Biggest pain-points/bottlenecks in development
Hey all - currently working at MF REPE and we see a lot of proptech pitches. Most of them are a "nice to have" solution - something along the lines of "we take your reporting and digitalize it so it's easy to see." From my view, the burden or switching costs are too high to actually use one of these. I think from an LP perspective, there's a limited amount of real problems there to solve or people are just too stuck in their ways.
For those on the real estate development side, any bottlenecks or painpoints that you deal with on an everyday basis - have you seen any pitches that have been game-changers? Really excited about real estate entrepreneurship and would love to leverage my background to build something but maybe I just have blinders on in my day job, so I can't spot the inefficiencies that exist on a daily basis.
Are you looking for bottlenecks in development or or development technology?
Development bottlenecks are municipal approvals and cost uncertainty/inflation. If you can make tech explain to cities that their tax revenue will go up and they'll be able to afford the city projects they want with more development, or explain to material vendors that if they're just a bit less greedy they can actually make more money through deals actually getting done, by all means, but that seems unlikely.
Development tech bottlenecks are mostly that real estate technology always feels 10 years behind the rest of the world, is hilariously overpriced and always a SaaS model that doesn't fit the industry (projects are financed and capitalized independently, so the parent company is even less incentivized to sign these massive overhead subscription contracts), and usually are just data visualization tools.
I swear every other proptech startup's pricing model is "what does CoStar cost"
Couldn’t agree with this more. Nearly zero percent of my frustrations through the development of a project have anything to do with technology. On the flip side, almost every technology solution I’ve received proposals from or interviewed are only solving some small part of the process that isn’t very frustrating in the first place, and to your point, typically is a subscription model which we would have to find a way to charge proportionally to each of our deals, some of which may be delayed, never happen, etc. Just doesn’t work well for the typical real estate development office.
I’m all for increasing technology in the way we work, just find a way to make it work for developers. If you’re pitching to a massive national development platform like Greystar, maybe it’s a different story, but 90% of developers can’t pay big overhead subscriptions for a limited number of deals, whose returns come years in the future.
Have you come across a guy on LinkedIn named Mitch Hale? He's in Australia and developed an AI-powered development tool that can basically spit out a feasibility & development concept for a potential site in seconds. The tool supposedly uses 1,000's of prior projects as a basis.
It's an interesting concept and I flirted with a similar idea months before seeing his capability. But at the end of the day, I've wondered how applicable that would be to the US, and if it would expedite any part of the dev process. I feel like successful developers have specific knowledge about their local area and can ballpark estimate # of units, costs, etc. Would having an AI-concept tool that can provide a sense of what's feasible, actually help close a deal sooner? Have you lost deals because you couldn't get a concept plan early enough?
I am unfamiliar with that person but do follow someone here in the states with a similar tool. IMO it actually would be incredibly helpful for an initial site plan, but I’m not sure how effective as a single product business it is.
I have never lost a deal because of not being able to throw together a site plan in time because you rarely need that level of detail to go forward. Estimates will tell you if a deal will work or not at a conceptual level and by the time you find out that you can’t get the zoning you need approved or discover some $5M environmental problem that destroys the pro forma, you’re already further along.
The main problem though is that by keeping a stable of architectural firms well fed and in rotation, they will usually do a site plan for you for free. Does it take 3-5 days instead of 3-5 minutes like this program? Sure. But why would I pay anything if I can get a site plan for free as long as I don’t wait until the literal last second?
Not a specifically-RE thing, but highly relevant to RE. There should be some equivalent to Git/Github for use in drafting and negotiating contracts and other legal docs. The way everyone does it now is that one side generates a draft as a Word doc and emails it to the other side, and then different versions bounce back and forth with comments added and then deleted and changes tracked and then accepted. The more people that are involved on each side, the more of pain it is to keep track of which version is the latest one and to merge edits from different versions. It seems like a massive no-brainer that the legal profession should be using version control software for this stuff, but I guess that the situation is hopeless since many of the skilled attorneys are older and not particularly tech-savvy.
I think about this all the time. I work in brokerage and the redlined word doc proposals back and forth are brutal/often lead to confusion. And to your last point about attorneys being older and not particularly tech-savvy - this definitely applies for RE too. The people I work with have been using word docs for negotiating contracts for 20+ years. Some of the people in my office even started with WordPerfect (before Word) and used Lotus (the IBM predecessor to Excel). I can't imagine how painful it would be to get these people to switch to a new platform. I think the only way it would be possible is if Microsoft themselves added a Git/version control feature for Word. Microsoft owns Github, I bet it wouldn't even be that difficult for them to do this.
