FinTech: The pivotal role financial services and technology will play in the future of CRE

It’s all connected. Nothing could be truer when analyzing the symbiotic relationship of the financial and real estate markets. Commercial real estate (CRE), one of the most resilient asset classes in recent memory, is experiencing gale-force headwinds as steep increases in interest rates have caused widespread defaults, distributed work forces are emptying offices, and sustainability regulations are driving carbon emitting offenders’ asset values down. When compared to the maturation of the financial services industry overall, the real estate financial market has remained largely unchanged in the ways we assess, transact, optimize, and transfer the value of real estate assets. 

CRE broadly is a laggard industry compared to the rest of the economy which, at this stage in the market cycle, creates an opportunity in the form of implementation of products or strategies that are proven to increase productivity and reduce costs. The question that we at JLL Spark often ask ourselves is why it has been so difficult historically to drive Financial Technology (FinTech) or other technology adoption in CRE. The answer: lack of scarcity. Real estate investors have been profiting hand over fist in arguably the same way for the last one hundred years without the need for change. However, that was then, and this is now.  

When we think about what the future holds for CRE, technology is the lever that owners and investors can pull to deploy solutions that maximize utility and returns. At JLL Spark, FinTech is a core theme in our investment strategy. As we are already seeing in other industries with different levels of maturity, FinTech is everywhere: e-commerce offers a robust set of embedded FinTech solutions such as BNPL (buy now, pay later) to consumers, healthcare leverages FinOps (financial operations) for their complex payment flow, and even charities are creating alternative donation methods to increase fundraising conversion. With the abundance of FinTech solutions in the marketplace, we have identified what we feel are high impact, quick wins for CRE in these challenging times: 

Process Management: Technology to increase efficiency in teams by shifting their focus from day-to-day tasks to find and manage investment opportunities. An example would be our portfolio company Dealpath, a platform to manage deals throughout the lifecycle of a real estate asset, seamlessly extracting and ingesting data, saving teams hours in manual data entry. 

Transaction Automation: Solutions that automate underwriting and elements of due diligence for acquisitions, dispositions, and refinancing which create efficiencies and cost savings for all involved in each real estate transaction. For example, Roofstock (also a portfolio company) provides a single platform for high-volume and institutional investors to buy, manage, and sell properties. 

Asset Optimization: ESG/Climate impact and valuation solutions like Carbon Pathfinder and ClimaFi can help assess, procure, and finance carbon efficient retrofits or implementation of energy solutions for buildings. 

Data Collection: Tools that leverage machine learning to automatically capture and audit rent roll data provide standardization and enhancement of data collection for real estate financial models. Proda, a JLL Spark portfolio company, saves approximately 680 hours per year per employee with automatic machine learning error flagging. Another in our portfolio, Elise AI, automates laborious leasing tasks, saving agents over two hours per day. Elise’s AI-based platform helps structure data recollection throughout the sales lifecycle and increases appointment conversion by over 100%. 

As the credit markets tighten and inflation continues to run rampant, the CRE markets can weather this storm by embracing the above-mentioned FinTech solutions, allowing them to find operating efficiencies and cost savings. The real estate market may be going through a tough period, but technology will inevitably change the CRE landscape. At JLL Spark, we are actively seeking startups at the intersection of finance and CRE to steward the industry beyond the next frontier. 

Written by Javier Araujo O’Neill, Senior Investment Associate at JLL Spark

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