Subscribe
Share
Share
Embed
Every Friday, join us as we dive into the latest in real estate multifamily with David Moghavem, Head of East Coast Acquisitions at Trion Properties. David invites top experts who know the ins, outs, and trends shaping the real estate multifamily market across the nation!
Whether you’re a seasoned investor or just curious about where the next big opportunity might be, Deal Flow Friday brings you the weekly inside scoop on what’s hot, what’s not, and what to watch for in today’s ever-evolving real estate scene.
David Moghavem (01:24)
All right, everyone, welcome to another episode of Deal Flow Friday. I'm your host, David Mogavum. And today we have Mike Sroka the founder and CEO of Deal Path, the industry's leading deal management platform for real estate investment teams. I'm super excited to have Mike on. I use Deal Path every day. I can't imagine being a director of acquisitions I try on without Deal Path at this point. I used to
track deals on an Excel sheet and manually input it. And then I was introduced to DioPath and it completely changed the way that I understand the market, track deals and understand trends. So to have the brains behind this beautiful tool is super exciting, not only for the audience, but for me personally. Mike, it's a pleasure to have you.
Mike Sroka (02:15)
Well, David, thank you so much for hosting me here and looking forward to the conversation.
David Moghavem (02:19)
Yes, definitely. And this is an awesome time. mean, besides just about PropTech, you have AI, you have crypto, and we'll get more into that as well on how DealPath's treating it. But it's an exciting time in general for tech and for a pretty archaic industry like real estate that's usually a laggard in some of these tech tools. I think it's an exciting time to be a PropTech company in this time in the cycle.
Mike Sroka (02:47)
We definitely agree with you and even broader I would say it's a special time in the universe. Right now it seems like you you can focus on the what you want to have or do rather than the how. The how is doable. So almost anything we can dream up we can accomplish and the progress with AI is extraordinary. I think that the advances in capital markets are as well. So a lot of action right now for sure and I think a bright future ahead.
David Moghavem (03:12)
Yeah. And Mike, you have a strong history in the product tech field, but maybe talk a little bit about your background and then also about how you started Dealpath.
Mike Sroka (03:23)
Yeah, you know, those things are very related. DealPath is kind of the coming together of my career paths and I would say it was a long time in the making and would really credit former colleagues and friends that were really persistent in describing challenges that they were facing that led us to build DealPath. I had started my career out of undergrad working for a large real estate private equity group, Hudson Advisors and the Lone Star Funds in Dallas, Texas.
And that's really where I first got exposed to commercial property transactions and more specifically how large scale private equity groups are managing data. I really enjoyed working there and ended up moving over to a hedge fund that was a long short strategy focused on the technology sector. And that's really how I first got exposed to early stage company development and seeing entrepreneurs pitching business plans very organically ended up
pitching an idea that we incubated at the hedge fund and ended up spinning out and building an engineering team in Dallas first before ultimately moving out to the Bay Area. And have now spent the past 15 or 20 years building venture-backed software companies in the Bay Area, which has been amazing, but I would say unexpected. That wasn't the original plan. We started Dealpath 11 years ago and building software for real estate
finance
I think now tracks very well with kind some of the places that I've worked previously, but those steps along the way of kind of starting in real estate, moving into software development, now building software for real estate was a progression and thrilled the way that that has come together. But maybe just talking a little bit more about that, you know, as I had started other software companies that were not in the real estate space, I had a lot of former colleagues and friends from real estate that were coming to me with
issues or things that they were looking for. I think initially I was really hearing them as needing file sharing, which I wasn't very interested in. That seems to be very well solved for. Back when I worked at Hudson, you know, we were still flying deal teams across the country and across the world. I think in about 2005 we became aware of the first virtual data rooms, a secure place to upload, view, and download files. But file sharing companies
had really disrupted that business and seemed like it was largely solved. However, they were persistent in asking for solutions and in about 2012, I think that we were reading some interesting writing from a neat venture capital firm called Emergence Capital and Gordon Ritter, who was kind of laying out what their experience had been investing in horizontal cloud services first, like Salesforce and of course the incredible
David Moghavem (05:52)
Mm-hmm.
