Please note this automated transcription may contain errors.

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Richard Green: Very pleasant. Good morning, everyone. My name is Richard green I'm director of the USC Lusk center for real estate.

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Richard Green: And this is the 20th installment of luck perspectives. Thank you for joining us. I'm just some ground rules, there is a Q AMP a box that you may type questions in during the presentation.

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Richard Green: Please have your questions. They're not the chat room. It's just easier to follow them in the Q AMP a box and what I will do is pass your questions along to our speaker Connie Chan.

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Richard Green: Sometimes what I do is combine people similar questions so I can get to as many questions as possible. Over the course of the hour.

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Richard Green: Um, it's a great pleasure to welcome today. Connie Chan. I first met Connie at a prop tech CEO summit in San Francisco, about a year and a half ago, I think, something like that.

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Richard Green: And before I even knew who she was. She came across to me as an extraordinarily impressive person and it's been my privilege to strike up a friendship with her in the time since

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Richard Green: She is a partner with a 16 Z Andreessen Horowitz, one of the best known venture capital firms in Silicon Valley. She has a background of Stanford degrees. We like or any way.

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Richard Green: She has worked for Hewlett Packard in China. She's worked at private equity firms, previous to A16Z and it's sort of spearheading their work and taking property tech or taking tech to real estate not exactly sure what direction.

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Richard Green: It goes and we're going to do this a little differently from past

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Richard Green: Less perspective series, we've we've had the speaker speak for about half an hour and then we've opened it up for questions. Instead,

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Richard Green: Kind are going to have a conversation. And by the way, we just had a conversation online. A couple of weeks ago when I joined her for an A16Z podcast.

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Richard Green: Where we talked about all manner of things involving housing. We're going to come back to that some

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Richard Green: But I just want to start because I think a lot of our audience just doesn't know how VC has gotten involved in real estate space so

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Richard Green: What is the an involvement look like now. And how do you go about making your investment decisions when you look at that space. And again, thank you for being here.

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Connie Chan: Thank you so much for inviting me. I am I am greatly honored to be here. I have been a huge fan of lust. Ever since meeting, Richard. Just the perspectives. The data that less brings to even my analysis is

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Connie Chan: is invaluable. So I'm a very, very big download lesson very grateful to join you guys today and thinking about Prop tech

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Connie Chan: Pop tech is a fairly new phrase that's kind of showed up in Silicon Valley. I think it started getting popular actually in Europe. First, about a year or two ago.

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Connie Chan: And basically venture capital as has realized that real estate is really the largest sector most interesting asset class in the world for us to really evaluate right now.

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Connie Chan: And oftentimes in venture capital one we're looking to make a decision. We're looking for three things. One is a very large total addressable market, market size.

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Connie Chan: Two is a very strong team that has the right relevant background that we believe can capture a new opportunity and three is the product. How big of a pain point are they solving. Are they gathering interesting data that can be used for other business models down the line.

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Connie Chan: Real Estate is one of the very few categories where I don't even have to think about the total addressable market. It's just a given that it's this massive

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Connie Chan: And I think that's the concept that a lot of venture capitalists have started to realize

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Connie Chan: The other big reason I think why venture capital is very interested in real estate is we now also realized how much money flows through real estate.

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Connie Chan: It's not just the purchase of a home. It's all the transactions that evolve around the house afterwards. It's the insurance. It's the mortgage

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Connie Chan: Right, it's paying your landscaper it's paying your cleaner. There are so many things that touch our physical worlds, whether it's in retail commercial, residential

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Connie Chan: That with all of these money transactions basically anything prop tech eventually can become fintech

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Connie Chan: And that's also a very exciting opportunity to spend time has been another big sector of explosion from investment is just in the last couple of years, so

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Connie Chan: When we look at deals. It's really evaluating those three things. The total addressable market, which in real estate. Honestly, no matter how you slice it, whether you're a commercial retail residential

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Connie Chan: I don't even think to size it because it is just that master as all of you know already, and team is a really interesting one. So historically

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Connie Chan: Silicon Valley venture capitalist. When look for teams that largely were folks who had computer science backgrounds.

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Connie Chan: People who are builders, people who are product managers, perhaps before out of Google or or so forth and prop tech that's not always the case.

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Connie Chan: Prop tech as all of you know is very nuanced and oftentimes it helps to have folks who have lived the experience who may have come

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Connie Chan: From the real estate sector who, at the very least are home owners or renters or landlords or have first hand experience of the problems and the friction inside real estate.

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Connie Chan: And so oftentimes the teams that we see do well and prop tech have both the technical background, but they also very importantly need to have some kind of industry understanding

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Connie Chan: It's not typically a sector where to young people straight out of college can go and make a big dent because, as you know, a lot of it revolves around partnerships, but

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Connie Chan: More importantly, like a deep understanding of the true problems and and this is where I feel like a lot of prop tech investments.

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Connie Chan: It's been really interesting to see how investors have evaluated them that investors who have real estate experience themselves will look at deals very differently than those who actually barely touch real estate.

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Connie Chan: And I think it's because real estate. As you guys know, it's not purely a numbers game. There's also a lot of emotion, a lot of

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Connie Chan: intangibles that factor into any decision about renting or buying a property building a property right. Is it on the right, street corner is it facing the right direction.

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Connie Chan: Does it sit next to a highway. A lot of things that are not just purely number crunching

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Connie Chan: And so understanding the emotions, even down to the impact of painting your door, a bright color when you're selling the home. These are things that oftentimes only folks who have some kind of firsthand real estate experience will have

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Connie Chan: So when I look at teams and prop tech I'm looking at kind of that marriage between technical know how, but also true understanding or firsthand experience of the problems.

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Connie Chan: And then three, the big thing we look for is tall addressable market tan and then product. So product meaning is it solving a real problem.

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Connie Chan: Is it creating something where there's a win win scenario are people's incentives aligned to continue using a product or service in the long run.

