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The Real Estate Philosopher


A Non-Obvious and Undiscovered Opportunity in Real Estate Tech

Sep 14, 2022

I hear every day – with the drumbeat growing louder – how RE tech companies are struggling – and severely so. The money spigot where rapidly propagating unicorns – indirectly birthed by the governmental printing press, low-interest rates, and intrepid VC investors – roamed the forests has been turned off. And instead of a plethora of capital, there is a paucity.

I searched the internet for how many real estate unicorns there are/were but couldn’t get a number. So I will go with the concept that there were a lot of unicorns and even more tech companies with impressive (former) valuations.

You may recall that Barrons sounded the warning bell in 2001 for idiotic internet stocks that valued companies based on ‘eyeballs.’ Yes, truly, it was eyeballs equaled value. If you are old enough to remember that. I bet Warren Buffett was guffawing at that when it was happening.

In 2001, these inane companies were publicly traded and worth allegedly hundreds of millions of dollars – which was real money way back then. The Barrons article showed their burn rates, and it was obvious that none could last more than six months without more capital. And then – to the sadness of some and the relief of others – they all vanished – and with a whisper. By the end of 2001, they were all gone – poof!

The same thing is sort of happening now to numerous startups. One day a unicorn (worth?) over $1B and the next day facing bankruptcy. 

And things seem to be moving in the wrong direction. So far, inflation doesn’t seem to be going away – interest rates are moving up – and instead of too much money, there doesn’t seem to be any around – at least not money to feed unicorns and other startup companies.

As an aside, I note that there is an incredible pile of money around to be invested. It is just that investors no longer are buying the “if you build it, they will come” concept surrounding companies that have an idea that might make money someday. 

So many startups have only months to live. 

But I was thinking it doesn’t have to be that way for a real estate technology company. Follow my logic, please, as I apply it to The Real Estate Philosopher’s Tech Palace LLC (aka TREP-Tech) – and yes, that is a fictitious company with a terrible made-up name. 

Assume TREP-Tech has $500,000 in cash and a burn rate of $50,000 a month. Even math-challenged people can determine that TREP-Tech now has 10 months left. TREP-Tech was going to go to the well and plunge its hand in for another $5M, but the well is dry. Now, what is TREP-Tech to do?

First: let’s see what TREP-Tech does. Does it have any real value, or is it just a hyped-up pipe dream that doesn’t create much upside for anyone? If it is hyped up irrelevancy, then, as Billy Crystal said in The Princess Bride, “there’s nothing to do but go through its pockets for loose change.” I mean, it is game-over, and the best plan is to close TREP-Tech down promptly and do something else. 

But let’s say TREP-Tech does something that makes real estate more valuable or useful. Perhaps it lowers operating costs, increases cash flow, reduces carbon emissions, or chops up real estate into a service. The possibilities are endless, but that was what all these real estate technology companies were supposed to do in the first place. Then maybe – to quote yet a third movie – perhaps TREP-Tech is not dead yet?

Second: let’s consider how much value TREP-Tech gives to real estate. If it is not insignificant, then, theoretically, if Party A and Party B are seeking to buy a property, and Party A has TREP-Tech on its side, it could pay more than Party B because Party A has a built-in technological advantage.

Okay, now we have something to work with…

Third: TREP-Tech should change its business plan from trying to get more money from a VC investor that values TREP-Tech the way VC players evaluate investments. Right now, that is either a fool’s errand or will result in a dreaded down-round.

Instead, TREP-Tech should consider a real estate investor as a teammate. A real estate investor will likely have little interest in investing in TREP-Tech since real estate investors generally don’t do that kind of thing; however, their ears will certainly perk up if TREP-Tech has a plan to help the real estate business that they already have outperform. That is like catnip to a cat.

Fourth: TREP-Tech should do the math and show how a real estate investor, using TREP-Tech’s (hopefully proprietary) technology, can outperform for real estate it either owns or could buy, with TREP-Tech as its partner. And maybe a deal could be reached along the lines of:

The real estate investor puts just enough into TREP-Tech to allow it to survive
TREP-Tech and the real estate investor co-venture to buy real estate enhanced with TREP-Tech’s technology

Obviously, there are other structures and ideas – i.e., the real estate investor could just buy TREP-Tech – but you get the idea.

Fifth: finally – if you have a real estate technology business and this sounds interesting to you, please give me a shout. Or, if you have investment dollars and are open to ideas of this nature, please give me a shout. As a Real Estate Philosopher, I live for putting things like this together and am actively working with several real estate technology companies on ideas exactly like the foregoing.

Bruce Stachenfeld, aka The Real Estate Philosopher™

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As the Chairman of Duval & Stachenfeld – a law firm in mid-town NYC known as The Pure Play in Real Estate Law – I am inviting you to join The Real Estate Philosopher™. This will consist of my thoughts and also thoughts of friends and colleagues.

It will not be published in any traditional media – it will go only to friends of our firm. The purpose here is very simple – to put forth thoughts in the real estate world that are different, provocative, and challenging of accepted wisdom. Hopefully, nothing said here will be mainstream thinking.

You may be wondering how I am qualified to write on these topics since I am “just” a lawyer. However, I have an unusual place in the real estate world. As the Chairman of The Pure Play in Real Estate Law (one of the largest real estate law practices in NYC), I interact with an incredible number of real estate players. This ranges from small real estate shops with nothing but a gleam in their eyes, to some of the largest real estate institutions in the world, and everything in between. This gives me a unique and global perspective and allows me to act as an amateur philosopher in the real estate world. This has always been my hobby and it is what I love doing.

Regards,

Bruce Stachenfeld
a.k.a The Real Estate Philosopher™

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