Mike Sroka (05:53)
success that those had had. And their hypothesis at the time was that there would be a second wave of value-added services providing deeper value by focusing on specific verticals and specific applications. And they had a big success story in their portfolio with a business called Viva Systems for the pharmaceutical space that really proved how much value could be built in a niche of a niche and that these verticals were tremendously valuable.
So
I think, you know, reading some of that writing combined with these colleagues and friends that were really persistent about describing their needs changed the way that we were hearing it and sounded more and more like a workflow challenge, that they were really struggling with being able to compile the data that they wanted into a pipeline report, that they were really struggling with creating a repeatable process for how they would evaluate and pursue deals from underwriting, diligence, close
and asset onboarding. And that started to get a lot more interesting as we were seeing that, you know, a number of different contacts, because those conversations spidered out. And even the largest, most sophisticated firms didn't have any kind of purpose-built solution for this and were eagerly looking for ways to solve. So this was a demand pull situation where the market was looking for an answer to a pent-up need and pain point. That broken workflow in a big market
market was really exciting and interesting. But I think for us, the kind of big aha moment is that, you know, we felt like a lot of the inefficiencies in commercial real estate are related to the fact that there is no common data structure and that by solving for this broken workflow, you might actually be able to help create a foundational data structure that would change the way that the industry works. with real estate being the largest asset class
in the world, the oldest asset class in the world, such a key part of our economy and way of life. The opportunity to make an impact on the way that that works was a huge opportunity and one that we were keen to pursue. So I co-founded Dealpath with two partners, Kentar Wu and Andy Lee. All of us had previously worked together at a company called Zynga and we co-founded Dealpath in 2014. We actually just celebrated our 11-year anniversary
last month, which was great. Thank you, thank you. And it's just been great. The first 10 people at the company were all directing that work, which was a really efficient way to get started. And as we look at ourselves today, 11 years later, the mission and vision really hasn't drifted at all. And it's just been kind of this methodical build out and compounding of value. Now the market world has certainly changed dramatically over that timeframe, and we can talk about some of those adventures. ⁓
David Moghavem (08:08)
Congratulations.
Definitely,
Mike Sroka (08:33)
Yes.
David Moghavem (08:33)
mean in an 11 year span, the industry's changed dramatically. What do you think was the biggest change during that time? I guess maybe AI is probably one now, the most recent one, but maybe in the past 11 years, what do you think that is?
Mike Sroka (08:41)
Boy, I know, when
I look back, when we started in 2014, there was no PropTech.
There was no CRE tech. was real estate software services, which was comprised of a few incumbents and very little happening. know, people were using CoStar for data. They were using Argus for their underwriting. They were using, you know, Yardi or MRI or RealPage for their property accounting. And otherwise there wasn't a whole lot of innovation or a lot happening. would say that real estate software services was, you know, almost like a cottage industry.
And for reasons that we can chat about, I think that there was all of a sudden a lot more interest in that market and an explosion of investment and development where tens of billions of dollars of venture capital were invested, hundreds and thousands of different point solutions came to market. And over the next handful of years, what we now call PropTech really became a category and a thing. So that was one
probably dramatic change was the amount of investment and innovation that's happening in what we now call PropTech. know, alongside that, I think that there's probably some more kind of macro things that were affecting, you know, real estate software and, you know, all asset classes where, you know, between 2014 and 2020, for the large part, you know, we were in a pretty impressive bull run. And so asset prices were in
increase
in. There was, you very functional capital markets. There was a lot of action. So, you know, that's maybe like a phase that I would describe that, you know, we were a part of. In 2020, you know, we and the rest of the world had to confront the pandemic. And I don't think anybody knew what to expect. As things turned out, while there was a, you know, very brief interruption for our business, it wasn't a bigger shock.
And in fact, we were probably a beneficiary of the pandemic, you know, for different real estate owners that was different. And so depending on property type, I think that there was a different experiences at the beginning of the pandemic. was a flood of capital that followed and whether it be for, you know, real estate or for, you know, software companies, those ended up being some wild and crazy times as we all were working from home. And there was a lot of cheap
capital available. You know, that changed once again in the second half of 2022, very correlated with interest rates. And all of sudden, you know, we saw this dramatic increase in rates, capital markets really freeze up. And the world's starting to focus a lot more on efficiency rather than growth. And, you know, we were able to calibrate with that. And while we were able to grow in every period, we certainly saw, you know, relatively lower growth compared to other
periods.
