Seeking an Edge, Developers and Investors Turn to ‘Proptech’

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When executives at Rudin Management Company started looking for an operating system in 2009 to help them manage their building portfolio, the market for property technology was still in its infancy, and they came up empty-handed.

A decade later, “proptech” is a hot buzzword in commercial real estate, as developers and investors seek an edge in buying, selling and managing their properties. The swelling market has attracted venture capitalists, who invested a record $12 billion in proptech start-ups globally in 2017, according to a report from RE:Tech, a tech research marketing agency.

And Rudin, a 94-year-old, family-run company, is now at the forefront of this booming tech sector.

The move into proptech grew out of necessity for Rudin, said Michael Rudin, a senior vice president at the company, which owns and operates 16 office buildings and 18 apartment buildings in New York.

The company wanted an operating system that functioned like that of a smartphone. “We had a lot of technology in our buildings, but no interoperability between the various systems,” Mr. Rudin said. “We wanted those various silos to be able to communicate with each other and share data.”

No such product existed. So Rudin spun off a company to develop a system, called Nantum, which captures real-time data on metrics like building occupancy, water usage and office temperatures.

Nantum now runs across most of Rudin’s portfolio, and has enabled the company to reduce electric consumption by 40 percent and steam consumption by 47 percent.

“Our building operators know down to the minute when they need to start up a building in the morning, and when they can start ramping it down,” Mr. Rudin said.

Prescriptive Data, a Rudin subsidiary, is marketing Nantum to other property owners. It is so far in 12 different real estate portfolios, totaling 25 million square feet, in four states.

New York, where Rudin is based, has become a global hub for proptech. Venture capital investments in real estate technology in New York rose by 133 percent last year, totaling more than $2 billion, according to data provided by CREtech, a media and research organization. Most of the capital has so far been plowed into ventures on the residential side, but the commercial sector is heating up.

Established industry players are actively trying to keep up, said Tomasz Piskorskian associate professor of real estate at Columbia Business School who teaches a course in proptech. “One way is to buy solutions to improve efficiency,” he said. “Another is to develop solutions themselves in-house, or set up venture capital funds within the company that will co-invest in solutions.

Rudin has followed all three strategies. Its success with Nantum has led the company to invest in outside proptech start-ups, including one called Enertiv.

Housed on the top floor of an office building in New York’s garment district, Enertiv builds smarter platforms to help run the physical systems in commercial buildings, said Connell McGillthe company’s chief executive.

To help managers reduce operating expenses, for instance, Enertiv can install sensors to track the performance of elevators, boilers and other equipment. One Enertiv product provides panoramic digital replicas of equipment rooms; selecting any piece of machinery provides details like real-time sensor data and maintenance history. The system can even assign performance ratings to each piece of equipment, and make maintenance recommendations, based on a growing database of more than four billion hours of performance data.

That data provides greater visibility into equipment operation, helping to identify problems before a breakdown. “We’ve been chipping away at equipment-level transparency,” Mr. McGill said.

Blueprint Power, another New York-based start-up focused on building efficiency, helps owners wring new revenue from their portfolios. The firm was established after deregulation in the energy markets allowed building owners with their own renewable generation capacity to essentially become power plants.

Blueprint’s system helps owners manage their energy assets across their portfolio and sell their surplus power, said Robyn Beavers, the company’s chief executive.

“We are bringing this automation and data-driven behavior to the grid in a way that hasn’t happened before,” Ms. Beavers said. “We manage and monetize.”

Scheduled to be introduced this year, Blueprint was spun out of Lennar Corporation, the country’s largest homebuilder, where Ms. Beavers had been advising the company on venture investments in real estate tech. She said New York’s reputation as the “real estate capital of the world” made the city the obvious place to begin operations. The decision was bolstered by New York State’s clean energy standard, which mandates that half of the state’s electricity come from renewables by 2030.

The city’s proptech scene is increasingly dynamic, she said, citing the diversity of companies, and growing interest from large real estate companies to find creative ways to form partnerships with young start-ups.

“It’s a fun, collaborative environment with a lot of iterations,” Ms. Beavers said. “It’s a very optimistic time.”

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