Webcast transcript
Willy Walker: Thank you, Susan, and good afternoon everyone and welcome to another Walker Webcast. I woke up super early yesterday morning to do an interview with Maria Bartiromo on Fox Business and we discussed when people return to the office and start traveling for work and play again. And as I’ve said before, I’m a big believer that culture and creativity happen in the office, and that as soon as it is safe for people to return to the office, they will be required to do so. And I also said that I believe business travel returns quicker than expected due to the competitive landscape. Today we're all on Zoom, and that is how service providers meet their clients’ needs, but as soon as someone can get on a plane and meet face-to-face with their clients, and it increases their chance of maintaining or growing their business, they will do that. And yet I woke up this morning to see a headline that HSBC says it will shrink its global office footprint by 40%, and then I watched the new CEO of Marriott say on CNBC that business travel will lag coming back. I don't buy either of those headlines. The clinical data that was just released on the new J&J vaccine showed that not a single recipient in their trials had to be hospitalized or died. Not one. We will have more vaccine in this country than arms to put it in by mid-summer at current projections.
I love doing Zoom calls from home and not sitting in airports every week, but I think everyone in the business community needs to realize that the United States economy is a service economy. And that services, whether selling software, consulting, banking, or entertainment, happens better in person. And that as soon as your competitors start moving with the vaccine in their arms, so will you. One associated point on this: start booking your summer plans now! I went to REI last weekend here in Denver thinking the store would still be oriented toward skiing and winter activities, and was very surprised to see that there was a line formed around backpack fitting, where people are already getting ready for their backpacks to go hiking when the snow melts in the Rocky Mountains.
The other topic I discussed with Maria was rates. We've clearly seen rates run since the beginning of the new year, and that shouldn't surprise anyone as the equity markets continue to advance in a risk-on investment world. Fed Chairman Powell provided very clear data and testimony yesterday to the Senate Banking Committee and was following that up this morning in front of the House Financial Services Committee. The Fed Chairman was clear that the Fed does not see inflation surpassing its target rate of 2%. But he did make one comment that is really important for people to remember. The current inflation data has Q2 2020 built into it, where the economy essentially went to sleep. So as those data points burn off, the numbers will invariably inflate dramatically, just based on losing such low numbers from last year. The Fed has that phenomenon built into their models and for now does not project inflation or employment reaching their action levels. As they have clearly stated, they need to see both maximum employment and inflation meet their stated levels to take action on short-term rates. So, what's this mean? Cost of debt should stay low; assets should continue to inflate in value; and wages should be slow in recovering to pre-pandemic levels.
So, now let me turn to my two guests. I’m super excited to have them both with me, two of the most influential property technology investors in the country. A quick disclosure before I make introductions, Walker & Dunlop is an investor in Camber Creek. And in addition, to the strategic value to both Walker & Dunlop and Camber Creek that our investment and partnership generates, we're also thrilled that our investment is currently tracking to an IRR north of 80%. So many thanks to Casey and the Camber Creek team for all of their work.
Brendan Wallace is Co-Founder and Managing Partner at Fifth Wall, where he guides the firm’s strategic vision. Prior to starting Fifth Wall, Brendan co-founded and Identified a workforce optimization data and analytics company that raised $33 million in venture funding and was acquired by Workday in 2014. He also co-founded Cabify, the largest ridesharing service in Latin America, and has been an active investor, leading more than 60 angel investments including Bonobos, Dollar Shave Club, Lyft, SpaceX, Clutter, and Philz Coffee. Brendan started his career at Goldman Sachs in the real estate, hospitality, and gaming group before joining The Blackstone Group’s real estate private equity practice. Brendan graduated from Princeton University and received an MBA from Stanford.
Casey Berman is the Founder and Managing Director of Camber Creek. For more than a decade, Casey has helped dozens of companies navigate the proptech landscape, resulting in eight exits to both strategic and financial investors. Camber Creek pioneered the partnership model of aligning with strategic LPs to drive value to operating real estate technology companies. Camber Creek has consistently been an early investor in some of the biggest names in proptech such as Latch, Notarized, VTS, Bowery Valuation, and Measurable. Casey currently serves on a number of portfolio company boards and is a member of the Board of Capital Bank. Prior to Camber Creek, Casey was President of Operations for one of the Washington, DC area's largest privately held real estate development and management companies. Casey graduated from the University of Michigan.
So, if those two bios aren't impressive enough, let's dive into this conversation, gentlemen. First of all, thank you for joining me. Let me start here: We've got CoStar right now in a bidding war for CoreLogic, valuing CoreLogic at $6.9 Billion. We've got Thoma Bravo having just acquired RealPage for just under $10 Billion. And we have Tishman’s Speyer’s SPAC acquiring Latch for essentially an infinity multiple. So before we dive in into the specifics of those actual deals, let's talk for a moment about the pandemic and how it has accelerated technology deployment and acceptance in the built world, and whether you think that these sky-high valuations are due to where we are in the cycle, or whether this is more indicative of where proptech is playing in. So, Brendan, let me start with you on that broad question.