David Moghavem (11:35)
Yeah, I think it's also
important for the real estate guys out there in the audience that while we were feeling this slowdown in 2022, it wasn't just in our industry, was in many industries. And in the proper tech industry as well, there was an insane amount of capital being poured and was allowing you to grow the tool, grow the business. But as that slowed down, it kind of caused everyone to kind of hunker down and prepare for the storm. So how has the
post-rate hike environment been as a prop tech company and how are you working with your clients through this?
Mike Sroka (12:12)
Yeah, well, you what's interesting and I do think that there's like a lot of correlation, whether it be, you know, prop tech or real estate. I think it's, you know, access to capital and the cost of capital. And there was, you know, a 24 month period at the end of 2022 and kind of coming into Labor Day of 2024, where there was this rapid increase and, you know, a lack of visibility and
confidence in terms of what to expect or predict for interest rates in the future. After Labor Day last year, we saw the first decrease in rates and pretty broad expectations that interest rates would be going down. You know, probably different points of view on, you know, when reductions might happen or how many reductions we might see, but a general belief that we were past peak. And that seemed to be really important and seems to open up capital markets in real estate and for software as
well. As we entered into this year, I think that there was a lot of optimism that we were going to carry some of that momentum from Q4 into this year. And, you know, I think that with some of the recent tariffs and other things, now there's a lot more uncertainty around, you know, what to expect in terms of the performance of our economy and what to expect for interest rates as well. So people are probably pulling back a little bit in terms of, you know, how much guidance
they feel like they can give and what they're able to predict for rates and the economic environment in the near term. Now, hard to know how that plays out, but I think that compared to January, February, it feels like there's more uncertainty and less conviction that things are gonna have a meaningful uptick this year. We were pretty bullish at the beginning of the year about increases in transactions.
volume, probably not so bullish on pricing, and still believe that we'll likely be up year over year in terms of transaction volume, but that number is lower and less clear than it was a few months ago.
David Moghavem (14:07)
Do you think that your product does kind of correlate with the health of the real estate market? if real estate's exploding, Dealpath will be doing well. If real estate's struggling, Dealpath might be struggling. Because to me, I feel like the CRM software, the base part of Dealpath, obviously there's a lot more features to it. When you're in a tough environment and there's more smoke and mirrors,
you really need to rely on your own information to really get an edge. Whether as when the market's hot, it's a little bit clearer, you there's more capital, there's more transactions. And so I almost think like for me personally, when the market's in a tough time, we kind of rely on Dealpath more so that we can see our own.
bid ask spreads and keep the pulse on that or like when deals are falling apart, we like have that in our CRM system and we can track it a lot better. Otherwise in a market where deals are hitting the market trading, deal hitting the market trading, it's like, all right, well, it's gonna be trading, it's gonna be recording, it's a little bit more efficient. And in inefficient market, that's where I feel like Dealpath has tremendous amount of value.
Mike Sroka (15:25)
Yeah, it's been interesting for us. I would say that when we started the company, and we had come from kind of a background in distressed, and our hypothesis was that, you know, in a heady market where people are paying high prices for trophy assets, Dealpath is great and important. And in a, you know, more challenged market where people are paying, you know, distressed prices and there's maybe, you know,
wider bid ask spreads as you were describing. Deal path is great and super valuable. What would be challenging for deal path is if capital markets froze up for a prolonged period of time. However, the world can't survive that and there's no place safe.
David Moghavem (16:03)
Mm-hmm.
Mike Sroka (16:04)
And that's kind of what we saw happen with the pandemic and reopening is that we saw capital markets effectively freeze up for a period of time. And I don't think that the world can survive that for too long. They have started to reopen again and we've continued. Now, Dealpath was able to grow through those periods, but our growth was correlated with the, I would say, like functioning of capital markets. So it doesn't really matter.
you know, if transactions are necessarily consummating or certainly doesn't matter, you know, what price they're consummating at. However, what's important for Dealpath is that people are in the market evaluating opportunities. And that's a big part of our business. Now, it's different, but I think related. Another kind of, I would say, important part of our thesis was that, you know, what we're seeing in commercial real estate is it's become institutionalized.
