Looking Forward to 2024: Wild Wild West (Transmission #277)

Looking Forward to 2024: Wild Wild West (Transmission #277)
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CRYSTAL TRANSMISSION: Thought-provoking long-form articles covering a wide spectrum from innovative shipping container co-living spaces to the battle for listing acquisition in the first iBuyer world war to the implications of floating cities seen from beaches far and wide.

Curious? Additional examples.

Proptech's Leader has Been Crashing Our Couch the Whole Time // Stock in Down Payments // Banking Real Estate in the Clouds

As always, links surrounded by the ❇️ emoji indicate exclusive GEM Diamond content. If you would like to have access to all links, please consider GEM Diamond membership.

For two straight years, our ❇️ central prediction theme was climate ❇️ (❇️2021 version❇️). Then, in 2023, we rolled it back to the basics: Profits rule and negative unit economics drool.

This year will be the wild wild west.

According to Sam Westelman

In 2024, we should expect at least one big surprise. A top 10 prop tech goes bust. A three-way mega merger no one saw coming. The indictment of a major exec for white collar improprieties. A deep pocketed European or Chinese player makes an unimaginable acquisition. A music or entertainment mogul makes a strong real estate brand-play.

I’ll add on to that. A bombshell settlement of a yet-to-even-be-announced follow-on lawsuit resulting from the Stizer/Burnett hammer that dropped. Brokerages forgoing the age-old IDX practice–and sellers not calling bullsh*t. Office buildings being sold for pennies on the dollar. STR portfolios being banned entirely by Washington. Nothing will surprise me.

And, honestly, who knows what will happen in the public markets. There’s a glut of expected liquidity events, though ServiceTitan is gearing up for a 2024 IPO. The big mergers, such as the ❇️Lessen acquisition of SMS Assist❇️, will no doubt be hurt by the regulatory hurdles that are only getting worse with the scrapped Adobe-Figma merger. While deals will still happen, the “big” deals are going to face pressure … and significant risk. All of that will trickle down to venture. Lack of outcomes/returns means fewer investments made.

Below, GEM members circle the wagons and ready themselves for a quick-draw as they look ahead, sharing trends and predictions any real estate cowboy should consider in 2024.

Image generator: Dall-E 3
Prompt: Realistic modern buildings, such as a home, office, strip mall, with a stagecoach and longer exposure on a Toyo 45AII and Nikkor-w 150mm f/5.6 w/ Copal #0 and add a single family home


PROPTECH TRENDS

SURGING ON OFFERS
Drew Meyers, Founder, Geek Estate

If you believe ❇️the endgame is an offers platform across every home in the country❇️, then you must believe that an offers platform will eventually gain steam on the adoption front. It’s going to be a banner year for those who have survived the carnage. I’m looking at you, Final OfferOpenn, Offer1, and Homwel.

RISE OF DISCOUNTED BUSINESS MODELS
Teresa Grobecker, CEO, Consortia

2023’s most notable lawsuit will usher in unprecedented changes in compensation decisions by buyers and an array of new (or recycled) business models to service them. Expect a resurgence in flat-fee and discount brokerage services to list properties on the MLS. As more of the transaction is data driven, there is less need for negotiations. 

Drew Meyers, Founder, Geek Estate

The graveyard is littered with bodies that are well documented. The real question is whether fallout from the Burnett/Sitzer verdict—and all its follow-on legal action still unfolding—changes consumer behavior in the near term. Many tech geeks have long-thought agents are overpaid. But, consumers haven’t agreed to the tune of adopting discounted models, for all the reasons outlined in my 15-year perspective on the rocky roads experienced by Redfin, Clever, Opendoor/Open Listings, Houwzer, Trelora, Redefy and others. Will this time be different? Although new models are certainly overdue for adoption, I’m convinced the time horizon for adoption coming to fruition is beyond 2024.

ANTI IDX
Drew Meyers, Founder, Geek Estate

Multiple big brokerages/franchises will follow ❇️Howard Hanna’s lead❇️ and abandon IDX in one or more markets. The success of the strategy in terms of increasing in-house transactions and market share will cause others to follow. Compass will be the first pendulum to shift and wheel to drop, with the Bay Area as its testing ground.

THE END OF AI EXPERIMENTATION
Anthemos Georgiades, Co-founder, Zumper

AI will transition from an experiment to a core pillar of proptech marketplaces. It will largely work behind the scenes on things like listing quality, image ordering, or customer service efficiency—it will become part of everything. The biggest question of 2024: Can it sit front of house?