Brendan Wallace: So, I think it's a great question, because I think everywhere you look in the technology ecosystem, you see sky-high valuations. And I think every industry is asking themselves this question, which is when you look at kind of the traditional analog, public and private companies, it appears that the rate at which they are losing enterprise value to kind of tech or tech enabled businesses is accelerating and that COVID has seemed to be an accelerant to that. I think what's happened is the pandemic has kind of done two things, and you brought up almost two distinct points, Willy. One is deployment at the asset level. So, you know Fifth Wall and Camber Creek obviously invest in real estate technology and a big portion of the technology that we invest in is technology that real estate corporates need to deploy at the asset or portfolio level. And I think the imperative for real estate owners feels higher than ever before. In part because real estate owners have had to ask themselves existential questions about their core business in ways that they never did, and technology does offer a way to differentiate yourself. It's a very kind of macro point. I think the second thing that also has happened is that if you look at the REIT index, right? So, if you look at just the public value of real estate companies. It has been losing market share, relative to real estate tech companies for the last decade. And now what we call tech companies today, in some cases are real estate companies. Like we didn't used to call data center companies real estate companies until about eight years ago. So that shift has been accelerating, and I think what you will continue to see, because both Casey and myself, and our two firms are very actively investing in real estate tech, is the enterprise value of many of these businesses that we invest in, has just grown dramatically. Pre-COVID, but under COVID, I would say it's supercharged that growth. It's kind of pulled us forward maybe five years in terms of where we expected to be. So, I guess a long way of saying I think it's a trend that's here to stay. I think that proptech is likely to consume more total enterprise value, year after year for the next few decades. And we think yes, COVID has accelerated it but it didn't really start anything that wasn't already afoot.
Willy Walker: So, Casey, I want to come to you. One quick thing on Brendan’s comment: Andy Florance of CoStar’s a very good friend of mine, and I have stupidly, I guess, tracked CoStar’s performance versus Walker & Dunlop’s performance for quite some time. And I actually just saw CoStar’s numbers this morning and their Q4 actually kind of sits right on top of Walker & Dunlop’s Q4; yet, they're trading at 100 times multiple and Walker & Dunlop's trading 13 times multiple or 14 times multiple. But what is interesting about that is just where investors are perceiving value. Because if you look at Walker & Dunlop’s growth from a revenues and earnings standpoint over the last 10 years, we actually beat CoStar in growth. And so I do think that there's a there's just a completely different paradigm, as it relates to the fixed asset world and the technology world and where investors are, if you will, seeing value and investing in value and I just think it's a very interesting paradigm that anyone who owns commercial real estate needs to keep in mind. I’ll come back to you on that, Brendan, but let me go to Casey for a second on your thoughts on you know, technology and how it's transforming the property world?
Casey Berman: Thanks, Willy, and thanks for hosting this webcast. I think a key point you brought up is like this distinction between services and perceived technology companies. And there's really now this blending, I think you know with Walker & Dunlop with you, you guys are a great example of embracing technology, and you know our collaboration with your team -- with Aaron, with Greg, with Johnny -- it's a great example where a deep partnership can actually drive this adoption of technology within a traditionally very service-oriented business. And ultimately, that drives, you know, great customer experience for you guys, and also great returns for our fund.
So with that, we saw in March right there was this moment in time where the pandemic made it obvious where technology companies went from “nice to have / make it slightly more efficient” to a “need to have.” You know you couldn't transact a mortgage without getting a notarization. And Brendan -- we are both investors in a company called Notarized -- Notarized grew 800% this past year. You know, 2020, between the launching of that partnership with Adobe and the need for everybody to find a digital solution for, you know, historically a face-to-face interaction, people needed to have it. It was no longer an option. And what we see is that continuing through the pandemic and then we'll be the new normal. So, you know there's a number of examples where in the multifamily space, leasing, you know, the traditional way of finding your space, you'd go to the building. You know, another great company in that space we should talk about is Funnel. Funnel takes you from the first touch to signed lease in less than 10 minutes. That type of virtualization, that type of experience, that digital workflow, didn't exist five years ago. You didn't even have that option, and now March came, and you had…that was your only option. So you know, we see this as a -- it was a slow and steady change that just, you know, to Brendan’s point -- compressed down to one month, where you had to have these technologies. Another piece, customers/consumers want options. You know, in a lot of states, you couldn't evict a person from a multifamily apartment. And for the residential owners, they don't want to evict the resident, they just want to get paid their rent and what we saw during this past year was this option, various options. One company in our portfolio is a company called FLEX where they provided a frictionless, software-based credit solution, so that the resident could pay when they wanted across the month, and the landlord gets paid on time. It's companies like that, where it's not necessarily doing things differently, but it's enabling us to continue our business-as-usual during this crazy disruption that we all saw this past year.
So, the exciting thing for us now is the real estate owners get it. There's this embracing now of technology. You know, 10 years ago, the idea of real estate tech even the term proptech wasn't even coined yet. So now it is the right time to be investing in technology, whether you're a service business, whether you are a real estate owner, to make your business more efficient.
Brendan Wallace: I think there's a bit of... people always say this about technology. Meaning, you know the real estate industry as a whole, it’s 13% of the US economy, and it is of any major industry, the lowest spender on IT. I just think back to 2017 when Fifth Wall announced its first fund. We announced a $212 million first fund and the first reaction from Venture investors and real estate companies were like “How are you going to spend all of that money in real estate? I mean is there even enough stuff to invest in?” Right? And if you look at just the charts, you go back to that year, about $3 billion in private funding went into what we now call Real Estate Tech or Prop Tech. Last year $32 billion went into that category and it's accelerating and so I think what is just inherently challenging about tech is that every year this question is asked, and it is almost always asked by the real estate industry. What I agree with Casey on is that it's the first year the real estate industry has kind of settled into the dawn of, like, this new age where tech is no longer a “nice to have you”, you can no longer stick your head in the sand. It is core, it's existential, it is something that you must do, and markets will punish you, and consumers will punish you, and tenants will punish you if you don't. So, it's not a new question, I think it feels more extreme in a Covid environment, but there's nothing new about the question of “is tech too big, are we in a tech bubble?”
