Brendan Wallace has many in mind lately. Wallace is a co-founder of Fifth Wall Ventures, a nine-year-old enterprise firm with $ 3.2 billion in management assets. He is also a homeowner in LA, who continues to fight the frantic fires. While his country remains intact, many of his friends have not been so lucky.
Wallace is getting used to foreign forces outside his control. First, the pandemia drastically changed the landscape for many of the limited partners of Fifth Wall, which is read as one who is who the real estate (CBre, Cumenan & Wakefield, Lennar). Unfortunately for many of the same players, vacancies still stand up at about 20% nationwide, and analysts do not expect this number to move as many companies abandon the idea of a full return to the office.
Proptech has also received hobbies and arrows in recent years, partly due to senior flyers whose wealth quickly returned, like Wework, which came out of bankruptcy last June after a failed IPO and mass restructuring.
Change usually represents hidden benefits, however, and Wallace believes the industry is ready for a relapse. As he sees, there are great opportunities related to the elasticity of assets – or the use of technology to help real estate assets cope with damage and interruptions. He also sees a great opportunity to help Fifth Wall limited partners more aggressively utilize the technology industry demand for databases-and the energy needed to feed them.
We talked to Wallace recently about some of those tendencies, along with life in LA during what many people have felt like apocalypse. You can hear that full conversation here or read about excerpts from our conversation, easily edited for length.
You are in LA How are you passing?
It is simply tragic what happened. Everyone in our team is safe. We are in Santa Monica and they had to evacuate our office. This is a crucial moment for Los Angeles and there will be a lot of reflection on the other hand, with the great political and economic questions that California has long been facing. This is a positive thing, but at the moment, it is simply devastating to see parts of this beautiful and amazing destroyed city.
How are you thinking about what comes next? There will be a lot of cleaning, a lot of reconstruction. This should represent unexpected opportunities, as improper as it means.
I wouldn’t say opportunities. . I don’t think on the other hand of this crisis, people will cease to want to live in Los Angeles. . So I remain optimistic that this will be a moment of reconstruction and reimony for one of America’s largest cities. And I would say that we on the fifth wall are excited to be part of this. How do you seem to be part of this? I don’t know yet.
One major issue that homeowners were dealing with and business owners is (even before fires) is the removal of state insurance providers. . .
We are one of the most active investors in Fintech for the housing industry. Fifth Wall invested in Hippo, which is a home insurance company that was very active in California. (Editor’s Note: Hippo stopped writing new insurance for homeowners nationwide last summer.)
I mean, many of the regulations that were good and focused on the benefit of consumers have in fact had the opposite effect and are creating asymmetry in the market that are deteriorating the problems we have now, which are many uninsured homes or people that receive their insurance canceled. So what we are excited about are two things: there are better solutions for consumers that can develop and we are interested in investing potentially in them. The other thing I would like to see is a reorganization of the amount of bureaucracy required to open insurance companies.
Aside the regulations, does math work? It is difficult to understand how startups with different regulations can (provide) California when these devastating things happen that make it very difficult for insurers to recover their investments.
It is very difficult to answer this question without seeing a circuit analysis after the county. It is possible that some areas will be unsecured, but it is also possible that some areas will be unsecured that otherwise WILL To be without regulation, and the latter is what I am focused on softening.
This is not just a problem of California. It may be sharper in California and the value of houses may be higher in California, but we have to solve this as a nation.
Do you think fires can reshape how real estate in these high -risk areas are valued? This does not seem to have happened, let’s say, in Miami.
I think it will raise prices for some reasons. There will be many new buildings in southern California that will increase the cost of replacing homes. People will still want to live in these beautiful parts of the country; You will not see an exodus of people simply because of that.
Increased insurance premiums will also lead to less affordation of houses and this may have a downward pressure (which means that homes can cost a little less because sellers have to consider the high cost of insurance). However, the main thing is that this will increase many house prices throughout southern California and especially in the West of Los Angeles.
You are an Icon investor, a 3D printer of modular houses. Do you see a possible opportunity for that company? We reported that she rested a quarter of her staff only this month before the fires exploded.
Icon is a really exciting business. Fifth Wall is a small investor in that company. Our thesis was not so much about preventing fires or reconstruction after natural disasters, but how to build homes faster and cheaper and less material than you do today? What they have built is a way to effectively print a home and in the process, massively reducing the waste associated with home construction.
One of the crazy statistics that most people do not know is that about 5% of all the material in US landfills is material that went to a construction site and then went directly to a landfill. It is a massive problem that increases the cost for the consumer, makes it harder to operate construction companies and has a massive carbon trail. The question, I think, is: How can you grow it? Can you do it at cost effective?
Have you made investments in companies that are particularly focused on producing non -flammable materials?
No, but it should, and I think it’s a space that will have a lot of attention now. . . (Going forward) Repair will be the big problem. Most of the houses we need to protect are already built, and they are built with materials that can be very difficult to tear. And so in real estate technology, most of the problem and most of the value you can add to society is renewing the assets we already have, whether they are buildings, houses or infrastructure assets.
Of course, in reconstruction we need to be very aware of the materials used and we need to use the best solutions. But the vast majority of houses at risk in southern California already exist today.
Overall, the Proptech sector has seen fewer agreements in recent years. Is it fair to say that the general interest in the industry has cooled?
It is absolutely cooled. I think we have just lived – and we are still in – cold and bitter capital markets for proptech. You had not seen any major M&A events. In essence, none of the focused entrepreneurship funds, including the fifth wall, set up any capital during that period. There have been very few LIGHTS of LC in space.
The opposite of this is what you are now seeing – companies that survived this Darwinian extinction event. Companies that made the right cost cuts that oriented their business model, which led their marketing and who went through recapitalizations, are emerging on the other side of this stronger, more sustainable and more sustainable in a term long. I think spring was born for the support technology industry and you are seeing many positive indicators for space now. (Editor’s Note: Here, Wallace refers to the IPO of Servicetitan, a fifth wall portfolio company that produces software for contractors and made public in December, and the latest sale of another portfolio, industrious, owner of its partial, cbre.)
But does this existential threat to the office industry we have heard of for years?
Long -term (there are questions) about the office industry, but besides you are seeing an explosive increase in categories that were not previously thought out as real estate. Data centers are exploding absolutely. And some of them that that explosion is forcing the real estate industry to face major questions. Like, the revolution of the one that has fascinated everyone is absolutely impossible without a massive increase in databases in the US. However, a massive increase in US database is absolutely impossible without mass production of new energy.
Continue. . .
We need servers that can do training and draw conclusions all over the world – and we need many of them. This is not a surprise or secret in real estate capital markets; Data centers have probably been for the last two years the hottest assets class in the real estate industry. But now there is a linked problem that is emerging. . . That is that the data center is so intense with energy, the local service will not allow you to connect that network. . .
This is forcing the real estate industry to say: ‘We must be in the energy business if we want to be in the business centers business.’
What do your LPs expect to do? Will you invest in the Union Startups now?
Fusion is definitely very exciting, but we have a closer problem. We need energy now or next year. Ideally, we do not want them to be dirty sources of fossil fuels based. . So it really leads to renewable resources that we know are affordable with cost, (that is) more visible solar. (So the conclusion is, yes, we are investing in solutions to accelerate the development of solar energy along with our real estate investors, and real estate companies will become energy development companies themselves.