Can generative AI replace or at least amplify Zumper’s core search experience? We're working on it.

Image generator: Dall-E 3
Prompt: make an image of how AI will become a core pillar of proptech marketplaces.

MAINSTREAM DIGITIZATION OF RENTALS
Anthemos Georgiades, Co-founder, Zumper

Technology will become increasingly important, and management companies will continue upping the tech ante with virtual tours and staging, and even drone tours. More than 27 percent of renters pay rent digitally via online tools, and 42 percent say they would prefer paying digitally. These tactics are especially important to attracting younger renters: According to a Zumper survey, more than 22 percent of Gen Z (ages 26 and under) signed a lease for an apartment they’d only seen online.

LAUNCH OF FIRST AI REAL ESTATE AGENT
Robert Hahn, Partner, 7DS Associates

[Adapted from Notorious Rob’s Seven Predictions for 2024]

The logic for the first “AI Real Estate Agent” launch in 2024 is inescapable. Rather than use a real estate agent to access an AI tool, they will be relied on by buyers and sellers for advice, psychological reassurance, and local on-the-ground knowledge. Beyond that, an AI tool can and will do just about everything else.

Deploying on the sale of existing homes will be the last place we see AI Agents launch—the stakes are too high. Instead, AI is coming for low-stakes areas of residential real estate that the industry as a whole largely ignores: The rentals space, where all of that “most important decision” stuff goes out the window if we’re talking about a young couple looking for a place to rent. Landlords call the shots, so most real estate agents don’t do a whole lot for a renter. For a would-be tenant, an AI Agent would provide almost all of the value of a human real estate agent: It will scour the internets for a place via images and search terms, help the tenant understand the leasing process and terms, and facilitate credit checks and deposits.

For the landlord, most of what a leasing agent does is paperwork and process—things that computers and AI excel at. So much of property management can be automated, and good AI will be able to handle all of that as well. Automate marketing with AI? Then have the AI automatically upload the rental listing to all the portals? Sure, why not.

For 2024 and a couple of years beyond, home resale real estate agents have little to fear from AI. So to that extent, all of the industry cheerleaders are correct. But a few years from now? Watch out.

Another area safe in 2024 but primed for upheaval: New Construction. National homebuilders like Pulte or KB Homes have both the capital to put into building an AI Buyer Agent, the financial incentive to do so, and all the data the AI needs to train itself.

GROWING TOGETHER
Duke Long, EIR/Venture Advisor, Second Century Ventures

Make no mistake about it, consolidation is coming. In a big, big way. Platforms working together to leverage advantages (distribution) and lessen disadvantages (costs) is the future. The smart ones are already on this path, or will jump on the train. Collaboration is nothing new, but we’ll see far more this year than in past years. Those who resist will die on the vine.

A PARADIGM SHIFT: LOCATION, LOCATION, LOCATION → DATA, DATA, DATA
Drew Fabrikant, Founder, Scout

Hyper-personalization is the new norm. The days of searching by bedroom count, size, and price are gone—replaced by algorithms and advanced filters that consider factors such as weather resistance, flood zones, electrical efficiency, and even home-office sun exposure.

Buyer and seller demand for these tailored services will create an expectation that brokers and agents will have instant access to even obscure data within this wealth of information.

LLMs are in a prime position to help brokers and agents deliver. These evolving preferences underscore the pivotal role that data plays in shaping the way buyers perceive and select their dream homes and how commissions will be won.

AI INFILTRATES FINANCE AND INSURANCE
 
Nate Smoyer, Head of Marketing at Roofer.com

AI is more than just a buzzword for what’s to come: It is set to revolutionize underwriting processes and future risk assessments, especially related to climate change. Many companies are already on this path, employing AI in various capacities, from enhancing property maintenance to deploying sophisticated data solutions for financial institutions.

MAINTENANCE AND DATA UNITE
Nate Smoyer, Head of Marketing at Roofer.com 

Often overlooked, maintenance is becoming a critical area for property management companies, DIY owners, and even those managing industrial buildings. With the current economic climate dictating longer property holding periods, and the challenge of increasing yields without raising rents, efficiency in maintenance is more important than ever. We're going to see a focus on data-driven approaches to understanding and managing maintenance costs and operations. The integration of digital-first services that connect owners and managers with service providers will be key in making maintenance more efficient and effective.