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Connie Chan: So those are kind of the three things that we use to evaluate pretty much any deal and not just in prop tech, but across the board market size team and product.

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Richard Green: So let me let me probe on a couple of those things. So let's, let's talk a little more about team.

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Connie Chan: And Jackie.

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Richard Green: Talked about the importance of a mixture. If you're doing real estate between the computer science side and the real estate side.

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Richard Green: Yeah, but I also would imagine that somebody who is a startup just needs to have a different kind of personality from other sorts of people do you evaluate that if how so you look at people who just have

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Richard Green: So you have you have, for example, experience with HP. So that was sort of you were part of a very large organization for a while. Is that a critical aspect of it what what are the attributes beyond sort of subject matter knowledge that you're looking for.

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Connie Chan: Yeah.

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Richard Green: You look at

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Connie Chan: Personality and the team is very, very important to the extent that when we evaluate the pitch. The final pitch where they have to pitch in front of all the general partners.

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Connie Chan: That's typically a 45 minute pitch. We spend the first 10 to 15 minutes just probing the founder just talking about the background going all the way back to their childhood.

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Connie Chan: For sure, talking about what they did in college. What did they major in what did they decide to do after college, every single career decision we never just jump straight into the product. And it's because the founder

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Connie Chan: To your point is so critical to our decision making. And it's not just the know how it's not just the college degree it's oftentimes what we gauge to be their grit.

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Connie Chan: And their conviction and whether they have a growth mindset and can scale. So in some interesting ways. Like if you came from a large enterprise company, a large corporate company, you might be very good at managing lots of people, but you might not be great at that zero to one moment.

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Connie Chan: Where you don't hire a specialist where you hire generalists where you can't afford to pay someone six figures and how do you then take talent that you're not used to managing

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Connie Chan: That maybe doesn't work the same way as your previous colleagues and still get them to build an amazing product and service.

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Connie Chan: So folks who come from big company have, you know, they do have the benefit of knowing how to scale. How to Have product cycle releases how to have processes in place.

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Connie Chan: But it doesn't mean that they necessarily can do the the zero to one phase. It's not a given that they can manage that.

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Connie Chan: Because that growth mindset is really what you're looking for someone who recognizes. Hey, they may never have hired a head of sales before

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Connie Chan: In their previous roles they may never have had that experience where they had to hire a general counsel or these folks who are going to have what it takes to the. Want to learn how to do all of those things down the line.

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Connie Chan: So that kind of big company experience is is nice to have been beneficial in the sense that you have more game film on how they perform in the workforce, because as you guys know the college degree is not a perfect predictor

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Connie Chan: Of necessarily how hard someone works or how much the holistic something through and once they start working. But at the same time. You also want that entrepreneur who is in some ways irrationally optimistic.

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Connie Chan: Because that zero to one face is very hard.

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Richard Green: Yeah, let's take development, by the way.

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Connie Chan: Yes. And, and so so irrationally optimistic, where they have a view of the world and they they have it so clear in their mind and then they just start doing whatever it takes to get that world to become reality.

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Connie Chan: Even when not everything is working out. We talk a lot in venture capital about this concept called product market fit.

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Connie Chan: Which basically means you have a product that starts taking off that the market is pulling for and most companies actually never get there.

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Connie Chan: And the few that do become very successful but finding Product Market Fit is tough. And it requires lots of experimentation. It requires

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Connie Chan: Trying out a product building up launching it, seeing it not take off tweaking it and rinsing and repeating that cycle. So finding an entrepreneur who can struggle through that.

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Connie Chan: Not give up on the idea not give up on the dream is something that we also for now I will caveat that with

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Connie Chan: Venture capital is a wide, wide range of stage in terms of investing right you can invest on just a PowerPoint on just the team.

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Connie Chan: This person's an expert in the space. This person came from slack came from stripe. Go ahead and give him a check or you can invest later stage a Series A, B, or C down the line when there's real numbers to work with.

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Connie Chan: So of course, when we're looking a lot kind of at that personality that ability to scale from zero to one.

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Connie Chan: That especially is more important in the earlier stages of the business where we feel like product market fit doesn't exist yet. Maybe product doesn't even exist yet and you don't have numbers to kind of back it up.

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Connie Chan: And the reason why is also early on in that stage that team is the team that you're betting on

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Connie Chan: It's not necessarily easy for them. They don't have the budget to go recruit that six figure executive again, they don't have the budget to go do that typically until they have something like a Series A under their belt.

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Richard Green: Okay I your point about evaluating numbers and investor versus

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Richard Green: Your work you up the PowerPoint. I want to come back to that. So trying to just say it out loud.

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Richard Green: On myself to come back but I

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Connie Chan: Got the PowerPoint before I got better. But I also want to

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Richard Green: But before I do that, I want to hit on your third point, which was about sort of the wind when opportunities.

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Richard Green: Yeah, and it seems like right now in a time of coven there might be more of them than normal because it's going to lead us to have to rethink certain aspects of how we do real estate. So, for example, are people going to be willing to buy real estate sight unseen or

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Richard Green: Maybe that's not the right way to put it. Touch unseen. They can see it online, but they can't actually go walk around it and you see these opportunities popping at them.

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Connie Chan: Yeah, yeah. And those kinds of women scenarios, especially the example you just talked about a lot of times what we have to evaluate and we may get it wrong. But what we're constantly trying to think through is, is this a behavior that will stick after code.

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Connie Chan: Because during covered. There's a bunch of areas where you saw a huge demand surge or huge supply surge and then the big question is, is this a behavior that will stick around.

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Connie Chan: Well, after code passes and who knows when that will happen, right. We don't know when the vaccine will come

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Connie Chan: At all. But that's a big thing that we're constantly thinking about because there have been lots of sectors, who have seen huge bumps during coven

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Connie Chan: Whether it is social sharing and telemedicine online fitness online education. All of these companies have grown dramatically during covert sometimes the growth during COBRA is more than the growth in like the last three, four years combined

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Connie Chan: For many of these companies. So our big job is trying to figure out is that kind of virtual tour of the home a behavior that consumers prefer or one that they will want

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Connie Chan: Even when the world comes back or they are able to go into the home. Right. And I think for for tourists.