as a global asset class. And there are clear economies of scale in real estate, particularly on the investment management side. So there are operating efficiencies and even lower costs of capital, which is like gravity. So it means that it's inevitable that assets are going to aggregate and congregate with the largest, most sophisticated pools of capital. And we've seen some of that play out where it feels like nearly every week
or month or quarter, we see firms like Blackstone or Brookfield or Starwood that are raising another multi-billion dollar fund, closing on another multi-billion dollar portfolio, really operating at scale with speed and precision. That's kind of the name of the game. However, in order to be able to operate at scale, in order to be able to raise, deploy, return on billions, tens of billions, hundreds of billions of dollars, you need to have purpose
built tools and solutions. no longer works on a spreadsheet. So I think that's been another big change in the market and it's been a big driver for PropTech in general. It's been an important part of our company and business and you know I think a critical element in real estate.
David Moghavem (18:05)
Yeah, I wholeheartedly agree. know, as an operator with, know, Trion has over 1600 active investors. They rely on us to be the experts in the boots on the ground. And they also want to see firsthand what some of these numbers look like We underwrite hundreds of deals, thousands of deals. And I think we looked at how many deals we underwrote last year and it was
almost 400 deals, so a deal a day. And what we found is that investors not only want to see that you've underwritten those deals, but that you can synthesize it, come up with trends, and come up with a thesis on your business plan and your investment strategy, and showing it and conveying it. And I think DealPath does a great job with a tool to synthesize that data, so that you're not just doing the work.
and you just don't know it, but you can also present it and present those trends to your LPs, to people who are trusting you with their money.
Mike Sroka (19:06)
I'm thrilled to hear it's very core value prop for us. Couldn't have said it better myself, so thank you.
David Moghavem (19:11)
Yeah, of course. What were some of the surprises when you launched Dealpath, like that your clients were using it for or some different creative solutions or ideas that your clients came up with that you didn't initially think Dealpath can solve or do for your clients?
Mike Sroka (19:31)
You know, I'm going to change the question a little bit, but if I miss it, let's come back to it.
We're big fans of minimizing variables and trying to solve for one thing at a time. And so we saw this big opportunity, but there are so many things that could be improved in real estate. There are so many things in real estate investment management. There are so many things in the front office of investment managers and the investment process. There's a lot. And so in an effort to really try to narrow that down and
and isolate and focus on one thing at a time. Initially, the only thing that Dealpass supported was the acquisition of a single tenant net lease retail property. in 2014, we viewed that as a pretty straightforward type of transaction. They happened at high volume, high velocity. There was a number of firms that really specialized in that type of transaction.
offloaded some complexity that we weren't quite ready to take on. And so that was, you know, what we initially did exclusively.
And as we were building our confidence being able to support single tenant net lease retail, we expanded into being able to support multi-tenant. And so, you know, think like strip centers. We started to support portfolios of those retail properties. We expanded to not only support retail, but start to step into other property types and to be able to support industrial and multifamily and office and other things.
As we were continuing to build and grow it wasn't just the acquisition of you know a stabilized property it also included the development of properties and Followed that with the financing whether it be for acquisitions development or otherwise so I think that you know, we started to support more and more use cases along the way and Some of that was based off of maybe you know our own strategy and you know understanding and belief of what we could take
gone. But I would say that it was also very influenced by, you know, the customers that we had and the market environment that we were in. So, for example, you know, I think that we were observing in, you know, 2015 to, you know, 2018, 2019, 2020, all the way to today, really. But in those early days, we were seeing that we were actually, you know, taking on a lot of clients in the industrial space. Now, you know, it wasn't necessarily, you know, our efforts that were accomplishing that.
There was this macro-driven move to e-commerce and lack of supply for warehouse space. And so in real estate, there was a lot of capital formation. There was a lot of activity in that space requiring tools like ours. So industrial became a big part of our business because of that phenomenon. A few years later, we were observing that we were getting a lot of customers in affordable housing development.
