Jon: Hi. Welcome to Shift, PwC Canada’s podcast on digital trends and topics that can make your business transformation a reality. I’m your host, Jon Finkelstein, and I’m also the creative director of PwC Canada
We have a really interesting one today on proptech, and I'm here with George Carras, founder and CEO of R-Labs Canada Inc.
So for those of you who've been listening, we talk a lot about emerging technology and internet of things. The notion of proptech, I think might be a bit of a strange one, a new one for people.
We hear a lot about FinTech, proptech? Tell us a little bit about what proptech means, and what it means for you in particular over at R-Labs?
George: It's a word like FinTech which describes property and technology.I think it's really a buzz word in 2018, and made an emerging trends in real estate six times actually, which is a pretty big deal.
Jon: So how do you want people to think about it? I mean, if this is a new term for them, what do you guys doing over at R-Labs that's helping push the proptech agenda?
George: So, we've got a fairly different approach in this thing. We own the problem of housing and commercial real estate, and we chose to solve it not through traditional means, new era, new thinking.
Not through government policy, but through tech-enabled venture. There was a great quote from Astro Teller who runs X at Alphabet. Captain of Moonshots, I think is actually his proper title.
Jon: I love that title.
George: It's fantastic, right? Astro's line was very transformative for the lab and it was, "Don't fall in love with a technology, because there's going to be a new one tomorrow. Don't fall in love with the solution, fall in love with problem."
Jon: I love that because one of the things that we like to do here is really trying to figure out what problems are worth solving? How do you prioritize the problems that are going to have the most impact?
George: The key is to really define the problem. I think a lot of times and typically in venture, 95% of it is, "Look, I've got this cool technology and we'll put some money into it until we get this product market fit," which basically means you have a solution looking for a problem.
We have an affordable housing problem that's there, and a whole bunch of others that are actually going to be growing as well through partnerships or things like REALPAC and other industry associations.
Jon: That's really interesting. I'm curious about how can technology solve affordable housing?
George: I think what will be interesting about proptech is that when we think of technologies, we drifted digital technology.
Jon: Yeah, it's true.
George: So, we actually have two different ventures that are in the form of a housing problem attacking from two different ways. One is a very physical solution, which actually makes housing products off-site constructed and installed, and it allows the market to self-solve its housing need. So we actually have a product in the second venture that allows owners of those properties to buy it. They can configure it, and it's very physical. So, physical solution to allow a market to self-solve its needs.
You're seeing new methods and new physical technologies and materials that are allowing that to make a big difference. So, you can attack going back to the problem of affordable housing. Don't limit, or at least in Canada, we're not limiting the thinking of what is proptech to digital technologies. We're also introducing physical.
Notwithstanding that, digital technologies also allow you to solve that housing problem from a business model perspective. I think that Jon is where the real game changers occur here. It's not just a cool technology. It's when you marry that technology with a new business model that you can really make a difference.
Jon: I just want to go back about one of the things that you said which I think is really, really interesting especially for people who are listening, who are in positions of disruption and figuring out how to take technology and make a difference with it. Not falling in love with a technology because-
George: Right. So easy.
Jon: Our side of the business, it's so easy. We have clients coming to us asking for a thing. "Hey, we need this implementation." "Oh, can you solve this problem using this technology?" Quite often it's like, "That may not be the tech that you need anyway." So, I really encourage people who are listening to say, "Don't worry about the tech right now. Solve the problem first, and then figure out what tech you need."
George: You need to bring new thinking to that problem. So if you try to have the same people who created the problem sit down and try to solve the problem and just say, "Here's some technology." It may be and you may have some incremental solutions, but you really need to bring new thinking around that problem. That's kind of why the lab, R-Labs by the way. It's kind of cool that little R exponential logo, but when you close your eyes and hear it, it's our labs-
Jon: OUR-Labs, yeah.
George: ...as in O-U-R. It's about the community. So, you can behave in a different way in a lab than you can in a larger organization. Innovation in a larger organization is really, really, really hard to do, and the biggest barrier of that is fear.
Jon: It's harder to solve new problems with old thinking. I think anybody who's listening, anybody who's working in an organization knows that. I think the hard part is actually getting out from under your own history, if you will.
What advice would you have for larger organizations who are listening that know they need to innovate? Maybe they know what problems they need to solve but they just don't know how to fail
George: It's mindsetting culture. In the lab, we have two outcomes. It's either winning or learning.
Jon: Winning or learning?
Jon: I love that. Winning or learning because so many people are like, "Well, you know, we don't have a culture of failure. Failure is a bad word. We're afraid of failure." It's not failure anymore guys, it's-
Jon: ...learning and winning. Winning and learning.
George: It's the lab. Welcome to the lab.
Jon: Winning and learning, I really like that.
So this is the big quote, "5.2 billion dollars in growth annually, 2018 proptech." Why do you think there's a surge in property technology investments? What are people thinking about?