Honestly, the only proptech subscription we pay for that I feel is worth it is Procore. Especially on major projects with constant change orders and people modifying the designs while under construction. Obviously, not ideal circumstances but they happen. Good luck figuring out which drawing is most up to date without Procore in these circumstances.
Some software like Procore is definitely necessary, but IMO Procore itself is sort of a ripoff. Extremely expensive, but everyone uses it because it's what everyone uses.
It’s hasn’t been my money we’ve been spending so I can’t really comment on relative value but I think on a 9 figure project this kind of thing is a drop in the bucket. Maybe there’s other more cost effective alternatives out there but I went from a world of doing big projects without CM software to this and it’s been a game changer.
The biggest bottlenecks are always to do with people. Convincing others that your project is in their best interest, or not a threat, or more worthy of their attention than a competing project.
Proptech is useless except in edge cases. It feels like most tech "solutions" these days are people creating useless nonsense in the hopes of getting bought out for a huge sum. They are solutions in search of problems. The idea isn't to do something better or more effectively, it's to get users so a VC firm will give a huge capital infusion or buyout the company.
You don’t want AI to summarize the property tax policies and zoning rules of County XYZ? No guarantee that it will actually read the right county site, or distinguish sales and property taxes, or know anything about the actual zoning lol.
If I could trust it, yes. I'd want it to underwrite deals too. But we seem to be a long way from any of that. The tech world is endlessly disappointing.
The zoning stuff makes sense but if you had something like this how often would you use it and how much would it really be worth? Maybe you could sell it to the big developers but do the smaller/mid-market guys who might only be working on one project at a time need to use something liek this enough to pay for it on a recurring basis, vs. it being a one-off transaction?
The SaaS subscription model is the killer for a lot of these things. I can't tell you how many times I've went through one of these pitches only to tell them their product is extremely expensive. It's not $200/mo for one of my properties, it's $48,000 total ($200/mo x 12 divided by a 5% cap). And almost always, the problem they are looking to solve is not worth anywhere close to $50,000. I could buy a very nice industrial fridge system for grocery deliveries for under $10K, versus having to pay your monthly subscription that is "only" $200/mo. And yeah it doesn't have the tech veneer of your product, but nobody is basing their decision to rent at one of my properties because my fridge for grocery deliveries doesn't have a cool screen and a notification system.
Too many of these proptech companies are consumer facing. They ask the question - "what would be good for the renter" - and then go into pitches with property owners saying that it will help with leasing or tenant retention. Which, maybe? But it's really hard to quantify those things. And when you do some quick BOE math on the ding to your end valuation, you just can't justify it.
That's an interesting perspective - capping the subscription cost. Good way to look at it
Is there any other way to look at it? As a developer you're determining your final value (for distribution or refi, it doesn't matter) as some capped NOI number. Any additional OpEx necessarily reduces your NOI unless you can increase revenue, which is really hard to prove out.
Question for those that are in development. A few years ago I went to a construction site for a new condo building. They had a few cameras set up that were essentially livestreaming the construction progress (I believe so ownership could keep a pulse on things)?
Do you actually find value in this/do you do this? I thought it was an interesting idea but never heard much about it since.
Funny you should ask that, as I have been dealing with one of these that has been on the fritz for a while now. Huge pain in my ass as we have an active project and we do find a lot of value in these as its a ~1 drive from our office, so we like to have eyes on it.
The company I'm dealing with sucks (poor customer service) so this is an area that could be improved upon. I do know however there are a few other competitors the one we use, and we might be switching in the near future if they can't figure their shit out.
Interesting, thanks for sharing
No. It is usually just an insurance requirement.
If I want pretty updates I take a look at the overhead drone shots before sending them to the LP investors for monthly reporting. Actual site visits are about details, which I can’t catch on live streams.
Gotcha - that makes sense. So you typically have a company/person that does overhead drone shots of the construction progress? Roughly, how much does this cost?
Interesting little niche. Wonder how profitable it is.
It can be useful to confirm stuff from your desk (did they actually pour the deck, etc.) but it's usually there for insurance. I wouldn't include it on my projects unless required or had high maintenance LPs that would be awed by it.
There really aren't a ton of bottlenecks i've seen. the real ones are to do with approval processes from the city, delays with construction or issues with funding. More software doesn't really help these issues.
The last firm I was with, we were entertaining the Northspyre software. We didn't end up going with it because the cost didn't justify the returned value. It did offer a good way to organize all of our project data, but it seemed like overkill or cheaper to use another software, one not specifically for RE. Keep in mind we already had software costs for accounting, investor reporting and construction management. northspyre had some integrations and overlap with those but i don't know we could actually eliminate the need of them
Have never used Northspyre, but heard good things about it from another developer who does.
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