Willy Walker: So, Casey, Brendan just talked about the $32 billion number, and outside of that, that's being raised going into Prop Tech, outside of that is SPACs, and since Brendan is currently raising a SPAC I’m going to turn this question just to you and have you comment. Brendan, obviously, if you want, you can, and want to chime in, you certainly can. But, Casey, you just sold Latch to a SPAC, sponsored by Tishman Speyer. Talk for a moment about the thinking between you and the Latch team as it relates to being acquired by a SPAC, rather than just doing an IPO, being sold to a private equity investor rather than going into the public markets right now. Why was going into a SPAC such an attractive alternative?
Casey Berman: Sure, and that's really a great question because every day there's a new SPAC. There's just a lot of SPAC talk in the market right now. So, when executed successfully a SPAC is an excellent complement to the venture capital continuum, you know, it’s a great efficient path to liquidity for a private company. The other challenge, like the contrary challenges to say, if there's too much SPAC money, you know, what does it do to valuations? Is it justifiable? The key is really honing in on the details, you know, underwriting the specific companies. We're not in a situation where every single company is overvalued, or every single company is undervalued. The key is underwriting the company, identifying the governance of the organization, proven business models, and the foundation of customers. You know if you have those three ingredients, there's an incredible case to take that company public. There's a lot of value in the public capital, accelerating the growth of a company like that, and then specifically, with the right partner, and the right vision, there's an amazing opportunity to become the market leader. So, with Latch specifically, one of the key questions you know, you said it in the beginning was this infinite multiple and...
Willy Walker: I’ve been trying to get one of those on Walker & Dunlop for a while and haven’t been able to find it, so show me how you find it...
Casey Berman: Find any elusive and infinite multiple. So, with Latch one of the keys to their business model is they actually book revenue. They sign a contract with a multifamily developer, developer builds the building, and the revenue can't be booked until they actually build the building. They install it and then they recognize the revenue. The key piece with the Latch model is once it's been in place, they can then have this ongoing service revenue. It becomes a SaaS business model. So, you have this upfront cost and then the ongoing SaaS. The opportunity to have that ongoing SaaS revenue and the ability for Latch to expand, not just to access control, but to being an entire Latch operating system is really core of the value proposition. You know for about 10 years as every new multifamily APP launches, it solves one problem. You know, your package. You solve one APP for your package delivery, one APP to pay your rent, one APP for access control. The Latch OS, this concept of having a unified platform, really creates the one-stop-shop for your multifamily resident, and that's the way we're viewing this; that's 2.0. That's Real Estate Tech 2.0 a unified experience. So, coming back to the SPAC, we all think the most important thing is alignment. You know, SPACs got a very bad reputation for being misaligned. The sponsor is going to make money almost no matter what. That first generation of SPACs, and they went out of style for close to over a decade, and what we're seeing now is with some SPACs, they've set it up in such a way, where there is further alignment, where the sponsor isn't going to necessarily make money unless the organization grows or unless the value of that company increases. The way we are guiding and coaching our private companies right now is to be extremely careful with the long-term alignment with both SPAC sponsors, but really any finance situation, and that's where we feel like the Tishman-Latch merger is really a huge advantage.
Willy Walker: So, Brendan, Casey just made a point as it relates to Latch and being in a SaaS model and also basically not being a point solution but being broader. Thoma Bravo just acquired Real Page for just under $10 billion. In the multifamily space, they're really two major providers of property management systems, Yardi and Real Page, and it appears to me that both Camber Creek, as well as Fifth Wall, have invested in a lot of services and applications, that at the end of the day, kind of playing off of what Casey just said, all need to integrate back to PMS systems. Because a point solution to pick up your garbage or open your door or whatever else all has to come back to a PMS system. So, I guess, my question is, while all of these investments seem to stand as interesting plays on a standalone basis, at the end of the day, back to that like, if you will, controlling the user... Doesn't it all come back to PMS systems and accounting systems? And unless you can move Yardi or Real Page out of their incumbency, that everything else just kind of gets wrapped into them, and at the end of the day, if they want to provide that service they can?
Brendan Wallace: I think that's probably a true statement. Meaning, this happens in every category of enterprise software as well. Like PMS systems or your talking about ERP systems for large corporates, and I think what's happened, that you've seen across the technology ecosystem, is that a lot of point solutions emerge. I think what a lot of them do attempt to do and have done, just talking about outside of Real Estate, is they somehow “Trojan Horse” their way into ultimately being an ERP software, for a lot of corporates, which is ultimately the gold mine because it's effectively the nervous system of a company. The equivalent, I would say, like a PMS system in the real estate industry. And so, while I agree there are established incumbent PMS systems today, real estate as an industry is so large that point solutions in and of their own right, if they can just integrate well with PMS’s, can become quite large businesses. But honestly, our belief is that a lot of the established PMS systems are vulnerable. And that, to the extent you build better point solutions on the front end, on the back end, on... There's tons of ways to come at it, which the PMS needs to integrate. There are opportunities to compete candidly long term with the established PMSs.
Willy Walker: So, on that, given that you sold a company to Workday. Explain to me how it is that Workday can take on an SaaP, and an Oracle, and create a company that's worth $60 billion today, or something close to that, and how they did that. And, what you're looking at from an investment standpoint to do the same type of thing in the Prop Tech space.
