PropTech Pulse January 16, 2019

The Rising Presence of Tech-Experience in the C-Suites and Boardrooms of Real Estate Firms

In general over the last decade, the real estate industry is one that has watched from the sidelines as others have embraced the technological revolution. There are various reasons for this – generational gaps between real estate leadership and younger tech savvy millennials, the view among many real estate operators that tech developers lack knowledge of applications that will be ready for integration within the real estate business model, and the tendency of real estate companies to retain outdated technologies.

This reluctance to innovate has changed recently as real estate firms have begun to self-adopt technological innovation or have had technology foisted on them by disruptors seeking to capitalize on infiltrating the world’s largest asset class, which disruptors see as ripe for a technological update.

As we witness the convergence of tech and real estate, one factor that has facilitated the successful integration of technological applications within real estate firms is the presence of internal leadership with tech know-how and the core responsibility for oversight of implementation of tech solutions. While many real estate companies have identified the potential benefits of technology, where there is no internal infrastructure to support the launch, maintenance and continued evaluation of the ever-evolving tech space, a technological transformation is lacking the key component of a support system within the end-user real estate organization.

Also, with the rapid acceleration of real estate-focused technology startups and the volume of venture capital funding being devoted to the PropTech industry, real estate firms have uncertainties about their ability to select and adopt the right technology applications from the many options being developed, including concerns about the ability of the tech solutions to integrate to a real estate platform.

C-Suite Roles Evolving

With these dynamics as background, we are seeing the rise within real estate companies of the role of Chief Information Officers (CIOs) and Chief Technology Officers (CTOs), as well as an increase in the number of board members with tech experience. In certain real estate companies the CIO and CTO positions may have existed in prior years, but with primary responsibilities limited to managing IT systems. Now in many instances, these executives have been promoted to the key executive leadership team, with reporting lines directly to the Chief Executive Officer or Chief Financial Officer.

Real estate companies that have embraced technology have done so with a focus on reducing costs through increased operating efficiencies by, for example, utilizing real time operating data to enable business decisions tied directly to the top- and bottom-lines. The companies that are effectively utilizing technology via these methods have gained a competitive advantage over peers that continue to rely on outdated systems, and CEOs and CFOs are realizing the benefits of this information flow, which is often synthesized and delivered by the CIO or CTO.

In addition to driving value by analyzing data sourced from technology, the role of CIOs and CTOs in real estate companies committed to technological advancement has evolved to become one of a strategic and innovative executive tasked with guiding key business decisions. These executives are evaluating prospective technology solutions and are responsible for determinations about new adoptions into the existing tech stack.

The rising role of the CIO and CTO in real estate organizations is validation of the fact that real estate is acknowledging the increasing importance of technology in its business. By way of illustration, the following table reflects the number of disclosed appointments of CIOs and CTOs in public REITs and real estate companies from 2010 to present:

CIO CTO Appointments
Source: S&P Capital IQ

Shifting Expectations for Boardroom Profiles

In addition to the fact that technological changes in the real estate industry are shifting skill sets of top executives, such changes are also resulting in the diversification of the business backgrounds of board members. As top investors and shareholders are demanding improvements in corporate governance aimed at increasing long-term shareholder value, real estate incumbents have turned their focus to boardroom diversity, including technology expertise, in order to attract investors through enhanced public perception. By incorporating technological knowledge into the boardroom, this creates another key internal resource with an understanding of the value of implementing new technology.

Similar to the emergence of technology-based executive roles, board appointments of individuals with technological backgrounds demonstrate a willingness from the top of real estate organizations to adopt a forward-looking view around technological innovation. The following table reflects the number of disclosed applicable board appointments in public REITs and real estate companies from 2010 to present:

Director Appointments
Source: S&P Capital IQ

Conclusions

Although the real estate industry has been slow relative to other sectors to adopt technological advancements, the turnover at the top of real estate companies to integrate individuals with roles focused on supporting technology internally is a strong signal that a digital transformation is underway. Technology in real estate companies that have adopted it is correcting operational inefficiencies and improving ROI, and the presence of internal expertise with the skills to effectively utilize and evaluate the technology and process the data derived from such platforms is emerging as a proven formula for success for PropTech innovation.