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Connie Chan: In particular, I think I'm still a little mixed on that one. I mean having bought and sold homes. Before I know walking the street is very critical.

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Connie Chan: Right. Like, even when I do look at homes, I might type in the address and Google Maps and I'm looking around the neighborhood within a one mile radius to see, hey, am I next to a highway.

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Connie Chan: What does the street sidewalk look like how well is that street maintain it tells you a lot of things beyond just looking in the home, of course, all of that can be digitized too and

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Richard Green: That

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Connie Chan: Doesn't

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Richard Green: Include partially do that. Yeah.

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Connie Chan: It does. It does. It does. Um, but I will say, like, given the size and dollar amount of those purchases. At least I myself still prefer

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Connie Chan: Being able to touch and see the home in detail, having renovated many homes myself. I know the quality of building materials varies dramatically.

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Connie Chan: And can be covered through a lot of cosmetic things and so unless that home tour is in such detail where I can tell. Hey, is this engineer. What is this real would

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Connie Chan: Actually like I would still be missing a lot of data points that would factor into such a very, very large purchase.

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Connie Chan: On the other side. On the flip side, I know I work with a lot of people in China.

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Connie Chan: Even in my role at Andreessen Horowitz, and I have lots of friends there and the venture capital community and also just personally I know many people from China and the last five years, who have bought homes in the States completely sight unseen.

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Connie Chan: And for them. A lot of it is also an investment right they're buying it to rent out there buying it further kids to live in potentially many years down the line.

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Connie Chan: Or for whatever reasons. And so I still think there, there will always be a group of people that are willing to buy homes sight unseen. And the question is, I think, through coven has that behavior widened to their broader population.

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Richard Green: Well, yeah. So what I was asking my guests. Is your houses.

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Richard Green: Are a little idiosyncratic they're not the typical three bedroom walk out ranch house. Is that a correct supposition.

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Connie Chan: I guess. Yeah.

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Richard Green: And so what I'm wondering. So certainly, it's the case that sort of at the upper end or the more idiosyncratic end of the market by that I don't mean. I mean, weird and just the sense of, it's not typical that that makes sense. But for, you know, imagine going to attract

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Connie Chan: House in a suburban yeah

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Richard Green: I'm could that be a place where basically yeah houses are they were built in the same vintage that the same materials, etc.

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Richard Green: You have Google Street View to see if people mow their grass or not. Could that be a place where you actually do see people getting pretty comfortable with buy online.

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Connie Chan: And I think it's possible, in the sense that I even hear about builders or realtors thinking about how to make it super transparent, like if you're building a new house you list out line by line.

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Connie Chan: Like what materials are going into the homes that person has complete transparency or oftentimes like even right now, when you're looking at a new home community.

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Connie Chan: You look at the model home the home you're buying does not even built yet and so that behavior of buying already exists right like you look at the model along, you see a big plot of land and you're like, Okay, I'm buying that plot, it's going to look like this.

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Richard Green: Yeah, an agent. We had a dream folio Renaissance residential for Brookfield

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Richard Green: Yeah, that's he says, that's exactly what they're doing is it's like I nailed by nail, but it's it's you know what your house is

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Connie Chan: Right, right. So I think that definitely for new builds. I will. I think it makes complete sense. And it's for the existing homes where I think

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Connie Chan: There might still be some nuances. The issue is, even if people are willing to buy things online if it's a neighborhood they can get access to by driving there by going there. I think they still want to do that. I don't think it's

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Connie Chan: One or the other. I think it's going to be one and the other basically I may still do all the diligence in person. But now I'll be able to send that on line link to my mother or to my other family members and say hey guys, what do you think about this home.

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Connie Chan: But I feel like if someone has the option and ability to go see the home and person for such a big purchase for, again, a lot of the TPS people this is such a big part of their personal net worth.

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Connie Chan: That they're still going to do that because at the end of the day, the neighbors still matter the sunlight still matters. The parking situation on the streets still matters.

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Connie Chan: And so I don't see a world where people choose not to go see something in person, they may do that, I think, to filter out which homes they decide to go visit in person, but ultimately

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Connie Chan: There's not

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Connie Chan: Ready doing that through Zillow right so so this will be an additional filter and maybe I will be more strict on my Zillow searches and go actually only visit two homes, instead of five, but I'm still going to go visit those two homes in person, if I can.

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Richard Green: So what about on the rental side of the market. And so this is one I actually have personal experience with when I spent my year working in the Obama administration.

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Yeah.

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Richard Green: I rented a place via equity residential properties just online. I just didn't want to bother. And it was great. And I kind of knew what our New York P apartment would look like. And it was right over metro stop. So that's all I really care about is it to be eight minutes.

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Richard Green: Yeah, I'm in there, you're not putting your own, you know, it's still expensive, but it's not the same as investing. So could you see maybe the apartment market moving more towards virtual world.

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Connie Chan: I think especially when you're moving into a city so new city transplants. That makes complete sense to me.

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Connie Chan: They don't have as much time to go fly into the city. See the rental stock available. And as you know, a lot of rentals. Once you lock it in

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Connie Chan: And you're at least starts fairly shortly after

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Connie Chan: And so it's tricky to kind of fly in find a place have confidence, you're going to get a good place in one day and then plan already you're moved to happen. The week right after

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Connie Chan: So moving into a city, I think, for sure, that can make a lot of sense when you're just moving within a city, though I still think again the neighborhood matters and people may do things sight unseen. But again, it's if you can go in person to do that final check to give you that sense.

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Connie Chan: Of confidence to know that your neighbors not someone you won't get along with. I think people will still opt to do that.

