Last week was New York Real Estate Tech Week, and BuiltWorlds participated again as a core event host. The tone this year was in contrast to when we participated in the event in 2017. Then, the City’s proptech buzz was so strong that we were moved to proclaim New York “The Hottest Place For Tech In the Built World”. At that time, WeWork was gobbling up space, pushing ever higher tech and real estate valuations and also making added acquisitions and investments. Funds like MetaProp and Camber Creek were raising millions of dollars, plowing them into the region’s tech companies, and other groups like Grand Central’s Urban Tech Hub were serving as vibrant platforms for incubating and launching new tech companies for the sector. Now, WeWork is officially in bankruptcy. Real estate companies are dealing with high vacancy rates, high interest rates, and a range of other challenges, and the tech sector, generally, is struggling with a lack of big win exits. Despite all the challenges, the size, scope, and sheer density of New York’s real estate community is so far beyond anything else we see in the United States, if not the world, that the week also affirmed, despite setbacks, that New York’s Proptech is actually likely already rebounding and is clearly going to be a leading center for the foreseeable future.
To be sure, this past week offered many signs of the challenges New York continues to face. Nobody was surprised by WeWork’s actual bankruptcy filing last month, but it weighs heavily on New York’s real estate market where, according to the Federal Reserve, vacancy rates had just experienced a monthly decline for the first time since the start of the pandemic. In 2018, WeWork surpassed JP Morgan to become New York’s largest office tenant. As part of WeWork’s bankruptcy, the company listed plans to reject leases on 35 of its 47 locations across Manhattan and Brooklyn. Further, against this backdrop of weak and uneven recovery, real estate companies, generally, are confronted with loans rolling over at higher rates and also lower ratios on how much they can borrow relative to values which are also declining. Add to this the fact that commercial real estate companies like JLL, with their JLL Spark Fund, have been leading proptech investors, and it is easy to see how the challenges afflicting commercial real estate spill over into proptech. JLL stock is off roughly 40% from its 2022 high. So, it is not clear that there will be enthusiasm for dedicating fresh capital to its proptech arm.
While the office market has been the most visible weak real estate asset, New York’s real estate challenges extend beyond the office market and into other asset classes, and design and construction activity is suffering as well. The construction market, for example, is expected finally to surpass pre-pandemic levels in New York this year, and at $83 Billion, it is a massive market, according to a report recently released by the New York Building Congress. However, the recovery has been slower than in the nation as a whole, and locals are quick to point out factors such as the impending expiration of certain residential development incentives that may cause the recovery in these other sectors to falter as well. The New York Building Congress report cites a 62% drop in construction of new housing units in the face of the expiration of a popular tax incentive.
While this dampened recovery has many in the sector in New York in a less euphoric mood when compared to the go-go 2016-2018 period, we also saw a wide range of new startups in the Metaprop Columbia Accelerator, at the Propmodo startup challenge and elsewhere in New York last week, and we meet with many other active supporters of the New York prop tech sector, offering many reasons why the ecosystem continues to be strong and getting stronger. We spoke to startup entrepreneurs who observed that their companies were growing revenue and had achieved profitability or that their solution was healthy because it generated cost savings for companies. We also found a crop of startups benefitting from New York’s tightening sustainability regulations, and we spoke to many entrepreneurs, investors and industry players who now have significant past experience to draw from as they apply their grit and determination to building the region’s new startups and furthering the development of those startups that will have weathered the recent storm.