Brendan Wallace: Well, I can only hope to do what Workday did, in the ERP space; with any one of our portfolio companies in the real estate tech space. Workday is a great example. Like at the beginning, everyone said the same thing. “Oh, they're never going to be able to compete with Oracle and SAP,” like they have the established whether it's OnPrem, or now they're moving to, you know, SaaS-based CRP softwares, those are there too heavy to rip out. No one’s ever going to encroach on it. What Workday did is they largely focused on both HR as kind of a subset and financials. They kind of triangulated in on that and then slowly replaced all of the ERP systems. I think what they've done for many of the corporates that they work with today. And so, it's not to suggest this… real estate is an idiosyncratic industry, it's hard to draw parallels between like Coca Cola and what they're doing and a multifamily operator or hotel operator or a commercial office owner. But I do think the same dynamic is afoot, and I think that a lot of the established systems are honestly not that good. Like they were built a long time ago. They have been updated, but I think if you asked a lot of property managers, and you ask them their opinions of many of the PMS’s that they are compelled to work with today, they're underwhelmed. They are! And because of that, there are solutions. Just take the CRM space. Clearly Casey and I have just invested in. That is a category where you can design something that's more compelling and in so doing capture customers, and over time across portfolios. And the beautiful thing about real estate is that portfolios tend to trade, right? So, it's like if, Coke and Pepsi were kind of trading back and forth Mountain Dew every five years... the way ERP systems could actually navigate through that and have scalable deployment across multiple companies is greater.
You've seen this in actually our mutual investment VTS, right? Like VTS at the beginning kind of had the same dynamic. It was more kind of front-end leasing, but now it's become really standard across the entire commercial office ecosystem. And the process through which it's done that has, in some ways been accelerated by the fact that real estate's a liquid asset class and changes hands, and so, when you have a given standard that's what people use. The flip side of that is that sometimes bad technologies can persist, right? So, when there becomes a business standard, like everyone uses Microsoft excel, which is a, by any standard, a bad spreadsheet technology, but everyone uses it because we can all send each other files. There's a particular company in the real estate space that resembles that. But today, everyone has to use, and we can't really explain it, but the reason we have to use it is because real estate assets trade hands. So, I guess what I’m painting, is that the unique feature of real estate as an asset class where assets trade hands. The same assets between different ownerships which have different technology stacks, can either be an accelerant to change and real disruption of the incumbents. Or, it can kind of preserve legacy businesses for no other reason than switching costs is just too hard in a transactional environment. Where that nets out for EMS systems it's really hard to say but, at the very least, I do think they are more on the former end of that. They are more vulnerable to better solutions that can be deployed even if they're point solutions.
Casey Berman: There's a very similar metaphor to real estate. A multifamily asset that has an amazingly strong community, that has incredibly high retention rates will likely trade at a much higher multiple than an asset that has incredibly low retention rates with bad reviews, and people leaving all the time. So there's this idea of engagement. If you have an incredibly engaged asset, or the residents are incredibly engaged, it's incredible! It is very valuable, you know, that the engagement itself has value to the underlying asset. What we've seen with the companies that in our mind will likely displace some of the old incumbents, it's all-around engagement. So, you know, companies like Latch in the multifamily space provide a way for a resident to engage three, four, or five soon-to-be ten times per day. When you go to a Real Page to pay your rent you know it's once a month. So, if you are engaging with an application every single day, multiple times a day, you start to generate extreme amounts of value and we see that across asset classes. This goes back to the SPAC world, Tishman’s Speyer launched their ZO product back in 2017. They had this tech-forward philosophy of “in the office world if you have more engaged tenants, you're gonna have a better building, you're going to have a more valuable building,” and they built this all in one application for an operating system for office to engage their tenants. It's that forward-thinking, it's that technology forward way of doing business that really drives engagement, drives value and it's very similar in the multifamily space. So this is blending of engagement, both in the physical world but then in the virtual world, we're seeing it now more than ever and that's what's really exciting.
Willy Walker: So, playing off of that comment Brendan what Casey just said, as it relates to client engagement. When I look at where Fifth Wall is investing it seems to be, it's actually a consumer technology venture capital firm that just happens to focus on people who live in the built environment. In the sense, that there's not investments in how to build a building more efficiently or 3D printing or, and I want to talk about that in a moment of Kotera, and why investments like Kotera haven't done that well for people like Softbank; but when I when I think about where both firms are investing it, it seems to be more of we want, we understand the built environment and how people interact with the built environment. And therefore, there's the ability to put consumer technology into the interaction with consumers in the built environment and that's really where Fifth Wall and Camber Creek are focused and less so on, we're going to make your building per se more efficient, or be built more quickly, or manage more efficiently and I know you have investments on both. But talk for a moment about that. Because I think that that's an interesting nuance to where both firms are investing versus just sort of how do you build the built world more efficiently, or better.
Brendan Wallace: Yeah, I’m not sure I totally agree with the characterization, I think that a lot of the companies that Fifth Wall, I think are very visible companies. We've had a lot of companies that have gone on to become unicorns and by virtue of consumer companies tending to grow faster than enterprise companies. That Open Door, Blend, Hippo, States Title, like those are just more high profile right, whereas the built technologies, the VTS’s of the world which are more enterprise and more to your latter comment Willy, probably don't get the same visibility. That's just an inherent feature of consumer businesses.
