Leasing real estate assets in a high-growth market such as Los Angeles increasingly requires an assist from technology.

Both landlords and brokers are searching for innovative ways to perform old tasks more efficiently to maximize profits – and that’s creating new demand for tech solutions.

“Property tech really has been getting a lot of momentum in terms of both deals and funds that are sector specialists here,” said Chang Xu, principal at Upfront Ventures. “The industry is booming (and) I’ve been seeing more and more interesting concepts that blend together online identities and what happens in the physical world.”

The numbers back up the Xu’s assertion. Venture capital financing for real estate technology grew roughly 30.8 percent over the past two years to $3.9 billion in 2018 from $2.9 billion in 2016, according to industry tracker CB Information Services Inc.

CBRE Group Inc. broker Jeff Vertun attributed growth in the Los Angeles real estate technology sector to a southward migration of the mostly Silicon Valley-based FAANG firms (Facebook, Apple, Amazon, Netflix and Google) in the region.

“We’ve had major expansion from FAANG firms recently (and) it’s increasingly important for companies that want to be competitive to have a major presence here,” Vertun said. “Next-generation companies are all leveraging technology, and they live in this world where if you’re not innovating, you’re behind.”

CBRE has moved quickly to keep pace and currently offers eight technologies to clients: software, including an asset portfolio manager; a lease calculator; a location intelligence system; and a transaction management system.

Vertun specifically pointed to the brokerage’s acquisition for $6.4 million in January 2017 of Floored Inc., a New York-based developer of 3D spatial visualization software, as a turning point on the technology front for CBRE.

“Historically, you have to provide the files to an architect, and it takes a few weeks to put together a testing program, and it’s a whole process,” said Vertun. “(With Floored) you can model in 3D; you fly through the space and visualize and decide how you fit in it. That creates a lot of efficiency.”

Artificial assistance

Without digital assistance like the help provided by Floored’s technology, manual tasks can pile up and cut into a broker or property manager’s time, eventually spreading them thin and driving up costs.

One of the biggest recent developments to help control costs and maximize efficiencies in the real estate industry is the rise of artificial intelligence. A.I. that can interact with clients and handle the work of multiple employees at once relieves pressure on managers and brokers, according to Roelof Opperman, a principal at Venice-based real estate venture capital firm Fifth Wall Ventures Management.

“A.I. systems will continue to improve, will get more automated,” he said. “It’s a tool that’s handling one particular problem − scheduling and answering basic questions. A.I. (is) something that could alleviate a lot of the pressure in the rental process but has a lot of general applications as well.”

Venice-based Dynasty Marketplace Inc. uses A.I. nicknamed Lisa to automate leasing communications for brokers. Lisa answers company calls, texts and emails in a voice that’s eerily decent at impersonating a human, and is designed to help brokers automate manual tasks.

Backed by West Hollywood-based Arena Ventures, Dynasty Marketplace was acquired Jan. 8 by Santa Barbara-based digital property management firm AppFolio Inc. for an undisclosed sum. Dynasty Marketplace will remain in Los Angeles, the company said in a press release at the time of the sale, but some operations will be merged.

Both Dynasty Chief Executive Elliott Burris and AppFolio declined to comment on the acquisition.

“In their area, which is multifamily apartments, we’re seeing a lot of people asking about (A.I.). It’s a cost reducer, and you see an uplift in the amount of bookings,” Opperman said.

Better buildings

Researchers at USC’s Viterbi School of Engineering say the next trend in residential and commercial real estate will include A.I.-backed digital property managers and so-called smart buildings that interact directly with tenants.

A Jan. 17 USC study indicated tenants are comfortable being approached directly by a digital facilities manager.

“When they were in a social dialogue with a building, people liked that idea; they like dialogue that goes into the roots of when we feel like we have some kind of a relationship with inanimate objects,” said USC professor of civil and environmental engineering and study co-author Burcin Becerik-Gerber, who pointed to Amazon.com Inc.’s Alexa devices and Apple Inc.’s virtual assistant, Siri, as examples.

The study only focused on energy consumption, according to Becerik-Gerber, but the applications could be more wide-ranging.

Office environments that have artificial intelligence components could be on the horizon, Becerik-Gerber added.

“The opportunity is super high here,” he said. “I am envisioning there will be more buildings constructed with this technology or to be renovated with it. Sensors will collect data, and that will be converted to information to understand what people want and what the environment is like.”

Potential pitfalls

Despite increased demand for real estate tech, there are pitfalls to widespread adoption. The biggest hurdle – especially for technologies that use A.I. to interact with tenants – is the human element.

“There has to be a personal human aspect to real estate,” Vertun said. “Making big decisions for what makes sense for your company’s real estate to foster further growth is a strategic, human conversation that A.I. can help provide data for, but I don’t think it can replace the human strategic element of an adviser that will be required.”

That said, some advisers anticipate growth in the A.I. sector that will overcome this hurdle.

“People forget how quickly humans can get used to new technology, and that can be the norm. The home is the ultimate captive audience for marketing, and that’s why you see so many tech companies focused on it. It’s been a big opportunity, and there’s a lack of innovation in the space in general,” Opperman noted.