BUSINESS SUSTAINABILITY TAKES PRIORITY
Nate Smoyer, Head of Marketing at Roofer.com

We’ll continue to see a shift in focus toward business sustainability. I’m not talking about environmental stewardship; I’m talking about ensuring businesses can withstand challenging periods of time without raising funds. Can your business handle reduced transaction volumes or lower yields for a few years? With potentially longer gaps between rounds of venture capital funding and more modest valuations than we've seen in the past, creating a business that generates cash and has a clear path to profitability will be more than what’s popular on X (Twitter)—it’ll be necessary. Those who can demonstrate this will undoubtedly attract more attention and investment.

SUSTAINABILITY METRICS FOR THE WIN
Alexey Dubov, Co-founder, Mighty Buildings and BuildTech

Sustainability metrics will play an increasingly important role in building management, driving the adoption of tech-enabled solutions that can help reduce energy consumption and minimize environmental impact. We should expect record-high investment activities in this category.

CONVENIENCE WILL DRIVE RETAIL RECOVERY
Joe Dahleen 

Brick-and-mortar retail is not dead. A great deal of it, however, is obsolete. As we surge into 2024, it's clear that the retail industry is evolving to meet changing consumer needs. The obsolescence of traditional brick-and-mortar stores has paved the way for the rise of convenient strip malls and high-amenity lifestyle centers, which are fast becoming all the rage. These innovative developments are redefining our shopping experiences and driving a robust retail recovery.

The transformation of underutilized shopping malls into thriving hubs aligning with modern demands is a trend worth noting. Retail operators who can creatively repurpose these spaces will find themselves at the helm of a flourishing business landscape, as consumers continue to seek convenience and quality in their retail experiences. One of my favorites is One Paseo in San Diego. I took my honey there for a date night—big hit.

Let's embrace this change as an exciting opportunity for growth and innovation in our commercial retail industry! Plus, it's a win for residents living close to these locations.

Image generator: Dall-E 3
Prompt: make a graphic that shows a resurgence of brick and mortar retail convenience

THE DATA CRE COMPANIES WILL BUY
Kevin Shtofman, Head of Innovation, Cherre

As the world of sales and lease comps gets murkier, enterprising developers and acquirers will look to other data sources to augment their decision-making—permitting data, incentives data, and consumer spending data will be high-ROI subscriptions. I’ll be watching companies like BCI, Builty, and Incentifind in this arena, in addition to established players like Mastercard.

THE BRIGHT SPOTS EMERGE
 
Kevin Shtofman, Head of Innovation, Cherre

Greenfield Funds: With no assets holding them down, new funds can wait for the right deals, once asset repricing occurs. While it might take 6-12 months longer to deploy capital than before, returns will likely outperform competitors holding legacy assets.

Sub-Property Types: In the office sector, medical will outperform as the demand is still high, driven by retail consumers. This is not to be confused with life sciences real estate, which depends on the growth of venture-backed pharma startups as tenants. In multifamily, slowing rental growth and high interest rates will make market-rate multifamily tough sledding, but senior housing will outperform as demand continues to outstrip supply and our aging population is willing to pay higher rates for creature comforts where they reside.

New Proptech Launches: In 2009/10, new companies that started with innovation as a core attribute and limited capital spending outperformed the market. The same will happen this year from new and interesting firms that launch in the ashes of other company failures. This includes companies that launched in the last five years and responsibly sledded through Covid without much fanfare. A few to watch are Pronto Housing, Dwellsy, and RealtyAds.

CRE DEAL ACTIVITY WILL REMAIN MUTED
Kevin Shtofman, Head of Innovation, Cherre

If a buyer offers you, as a net lease owner with stable tenants, a seven-cap, but your debt isn't due for 5+ years, why would you sell? Alternatively, if you own a building with a questionable rent roll, you'd love to sell … but who would buy? The only deals getting done for the at-risk office sector are opportunistic developers that are buying the underlying land to reposition the asset. For multifamily, these deals will be driven by owners who weren't able to refinance their badly-timed, floating-rate debt and are forced to sell.

I think we will see a uniquely disparate gap between the activity in high-tax states vs low-tax states, where institutions with dry powder will be more opportunistic.


PREDICTIONS

MMM COMEBACK WITH A TWIST
Drew Meyers, Founder, Geek Estate

❇️Removing Make Me Move❇️ still makes no sense, unless a full-scale offers platform rolled out across every home in the country is in the works. Such a product will cover on-market or off-market—with integrated title, mortgage, and closing from both Zillow’s own product suite and others in the ecosystem. The plethora of lawsuits, and the likely divorcing of commissions, makes the timing of this product announcement finally right.