I think that's right as a as a macro point and maybe I’d link it more to kind of philosophically what we try to do, which is we're trying, we have 65 corporates that have invested real estate owner, operator, developers, that have invested in Fifth Wall’s funds across our $1.4 billion. And what we do is we try to connect those large institutional real estate owners to technologies they wouldn't otherwise see, they wouldn't otherwise engage with. Now most real estate tech companies that have a pulse today have some kind of technology strategy. right. It's just hard to imagine anyone not having that. Now keep in mind 2016 that wasn't the case. But real estate companies are pitched all the time by technology businesses typically definitionally, enterprise software companies that are selling technology into real estate owners trying to sell them something. So, it's not really for lack of seeing that.
So, when you ask the question why is, why does it look more consumer it's partially because they don't see any of the consumer stuff. And I’ll just give an example from our Fund 1. So, Fifth Wall, we led the Series-C of Open Door. Open Door is really a consumer business right, it is basically a CarMax for homes. When we invested in that business, we partnered them up with Lennar which at the time was the second largest home builder in the US. We structured this broad partnership, where you could effectively buy a Lennar home with an embedded put right to Open Door that massively accelerated Open Doors volume, kind of enabled Lennar to retain their customers. But at the time, Lennar wasn't even looking at the category. They weren't looking at iBuying, it wasn't something they were focused on and that's because it's consumer. So, enterprises tend to miss on consumer a lot more, and they tend to miss what consumers are doing and how they're engaging with technology. And that same insight, just using that same example, is really what inspired honestly, a lot of our successful investments like Hippo. Which is effectively digital home insurance that was also something that the home builders were not focused on. They thought the insurance solution they had, which is consumer product, was certainly good enough. And just to be clear, the insurance product they had was like an analog insurance product sold through agencies with traditional carriers. The same thing ended up being true in title insurance. Casey and I both invested in Notarized. There was no, there was absolutely no homebuilders that were saying we really need to reinvent the notarization process. That is a huge friction for our business; they weren't saying that. What they were focused on is what you were asking Willy which is like, how do I build homes cheaper. How do I actually build homes cheaper. How do I reduce my HR costs. How do I reduce my Labor costs. How do I reduce my materials purchasing. That's very obvious because it's more acute to them. So I think one of the things that's always hard for corporates to do in any industry, but real estate specifically, is get exposed to how consumers are likely to engage with technology and by virtue of that engagement, what are the opportunities for them to invest in more consumer facing technology that can actually have strategic value to them at an enterprise level. That's kind of the inflection that's very hard for them to do on their own.
Willy Walker: So, Casey jumping behind that on Bowery because.
Casey Berman: that's a great example.
Willy Walker: Go on, there.
Casey Berman: The way we think about is all around the consumer. And the consumer varies with each company, so, in some cases, and Bowery in the automated appraisal space, in general, there's really two consumers. In a lot of the deals that both Brendan and I do there's this element of a B2B and then a B2B2C. And the key around that is to put yourself in the shoes of the consumer and oftentimes you have both the enterprise, the organization, who consumes the product. So, Bowery they automate the appraisal companies, you know I want to put out there, the appraisal business is just so old fashion. Most of the time it's a clipboard and a person talking about the flooring, the wallpaper, and then they spend a couple of hours writing up this 100-page document. It's wide open, it's a huge industry massive fragmentation. And you know as I’m sure most of the people on the webcast know Walker & Dunlop has a partnership with Geophy for the Apprise solution. In our mind there's this massive opportunity we need Bowery, we need Apprise to become the two largest organizations in the appraisal industry. Right, that's a huge win for our business. For real estate, in general, we need more objective appraisals faster. More done more efficiently, and the reason why I say it that way is the consumer to some degree, is Walker & Dunlop and other groups who are underwriting and working to place debt. Those groups need an appraisal and they need it fast and it needs to be objective. Additionally, we take it one step further, the actual owners need that loan and they need the appraisal done. So, there's this B2B, there's the Apprise working with Walker & Dunlop, there's Bowery working with banks, and then they actually then sell the appraisal to the end consumer.
So, the key to this whole mix is putting yourself in the shoes of the consumer oftentimes it's the B2B in that case, adding efficiency, reducing the amount of time, saving the amount of labor, and then taking it to the next step and saying you know who is the actual end customer. And making sure that that end customer sees that benefit. Doesn't have to pay as much, gets it done faster and, most importantly, in the case of you know Bowery and Apprise they get their loan sooner. The sooner I can refinance a construction loan and put permanent financing in place the happier all my investors are and, at the end of the day, that's the key.
So, this focus on the customer is a major piece of how we analyze each deal and like how we put ourselves in the shoes. Because I started in the real estate space, actually operating buildings refinancing, putting debt onto physical apartments. Myself, my partners, that experience allows us to empathize with the actual investors in our fund and say you know if I needed to do this more efficiently, would I actually switch. You know, it seems like a good idea, this technology seems very efficient. But is it efficient enough, is there enough of a difference in the amount of time and the cost for me to make that change? Real estate has a ton of inertia. It was historically location, location, location and people made a lot of money. Now there is this recognition that there is just such a big difference, by implementing these technology solutions that it's worth making the change.