And again, it's not necessarily because, you know, we were so focused on that space, but there was a lack of supply in the market. There was a lot of capital formation. There was a lot of activity happening in affordable housing that, you know, led to Dealpath really building up a segment there. Pre-pandemic into the pandemic and today, I think what we were seeing is that, you know, a lot of investment firms that were historically, you know, very active on the equity side were because
coming more more active on the debt side. So pre-pandemic, I think that our point of view was that, you know, that might be indicative of where we were in the market cycle, that institutional investors were seeing more compelling risk-adjusted returns being higher in the capital stack with more protective provisions. And that has certainly continued today where we've seen a lot of activity on the debt side, probably more so than the equity side. So all this is to say is that, you know, your question was around kind of surprises and the
The market environment and our own customers' needs have affected our roadmap, affected our solution, and I think to the benefit where we've tried hard to be able to listen and learn and build out solutions for what people need. And that does evolve and change over time.
David Moghavem (23:43)
Yeah. And I think that's the key thing of, of listening. think you guys do a great job of talking to your clients, staying in touch with them, seeing what their needs are and listening in order to adapt. as a, as a user myself, I've, you know, talked to your team about different tools that have worked well, some tools that need some work, some ideas of some tools that would be beneficial and ways to synthesize data. And you guys always have a team member on hand that's
willing to listen and say, hey, we're actually working on this tool that you suggested a few months ago, we're talking to the dev team. And so to your point, I think you guys being able to adapt and listen to what the market is dictating has been critical for your guys' growth.
Mike Sroka (24:27)
Yeah, I agree.
David Moghavem (24:29)
Do you guys have, guess, you you guys probably have a pretty impressive lens on what people are looking at, doing. I know obviously some of the information within, you know, a client's data set is somewhat sensitive, but do you guys ever take at least some aggregated data of how many deals people are?
doing a day or some type of like analytics that give you a little bit of a different lens on the entire market than, you know, someone who's not at Dealpath or at a different prop tech company.
Mike Sroka (25:06)
Do you think that it's...
a great advantage now. have more than 300 institutional clients. We've supported more than $10 trillion in transactions. And so there is a pretty deep and broad data set available around how clients are working, what they're working on, and using that to inform our product roadmap to be able to improve the services, making sure that we understand how people are using the service today, what things they are
going to be doing more of in the future is hugely important for prioritization. And I also think there's this like really important trust factor where, you know, clients are leveraging Dealpath to, you know, house and store their most important, most proprietary business information. And it's very important that they understand, you know, how that is going to be used. And, you know, there's contractual
commitments and compliance requirements and all of those things. But there's also just like the spirit of, know, do they understand how we're going to use their information and we take that really seriously. And so, you know, while I think it would be sweet to have, you know, different data products and, you know, different opportunities to aggregate anonymized data, need to be really clear with customers, you know, if or how their data is going to be used. And I would say that
that we have a really strict line in the way that we handle that today. So I have great interest in ways that we might be able to productize that in the future with explicit opt-ins and clarity. But in terms of informing our product development, we do have great ability to utilize and see that information. And I can talk over some general examples here. But whether it be where we see more transaction
activity happening and sectors that we might want to be focused more on, or in terms of how people are using Dealpath both directly and via integration with other tools and services.
We're also big believers that there is no all-in-one super solution and that clients are going to need a multitude of different tools to do their important work. Those things should be integrated together. So understanding how we fit into that landscape and ecosystem and how we can provide our clients with the most value is also hugely important to us.
David Moghavem (27:30)
Yeah, definitely. You know, one thing about DealPath that you were kind of mentioning is the users, when you're putting in data, you know, it doesn't have an immediate benefit, right? It's something that you got to use every day. You got to put data into it and aggregate that data. And then in years time, after using it for a year or two years, you start to reap the benefits because now you have this proprietary information.
with the years of data sets and data comps that you can rely on as your own proprietary data. One of the things that I'm excited about, and you were kind of mentioning with integration, is integrating into other apps, specifically the future of AI. I'd love to hear kind of how Dealpath is treating this new wave of tech with artificial intelligence and the clients that have been aggregating data.
to this moment aggregating it with almost no idea of what the benefits are gonna be until now we're here with AI. How do you see AI playing a role with some of the benefits that Dealpath can give to their clients?
Mike Sroka (28:34)
There's so much here we could talk for days about this ⁓ and we'll try to kind of organize some thoughts here. ⁓ I think that.
You know, we were designed from the ground up 11 years ago to be able to leverage machine learning and AI. And we've used, you know, AI for years in our platform. When you use a global search, for example, you know, you're leveraging AI. However, you know, when we talked about AI years ago, it was really predictive AI.