*Special bonus: The product announcement will come with the acquisition of an offers startup...and I'll name Final Offer.

STR ESTIMATES ON REALTOR.COM
Drew Meyers, Founder, Geek Estate

Short-term rental estimates. Virtually every SaaS platform for investors has them already. Someone’s going to put them in front of consumers sooner rather than later. Realtor.com will build upon their existing Airbnb collaboration and be the one to lead the way. 

LYFT IS NO MORE
Stephen Del Percio, VP & Assistant General Counsel, AECOM

Lyft has been outcompeted by Uber and its $120B market cap compared to Lyft’s own $5B.Uber, Airbnb, Expedia, or maybe another legacy travel company— an airline, even?—will acquire Lyft in 2024. 

WEWORK IS PURCHASED OUT OF BANKRUPTCY…
Stephen Del Percio, VP & Assistant General Counsel, AECOM

…but by someone other than Adam Neumann

REDFIN DOUBLES IN VALUE
Drew Meyers, Founder, Geek Estate

With a current market cap of 1.14 billion (as of 1/2/2023), Redfin will end the year up more than 100%. I still believe ❇️my statement from 2020❇️:

Redfin is best positioned to make the greatest impact on society. Not to generate the most returns, but to rewrite real estate history for the better.

The most impactful brokerage to ever be created. Maybe I’ll die on the sword, but I’m still bullish that investors will eventually reward that. We’ll be tracking progress closely.

DEEP POCKETED EUROPEAN OR CHINESE PLAYER MAKES AN UNIMAGINABLE ACQUISITION
Sam Westelman 

Let’s just throw a dart at this provocative headline. Here’s your appetizer. Australian powerhouse Raine & Horne sets its sights on the US market. They make a cash and stock offer for United or HomeSmart to get a piece of those juicy nationwide footprints. Boom! That puts them at 1%-ish of the US residential market, and primes them to add some global flair on these shores. And for the main course, Singaporean state sovereign fund Temasek Holdings thinks Place & Brivity look like tasty snacks. They leave the very capable management in place, but task them with dominating the retail brokerage space and being the next incarnation of NAR.


CONTECH CENTRAL

BIG TECH PURCHASES A LEGACY AEC FIRM
Stephen Del Percio, VP & Assistant General Counsel, AECOM

AI applications are driving increased demand for data center capacity. Yet at the same time there is rising concern about the carbon footprint of AI products, necessitating innovation in data center operations. This will lead one of the FANGMANs to vertically integrate their design and construction data center supply chains through the acquisition of a legacy AEC company. 

MAJOR M&A SHAKES AEC INDUSTRY
Stephen Del Percio, VP & Assistant General Counsel, AECOM

As federal infrastructure dollars continue to swell design and construction backlogs, publicly traded firms will realize the only way to convert them into actual revenue will be through leveraging each other’s resources.  I’ve been predicting this for several years now (and that I swore I was done making this prediction after 2023), but the conditions seem so ripe in 2024 that I’m doubling down once again. 

INFUSION OF AI-POWERED DESIGN TOOLS AND WORKFLOWS FOR AEC
Alexey Dubov, Co-founder, Mighty Buildings and BuildTech

Autodesk will acquire a startup that specializes in AI-enabled design workflows, or release functionality that streamlines 20% of the design architecture.

SURGE IN PREFAB
Alexey Dubov, Co-founder, Mighty Buildings and BuildTech

There will be a surge in prefabricated modular construction, which will provide builders with greater flexibility and enable them to complete projects without the headache of labor shortage on each and every project. We will witness an upsurge in successful case studies from prefab companies in the US executing record-high projects in 2024.

Image generator: Dall-E 3
Prompt: Generate a photorealistic image of a factory making prefab homes

AFFORDABLE HOUSING THROUGH PUBLIC-PRIVATE PARTNERSHIPS
Bryan Copley, CEO, Co-founder, CityBldr 

Federal, state, and local governments will offer incentives and subsidies to investors, builders, developers, innovators, and preservers of affordable housing. Conversions of office to multifamily will make headlines as owners and cities alike seek ways to stem the glut of empty buildings—1 billion square feet and counting—in urban cores across the country.

Image generator: Dall-E 3
Prompt: make an image of an office building being converted into affordable multi family housing.


And, with that, that's a wrap! Agree or disagree? Do you predict a different gunfight unfolding at the O.K. Corral this year?