The Commercial Real Estate Operating System

We are now One Step Closer thanks to VTS

In my very first article  I discussed the need for an Operating System for commercial real estate.  Here is one of the quotes regarding who I thought would be first to market:  “There is also an opening for big brokerages (JLL, CBRE, Cushman Wakefield, Avison Young, Colliers…), or a company which carries leverage in the industry like CoStar, VTS, or Yardi to provide an offering or buy up the component parts required.”  While Costar has been on an acquisition tear, this week saw a big announcement from a different company that brings a commercial real estate OS closer to reality. VTS announced that they had acquired Rise Buildings for approximately $100M.  I can only assume that similar deals of this nature will follow shortly, but I believe that the industry will look back at this acquisition as the inflection point for truly connected buildings.

Who is VTS

VTS, short for View The Space, was founded in 2010.  Their core offering is an asset management platform for landlords.  From generating LOIs and proposals, to portfolio strategy optimization, to real time cash flow analysis, and more, VTS was built to help landlords stay on top of important risks and opportunities in their portfolio with proactive alerts and clear visualizations of rent trends.  They are an industry leader powering over 12B square feet of office and retail space (they claim that over 60% of national Class A office space and over 65% of the Manhattan office market relies on VTS).

In June of last year, VTS rolled out a major initiative which created the second leg of what I believe will be their fully integrated operating system.  Since they already powered the asset management platform for such a significant portion of the nation’s real estate, they were well positioned to launch a true commercial real estate marketplace which allowed landlords to market space directly through a single source of truth which included virtual tours, photos, 3D space renderings, refurbished floor plans, and 250+ verified data points for each space.  Their intended customers are tenant reps in which login credentials are needed to view the inventory.  I have not seen anything in their marketplace solution yet that relates to flexible real estate, but I can only assume that it won’t be far behind.

With the rollout of their marketplace, VTS now had the ability to power the asset management strategy for buildings along with leasing and marketing.  The next logical step was tenant engagement and that is where the acquisition of Rise Buildings comes into play.  Rise Buildings is a tenant engagement platform.  Like their competitors (HqO, Lane, Equiem, HILO), their solution sits between landlord and tenant and ties together multiple offerings with the goal of increasing tenant satisfaction while providing the landlords with real time analytics and insights.  For example, a tenant can use an engagement app to access the building, book conference rooms, stay up-to-date with building announcements and activities, order lunch, and submit maintenance requests.  Tenant engagement apps typically offer some proprietary software, along with integrating with solutions from other vendors.  The goal is to create a single portal where landlords can engage with their tenants to entice them to lease in their portfolio, increase satisfaction, and ultimately renew at the end of their term.  Many engagement apps also look to generate additional revenue for their landlords (if a tenant orders lunch through the app, a portion of the proceeds can go to the landlord).  

VTS now has the ability to roll out Rise’s platform to their entire customer base while also picking up the existing 130M square feet that Rise already powers.  These 2 software companies will create a powerful offering that ties building and tenant together.  The OS shouldn’t rely solely on proprietary technology because it would be unlikely and cost prohibitive for a single company to provide best-in-class features for everything required to meet all of the needs of tenants and landlords.  The strategy only works when they integrate with other vendors to round out an offering.

The biggest challenge that tenant engagement apps have faced to date is adoption.  No matter how sleek the app is or how many features they include, there needs to be a compelling reason for tenants to actually use them.  For example, if a tenant is ordering lunch, they would probably choose Doordash or Grubhub directly, instead of using the tenant app which uses an API to connect with the same vendors.  However, if the tenant uses the app for many of their daily services, then it is conceivable that they will order lunch through it.  COVID has been awful for the office sector, but it also provided the catalyst needed to increase adoption with these solutions.  Communication between building and tenant has never been more important.  From planning the return to the office, to communicating new safety and cleaning protocols, there is a need for a communications channel between both parties.  These platforms can provide the perfect vehicle to relay information.  But there are 2 features that all solutions must include to truly gain adoption and they are access control and visitor management.  If you need the app to get into the building or to register a visitor, then that becomes the forcing function to drive adoption.

Access control is complicated.  There are many different solutions on the market and oftentimes the base building has a different manufacturer’s system then the suite level doors.  There is not an industry standard and the different systems are often not interoperable.  Rise Buildings has built deep integrations (through both APIs and SDKs) with many providers of access control and visitor management to offer their clients a seamless process.  Below I detail one of the companies that is well positioned for success.