And over the past couple of years, there's been enormous progress and excitement in generative AI. We'll talk about that. kind of the newer hotness is now agentic AI. And all of those, think, have really important applications in real estate and specifically real estate investment management. So for our company and for our own operations, we kind of think about it in terms of three
David Moghavem (29:16)
Right.
Mike Sroka (29:31)
different buckets of opportunities. First is, you know, how do we leverage AI with client facing products? And that's probably like the sexy sizzle stuff that we want to talk about here and that people will be most interested in. we'll do that. But I do want to acknowledge the other two buckets, which, you know, for us, the second bucket is around, you know, the efficiencies that can be created in customer support. And I think that's across industries and has a lot of relevancy for our company and for real estate companies.
And then third is really the efficiency and the effectiveness of software development. And there's big impacts that are happening and being made there. So, you know, maybe zooming in a little bit on some of the...
more client facing products. You know, we think that real estate has always been a very document heavy business. And that is, you know, very well suited to AI solutions. So whether it is data extraction, being able to get data out of documents and into systems, or document generation to be able to automatically, you know, generate and create those documents. Those are like two big use cases.
where there's enormous efficiency and value to be had. We think anomaly detection and automating workflows and whether it's business process automation or agentic AI or even managed services, there's just a lot of opportunity to streamline workflows and AI will play a big important role in that. So it's been an area of focus and an area of investment for us
A couple of years ago, as some of the progress in generative AI was becoming more and better known, we invested in a new product line called AI Extract, which is now live and available on market today, that enables clients to be able to drag and drop an offering memorandum or email an offering memorandum to us. And we can instantly extract the important data fields to be able to create a new deal record. ⁓
Now,
know compared to doing that manually a skilled professional can abstract an offer memorandum in about 27 or 28 minutes Deal path is now able to do that in less than 30 seconds In terms of accuracy skilled professional is able to abstract an offer memorandum with about 87 percent accuracy Deal path AI extract is in the low 90s So more accurate than a skilled professional and from a scalability and cost
standpoint, it's just not even comparable. You know, you can do effectively infinite scale and the cost is, you know, already a teeny tiny fraction of what the human cost would be. So, you know, that's really just with one document type with offer memorandums. And when you think about like the number of different types of documents, the amount of would say like rote work that is required in commercial real estate, this is changing fast and holy smokes.
that going to have like a dramatic impact on the business?
David Moghavem (32:24)
For sure, for sure. think the productivity, you these are like productivity tools and the productivity is increasing by tenfold, right? Something that's taking 28 minutes, now taking 30 seconds. Does it mean that it's gonna eliminate the analysts? I don't think so. But I do think it's going to allow us to cover new markets, be able to do more, spend more time.
on other type of activities rather than this grunt work that you were talking about where you're talking to more people and you're making more connections. A lot of people fear this AI as a replacement for human interaction. I think what we're seeing is that this is a productivity tool that now gives more time for networking, for interactions, for one-on-one FaceTime podcasts. So I think it's a huge opportunity.
for actually embracing the human interaction by not wasting time with monotonous work that AI can do.
Mike Sroka (33:29)
We agree with you completely. And this is really a way to elevate work. I think maybe an example, and it's not a perfect analogy, but I think it was helpful for us. You know, when we look back to, you know, real estate transactions 30, 40 years ago, and, you know, modeling and underwriting was, you know, done in a truly manual way, which, you know, these were like, you know, handwritten cash flows.
maybe, maybe, maybe, you know, being able to leverage early versions of spreadsheets. You know, as we saw things like, you know, Argus really come to market and get penetration. So having a discounted cashflow model in software, that didn't reduce the number of analysts that we had at all. It didn't reduce the amount of modeling or underwriting. It just made us a lot more precise and allowed us to do, you know, a lot more better. And I think that this is going to be a very
exaggerated version of that.
David Moghavem (34:24)
Definitely, definitely.
so for firms just starting to explore tech tools, What's your advice on how companies can assess on their own of what tech tools to bring on and how to assess deficiencies in their workflow to use tech to bring in automation for it?