George: I think it's ready for it now. Real estate as an asset class, its business model is pretty traditional.
You contrast that to other sectors. R&D, I don't mean exactly as a property, but R&D investments in the construction space are 0.5% of revenue. R&D in the computer electronic space are 9% of revenue. What you've seen is a cumulative lag in innovation in real estates. So you would say, real estate is operating in a World 1.0 operating system.
George: When the world is clearly at World 3.0. So, it's behind by at least two upgrades and that's now evident in two ways. One is, the technologies that are now far more mature, and capable, and more abundant are present. The capital that surrounds those technologies is paying attention to industries that are still lagging for real disrupting opportunity. So I think you're seeing the combination of both those forces saying, "Great, we're going to put some capital to work to fix things or disrupt things that are in this massive asset class of real estate."
Jon: One of the things that we see is consumer need sometimes drives innovation. Do you see people asking for or demanding innovation in real estate because there's so much more innovation elsewhere.
George: I would go back to these problems. People will be very vocal, political, in arms around things like housing, So people are concerned about that problem, but they're looking to ... the tools of yesterday that quite frankly created that problem, for the solution for that. So everyone's anchored in that problem. They're not necessarily looking to technology to solve that but a few will be, and those are going to be your entrepreneurs and the venture capitalists that are prepared to get behind it.
So you got to get ahead of this thing, and I think the need will drive the innovation. Housing and built environment, which is the anchor is the “prop” of proptech has a lot of need. We're going to have to think very differently about how we solve it than how we've created these things in the first place.
Jon: It almost seems insurmountable when you think about all the current infrastructure.
George: Yes, but I think that's where you'll have to then look at it and say it is, if you embrace the way we thought of solving it up until now. You need new thinking, and you need that new thinking to come with new capabilities, and those capabilities are being brought forward exponentially with these technologies both digital and physical.
Jon: The people who are going to solve these problems, where are they coming from?
George: I think the superheroes, they're amongst us right now.
I think there's a number of I'll call it entrepreneurs and institutional industry leaders that have come together and said, "We're going to think differently here." We're attracting the emerging leaders, the next gen leaders that have platforms that will support them in defining their super strengths and putting those superheroes around the problem sets that we have in lab.
Jon: You're talking about, I think X earlier.
Jon: I love the whole premise that they have which is basically, "Come to work every day and try to kill your idea."
George: Different thinking, right?
Jon: Why won't it work and try to do that?
George: Celebrate when you do.
Jon: Yeah. Celebrate when you figured. I think that's really interesting. "Hey, they kill their idea today." This wasn't going to work, because I mean there's that old adage, "Don't hold on to your mistakes because you spent a lot of time making them."
George: Right. Exactly. That's the challenge sometimes. You get into that and it's your mindset. You let go. That's a learning. Move on.
Jon: You mentioned this earlier, but real estate as an industry is probably viewed as somewhat slow, I suppose? Why do you think that is?
George: It's an interesting business. Even on the development side, one of the only businesses that rewards you for failure. So, if you could imagine holding an asset that all you have to do is hold that asset for a period of time, and even if you missed your approvals on a piece of land, your value of your asset kind of went up. There hasn't been a real need to operate differently because you've kind of made a good business or decent business operating within the paradigm of the day.
Jon: it's really, really hard to change when things are good.
So one of the things I think is really interesting about proptech is you talked about, yes, there is technology. There's physical innovations, all kinds of different ... There's business models. There's all kinds of stuff.
George: You know what? You just nailed it. I have to try me on this because it's so appropriate. I'm actually George 3.0.
Jon: You're George 3.0?
Jon: I love it.
George: So, let's pretend we have a unique ability, which I think is your superpower. Everyone has that in them. The key is how to find that in the earliest possible age you can. Then all you become is figure out your versioning system. What version of Jon or George are you, and what would you describe the next version? The simple thing on that is, you just got to get to that better version of you. Not somebody else, you.
George: So, I think that's bang on. I think that the challenge you have is clarity. For a 20-something year-old clarity of what do I do? I don't know, because what do you know? I think the better question in the beginning is, what are you really good at? What do you love? Start with that.
We actually have a program of that in the lab in helping develop real estate entrepreneurs, innovators, and managers working with PwC in the Next Gen program. I think that's important because the earlier you can help create the superheroes, the more traction we'll get on solving problems.
Jon: I think people sometimes they know what their unique abilities are, but they don't focus on them because A: It's more difficult. B: Maybe they're not going to make as much money right away.
George: There's always the concept of the side hustle. Familiar with that? So if you talk to someone of that in their 20s or 30s and you say, "So what do you do?" They say, "Well, I do such and such, and so and so, but me and my three pals have a side hustle and we do this." I encourage them to pay a lot of attention to that because you have to do your day job, but you chose to do the side hustle.
If you love what you're doing and you're good at it, and the world will reward you for doing it like, "Why are you doing anything else?"
