January 19, 2023
Following an industry pullback in 2022, experts sound increasingly cautious about the 2023 CRE outlook. In August 2022, Moody's Analytics reported that the Mortgage Bankers Association (MBA) rolled back its rosy $1 trillion issuance prediction when interest rates began to rise. Instead, the trade associations representing CRE and multifamily residences predicted approximately $700 billion, an 18% drop from 2021.
It wasn’t the bounce back for which investors were hoping, and the cautious optimism has created ripple effects to other sectors of business related to CRE. Most notably, PropTech. With these challenges only becoming more significant in the wake of high interest rates and the remaining shock waves from COVID, innovation and efficiency are becoming more than just a novelty for the United State’s 7th largest market, it’s becoming a necessity. As is further evidenced by investments in companies like Prophia.
Cultural Shifts and Market Conditions Amplify Importance of Data
In 2020, when the CRE industry suddenly experienced an 18% drop in revenue due to COVID, the decrease ultimately reduced the size of CRE to what it was in 2015. Today, the industry is still struggling to make up for such a mega downturn in the span of about 2 years, causing a younger and more “tech-comfortable” generation to get serious about a cultural change with the hope of safeguarding the industry from future “unprecedented times”.
What’s more, the abysmal year CRE experienced in 2020 did not happen in isolation. For PropTech specifically, funding dried up and those nascent startups that struggled to stay agile ultimately failed or disappeared as acquisitions replaced the abundance of capital that initially funded a PropTech boom in 2018.
For an emerging industry like PropTech and a dinosaur of an industry like CRE, the ability to be agile and innovate ultimately softened the blow of an unexpected downturn in the market. As we saw during the pandemic, companies with the ability to focus on the right, mission-critical initiatives had a much better chance of surviving those unpredictable setbacks of which we are all now so painfully aware. This realization has set in motion a need for better data management and accessibility, making solutions like Prophia, an AI-powered data extraction and analytics platform, more important than ever.
AI Technology Shows Promise for Challenging CRE Landscape
Commercial real estate is one of the world’s largest and most competitive asset classes—but participants are still hindered with poor quality, opaque data and antiquated tools, leading to high transaction costs, long deal lead times, and a huge service infrastructure that burdens everyone.
When you consider the CRE industry reported managing 97 billion square feet of floor space in 2018, according to the University of Michigan’s Center for Sustainable Systems, it puts into perspective just how big the average size of a single portfolio can be within this industry. Extrapolate that 97 billion number into finance data, the number of tenants, tenant encumbrances, leases and addendums, legal documents, utilities, energy use and the amount of paperwork required to manage a single commercial building has the potential to be a massive undertaking.
But the recent investment in Prophia, could mean CRE industry leaders are getting more serious about the importance of effective data management. For his part, Steele explained what prompted the product’s creation in the first place: “We started the company really with the goal of making data and access to that data for CRE investors much easier,” he told MPA of the company he co-founded in 2018. “I couldn’t believe it when I looked at the industry and saw how hard it was for this class to use data.”
The successful financial buttresses the need, he suggested. Steele noted that complex data extraction and management within CRE has been a neglected vertical market despite being one of the largest asset classes. Inaccessible, incomplete, and inaccurate data leave investors, building owners, and stakeholders disadvantaged in a rapidly evolving market, he added.
Prophia Secures $10 Million in Series A Funding
As the economy continues to be an unpredictable place for both established industries and new, it’s clear companies simply can’t afford to allow an inefficient process or inaccurate data to place them in a vulnerable position. With its recent Series A funding announcement, Prophia is already starting to emerge as the go-to solution for CRE’s greatest data challenges, offering teams and investors a glimpse into the efficient future of CRE.
With intelligent system tagging and easy access to original source documents, Prophia makes it simple for asset managers and lease administrators to analyze lease documents as they plan for the future. Teams of any size managing a commercial portfolio can cut down on the time it takes for mission-critical tasks like underwriting, data aggregation, and governance.
“The data that we focus on capturing today is leasing and tenant data – all the information we talk about being trapped in the long lease agreements,” Steele said. “We have a set of tools on top of that database that allows our customers to use that data for reporting, analysis, for a variety of things to help them make decisions about how to manage these assets, which can get very complex as they get larger.”
But Prophia’s CEO isn’t the only industry expert excited about the recent funding announcement, Cercano Management partner Stuart Nagae explained the appeal of the product that prompted the investment: “With the institutional growth in commercial real estate in recent years, investors have desperately needed a true and consistent way of looking at their assets with the insights to make sound portfolio decisions in a rapidly changing market,” he said.
With Series A funding secured, Prophia customers like RXR, Remedy Medical, and Nuveen have all taken a step towards the future of CRE. To find out more about how Prophia can work for your team, request a demo here.