Brendan Wallace: Can I double click on that? I think that point about understanding the customers is really the key one. Real estate corporates all the time think that they can understand their customers really well but consistently they always seem to fail to win in those categories right. So just take co-working as a concept, Co-working has been around forever. It's nothing new, right? What WeWork did was like having cool design space, and you know, having free coffee and beer and densifying and kind of you know, getting additional yield in a co-working model. There is nothing really compelling about that. Take every major commercial real estate office owner that basically spun up their own WeWork, they did so, certainly in the last five years. None of them have had any traction or any scale and they've been very, very limited in what they've been able to do. You probably saw just the other day CBRE just invested in Industrious. That is the kind of product they could absolutely have built. And by the way, it's not germane just to the office industry, going back to what I was talking about in homebuilding. It's not that it took a rocket scientist to figure out that there's a better way for consumers to get insurance, or title insurance, or notarizations, or a mortgage, or sell their home. But for some reason the corporates, even though they are customer centric in their philosophy and corporate ethos they're not capable of that. And so, I think what is the really hard edge is Silicon Valley and the venture ecosystem is basically billions, now hundreds of billions of dollars, of free R&D about what consumers want and how to reduce friction from their lives. In transactions, and living their lives, and what they're buying and selling, and what they're doing. And I do think we are at this moment in time, and it speaks to actually the first question you brought up Willy where corporates are no longer the best of understanding, their customers. Holistically the venture ecosystem and the innovation economy is better. There are failures and there are successes, but all of the innovations seem to come out of new companies not established companies.
And so we are in the midst, I think, right now, of a inflection point where the real estate industry, which has always been a do it yourself industry that is what the industry is based on right. We own buildings, they are inherently monopolistic. They are based in place. We have captive tenants. That actually those same companies are not the best at understanding their tenants, the innovation economy is. And so, so much of what I think the questions you’ve been asking really are kind of an exploration of is like, how do real estate owners embrace and engage with that innovation economy? To understand how consumers, how tenants, how customer, how customer behavior is shifting. Because doing it yourself, is no longer a viable model, or at least a cost-effective model if you really want to engage. If you think about all of the transformative. New technologies or new businesses that have been created in the real estate tech world how many have been created by incumbents.
Casey Berman: I mean, I think that's a great point, and you know Walker & Dunlop illustrated that. The acquisition of Enodo is a perfect illustration. You guys are the incumbent, you have an amazingly large business and Enodo was this incredibly small extremely efficient workflow tool. It enables you guys to instead of taking hours to underwrite a deal, take minutes, you know acquisitions like that, that's the key to the whole system.
Willy Walker: Yeah and I appreciate that Casey but I want to have both of you expand a little bit on what Brendan just talked about, because I think it's a fascinating concept.
We've all heard about Microsoft almost being sold to IBM and Facebook almost being sold at certain times. And all these big tech companies that went to some of the incumbent companies that were in the tech space and said oh great, I am an [addin], just like Casey we're just talking about Enodo coming into Walker & Dunlop. But in the real estate space given where it is location, location, location backing up to what Casey just said and nobody owns truly a national footprint. There are plenty of operators who have offered… you know Boston Properties has office buildings all over the major coastal cities, and there are clearly multifamily operators who may have an asset in every state. But nobody really has everything covered. So in the analogy of finding partners the ability to take your technologies and implement them into partnerships. You just talked about the Lennar Open Door partnership that you all created Brendan how that was wildly accretive for both companies.
Can the old way that technology got sold be replicated in the real estate world? Or actually is it a totally different model where there is limited benefit from having these big strategic partners, given that the footprints are limited. And that you actually have to just sit there and wait for a technology like Latch to get to a certain size and then just go public and have everyone buy it or not buy it, but having Latch… Let's just say that Latch was installed in every EQR property would that have made the valuation be any higher if it had been installed in every EQR property when it went public.
Casey Berman: Yeah, I mean and that's a really great point and the whole perception that one strategic partner can move the needle and make a company succeed, I think that just doesn't make any sense in the real estate space. It is fragmented to your point Willy. There isn't just this monopolistic you know, IBM, who has all of the computing power at one time. The key piece around how adoption in the real estate tech world happens, there's just a massively long tail. You know, there are big names, there are big brands that drive you know logos on websites. Brookfield and Latch. Brookfield announced that every new project was going to have a Latch lock. That's an amazing endorsement that helps with sales; that's not what makes the company. You know what makes the company, what really creates the value, the enterprise value for the whole organization is this massively long tail of family offices, of private equity groups, of pension back real estate sponsors, that slowly but surely adopt these solutions, and then they become the norm and the expectation of the consumer. So by having the concept of having these built in networks, both you know Fifth Wall and Camber Creek were built on. By having these built in networks we massively accelerate from the start to that consumer, that full adoption. That's the key. You can't make one single company make a company win. That doesn't exist. It's this long tail of adoption accelerating the growth of a company.
Willy Walker: Brendan, let me turn to you on that one.
Brendan Wallace: Yeah, it's a unique feature of the real estate industry, it's a long tail industry. So, you look at like the tri-state area, you’re talking about billions of square feet. And if you took Brookfield and Blackstone in New York, let's say maybe 100 million square feet, it's like a small percentage of the total. The biggest names. And so this was always I think a core challenge the real estate industry has struggled with. When we started Fifth Wall you know, we kind of pioneered this model of like, hey we can bring in multiple corporates across different asset classes, different geographies, and by virtue of having those corporates we're going to cross fertilize ideas and do more distribution. And what's happened is like that has I think become a better model and I’m just going to keep because I kind of brought it up earlier go back to home building.
Fifth Wall’s Fund 1, we had a $212 million Fund 1, we had one home builder, Lennar, second largest home builder. Our Fund 2 has Lennar, DR Horton, Pulte, and Toll Brothers so that's one, two, three and five. The one, two, three and five largest home builders in the US. Together they represent 20% of all new homes built. So, for any new technology that depends on distribution to the home building sector we're certainly the largest. Were larger than any one of them on their own. And the other dynamic that we haven't really talked about is it's not that getting these partnerships done are easy or happen swiftly. Large real estate corporations are slow to adopt technology. And so, one way to mitigate that, for a portfolio company, is to connect them and engage in partnerships with many different corporates in the same sector, at the same time, and just by virtue of law of large numbers, it tends to kind of… it tends to snowball which is kind of what Casey was mentioning.