Mike Sroka (34:45)
You know, I guess my first thought is to like
Always start with being really clear on what the problem or opportunity that you're trying to solve is. Technology is just a way of doing things. So we need to be in service of solving for an important need or pain point. before jumping into explore technology vendors or things like that, I would encourage to really think about what the biggest bottleneck
issues, challenges or opportunities are in your business and anchor around how do you improve or solve for that. And I think that that will lead you in directions where you can find if a technology solution is the right one and what different vendors are available and we can talk more about evaluating and procuring software solutions for a real estate company. But it all really starts around really being
crisp in understanding what problem you're trying to solve and what the ideal outcome looks like.
David Moghavem (35:44)
Yeah, and I would say a follow up to that is a follow up question to that is, know, real estate is known to be, as I was kind of saying in the beginning of the pod, a laggard in sometimes embracing tools. As someone like yourself who's, you know, been running Dealpath for 11 years and has been in PropTech before that, why do you think that is that real estate is such a laggard compared to maybe some other industries?
Mike Sroka (36:08)
We do have some opinions there and honestly I think that real estate gets a kind of bad rap. And yes, it's true that real estate has not had nearly as much kind of...
digitization as other industries, but also there weren't solutions built for commercial real estate. And that goes back to, you know, where we started in 2014, which is that I think that historically real estate isn't commercial real estate, I should clarify, as an industry didn't really align with some of the initial business models and delivery models of software.
where there were really large companies and pick Oracle or SAP or even relatively newer ones, Box and others. And on their websites, they list a number of different industries that they support. And commercial real estate is noticeably not there.
question, natural question is why? Well, know, commercial real estate is huge by dollar value. We know that, you know, it's approximately 13 % of GDP. We can talk about the trillions of dollars of asset value. However, from a human standpoint, I think in the United States, it's been estimated to be about a million professionals across 90,000 firms.
So if you do a little bit of division, those firms are quite small. The average headcount of a real estate company is quite small. There's a few big services companies, but otherwise, you know, an investment management firm with a small team of people can manage a billion dollars. know, small groups of brokers can have great successful businesses. So it's an industry that's largely comprised of SMBs, small medium-sized companies. And that's been very...
attractive to the legacy kind of software business models where they're really in the business of selling, you know, thousands or tens of thousands of licenses. And there simply weren't enough companies in commercial real estate to be able to design and focus on those things. So I think that real estate to some degree was overlooked by, you know, some of the earlier software companies that came to market. And, you know, as architecture and delivery changed to
cloud-based services and business models evolved to, you know, SaaS and, you know, freemium and, you know, license-based models that would accommodate and be able to more easily service smaller teams and even individuals. It's come more into alignment with commercial real estate as an industry. So I think that that probably caused some of the delay in real estate getting as much value compared to other industries. On the other side, real estate has been
really becoming this institutional asset class and the firms have been becoming bigger and more sophisticated requiring new tools and new solutions.
and putting investment and pressure to be able to have solutions for those things. So I think that's part of the magic of why that kind of 2014 to 2020 burst in investment and development happened was that finally, software delivery and business models were intersecting properly with real estate as like a industry comprised of companies that could be served.
I think that that was probably maybe the biggest thing that happened. Along the way though, it's not like real estate doesn't have or doesn't use technology. Real estate has had various different purpose-built solutions. We talked about some of those big incumbents that have been around previously. And across the real estate business, people have been using technology. It just wasn't necessarily purpose-built for them. So it is behind. However, it hasn't had nearly the focus that
that other industries have. And it seems like now it's going through this belated and accelerated digital transformation, which is really the most important thing for everybody in the market. And to some degree, it seems like it's going to kind of like...
leapfrog where, while other industries spent 20 years building out and getting value from cloud, real estate is going to kind of hop that and go straight to cloud that is empowered with AI enablement and really compress the time to value that others saw.
David Moghavem (40:23)
Yeah, so you kind of feel that the stigma of real estate as being a laggard is something that's more in the past and in the past couple of decades where it's become a little bit more institutionalized. You're seeing that you're actually seeing more groups and more institutions embracing tech where it's not, know, it's still maybe a little behind, but the trajectory is proving otherwise that it's not going to be a laggard for much longer.
Mike Sroka (40:47)
agree. when we look at the largest, most sophisticated real estate investors, they've made big investments in technology and they're getting tremendous leverage through technology, which is kind of like, I don't know, to us, evidence and proof of the path ahead. I think that everybody wants to do deals like Blackstone. It's like, well, you how Blackstone works? They've made tremendous investments in their technology and they get a lot of leverage from technology.
