What We Can Learn From The Leaders of Real Estate Digitalization — Stronghold Invest’s Daniel Kraft

The world of real estate and property has largely been slow to incorporate technology into its day-to-day.

Urbanization has led to record high occupancy levels in many major cities and, as a result, business has been booming for many blue-chip property developers and owners. But, if the rise of companies such as WeWork has shown, owners and developers cannot afford to rest on their laurels and cease innovating, lest they be overtaken by a young upstart embracing the latest trends in digitalization.

I was very lucky to interview Daniel Kraft, Head of Proptech Ventures for Stronghold Invest, about his vision for the future of real estate technology. It’s my pleasure to share his insights with the greater real estate community, in the hopes that both mature real estate groups and young technology companies can benefit.

Stronghold Invest, based in Stockholm, Sweden, is one of the most experienced real estate groups in Europe. With revenues of more than 200M EUR and over a 1800 employees, you would think that they would be happy with their current state of operations. The reality is much different: Stronghold has taken an active role in understanding and spreading digitalization initiatives amongst their real estate portfolio.

Aakash Ravi: The word “Proptech” has been thrown around a lot in the past, and companies applying technology solutions to real estate is nothing new. What makes the current environment in 2017 different than in the past?

Daniel: A lot of societal changes have occurred in the past 10–15 years that has led to more adoption of technology in the real estate sector. There has been a society-wide tech-hype, primarily consumer focused, that has shown large companies what is possible with new technology and a great user experience.

At the same time, you see a trend in the consumer sector where people don’t want to own anything and only want to pay for what they use. This translates into the use of assets as efficiently as possible — which often means to rent rather than to own.

There is also a lot more focus being shown on the governmental and regulatory level on smart and sustainable buildings. This not only means buildings that are more environmentally conscious, but also ones that are conducive to people’s wellbeing.

Last but not least, there’s also a large push coming from corporations such as Cisco, who have invested millions in networking for smart buildings, or IBM with their Watson IoT platform focusing on IoT and AI in buildings. This shows that large companies are now going after the real estate industry, and this will lead to new platforms and value created.

Which sub-sector of the real estate industry do you see being most affected by technology?

I believe that the biggest change will occur in the property management sub-sector, given that the current ways of working are not technology or data-driven, but are rather based on experience or an “I’ve always done it this way” mentality.

The leasing sub-sector is also an area where there are a lot of old-fashioned processes. There’s no clear transparency in rent and pricing, and operations are very manual and broker driven rather than data driven. It is also a process where landlords are not very active, given how they can now scan the market for potential tenants and vacancies.

You mentioned the largest “disruption” occurring in the property management industry. How and why do you believe that this disruption will take place?

There will be improvements on both the cost side and revenue side in property management. From the cost side, there will be an ability to connect buildings to perform resource and staff allocations much more efficiently, allow operations to run more smoothly, reduce energy costs, and optimize the use of vacant space. For example, predictive maintenance of equipment is an example of a drastic improvement on the cost side.

On the revenue side, property managers will be working on adding new and additional services to improve the tenant experience and increase the building’s operational income.

All this change is being driven from technology, since there is the threat of companies like WeWork, who are managing almost all the property management in a data driven and digitalized manner to offer the best experience to the tenant. In this manner, they can push property managers back in the value chain.

What makes the Nordic countries such a great place for Proptech? What societal drivers are pushing the adoption of Proptech amongst real estate companies there? How can we bring this mentality to other places?

I think the IT and technology industry has always had a good home in the Nordics. The Swedish government ensured that we have stable IT infrastructure by subsidizing access to the internet and broadband. Now we are getting 4G and 5G within buildings, creating a great starting point for companies looking to innovate in this space.

With regard to bringing this mentality to other markets, Sweden is a smaller market so we are used to changing and adapting to new trends. Countries like the US where the domestic market is huge haven’t been as pressured to change and adapt, and therefore we are moving ahead quicker.

But the U.S. has a great VC infrastructure that Europe, to some degree, doesn’t have, so I feel that the U.S. will eventually catch up and even speed ahead in some areas.

As tenants start demanding more from landlords, we will see a tipping point and a big shift where we will be left with the « haves » and the « have nots » in the real estate world.

Being a real estate investor, what advice would you give to new companies in this field?

I think there is a clear difference in culture between startups and real estate companies. The two parties don’t speak the same language: startups don’t understand the dynamics of the RE industry, and real estate incumbents aren’t used to working with pilots, MVPs, prototypes, and so on. They are more used to working with a 3-year business case after making an initial investment.

That’s why it’s so difficult for startups to break into this market because they don’t yet have a finished business/product model that can be scaled, but at the same time they need to convince large RE companies that they are the best long-term solution in the market.

The best way to start working with these large companies is to therefore start with POCs and pilots, and get their clients or tenants to say that they love your solution. This will push these large real estate companies to then try something on a larger scale.

What is Stronghold’s overall strategy for the digitalization of real estate? How do these strategic initiatives translate into your day-to-day duties?

As you may know, one of our portfolio companies is Datscha, a real estate transaction aggregation platform, so we were already involved in technology from the early days.

In 2014, I had a discussion with our CEO and Founder and we agreed that we really want to position ourselves as a leader in technology within the property industry. I was therefore put in charge of technology ventures and understanding how technology will play out and impact property owners and tenants. At the same time, we wanted to ensure that our businesses are future proof. So my job is split on two fronts:

I spend 50% of time with Stronghold’s existing portfolio companies, and 50% of my time scouting new companies. When I scout new companies, I typically look at how we can work with them, run labs with our existing customers and their technologies, and even invest some money into them on some occasions. For us they serve as an external R&D division, allowing us to focus on our core businesses.

Daniel Kraft was interviewed by Aakash Ravi, COO Spaceti: In a world ripe with various strategies for property digitalization, Stronghold seems to have struck an ideal balance between innovative experiments and operational discipline.

I hope this conversation has shed some light on best practices in advancing the real estate technology industry! If you have any questions, comments, or would just like to get in touch, please add your comments below!