start seeing, you know, how vehicles and transportation is moving, drones, helicopters, you know, how this all is going to change. Also in the upcoming. I don’t know, Frank. You tell me. Ten years, 15 years, maybe faster. I don’t know how quickly that will go. But I think one interesting challenge we see with a number of our clients is effectively the trade off between, let’s say, amenities and ESG. Right. Ties a little bit into what you say. And there it’s the rush to premium for these large corporate players. We see as something that is very important across the line. And we think there will always be demand. But the challenge obviously a lot of these owners have now is these terms are falling, prices are going up for a number of reasons. So then it really ties into your strategy. Right. And one could be product differentiation. Right. Mainly targeting millennials. And another one is heavily amenity driven. So effectively, how do you position that asset and tie that into your go to market sourcing, sourcing your tenants and making sure they are interested to, to state out?

Frank Cottle [00:28:56]: Well, I think that’s right. In my opinion at least, the central business districts will remain vital, but not on the same scale. I’m sure you’ve seen this too, that most renewals of most leases by class A, B and C tenants are at a reduced size range right now. And that’s expected to continue in the great number of leases that are coming up over the next 24 months will confirm that. So if I have, if I’m Microsoft and I’m used to having a class A office in New York City and I have 100,000ft and I renew for 50,000ft, well if there’s five other people like me in the same building, then the building has some issues to deal with. Even though I have gone to quality, I just need less of it. Overall, one day a week out of the office is 20% vacancy factor. Real simple, pretty basic math. So if that’s the case, do you believe that cities will, and buildings, as we’re starting to see and have seen cyclice before in places like London, are going to have to repurpose those buildings 100%. So will it be to higher quality or will it be to residential? How’s that new 300,000 foot, 400,000 foot building going to be repurposed after it’s set half empty for three years, four years? The banks can’t let the assets waste.

Ivo Van Breukelen [00:30:40 ]: This is a very valid question and something where we spend a lot of time. I think first it’s important to point out that there’s a lot of new ones in different markets, right. So the US, I think here, a lot of regulation, for example, it’s much more on the city level than on a federal level, right. So if you look at New York or law 97, right. One of the key drivers here is going to be regulatory policy, tax incentives. So that’s one. Europe is much more, you know, going into the trend of, let’s say carbon tax, right. So you effectively get a penalty if you don’t, if you, if you’re not comply with whatever metrics, those are. So we think there’s going to be a big push from politics, from governments to repurpose a lot of those assets. We see that happening if we see a lot of activity. For example, in Mexico, where you have, you know, if you look in emerging markets, all young people moving to big, big cities, housing affordability is an issue. So you see a lot of office space, small apartments or small studios at scale, but there’s a lot of capex there to do that. So then it’s about how do you do the financing and what is then the trade of amenities, cost, etcetera. But on a large level, we think retrofit is going to pick up. There’s a lot of tech coming into that space already active, but there needs to be incentives from governments to make it compelling.

Frank Cottle [00:32:10 ]: I don’t disagree with that. I wonder if government will have the will to do so. In the United States, we had in the nineties, it’s still around. But the enforcement issues were strong before global warming and climate change. This is the early nineties. Early mid nineties, we had the Clean Air act, and it was supposed to deal with pollution on a whole variety of levels. And there were regulations that were enforced that caused telecommuting and caused different uses of buildings at different densities, et cetera, van pools, carpooling, reduction of cold starts, all these things that impact pollution and therefore climate change. The government in the mid nineties needed to help business grow, and they lost the will to enforce those regulations because the economy was suffering and they felt that they could get rid of that or not enforce it in the same way to help the economy come up. And the economy did come up, whether it was for that reason or not, I don’t know. Government loses the will to do things very quickly, many times based on the economic impact on the peoples, because the people literally vote them out or rebel against them, do something. So it will be interesting to see how this all plays out in the future. It is a future of work issue. How are we going to work, where are we going to work and what are we going to work with? But I don’t know that there’s going to be one solution. There can’t be one solution. Emerging economies versus mature economies, even on a citywide basis. So I just don’t know. You’ve created a whole conundrum of things for us to think about.

Ivo Van Breukelen [00:34:24 ]: I don’t know the answer either. I think I’m actually from the Netherlands originally, so born and raised in Amsterdam, and what you see in western Europe I can speak a bit about it because I lived there most of my life. But what you see there, housing affordability is one of the biggest topics right now because there’s just not enough houses available specifically for Gen Z, millennials, the younger population, and they’re getting a stronger voice in politics and they’re voting there. So we see permitting is challenging, et cetera. Again, there’s a lot of nuance, but I think retrofitting is one of them, as you rightfully pointed out. Yeah, it just won’t.

Frank Cottle [00:35:10 ]: Whether it’s for housing or whether it’s for office thing or production, you can’t have wasting assets. And I think that that’s creative use of those. And every city will be different. Every city will be different. But if we can repurpose, we can redesign the cities to those 15 minutes cities or for large cities, at least 15 minutes neighborhoods, if you will. And I think that’s part of the solution towards housing. And housing will dictate where people work will dictate how people work and where.

Ivo Van Breukelen [00:35:45 ]: I think today, Frank, who came out, I saw an article today, a Allwork.Space insurance company mentioned that they had to increase their insurers premiums for houses by 93%. If you now start looking at what’s happening in California, if you see what’s happening in Florida, this is going to have a material impact on migration, where people are going to buy assets, etcetera. So it’s going to be a very interesting time to see how all these things are going to come together in the upcoming years.

Frank Cottle [00:36:15 ]: Yeah, no, it definitely would. Well, I’m really grateful to you, Ivo, for sharing your thoughts with us today and looking forward to understanding and seeing more of what you do at prop step connection because I’ve been following your data for a while now. You guys are getting it nailed. Honestly, if someone wants to reach you or if someone wants to understand how you bring this data together to make better decisions, how would they reach you?

Ivo Van Breukelen [00:36:41]: First of all, again, thank you so much for having me. And folks can find [email protected] or look at LinkedIn. We’re very active there as well and appreciate the time and sharing some of the insights. Frank.

Frank Cottle [00:36:55 ]: Well, we’re grateful for yours and we’ll look forward to the next time.

Ivo Van Breukelen [00:36:58 ]: Thank you.

Frank Cottle [00:36:59 ]: Take care.