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Connie Chan: Well, I will say, though, that also changes the analysis is rental durations are also flexing with all of these startups that are getting into the rental market. Right.

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Richard Green: That's your post a little more about that.

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Connie Chan: So, so I mean like you have the one your typical lease for our banter, but you also have a lot of startups that are doing furnished apartments that you can rent month by month

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Connie Chan: For for three months, or four, six months and there the commitment is even lower than if you're signing up to that one year, at least, right. So, the lower the commitment, the more willing. I think someone is to run silencing

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Richard Green: I just think anything of the other direction. And I that just gets outside of tech but but one of the things it's mystified me for a long time as well commercial leases are typically five years or longer.

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Richard Green: residential leases, you can't get more than a year and and it's occurred to me and a lot of other people that one of the ways you could

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Richard Green: At least allow people to have more stability in their home is if they could sign a five year lease, knowing that their rents would not get ratchet up over that period of time. You see anybody tried to do that kind of thing in the market yet.

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Connie Chan: I haven't seen it at a startup, but I have seen anecdotally, okay. I mean, my mother who doesn't want to deal with switching out new tenants when she found a good tenant. She said, Hey, will you sign a two year lease.

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Connie Chan: And lock in this price and they did. And she's very happy with that. So I think anecdotally that behavior already happened. I haven't seen a startup going to it.

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Connie Chan: Of course, though, like historically the rental markets have been very favorable and so landlords didn't necessarily want to lock in a certain price for years at a time and so

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Richard Green: That's going to take it. But, but, but they do do it and the commercial market and there, there is still a very large benefit to locking in a tenant, which is basically, if you have a tenant rollout, even in a strong market you're losing a month of revenue.

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Richard Green: But that's like an eight and a half percent drop in revenue.

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Richard Green: Right, uh, if you have to find somebody. So there's a real value to the security of having somebody in place for a longer period of time.

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Richard Green: Yeah, it just seems to me that sort of an arbitrage in the market that nobody has in a systematic way, solve yet. So, you know, given that you're all about new ideas. I was curious.

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Richard Green: You'd run across that it is interesting to know though is on the point of it is Hong Kong is the office market with the shortest least terms.

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Richard Green: They're typically two to three years. And usually the tenants have to put in their own tenant improvements.

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Richard Green: And that reflects how incredibly hot that market has

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Connie Chan: Very supply constrained

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Richard Green: Yeah yeah well and just demand for Hong Kong has been has has until recently been rising quite

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Richard Green: Dramatically. Yeah, let me tell me about one other area of possible disintermediation and and it's always a bit of an uncomfortable. I'm talking about really in front of a real estate audience, but that's brokerage

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Richard Green: And you know what we saw is

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Tech.

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Richard Green: Sort of distributed to intermediate and travel what it's got to be 1015 years ago now.

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Richard Green: Yeah, when when experience expedient. Oh, that's so came along and basically the travel industry, the travel agent industry as a small fraction of what it was.

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Richard Green: 10 or 15 years ago. Whereas, when we look at real estate brokerage we really don't see very much change yet at all. There's still a million realtors out there.

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Richard Green: For example, um, is this a disintermediation that's just never going to happen, or do you think people just haven't gone about doing it the right way.

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Connie Chan: Yeah, having lots of Agent friends myself and I think the very first, the very first Inman conference. I went to was back in 2005

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Connie Chan: I think a lot of folks expected the realtor industry to be discerned or mediated by now. And it hasn't

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Connie Chan: In fact, you know, the biggest the biggest rising brokerages compass, which is still in many ways very much a traditional brokerage by, by the way that they charge and by the features and services that they offer.

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Connie Chan: So I think brokerages for real estate is going to have a different path than travel agents, and I think a lot of it is to to when you're buying that flight.

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Connie Chan: It is very much a commodity, you know exactly where you're going, you know roughly what the plane is going to be like you have a very good sense of experience. And so the consumers confidence.

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Connie Chan: That they can do this without anyone's help and they can just make the right decision if they saw all the options out there is very hot.

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Connie Chan: However, I think, real estate again because so many homes are very nuanced and again it's such a large purchase. It's almost for that peace of mind that the buyer is still going to want an agent, especially when they don't perceive it as a cost to themselves, they think of it as a free

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Connie Chan: A free service. And so in some ways I feel like yes you're right that there's a lot new technology and travel has been largely disintermediation, do you really don't need travel agents for everyday personal travel real estate one due to the very large transaction dollar amount

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Connie Chan: To do the fact that again buyers. Think of it as completely free and paid for. So why not get the extra help when you're looking at something that's complex

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Connie Chan: When even the inspection report, even the documents the contracts, you have to sign far are things that normal people will be scared off. I think

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Connie Chan: And three, the fact that realtors are both buying agents and selling agents and so you're going to eventually interact with all kinds of agents and such that if you create a new business model that kind of gets rid of one

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Connie Chan: And penalizes one but not the other agents in general may still not that that model. So I think what will happen instead is you're going to see an evolution of brokerages

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Connie Chan: Where there will still be companies or startups taking that typical brokerage fee but they may have to offer a lot more services.

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Connie Chan: They may have to be able to give you a loan to help you remodel your home. They may have to be your backup offer so your offers as good as cash.

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Connie Chan: They may have to charge lower fees and basically be like a discount brokerage they may have to offer you more compelling marketing materials, whatever it is. So I think the the startups that enter the space are still going to be collecting a fee.

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Connie Chan: Rather than you paying an individual agent, you're just paying a company. Instead, and that the company is going to try and give resources to you, though a single agent might not be able to provide

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Richard Green: So I want to come back to your comment about values evaluation. And this is just a sub 01

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Richard Green: Thing I get in. There's just you either think it's a good idea, or you don't and you decide to put some money behind it. If you think it's a good idea and you really don't have

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Richard Green: A specific NPV in mind for that particular company and and when I said other VCs operators, you basically have a portfolio.