Kastle Systems

Kastle Systems is an industry leader in security services, providing a fully integrated managed offering for access control, visitor management, CCTV, emergency mass communications, and other similar services (full disclosure: I worked for Kastle Systems from 2016 - 2019).  Kastle can function as a stand alone solution, but they also integrate with 3rd party tenant engagement apps including Rise Buildings (via an SDK).  Kastle is well positioned to play a role in the ecosystem of a commercial OS for 2 reasons: their solution set and their current footprint.

The Right Solutions

Kastle was founded in 1972 and was one of the first companies to offer outsourced management of access control (cloud before there was cloud).  The game changer from them came in 2016 when they launched KastlePresence, a mobile smart office platform which among other things allows for handsfree access control.  The platform removed the need for access cards by allowing tenants to unlock doors with only their smartphone.  Unlike their competitors at the time, Kastle offered truly hands free access; the BLE technology enabled users to unlock doors without even taking their phone out of their pocket or purse.  What was once a cool nice-to-have feature has become a must-have in the post COVID world.  Once COVID hit, they were able to quickly build on that mobile platform to also offer things like Touchless Elevator Control, the ability to control daily access based on the results of health screening questions, or to use the mobile app to view real-time occupancy stats.  

In addition to access control, Kastle’s platform connects with IoT devices such as sensors, and integrates with their visitor management system.  Most visitor management solutions are designed so that only 1 person in each office has the ability to register guests.  This leads to long lines in the lobby because most visitors show up unannounced due to the arduous registration process.  Kastle’s visitor management system is integrated with GMAIL and Outlook.  With a click of button, any employee in the company can add a QR code to a meeting invite, which automatically registers the visitor(s) at the front desk.  The visitor can scan the QR code when they arrive, and they are granted immediate access to the building.  No long lines in the lobby and no need to print visitor passes.  

Footprint

What really sets Kastle up for success in the race for the Commercial OS is their existing footprint.  Unlike traditional electronic security providers that have a generic solution that can be used for many types of buildings, Kastle has built their solution for the specific use case of multi-tenant commercial real estate (in recent years they have launched solutions for multi-fam and schools as well).  By building a solution for a specific use-case, they were able to take into account all of the nuances and challenges that office buildings and tenants deal with.  Kastle currently secures thousands of Class A/B multi-tenant buildings across the US (they also have a large presence in Australia).  In total, they claim to secure over 400M sf of office space.  Because their infrastructure is already installed in such a significant number of locations, activating their mobile experience is often as easy as switching out an older card reader for a mobile enabled reader.  

Kastle Systems and Rise Buildings announced their partnership in April 2019.  Both companies work with other partners as well and do not need to be used together exclusively, but they represent what is possible when 2 best-in-class players come together.  With VTS’s acquisition of Rise Buildings this week, we are starting to see the formation of the future landscape of a true Commercial Operating System.  Other acquisitions and partnerships are almost certainly to follow in the near future and the pace of technology advancement over the next 12 months will be fun to watch.

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Featured Product

Each week I plan to showcase a featured product or service. My criteria for selecting each week’s featured product is that I will only include solutions which I have personally used and has met one of the following:

• increase my own productivity

• best-in-class

• truly unique and innovative

This week’s solution is Foyer.

Foyer uses AI to help the Real Estate industry evolve the home buying process using innovative and intuitive tools designed to help both agents and home buyers. Their proprietary, deep learning technology is highly scalable, reliable, and can be seamlessly integrated with any real estate company's existing functionality.

Artificial Intelligence has become a boon in almost every industry over the last few years, yet real estate has been slow to embrace it. According to Foyer:  “Perhaps the hesitation has been due to a concern that the technology would eventually eliminate the need for agents, but we believe that the relationship between agent and home buyer is critical. We use AI to empower agents, not replace them.” Foyer Insight is computer vision AI built exclusively for the real estate industry. Trained on over 300 million unique listings and with the ability to learn from every new listing that it processes, Foyer Insight has the capability to bring a massive wealth of data to any user. The Custom Object Detection feature allows you to know everything about a property; from its wooden floors, to its stainless steel appliances, to even the views outside of the windows with just the images provided. You can immediately validate that every listing is up to quality standards while receiving red flags for missing data, poor image quality, or even duplicates. Their automatic captions feature gives your images a massive jolt in SEO. Real Estate as an industry is at the forefront of a massive technological evolution and Foyer Insight is built to be the foundation.