So I think over time what's fascinating about the real estate industry is that granularity, because I think it presents some real challenges to corporates doing venture on their own, which I think, have played out over the last five years. At the same time, the imperative to adopt technologies higher than ever before. So that puts a lot of real estate owners in a very difficult position. Our need, our imperative to adopt technology is higher than it's ever been, it's critical to our business, but our ability to do it ourselves is just inherently challenging because of the real estate industry specifically and, by the way, Willy I think this goes in addition to all of the challenges of corporate venture, right. I’m sure Casey would say the same thing. Like the investors that work on our teams are not working at large corporates doing venture capital investing and, if you think about two industries, you know think about the real estate industry, it's generally a debt and equity financed, generally low IP, medium human capital business, and when you think about technology and venture you're talking about all equity financed, non-cash flowing, all IP, all human capital business. So the capacity to underwrite a commercial real estate building, and your ability to be great at doing that, is almost, it has no causal correlation to your ability to underwrite great tech companies. And honestly you don't have to look very far into the corporate venture ecosystem of real estate to see this. You brought up Kotera. Who invested in Kotera? It's like every big real estate company that didn't know any better. So, there's inherently a challenge there. Look, I think in different ways, the whole venture ecosystem is reacting to that. Which is to state the obvious, real estate technology is going to become the largest category of venture capital for no other reason than real estate is the largest industry in the United States and technology is colliding with every industry. So how does a real estate owner then therefore engage with that growth, with the enterprise value creation, with that innovation, and I think there are just better ways and we're all kind of exploring the contours of that right now right.
Willy Walker: Right. So I want to be mindful of time because I got 1000 things I want to ask the two of you my remaining 11 minutes. So Casey single family and multifamily are kind of converging in the SFR BFR space and it's kind of, it's very interesting for me to watch this happen because Walker & Dunlop has never played on the single family side and yet SFR is sort of pulling us more towards single and you have this convergence of the two industries. How is Camber Creek viewing that convergence of the two and where are there opportunities from a prop tech standpoint, for you all to make investments?
Casey Berman: Yeah that's a great question and very observant. I mean every conversation we have with our institutional investors, at some point the SFR market comes up. And the question is still relatively early, there was that first iteration coming out of the great recession 2008 where the single-family rental space became a category. We were an early investor in TaskEasy. They were the landscaping company for the single-family rental space and they automated the connecting of landscapers with the actual customers at scale, you know how do you mow 40,000 homes. I actually think the first time I met Brad was when he was at Invitation Homes. We connected Brad to the team at TaskEasy. So that was you know, the first iteration of this webcast was with Brendan’s partner, probably, five, six years ago. We now are seeing that second iteration where there's a whole generation Gen Z and the millennial generation moving out of the city. The pandemic was a forcing mechanism that they're no longer such a high demand in the city, it might come back, but it doesn't actually really matter. Right now there is this migration from the city to the suburbs, which we haven't seen for the past 15 years and there's this massive opportunity for institutional holders of single-family and townhouses for rent to capitalize and provide an option, where a down payment or other traditional ways of living in the suburbs and having a single-family home aren't possible. So, we view and we've actually separated the single-family rental space into three buckets: the first is around the actual transaction -- buying, selling, and financing the operations, the transaction itself. The second bucket is around the actual management, you know, multifamily, office, and retail owners know that concentration is extremely valuable for property management. When you have a single-family home in Washington, DC and you have one in LA, it is very hard to be a property manager for those two. You can't just go fix something at one, if you're fixing it at the other. So there is a logistical challenge just physically based on location. Camber Creek recently made an investment in a company called Darwin, they’re a leading property management as a service company. And then the third bucket is really around the consumer. We have a strong thesis around this experience for the consumer, in the office space, in the multifamily space and now in this single-family rental. It's somewhere between a hospitality experience and a multifamily experience and the key in the space, the investors, the equity, it isn't a defined path. With multifamily there are the equity players, there are the debt providers, there are the leaders in the industry, it’s a known commodity. In the single-family rental space groups are still trying to determine do they want to buy the actual assets, place the debt and then hire third-party manager. Do they want to be the manager? Do they want to invest in a fund that is the manager and the owner? It's still such a new industry that the vehicles for the actual investment, the technology to actually manage once you own the assets, and who is going to actually manage them, it's still being worked out. So the exciting thing for us is when there is still this unknown when things aren't so set it gives an amazing opportunity for technology to come in at the ground floor.
You know with multifamily there is this perception, this is how multifamily is done. This is a building that is really good for Fannie Freddie debt. This is a really good project for HUD financing. There's like a known expectation for how things should be done, and it is harder, there's more inertia in that category, than an industry like the single-family rental space where it’s brand new, where it's all still being defined.
Willy Walker: Don’t knock that inertia in the multifamily space too hard there Casey, some of us benefit from it. Let me, let me jump to Brendan for two seconds here on the environment. So 40% of global CO2 emissions come from the built world and I know that Fifth Wall has an investment in Lime, which is you know, a transportation company to allow people to get around the city centers more quickly and sort of on what Casey just said, at some point, people are going to come back to the cities. But from a technology standpoint CO2 emissions are a very significant issue as it relates to both ESG investing as well as many of these big, monolithic, slow to move corporate real estate companies that both of you have been commenting on, and are our clients, are very focused on this. What are you seeing from a technological innovation standpoint Brendan as far as investment opportunities to help people deal with this issue.