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Richard Green: And you use diversification as a way to recognize that a lot of your calls are going to be wrong but you have sufficiently large numbers of correct ones that you do very, very well.

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Richard Green: Yeah, so that's that's good but but it's sort of that next level and you know within real estate. There's a particularly spectacular example of this, having gone wrong, which is what was called the valuation of we work

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Richard Green: Versus what it came to be worth and in this audience will know some of them anyway that I started being very skeptical about me work when they first released financials when they had a bond issuance in May.

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Richard Green: I'm trying to remember now whether was 2018 or 2019 but it was May of 2018 and I looked at their financials. And I thought, no way that this company is worth X Men and they

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Connie Chan: Want

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Connie Chan: A thing. You talked about this. The first time I met you. So that you've had this for a long time.

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Richard Green: Yeah. And so, you know, so that people thought about this distinction between valuation and value. And that's something I've never been able to quite understand. So could you walk us through that a little bit.

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Connie Chan: Sorry, and oftentimes valuation.

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Connie Chan: You'll hear this phrase the company will grow into its valuation.

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Connie Chan: Meaning that you might put a price on it. Now that is well ahead of its progress. Right. So rather than valuing it on its revenue today.

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Connie Chan: You might take its revenue for the end of the year, or for the next year and and say, if I applied traditional public market multiples on that future revenue that it should be worth at least this and it's a way kind of to justify paying a very high price today.

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Connie Chan: Basically, making the argument that you have confidence that this company is going to grow into that valuation right

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Connie Chan: So in the case of something like a we work or a lot of those companies that had the similar models where they locked in these really long leases, they had a bigger story beyond just beliefs. Right. They had stories around going into residential or lifestyle.

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Connie Chan: Or building these communities within the offices and having digital interactions with all of the employees. And so the the story was much broader than just the lease and release model that they ultimately

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Connie Chan: Were valued at the end of the day, so I say evaluation of value that the main differences, you know, maybe value is. What did the numbers pan out today if you applied public market valuation and revenue multiples.

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Connie Chan: And evaluation might be, you know, what can this company become

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Richard Green: So I guess this is why we've had this conversation, why it seems like real estate to me is different from other stuff. So, you have, you know, you're early in the life of Microsoft and you can see that they make an operating system that people really like

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Richard Green: And it's really

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Richard Green: Easy to print more copies of that.

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Richard Green: Right rating system basically every, every operating system that somebody buys this is now pure profit right

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Connie Chan: That's not quite true, but it's close to true.

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Richard Green: Whereas with real estate. You keep having to buy buildings or take out. I mean, it's

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Richard Green: Under the capital intensive industry. So you talk about scalability. When we first started talking. Are there areas of real estate that you see as scalable. Yes.

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Connie Chan: I mean, there are definitely companies in real estate that are not necessarily capital intensive

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Connie Chan: Zillow being one of them right before that kind of went into the I buyer.

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Connie Chan: Space for them. Every incremental homebuyer doesn't cost them anything. Yeah. Right. And if you think about something like a VTS a more modern example.

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Connie Chan: And every incremental customer for them. It's again a pure software play

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Connie Chan: So I think these pure software plays still in that. And the real estate world to and they generally exist around three areas. One is transparency to end consumer or discovery and that's the low

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Connie Chan: Right, if I'm looking for a new place to rent to buy even on the commercial side, there's the Zillow equivalents there, right.

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Connie Chan: So discovery is a big thing which is typically software only many times

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Connie Chan: The other thing might be providing insight. So kind of being the vertical operating system for real estate VTS being probably the most notable example.

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Connie Chan: And that class of companies, if they become if they can overtake you know Excel.

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Connie Chan: If they can overtake all the software you use to manage your day to day business actually yard is the best example really

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Connie Chan: In real estate right super sticky connects a lot of people and a very fragmented industry.

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Connie Chan: At the end of the day, this is where you keep all of your data. If you think about all the data that you already has access to they fear radically

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Connie Chan: To give you all kinds of insights, right, like if you have this asset just say a residential asset. How much would you make if you put on Airbnb. How much could you make if you rented it. How much did you make if you renovated and added another bedroom, so forth.

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Connie Chan: And so a company like a yardy. I think it's a great example. And the prop tech space.

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Connie Chan: Which again is not even the newest, latest cutting edge technology right the company's over 30 years old.

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Connie Chan: And it has a fantastic business model to our software. And the reason why tech is so powerful here is it's connecting a very fragmented industry and being again the source of knowledge source of truth for a very valuable data that has historically sat and filing cabinets.

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Connie Chan: And lots of papers and documents.

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Richard Green: So, um, you know what

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Connie Chan: I would add one more thing, there's another whole category of top tech, which is around the lending space right around mortgages.

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Connie Chan: Or resize or he locks and they have a different capital constraint, where it's not just the capital as needed to go buy or lease a place, but they need the capital to be able to lend it out.

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Connie Chan: And so there's a whole crop of prop tech fintech companies to and their games they have to go find cheaper sources of capital to make that number one.

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Richard Green: Right, and that's where banks sort of our have a locked in advantage because deposits are a very cheap sources.

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Richard Green: Exactly. Kidding against that. It's very difficult. Right.

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Richard Green: Yeah.

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Connie Chan: And so typically, you go for the customer who gets rejected by the way.

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Richard Green: So, so let me let me take you in a couple of different directions. And then we'll get an audience questions. And again, if you have a question, please type them in the Q AMP a box, but

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Richard Green: The first time that you and I have had conversations about is sort of the future of cities and the extent to which technology can be a substitute for cities and now with co that

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Richard Green: People are talking about maybe I don't want to live in a tall building with an elevator, maybe I don't want to live in a crowded place maybe I don't want it.

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Richard Green: Yeah. Where was

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Connie Chan: That room as a home office right

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Richard Green: Yeah.

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Connie Chan: Think about how much space they need now.

