Marketplaces have become the default choice for people searching for residential real estate. From Zillow, to Trulia, to Realtor.com, buyers typically begin their search on these sites. Looking at this chart from statista.com from January, only 3 of the top 12 websites (ranked by search traffic) are actually brokerages, with the rest being made up of marketplaces or advertising platforms:
(Search count in chart above in millions)
There is plenty of disagreement between parties as to whether 3rd party marketplaces add value or just cut into broker commissions, but the data is irrefutable that buyers like to search on these sites. Marketplaces have not just gained share in home sales. On the vacation rental side, marketplaces like Airbnb dominate the industry. On the commercial side, as flexible real estate has gained popularity, marketplaces (Liquidspace, Upflex, Upsuite, Peerspace and others) have done a great job of penetrating the industry by aggregating all of the different spaces from operators and landlords onto a single platform where tenants can easily find what suits their needs. With so much of the real estate industry utilizing marketplaces, it is surprising that so little exists for Commercial Tenants who are looking for traditional leases.
One company is looking to change this. The opportunity to gain share in the CRE search space may be better now than at any other time because COVID put a temporary halt to in-person tours, yet prospective tenants still wanted to search for space as they planned their return to the office. Fueled by $9.5M Series A funding, and with a Series B raise to be announced shortly, TenantBase is just getting started. They made a big announcement last month that they hired industry heavyweight Jim Underhill in the newly created role of Executive Chairman. Jim has had a long and successful career in the commercial real estate industry, recently serving as the CEO of Cresa. Prior to Cresa, Jim was the CEO of the Americas for Cushman & Wakefield.
I recently had the privilege of sitting down with Jim to discuss his new role, to get his insight on the future of the industry, and to hear about how TenantBase fits into the mix.
How is TenantBase different from a traditional brokerage?
TenantBase does not have brokers. We are purely a technology platform. However, this was not always the case. For the first 5 years of the company’s evolution, we were hiring brokers as we built our platform to generate client activity. We realized that building out a brokerage was really limiting the growth of the firm so last year we transitioned to a model where we partner with brokers who provide the ground execution and support. This allows us to focus 100% on the technology side of the business with a concentration in 3 areas:
1. Search – Our platform provides tenants with the ability to go online and search for space so that they gain more control and transparency over the process instead of calling listings first and waiting for results. This was one of the transformative changes that COVID has helped accelerate. Tenants have been going online and thinking about what their space is going to look like, and what their options are. What we found interesting is that this change was not a generational thing. It is a societal change where people of all ages want to go online and understand their options, and TenantBase facilitates this. We allow the tenants to control the process.
2. Broker Matching – We match tenants with brokers who are on our platform. We engage brokers on a subscription basis where they become certified TenantBase partners. Based on the needs of the tenants, we match them with the right broker. We are not feeding brokers leads. We are bringing them in to help execute assignments.
3. Landlords – We engage with the landlord community and provide them the opportunity to post their space availability with us – at no charge. We automatically match the open tenant requirements that we have through our TenantBoard with the landlords’ availability. If a tenant says that they need 10,000 square feet in a certain neighborhood of San Francisco, the landlords will get a notification. It’s an automatic notification and the landlord can decide whether or not they want to pursue it. We streamline the process which makes it better for everyone involved.
Based on the example above, how does the process work? If a tenant inquires about a specific landlord’s space, do you send it directly to the landlord for a direct deal, or do you involve a broker?
The Tenant drives this decision. We believe that brokers provide a valuable service in making sure that tenants understand all of their options so that they can make the best decisions for their business. I do think that as technology continues to advance and as more properties have virtual tours, tenants will move further in the process online collaborating with brokers and leasing agents over software to streamline the process.
You came out of the traditional brokerage world. What is the future of traditional commercial brokerages?
I clearly expect that we will see changes in the brokerage industry. I do not expect brokers to be disintermediated, particularly on the larger and more complex assignments or on corporate account activity where enterprise clients are looking for a wide variety of services to support their global portfolios. Those larger companies will need the resources of a traditional brokerage and/or consulting firm. I do expect however that we are going to see commodity transactions requiring a differentiated role from brokers. This is where integrating technology to empower and support brokers is key, because the traditional consultative service isn’t as good of a fit with tenants’ technology and speed expectations and quite frankly those smaller transactions are assignments that most brokers don’t like doing due to historical inefficiencies. As technology advances, I think you will see larger transactions continuing to move online and be supplemented by technology with brokerage support still being a critical component of the service delivery.
Brokerage firms and brokers themselves need to embrace technology because tenants are now demanding it. Tenants want more control because one of the biggest complaints about the industry is a lack of transparency. Transparency is one of the building blocks of a trusting client relationship, and that’s part of what we offer which enables a stronger broker-client relationship.
Regarding some of the larger cities like San Francisco and New York, do you anticipate that they are going to be challenged over the next few years or do you expect to see a full rebound in the near-term?
Personally, I think that there are going to be challenges for the larger cities that have a workforce that relies heavily on commuters. Employees have gotten used to not spending an hour in a car, bus, and/or subway. They have experienced a different lifestyle, a different productivity environment, and we are beginning to see examples of tenants that are taking satellite offices in suburban markets to accommodate this. This will likely result in them downsizing some of their urban footprint. Mass downsizing isn’t going to happen overnight because many of these tenants are still locked into long term leases, and the sublease market has a lot of inventory right now. But the remote work phenomenon is here to stay. We have all had a taste of it and we like it, and now we have to find a balance between the amount of remote work with how much time you need to in the office to maximize productivity and be part of a great culture.