Are you seeing startup technologies, are they having an impact in non-real estate organizations? Are you seeing them helping? What are you seeing out there because you must be seeing a lot of really interesting tech?
George: There are probably a dozen technologies now that I would characterize as being in the knee of their exponential curve, that S curve. You've got this ramp up, and then rapid growth, and then the decay. Machine learning, AI, IoT, blockchain I think. So all of these come together individually, but actually work highly integratable, if we can explain it that way.
Although they're really powerful and they're coming as solutions looking for a problem, the real game changing opportunity is when you can apply a new business model on top of those and attack a problem that exists in the environment.
So we have this massive force of these technologies that are coming where? The built environment. How much of your life do you spend in the built environment, right?
George: Right. So, these technologies are coming. There's no ignoring them. The only thing you can pick is what role are you going to play in them. The challenge to that in the rate of growth in those technologies has really left the rear flank if you will, vulnerable. So you have this tremendous risk now on security, and it's evidenced everywhere. It's not just by little organizations, you're seeing it evidenced in big organizations. So the level of disruption I would say from those technologies is profound both on innovation and risk. It is hitting. Those are hitting real estate, but it's not just the technologies, it's how we apply new business models to that.
I think there's a profound force that's coming from these technologies, I would say both in the business and definitely on the business of real estate.
Jon: Thinking ahead, how should real estate business owners be modifying their thinking, their strategies to be ready for change? Let's go. Three predictions you have for the future of the sector.
George: I think I'm going to know that whatever I say now, history will make me look like a fool. I will borrow some really good insight from-
Jon: What would George 4.0 say?
George: Yeah, looking back now. I think he would have said think of what Jeff Bezos said in your answer to this question and what Jeff said was profound. He said, "Forget about what technology is going to change. Think about what's not going to change and go all in on that." So what I would say is that 30 years from now, if we froze you and woke you up 30 years from now.
And we put you in the city. The built environment subject to impact from climate change would physically be here. If you're lucky enough to be alive 30 years from now, you will be 30 years older. Those are things that we know will be true. So, you invest all in on that. So, how does an organization evolve on that?
From a real estate perspective, your culture, your talent, all that is how you're going to deal with innovation, really how you're planning on dealing with failure. Predicting what does the future look like, I think the physical buildings will be here and pretty much the same way you see them now. Everything else about how you're running them, how we invest in them, and quite frankly how we're using them will be very different. I think in terms of the typical silos as we see them now.
The real estate over the last 20 years has done this great job of creating silos. You're in the office sector. You're in the retail sector. You're in the industrial sector. You're in the housing sector. So, we've done a great job and then what we've done even more is institutionalized each of those sectors. It means pour lots of money, and rigor, and discipline, and governance around that. I think change now is saying instead of creating a pen and creating silos, it's take out your eraser and blur them out. The assets will still be there, and we're stuck with that built form. How we use them is going to be very different.
Jon: Bad analogy probably is how they take ... I don't know if even this makes sense but you think about some of the factories whether you see the old Sears building or the Candy Lofts and how they've-
Jon: The outside is the same.
George: The adaptive reuse of the structure is just kind of the mold. Up until now, those have been resisted because of zoning and physical layout. So, what's interesting with this is some of those challenges are just amazing raw materials for great creativity.
Jon: Yeah. We just have to get out of our own way on some of the stuff.
Who's leading the charge globally on proptech?
George: R-Labs absolutely has the Canadian DNA on this. It's happening everywhere in different stages. Lead, follow, get out of the way, and I think we'll probably do all three. But I think we don't necessarily have to adopt a definition of that, that's coming from another place. I think we can create our own ventures and initiatives that will ultimately help shape what does that word mean.
I think the community that we have here is really unique. It's sophisticated. It's mature. It's big, and it has I think some great potential to collaborate in the R-setting around the problems that we face.
Jon: I love the fact that smart people are thinking about these difficult problems. It gives me a little bit of confidence in our future
I love the conversion of digital technology with physical innovation I guess, along with new ways of thinking new business models and really making sure that you just don't have a technology looking for a problem. I love what you said at R-Labs, you own the problem. I think that's such an important thing for anybody who's listening. You have to think about the problem you're solving. How to solve it for people and then figure out what you need to do.
George: A technology-enabled venture is a very effective way to get something to happen.
I think having a community to mobilize around this; here and now, I'm quite excited about.
Jon: You should be, I am too.
So, wow, that wraps another episode of Shift. In typical fashion, my mind has kind of exploded. Well, a lot actually. I'm hoping that people who are listening got a lot out of this, especially when we think about really being on the forefront of something that's so exciting and so transformative. You guys at R-Labs are really at the cusp of this which is awesome. So, thank you so much George for spending time with us, giving us your thoughts, your prognostications. We'll come back to you in 30 years and see whether or not your predictions are right, but until then thank you again, and thanks everybody for listening.
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