Beyond WeWork’s Flameout, Real Estate’s Platform Model Rework

WeWork’s spectacular initial public offering (IPO) flameout may serve as a cautionary tale for tech companies.

The decision to not list shares amid a game of “how low can they go” — rapidly reduced valuations highlighted a desperate bid to find out where Wall Street would finally lend its support — may signal that the age of high-flying unicorns is over. At the very least, business models with rapidly rising top lines and swelling seas of red ink will get more than a second look from investors, both public and private, and scrutiny over companies’ claims to re-invent the way business is done.

Peloton’s rocky start in its IPO this past week serves as the most recent example, where shares skidded 11 percent in its trading debut.

WeWork’s debacle may have a chilling effect on companies going public, and will certainly lead to more digging through filings and other documents to see how, and if, companies that seek to disrupt their verticals strive to do so. The company has said in its filings that “technology is at the foundation of our global platform.” However, in its drive for expansion into dozens of markets around the world, it was leasing spaces on a long-term basis, and renting them on a short-term basis.

Dig a little deeper, though, and not all platforms are created equal. Take, for example, the recent news surrounding real estate investment firm Cadre, a platform that allows individuals to invest in commercial property transactions.

As Fortune reported, the company has returned $100 million to the investors, who, thus far, have ponied up a minimum of $50,000 to invest in $3 billion of real estate assets since 2014. The company has attracted 20,000 investors, according to Forbes.

The latest tally of the $100 million returned to investors comes on the heels of news that the company sold two apartment complexes, located in Chicago and Atlanta suburbs. In the case of the former, it bought the property for $50.9 million a bit less than three years ago, and sold it for $65.3 million. In the case of the latter, Cadre bought the property for $30.8 million about two years ago; terms were not disclosed. The company has said that the internal rate of return (a measure of investment) has exceeded 20 percent. The relative speed of the transactions, and their high rates of return, come as Cadre management has pointed to technology as a key aid: The firm leverages real-time analytics to examine how the properties are operating, and how their metropolitan markets are faring.

PropTech

Here, then, lies the value of what is known as property technology (PropTech), where the platform brings buyers and sellers together in real time, and values properties in real time. The move to digital speeds information and, thus, management of the most tangible products of literal bricks and mortar. For Cadre, the value proposition has been one where clients pick the properties and deals they want to join. It’s essentially a platform for investors to add commercial real estate to their portfolios, with lockups that last months rather than years, as would be seen with other investment vehicles across multifamily, office, and hotels. The company has said its models track 100 data sources and 900 submarkets.

Cadre has been nearing an $800 million valuation, and, interestingly, Softbank’s Vision Fund declined to invest in Cadre more than a year ago, amid reports of the PropTech company’s ties to Jared Kushner. Other investors have come in, however, such as Andreessen Horowitz and Khosla Ventures, among others. This is, of course, the same Vision Fund that has been hit by its investment in WeWork, and which was instrumental in getting CEO Adam Neumann to step down.

It should be noted that though the property sector may, as a whole, be viewed with skepticism, looking askance as to whether these new wrinkles on a business that stretches back centuries can truly weather recessions or other events, even with technology.

The fact remains, though, that WeWork, at its core, is a property management company, with tech an ancillary aspect to property management, which is a service. To get a sense of how overvalued WeWork may have been, Regus, another coworking company, has been valued at a fraction of that heralded $47 billion.

There are other companies looking to change the way real estate is managed, and how both sides of the equation — between buyers and sellers or landlords and lessors — find each other and cement relationships. PYMNTS noted one of them in this space: Bundle, which helps employers relocate employees, as well as navigate the move into new houses or apartments. Again, the platform model is evident here, and firms like Bundle and Cadre do not have the huge operating costs that are the hallmark of WeWork — such as operating leases, long term in nature, and requiring remodeling costs and other investments.

The debate may rage over whether WeWork should be thought of as company reinventing the way things are done. In the meantime, in real estate, plenty of other tech-nimble upstarts focused on real estate are doing just that.