What excites you the most about TenantBase?
The commercial real estate market is huge in the US, and we do intend to go international as well. Besides it being a massive market, I really like the leadership team. I’ve been talking to them for 4 years. I have seen how they handled the ups and down and I have tremendous confidence in them. And the platform has been performing. We closed over 1,000 transactions last year, and unlike most brokerage firms who saw their revenue decline last year, our revenue actually went up during COVID. I wasn’t looking to jump back in, but when Bennett and Mike called me, I took a look at the company and where they were. I realized that this was the right place, and the right time, in a very exciting market. I realized how exciting this could be at this point in my career if I could contribute to the transformation which we know is coming to this industry.
Competition – Who do you compete against?
The space is really emerging and so are potential direct and indirect competitors. Historically the competition has been tech enabled brokerages, but with our business model shifting to a technology platform this is no longer the case directly. There are companies creating products for brokers to make them effective and lead generation services that provide pieces of our platform, but most of the other technology players are focused on the landlord side. A ton of great products are coming out in that area, but it has surprised me that we haven’t seen more tenant focused platforms brought to market. We see more similar business models that have reached scale in residential with companies like Homelight and Side that have a lot of comparables to our platform. Our team has been building algorithms and analyzing tenant behavior using machine learning for 6 years, giving us a huge running start and we are committed to taking advantage of this by investing heavily in our growth, technology, and client experience.
LoopNet has been known as the leader in Commercial Real Estate marketplaces. Do you consider them a competitor?
We don’t. Traditionally, listing sites are marketing channels used to promote broker and owner listing content. In contrast, TenantBase’s platform helps businesses find, lease, and manage commercial real estate space by focusing on improving the tenant experience through an enhanced user experience and by making direct connections for tenants to best-in-class local brokers.
Combining a technology platform with local brokerage services creates a seamless experience for the tenant, as recognized by TenantBase’s five-star rating on TrustPilot, which is based on more than 650 reviews.
To make your 2-sided marketplace work, you need a growing base of brokers and tenants. How do you grow the broker side?
We are seeing many brokers that are reaching out to us directly. Word of mouth, paired with the fact that we are generating transactions and leasing opportunities, we are creating a funnel of interested partner brokers. We are building velocity which is driving brokers from both large and small firms to sign up with TenantBase. As long as we have tenants then we will have no problem getting brokers.
Is there anything that you want the market to know that we haven’t covered yet?
This is an exciting time for the industry. I couldn’t be more pleased to be part of what TenantBase is doing. We have a huge opportunity here, we are on a great path, and I am looking forward to seeing how the industry evolves over the coming years. We are at a transformational time in this industry, and tenant clients are demanding a solution like we have built.
Value Proposition for Brokers
As I was speaking with Jim I was thinking through the value proposition from the broker’s perspective. Partner brokers pay a monthly subscription fee (which varies based on market size and other factors) and a referral fee of 30% on each deal sourced through the platform. Since brokers should still expect their existing clientele to reach out to them directly, any business generated by TenantBase should be NET new… in other words, business that they were unlikely to get on their own. While brokers obviously prefer not to pay a referral fee, what TenantBase charges is inline with what a referring broker would charge if they were sending a deal to a broker in another market. I would rather pay a referral fee on a deal then not have that deal to begin with (unless it took time away from other deals that I was working). I would want to fill any extra capacity that I had with revenue generating activities, and TenantBase can do a good job of filling that gap.
Brokerages may make the case that the last thing that they want is an intermediary between themselves and tenants. It is a common theme amongst the residential brokerage community that Zillow takes a big chunk of commission dollars (through advertising fees) without adding any size or value to the market. This is an understandable concern. The more layers you add between yourself and your customers, the more at risk you become and the less you earn. However, as we witnessed in the residential real estate industry, clients want the opportunity to search through a complete database of available properties, they want a clean easy-to-use UI, they want to search on their time at their convenience, and they want a single point of contact. If a marketplace offers these services, and delivers a great customer experience, then this is where clients are going to go. Clients are in the driver’s seat and they are going to go where they feel most comfortable and get the experience that they are looking for. TenantBase feels like they have built the best solution to make this happen. It will be interesting to see if other companies follow their lead.
If you are a broker and you want to learn more about becoming a TenantBase Certified Broker, you can learn more about this program here.
If you are a leasing agent or landlord, you can add your space to TenantBoard and match with qualified tenants here.
If you are a tenant that is looking for space, you can create your account for free here.
A Note from the Author
I am so thankful to the thousands of subscribers that support the PropTech and the Future of Real Estate weekly blog. Each week we add hundreds of new professionals from every segment of the Real Estate, Technology, and Investor communities. We are going to be expanding our offerings for the subscriber base, and will have more details available in the coming weeks. My singular goal is to contribute back to the PropTech community which has been so supportive of me over my career.
The first big initiative that we are launching is our PropTech Startup Pitch Competition. The competition is open to all Pre-Seed, Seed, and Series A startups, and is completely free to enter. We have a lined up an amazing panel of judges (3 incredibly talented VCs, and a CEO from one of the most respected companies in PropTech). The judges will be announced shortly.
All of the details (and rules) will be available within the next few weeks. If you want to reserve your spot in the competition and gain exposure for your company to investors/customers (and also win some great prizes), please reach out to me directly at [email protected]