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Richard Green: Yeah, yeah. So how do you, how do you see, you know, and this is something we're all thinking really hard about. But how do you see these things playing out and I'm not going to ask over 10 years but over the next couple of years.

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Connie Chan: And actually I think to answer the next couple of years easier than answering the next 10 years

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Richard Green: Be nice. Now,

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Connie Chan: They don't like the next month. The next year, I do see people evaluating the yard valuing the bigger home over the proximity to their office.

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Connie Chan: Right, like before I knew lots of people who wanted to be focused on shrinking that commute time

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Connie Chan: From 45 minutes or an hour down to 10 minutes and they would pay the premium to live in a much, much smaller house to be close to their office.

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Connie Chan: And called the cause really turned that on its head where people feel know me now to look in the short term next to their office.

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Connie Chan: And they very much value the yard space they very much are valued at the larger home. And so I'm even saying that anecdotally locally here. I know a bunch of people even folks who live in SF who rented homes in Napa.

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Connie Chan: Or even in the middle of California.

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Connie Chan: Or even another state, and there are temporarily camping out in places where their money can go much further in terms of how much square footage, they can get

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Connie Chan: So I think that in the near term is going to be a trend. But, you know, going out long term, we have seen that

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Connie Chan: The homes ultimately near centers of work places where there's good education places where jobs are being created ultimately do tend to

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Connie Chan: You know rise in value and maintain their value. And so if historically we just look back at decades or how all around the world. Not even just the US. I mean, Hong Kong in China, you see that even more extreme

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Connie Chan: Where every single additional block or two given the crazy traffic congestion, we've seen in those cities.

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Connie Chan: really changes the valuation of that home, I'd say, like, in the US, even here around the 280 or the one on these are the two major highways near me in the Bay Area.

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Connie Chan: And sometimes if you think about there was there was a period of time where either Palo Alto or San Francisco for every highway exit difference you maybe would add like another you know

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Connie Chan: Several hundred thousand dollars to the valuation of the home and that if I looked at Beijing or Hong Kong would not be a highway exit, but the more like one or two blocks.

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Connie Chan: So historically, I think everything tells me that still being here, the place where there's good schools. There's job creation good hospitals still is going to matter a lot in the long run, but in the short term, I do see people making that trade off to have a more comfortable space.

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Connie Chan: As a lot of them are not as worried about commute time commute time is something that I've been thinking a lot about because it does significantly change.

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Connie Chan: Someone's have it like general daily happiness. If you're commuting for an hour or two hours versus 10 minutes. It's a huge amount of time.

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Connie Chan: And it really affects people's moods and so historically. That's why I've been focused on also things like micro mobility. We were the first investor in line. That's good. Our company.

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Connie Chan: And that was the bat that congestion in major cities, not just here but around the world. We're going to get

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Richard Green: Increasingly

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Richard Green: Because you were telling me about will harm and how nobody is interested in getting an Uber and. Nobody's interested in getting on the subway. So they're all on lines. Yeah.

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Connie Chan: Not, not in will what will happen is that in the china version of line.

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Connie Chan: The China version of it was I was

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Richard Green: Like yeah yeah yeah

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Connie Chan: The China version of scooters, I have done really well during the coven like actually was able to close a very large

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Connie Chan: Large investor interest during that time, I would think so.

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Connie Chan: But yeah, basically during coven there is less of a desire to take public transportation

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Connie Chan: And more of a desire to find alternate means of transportation. At the same time, you also don't necessarily have as many people going back to work. So it's also timed lockstep with lockdowns lifting

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Connie Chan: But this idea of wanting to live closer to work and schools and hospitals, ultimately, I still think 10 or 20 years is going to matter a lot. It's really in the short term, though the six months to one year where people might make a different trade off.

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Richard Green: So one thing that I think is still up in the air and will determine a lot about where people live and tell me what you think about this is

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Richard Green: It's pretty clear to me that, on the one hand, managers are much more comfortable with people doing some work from home than they were before, because things

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Richard Green: Get done

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Richard Green: Now the other hand, people are still going to want to be in the office. Sometimes you think about imagine a world where

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Richard Green: People go to work, three days. So I mean, they're going to work every day. But they go to the office three days a week and work from home today so weak that by itself should have a very salubrious effect on traffic.

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Richard Green: Right. And so that means people can live further away and have the same number of minutes commuting as before and and i don't know i could be

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Connie Chan: It could be. Yeah.

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Richard Green: We'll use the empty highway. You know, I, I'm channeling my inner Tony downs. When you say, yeah, people will figure out a way to use the empty highway some other way, but I

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Richard Green: Have here. If this will fundamentally change things because of just what sort of time, she will be time shifting things in a way that we didn't before.

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Connie Chan: I think it's possible. But I think the timeline is still potentially longer than people expect

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Connie Chan: The same conversation I had years ago when people are saying autonomous driving is here, we can live in the hills.

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Connie Chan: I can be resting, I can be napping while I'm driving to work. There is no need to live close to the office and it's been many years since that promise was first stated, and that hasn't panned out yet.

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Connie Chan: And I think people's behaviors ultimately are still hard to shift. And I think the story is also still out on whether or not. Employers ultimately are going to prefer remote work right as you hit the summer months are people's efficiency.

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Connie Chan: And happiness level is going to stay the same when they have to work at home and be in front of their computer all day long unclear.

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Connie Chan: Right. First one or two months when people are still saying, Okay, we're doing this for the short term, I see the light at the end of the tunnel as that light at the end of tunnel gets further away.

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Connie Chan: Do, do people enjoy working at home in the same way. I think that stuff is still unclear. So the verdict I think for both employer and employee preference is still unknown. And therefore, I think the impact on commercial real estate.

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Connie Chan: I think it's going to be negative. Honestly, in the near term.

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Connie Chan: But in terms of like how negative and how does that ultimately impact residential living choices.

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Connie Chan: I think too early to say. But in the near term, I think commercial real estate is hit and ultimately what that also means, you know, if you do believe only half the office needs to go in the physical office.