Brendan Wallace: Yeah, so I don't know how to answer that in two minutes so maybe I’ll just talk about how big this tailwind is. So I was just talking before, the real estate is 13% of the US economy. You know percent the real estate industry is, I think you just said it of CO2 emissions 30%. So, the real estate industry is 30% of CO2 emissions, 30% of all energy consumption, 30% of all raw materials in the world. So the real estate industry is the single biggest climate culprit and candidly from a public policy perspective, it is kind of been hiding in plain sight. In the US, at least we just got out of probably the most environmentally regressive administration we've had, certainly in recent memory, certainly, since the Paris or Kyoto accords. The US just reentered Paris. So we did an estimate of what the new fines associated with the Paris Agreement will imply for New York City landlords, it’s $10 billion dollars a year. $10 billion dollars a year. Throw a New York City CAP rate on that whatever you think it is now that's how much value is about to get destroyed in New York City alone. So what is about to happen, I think, is that from we now called climate tech it's kind of taken a few veils it was like green tech 1.0., clean tech 2.0, now it's called climate tech it's all the same stuff. It's stuff to decarbonize industries. In the real estate industry there has been a significant under investment into these technologies, but it is estimated that it will cost today about $15 trillion dollars to decarbonize the economy. It's estimated that about $5 trillion of that is the investment that's required to decarbonize the real estate industry. Take a guess of how much the real estate industry has invested into decarbonization technologies over the last decade.
Willy Walker: A billion bucks.
Brendan Wallace: $100 million dollars. Actually under, it's about $96 million dollars. So we’re $96 million towards spending $5 trillion to decarbonize the industry. So, this is actually… I love prop tech and Fifth Wall started in prop tech, and we have all of our corporate LP is from prop tech, and obviously we've kind of in some ways institutionalized that category. But I think what is going to become increasingly clear is that investing in prop tech, is no longer sufficient. Real estate owners are definitionally going to become the single biggest spenders in the US economy on climate tech. They are going to be spending trillions of dollars on it, and most of them have no plan, or almost no plan. So, in the same way when I think about 2016, and this is a way to put a bow and kind of the whole conversation.
I think about 2016 and where the real estate tech industry was and kind of this this age of enlightenment, this awakening that real estate owners had that tech was becoming core to their business, that's really exciting. And in that time, probably $50 billion has gone into the category and firms like Fifth Wall and Camber Creek have kind of grown up in that environment. $32 billion dollars in the next decade, probably decade and a half, we're going to have to spend $5 trillion dollars on decarbonizing just the real estate industry. Where are the firm's doing that? So the scale and the order of magnitude of this problem in comparison to everything we've talked about enterprise and consumer on the tech side, it dwarfs it. Absolutely dwarfs it. So I could talk for two hours about all the technologies, and the materials tech side, the building system side, on the alt energy side, that I think are really compelling. But for anyone who's in the real estate industry who's listening to this, this is an existential tidal wave that is coming for the real estate industry. That you know I’m relatively early in my career, but it is shocking to me how unprepared real estate owners are for how much they're going to have to spend on this and how there is today in most organizations almost no plan. So it's an exciting time, we want to help.
Willy Walker: Yeah, that was a fantastic kind of just do a great degree on a very big issue and a big opportunity for you really great summary comments there.
Casey back to you and then I’m going to I’m going to close it out, because we're at the bottom of the hour. Any last thoughts from you as it relates to opportunities going forward?
Casey Berman: Yeah I mean, I agree with what Brendan said in terms of just how biggest environmental risk is, we absolutely think it is a massive problem, it's a generational problem. The way we think about it within our firm, we can think about how big the problem is, let's take some action. What's the next step, what can we do as an industry. You know, and the first thing, whether it be ESG, diversity, whatever it is, the first step is measuring it. Everything comes down to, first we measure it, then we benchmark it, and then we improve. That's really across everything with technology, with ESG, I have to throw a shout out to Measurable. I think they were the leader in the space of about 10 billion square feet on their platform measuring the environmental impact of 10 billion square feet of real estate. You know that is a massive amount of real estate and to Brendan’s point is just the start, you know to be able to track, measure, benchmark and then create change we all need that so you know, at the end of the day, we're all in this together. We got to make things change.
Willy Walker: Great. I’m super appreciative of both of you spending an hour with me. I got three more pages and notes to get through, so I might call you both back and just have one on one conversations with the three of us come together.
My final thing is Brendan, Fifth Wall’s invested in a couple consumer brands like Cotopaxi and Carbon38 and Allbirds. I was going to ask you about that, but since I couldn't if you just send me one free Cotopaxi jacket and a Carbon38 and Allbirds it would be really helpful. I thought I’d get that out of the out of this conversation. In all seriousness…
Brendan Wallace: We’ll send them all your way. By the way, what's crazy is the amount of things to talk about, that's our retail fund and we didn't even talk about retail and E commerce disruption in in an hour, which just speaks to how much there is going on in this category.
Willy Walker: Exactly right, exactly right. So to everyone who joined us today, thank you for joining us. Casey thank you. Brendan thank you. Great to see both of you really appreciate you spending an hour with me. We'll be back next week with another Walker Webcast. I hope everyone has a great day and a great week take care. Thanks guys.