David Moghavem (41:13)
Yeah, definitely, definitely. And I think that's the new age of real estate at this point is leveraging technology in a market where any type of knowledge is an edge. You know, in real estate, there's no such thing as insider trading, right? You're able to get knowledge and you can use that to your advantage to make an investment strategy that you will profit and you'll be able to beat the market with. And that's legal.
in real estate to have that information and you look for that information to have that edge to do it. So I think a lot of groups now that the market is far more institutionalized, far more competitive, are looking for technology as a solution to find that.
Mike Sroka (41:57)
We agree, the speed and ability to connect the dots and really get those insights that drive investment strategy, drive deal flow, that ultimately conviction to close on transactions, that is the game right now.
David Moghavem (42:11)
Yeah. Mike, I got to give you one last question before we log off. You said you're in the Bay Area right now. Where in the Bay Area are you?
Mike Sroka (42:20)
Yes, San Francisco and actually if you see behind me that's California and Battery Street so kind of the middle of the financial district.
David Moghavem (42:27)
Nice. I got to ask you, Boots on the Ground, how has it been in San Fran? To kind of set the stage, we've been investing in San Francisco in the Bay Area for over a decade. I don't think we've bought a deal in the Bay Area since the pandemic and it's gone through a little bit of a slump. But Max was there about a couple of weeks ago and I was there recently and
There's definitely some sort of, there's something in the air. It's like starting to rebound for sure. I'd love to hear your take. Like what's your sentiment right now just as a citizen in the city? Like what's the vibe like? What's the feel like? Do you enjoy San Francisco? How has it been for you?
Mike Sroka (43:07)
Yeah, I'm going to give you more information than maybe you want. you know, I would say that. All right, very good. You know, our observation was that kind of post pandemic reopening in Manhattan and New York City, the big banks brought people back first and.
David Moghavem (43:11)
We're here for it.
Mike Sroka (43:23)
That was really important. It created a critical mass that allowed public transportation to be safe. It allowed retailers to start coming back. It made it easier for other employers to bring people back to the office as well. And really kind of led, I think, our country back to the office in that way. In San Francisco, the largest employers are Big Tech.
And they were among the slower and later to bring people back to the office. And without them doing it, it was the opposite effect. There wasn't a critical mass that, you know, public transportation wasn't very safe and, you know, retailers weren't able to come back. And it was really hard for other employers to, you know, effectively bring people back to the city. And so it felt like, you know, San Francisco was a couple of steps behind New York and other places. That being said,
I think that, you know, we did see like positive progress period over period Slower than you know, I would have liked and I think you know a number of others would have liked Last year, I think that that that really started to accelerate and specifically at the beginning of this year Perhaps correlated when we've got a new mayor Laurie and others that seem to be doing good work But it's become noticeable at the street level and I'm a a barker
community or our train system into the city every day. I kind of judge the health of the city by how full the trains are and I'm thrilled to not be getting a seat to be standing again. Downtown feels like there's, you know, energy and people around. It's gotten cleaned up and feels safer. And, you know, we still have a ways to go to to catch up with New York, but it does feel like there's really good momentum and it's on its way back. So it's good to see more to come.
And we're thrilled to be working in the office and a part of the community downtown.
David Moghavem (45:04)
Yeah, definitely. We're actually working ⁓ on a white paper right now about kind of the rebound of the Bay Area. One of the things that we found that was interesting is that rents right now in the Bay are reaching back to peak levels in 2019, where there's still dislocation from a value perspective. So like this whole dislocation between pricing and rents, I think is a great opportunity to invest back in the Bay Area. And I think part of
Yeah, the mayor, the new mayor, Lori, and the safety now that you're starting to see and the streets being cleaned up and emphasis on infrastructure and then the urban revitalization, the return to office, the growth with AI. think Bay Area is definitely destined to have a really strong rebound in the years ahead.
Mike Sroka (45:54)
⁓ We're rooting for it.
David Moghavem (45:55)
Yeah, awesome. Well, Mike, it was really amazing having you on the pod. Thanks again for hopping onto Deal Flow Friday. Looking forward to seeing what Deal Path has available next. thanks again. Appreciate it.
Mike Sroka (46:10)
David, thank you.