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Connie Chan: Then you can have more tenants per building or perhaps you know you just don't need as much office space in that area.

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Richard Green: Right. Well, the other thing though is it is until we get a vaccine social distancing is going to require used for space per play so

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Connie Chan: Right, each

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Richard Green: Face, you may use made not

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Connie Chan: What he mentioned on the elevators is really interesting, too. Right. Yeah.

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Richard Green: Um, let me, let me turn to some audience questions are from James I'm very interested in the intersection of prop tech and addressing extremely affordable housing specifically addressing the homeless problem leveraging technology, who is innovating in this space.

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Connie Chan: specifically addressing homelessness. I actually was just reading a pitch deck from a company that's trying to tackle this.

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Connie Chan: It's not

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Connie Chan: The amount of technology. It's kind of light. But this particular entrepreneur his bed is that rather than having small centers across the city, you should have one mega center.

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Connie Chan: Almost like a small city dedicated to building all these services and homes for the homeless.

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Connie Chan: That company that I would say is not not necessarily like a tech

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Connie Chan: Technology software company, but more just like a startup that I do believe is trying to tackle this.

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Connie Chan: And also seems some startups, try and tackle more affordable kind of prop up temporary housing and temporary shelter. The tricky thing with a lot of them is, unfortunately, they've been met with significant regulatory

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Connie Chan: Limitations were somehow if they create something that doesn't also include

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Connie Chan: X y AMP z that the city. When mandate them to have they aren't able to get it out there, even though it's a huge improvement to the tent or the living structures that a lot of homeless have to live in today. So I think for homelessness. The issue has been a lot of it is honestly bureaucratic.

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Connie Chan: And also the whole issue of the not in my backyard is a very real issue.

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Connie Chan: And so whatever solution you put out there. You do eventually need that community by in that city by in. And so for that kind of startup unless the startup has some ability to get around it.

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Connie Chan: Or have the buy in from the community and the city. We haven't seen solutions that have kind of been able to do that yet. That's good. So

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Richard Green: So the other question along these lines is to what extent could technology be used to just reduce the cost of construction and, you know, Tara being

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Connie Chan: Yeah yeah

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Connie Chan: Yeah, about the modular construction startups being being created right now a bunch of the ad space in particular.

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Connie Chan: Where they feel like they can kind of standardized what that look and feel the home could be in everyone's backyard. And so I think there is a lot of talk around modular building around building walls, where the electric

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Connie Chan: Stuff is already all built into the wall so that when you kind of put it on site. It's like Lego pieces.

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Connie Chan: Much my job together.

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Connie Chan: So lots of startups trying to talk all that. And I'd say, right now, there hasn't been kind of like one standard that has really want everyone over just yet.

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Connie Chan: So there have been multiple companies that are all kind of in that seed or series a stage where they each had their own design that they can build at scale for lower costs.

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Richard Green: Do you have any sense. Right. So, you know, Singapore, they're doing this. Yeah. You know that factories in Malaysia. They build the modular units and enter

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Richard Green: Department will take like three

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Richard Green: Of these guys just, you know, boom, boom, boom.

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Connie Chan: Yeah.

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Richard Green: Yeah, there you have them. And so in Singapore, which is a very, by the way, there's no labor cost savings for anything and say, Singapore is a very expensive place.

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Connie Chan: Yeah.

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Richard Green: Yeah, and they're delivering units for about 170,000 US dollars.

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Richard Green: Yeah, why, why can't we do that or the

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Richard Green: Data Center. We are

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Connie Chan: Well, as you know, Singapore, they build up right they have lots of limitations inside. And that's really different than when you're building wide and you're building like single family homes.

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Connie Chan: So, so one in terms of just user preference when you are building things like a single family home they very much more

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Connie Chan: I think people when you're picking

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Richard Green: I mean,

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Richard Green: When they say they have a standard model. They have a standard

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Connie Chan: Yeah. Yeah, it's like, it's very standard. This is the number of bedrooms. This is the exact model of what the house looks like when you go in

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Connie Chan: And users for the sake of being near a particular neighborhood being near their office or hitting a certain price point, they're fine with that.

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Connie Chan: But in the States when you're building oftentimes single family homes that are spread across

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Connie Chan: Going going across, as opposed to going vertical, then you have, again, all that personal preference, which is why I think real estate. There's so much emotion. At the end of the day involved right

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Connie Chan: They have homeowners who they care about what color their cabinet is and the land because they're different shapes the plots are not all cookie cutter squares are rectangles.

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Connie Chan: You have different issues around even getting that land prepped and ready and flat for that modular house to sit on top of it.

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Connie Chan: So there's just many more factors that come into play a big chunk of which is consumer preference.

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Connie Chan: Which is why I don't necessarily think it's going to be a winner take all even though you see all these startups out there. You have startups that have homes that are extremely modern and design.

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Connie Chan: And you have startups that are saying, hey, maybe people don't want that big box modern, open space where from the kitchen. I can see the living. I can see the front door people's preferences on the actual home design privacy constraints number of bedrooms. I think still varies a lot.

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Richard Green: So we have a question from Graham Walberg who I think he's a he wants to make a pitch to you. But he says, so I'll

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Connie Chan: Why combined love to hear it on LinkedIn.

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Richard Green: Well know exactly

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Richard Green: What are the prop idea. So we he wants to know this, so he can make a pitch you about one of them. What are the prop tech ideas, you'd like to fight.

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Connie Chan: Yeah, so I think, again, things that have are part of the transaction in some way transaction, not necessarily meaning buying the home dough.

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Connie Chan: But anything that has money flowing, whether it's the rent or the payment to the again the pool.

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Connie Chan: Cleaner or to your broker or anyone that's always interesting because automatically. You have a transaction that's baked in, where you can kind of charges service fee or something on top of that.

