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Real Estate

Real estate managers look for leg up through investing in technology companies

Real estate managers are not only hiring technology-savvy executives but they are also investing in real estate technology companies.

Real estate technology investment could reach as high as $5.2 billion in 2018, up from $3.4 billion the year before and $1.3 billion in 2014, according to this year's Urban Land Institute Emerging Trends in Real Estate report released Oct. 10 that used CB Insights data.

In August, Blackstone Group LP hired Sean Muellers as a managing director with its real estate group to help the firm with real estate technology across its portfolio. His job is to track, monitor and source innovative real estate concepts or companies to help Blackstone executives be a smarter and better real estate asset manager and investor, sources said. This could include investing in companies offering new technological tools to the commercial real estate industry.

Blackstone executives say the firm's large real estate portfolio and leading position in the industry make it the ideal test lab, and are seeking to support new technology-related companies looking to grow, said sources with knowledge of their thinking. Relationships or investments with these companies will help Blackstone get an early look at emerging concepts and an opportunity to vet them in the real world, these people say.

LaSalle Investment Management is also using a variety of new tools offered by real estate technology companies. LaSalle's sister company, real estate brokerage firm JLL, in 2017 launched a venture capital subsidiary, JLL Spark, to invest in companies offering technology-driven real estate services. JLL had earlier acquired real estate technology services companies, Advanced Technologies Group and BRG in 2016 and Corrigo Inc. in 2015.

"As more and more data analytic and technology firms enter the commercial real estate space, we must be vigilant in monitoring the market and selecting best-in-class third-party tools to utilize and firms to partner with," a recent staff memo states. "While proprietary solutions will always be part of our toolkit, no firm — LaSalle included — can match the financial and human capital resources being invested across the broader market."

Even so, some of the hottest technologies, such as predictive analytics, are not yet ready to be used by real estate managers, industry insiders say.

"Right now, the question is how much value can predictive analytics add to the investment decision-making process," said Robert Kohn, New York-based partner at placement agent Park Madison Partners LLC. "Predictive analytics and other artificial intelligence applications are driven by data, and commercial real estate is still largely characterized by informational asymmetries."

So far, this has limited the applications of artificial intelligence in real estate decision-making, Mr. Kohn said.

Still, it's early days.

"Should some sort of breakthrough occur, it has the potential to disrupt and transform the entire commercial real estate industry, so both managers and (limited partners) should keep a close eye on this," Mr. Kohn said.