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Connie Chan: I also like companies that have access to really valuable data again. The, the data that you already has can be used for all kinds of insights for their end consumer and that data ultimately is there mote

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Connie Chan: It is the theory of defense ability for why another startup can't just come in and get customers switch over right away.

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Connie Chan: So access to interesting data, something that's kind of bringing together a fragmented audience, bringing multiple people together versus like a single player mode experience is also very interesting

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Connie Chan: And of course, you do have lots of single player experience type prop tech startups that are still being

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Connie Chan: But if you are touching upon something that brings multiple people together, that tends to be more sticky.

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Connie Chan: And oftentimes, when you're looking at a startup, you want something that people are not just using once and then they're done with it, unless it's like a huge transaction, you can really make a lot of money off that lead or transaction fee.

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Connie Chan: you ideally want something that someone will be using six months 12 months down the line. So when we look at startups. We often are looking at these things, what we call retention curves.

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Connie Chan: Cohort curves which basically says okay month one you have 100% of your users. How many of them still log into your website or app six months from now.

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Connie Chan: How many of them still log into your app 12 months from now. And the reason why that retention matters so much is in this day and age where we spend so much of our time on just a handful of consumer apps.

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Connie Chan: To be able to constantly pour new users into that funnel is tricky, right, oftentimes it's done by paying up for ads.

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Connie Chan: Whether it's through influencer ads or just direct Facebook or Google ads.

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Connie Chan: And so you don't want this leaky bucket effect where all the users who come that you pour and eventually leave in one or two months, unless you were able to monetize them in that one or two month timeframe.

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Connie Chan: So we're looking for things that can again bring people together, ideally have some kind of money flowing through it.

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Connie Chan: But ultimately, I'm looking for something that's all the major pain point

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Connie Chan: Ultimately something where the end user, whether it's a renter landlord own builder has a real pain point that technology can solve. We've talked about vitamins versus painkillers.

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Connie Chan: Has to be a big pain point right you want to invest in the painkiller more so than the bite.

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Richard Green: A lot of us, you know, a couple years ago, we added our retreat. A couple of guys taught. We had a panel on blockchain.

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Richard Green: And we had people saying travel experience was going to go away and we were going to make the transaction just so much

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Richard Green: Again of the pain points on the transaction double way and some of the cost because the blockchain hopefully haven't heard too much about that recently it has this sort of died down. Are we in a quiet period, and it's going to come roaring back with

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Connie Chan: What's going on. Yeah, I think we're in a building period for crypto right so right now the

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Connie Chan: One, when you talk to an average person who owns bitcoin, why do they own it. A lot of it still as they're thinking of it almost like an investment, almost like a stock right like they're looking for the appreciation value. And that's why they're holding it.

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Connie Chan: And so I think right now. People are still in the building phase where there can be more use cases of bitcoin and ultimately it'll take more building and more more of these kind of bigger use cases to arrive for everyday people to start treating Bitcoin one like a currency.

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Connie Chan: So I think we're still early in that building phase.

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Richard Green: So because we're coming up on the top of the hour. I'm going to combine the last two questions together.

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Richard Green: inserted in there about are you concerned about the following us at one. Are you concerned that Amazon is just going to be everything and two are you concern that privacy regulations are going to inhibit and the examples. Matthew more use than one smart Renard us about Amazon.

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Richard Green: Place or an Uber media is we have more privacy regulations, is that going to inhibit the ability of some of these tech firms to grow.

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Connie Chan: The one. First one about Amazon. I personally am a big Amazon fan. I use an Amazon credit card and buy way too many things on Amazon.

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Connie Chan: But I also have heard you know on Amazon. You can even buy houses.

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Connie Chan: For 20 $30,000 these small houses that I think gets shipped to you and I know they're doing more in real estate.

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Connie Chan: And I think for them. It's probably still exploratory or very early days, and how they're thinking of prop tech, to my knowledge, but you'd have to talk to them about it.

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Connie Chan: In terms of am I worried about them them doing everything you know the answer is, is no. Not yet.

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Connie Chan: I do think ultimately Amazon does bring a lot of benefits to end consumers, I'd say during covert if people didn't have access to shopping on Amazon.

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Connie Chan: The majority of consumers would have a harder time and have to put themselves at risk, much more going into stores to buy things and most likely paying you know higher prices and looking at lower selection.

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Connie Chan: So at the end of the day, I do still think that Amazon is a service that that does help. The majority of consumers out there.

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Connie Chan: In terms of privacy regulations on mobile phone, you know, privacy as just a broad topic, I think, is something that Silicon Valley has had to think a lot more about in the last year or two.

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Connie Chan: Especially when you look at things like GDP are hitting Europe.

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Connie Chan: However, I don't think it necessarily hinders innovation, there's still a lot of innovation that can happen even with all of these regulations in place.

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Connie Chan: So I don't see it as something that's going to be a massive, massive hindrance to innovation. So

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Richard Green: We are coming up on the top of the hour. And so, I'm sorry. There's a question where it's going to be left unanswered. I'm sorry to the audience, but we do try to end these promptly Connie Chan. It's always so much fun to talk to you. Thank you for joining.

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I

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Connie Chan: Think ago

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Richard Green: And our. We are going to take next week off for the, I mean it's, I know it's the week before. But we basically decided the week before will be our July 4 holiday at the left center.

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Richard Green: Will be coming back the following week on July seventh and let me get this right, because since he's from Europe, it's a different time than normal. And I know chase sentence to me.

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USC Lusk Center for Real Estate: It's 9am

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Richard Green: Thank you so much 9am 9am la time 5pm London time we will be having calling Barrow. Many of you have heard Collin.

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Richard Green: Speak before and he was the mayor or the leader of Westminster, which basically meant he was the mayor of the most famous part of London and private equity guy very

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Richard Green: Interesting views on what's happening globally so I'm sure you'll very much enjoy that. Thank you again everybody for coming. And we'll see you in two weeks, Connie. Thank you again.

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Connie Chan: Thanks a lot. Have a great day everyone.