Show Notes
Summary
Chris Moreno - Primary Venture Partners
Special mentions
Company: ServiceTitan, NMHC, US - HUD, RADCO, ECI, Greystar, Uber, Airbnb, Waymo, Katerra, WeWork, Atlanta Tech Village, Saltbox, Industrious.
People: Brian Chesky, Brad Hargreaves, Jay Parsons, Seth Greenberg, Norman Radow.
Transcript
(Disclaimer: Please be advised that this transcript may contain unintentionally confusing, inaccurate, and/or amusing transcription errors.)
[00:00:00]
Matt Knight: Hey, everyone. Thanks for tuning in. Last podcast episode of the year. This is with me and Chris Moreno talking about reflections on 2024 and kind of the Fall conference season. And we hinted a couple things we're going to be discussing in 25. We both sort of end up ranting in this one, but hopefully that's good. So enjoy this time with Chris Moreno.
All right, Chris, thanks for being here, man. Good to do this. I think at least one last time for 2024. And I thought it might be good to start with looking back on the Fall. I don't think we've talked a lot this Fall since the onslaught of events. What were your thoughts, takeaways, surprises from Fall of 24.
Chris Moreno: A couple key things, I think Matt, you know, there are so many people who have been bearish on real estate in general and even getting more bearish on hardware and getting [00:01:00] bearish on the PropTech world in air quotes, I think it's cycles right? You know, cycles like this as Warren Buffett always said, when everyone else is bullish , you should be bearish and when, everyone else is bearish, you should be bullish. And that's how I feel. I think in 2019, I was very excited 2020, I was excited. And then when the onslaught of capital came in, and everyone was raising it. You know, higher valuations, real estate was trading at all time highs in 2021, even in 2022, that's when I slowed down and I saw a lot of people who've been through cycles slow down and or sell, and now, , it's completely changed in terms of landscape. So I'm actually very bullish. I think development and if you follow, whether it's Brad Hargreaves writing Jay Parsons writing, you know, even your updates, I look for trends and things that can sustain. And one great thing is development will always sustain.
Government will always be there to slow down development. NIMBYism will always be right. There is a massive amount of money in my [00:02:00] opinion to be made from automation around construction tech PropTech. And one beautiful thing is as the markets sometimes contract when the economy pulls back in certain industries, whether it's software where they can churn, I'm very hardcore around hardware and real estate because it continues to grow.
Even if the sales cycles are a little bit longer. We figured out playbooks with some founders that get them there faster. So those are some of the things that stand out to me. Yeah, happy to go deeper. I mean, what's a big standout for you, Matt?
Matt Knight: I guess looking back at the fall, it's sort of overwhelming the number of Events that happen, right?
And they all sort of have their purpose and their niches and their attendee personas, things like that. And so it's kind of fun to look back on who goes where and why, you know, and which event is trending upward versus which ones are downward and flat and all that stuff. And I'd be curious. As we see next year, what happens in our world of conferences in 25?
Cause the thing that I noticed Chris was about the second week of November, there was a lot more optimism. And I don't know if [00:03:00] that's a reflection on the new. Presidency and party coming in or if it's just the fact that the election is over because there's sort of the story, you know Every election year is a little wonky and then all of a sudden november december It's like oh the sky didn't fall and earth didn't explode and there's going to be business next year, right?
And so i'm curious what the post election optimism Translates into in terms of our business, because your point, I'm seeing more transactions. Things are happening. And like the, you know, maybe we can touch on the ServiceTitan IPO from last week where there was an actual IPO in our space, you know, and that's a big deal.
So I'm curious if you had any thoughts on that.
Chris Moreno: I a 100 percent have thoughts in which is. Number one, sometimes you have a lot of people standing around unsure, uncertain in every, there isn't a single person who doesn't like to de risk things. You know, people, I think it's always funny when people say, Oh, you're risky or this person's riskier, that person's too risky.
People rarely say they're the ones who are risky, but we all try to de risk things in our [00:04:00] own minds. And so sometimes we just need something for us to start the hamster wheel. And to your point, an IPO like ServiceTitan is a great reminder That okay, this company traded, went IPO. Their stock did not go down.
Their stock, skyrocketed. It's a win, win, win. And this is a company that is. Primarily in the real estate world. And this is really great news. I think for a combination, not only of investors, it's great news for founders and operators and builders of very, very hard businesses that we know. And it's great news for development because if people can see returns.
Then they can reinvest into startups. They can reinvest into technologies and R&D, and they, that are going to help development. And then they're going to invest in developments themselves. So I'm a big believer that, you know, of the flywheel effects. And, for me, it's also about jobs, [00:05:00] right? So job creation, you know, from all the success, but to your point about the election, I think in real estate, things move slower.
So I was talking to some folks, you know, when we were down in Arizona, And some of the movers and shakers they were saying that we're going to move, you know, probably around January, February, seeing a lot of deal discussion now, they may not get done in December, but they will get done at the annual meeting at NMHC and in February.
So really excited about, looking forward to that.
Matt Knight: Yeah, I have this theory that PropTech in general is, I would say interest rate sensitive, but not interest rate dependent, because as you know, I mean, you sort of alluded to it is. When, the risk of just knowing who the next president is, is now behind us, right?
And there's been a little bit of easing in interest rates. You know, if you're not dependent upon a real estate transaction to sell into real estate, it doesn't affect you that much. But if no one's spending money on anything because they can't buy or sell anything, it eventually trickles down to you. So that's what I mean, like, I don't know that we are a Interest rate dependent market, like the debt [00:06:00] markets or like the transaction market.
Right? But I think we are adjacent and affected by it. And so it's been interesting to see how, as that eases along with the just question of who will the next regime be is. I mean, again, I think you're kind of saying the same thing I am, is there's just a lot more talk about deals getting done, right? A ServiceTitan or a property transaction or whatever, even in the VC world, just more people bullish on putting capital out. But I don't know if that's been your experience.
Chris Moreno: Yeah, and I don't think it matters one way or the other who is elected. Who becomes the head of HUD or who becomes the head of small business administration or the fed. It's more to your point about, okay, we have certainty, you know, a lot of us have goldfish brains.
And so we forget even six months to a year or two years ago or four years ago, we forget when interest rates, you know, people were saying, oh, interest rates are so high. And just continue to laugh because like these rates are still lower than [00:07:00] my first home. You know, when I was younger they're still lower than I could pretty much borrow at younger in my life and they're definitely lower than the people in the 1970s and early eighties where they were borrowing at 16 to 18 to 19 percent on their homes and their, and even construction loans.
So for me. I think, you know, who I really go to are people who've been through three, four, five cycles. I think a lot about people you know, if we think about the team like at RADCO here in Atlanta you know, someone who's been through cycles, Seth Greenberg at ECI you know, Norman Radow you, you think about the folks that, you know, again, that we're going to see at NMHC.
Those are the people I go to. The people who are saying, here's why not just, Oh, interest rates are high. We're not buying. I want to hear, here are the underlying factors. And then I always ask what we'll need to change for you to make a movement, or to make a different decision. So , it's more so like, what are the underlying things?
Okay. Here are the cap rates. And Oh, by the way, if we needed to play capital, we have to deploy capital. [00:08:00] And these are the best deals out there. So I think about like, how do things pencil? How do things work? And then that we may not go back to 0 percent interest rates again at least for the foreseeable future.
So, how do we make things work in this environment and through the next cycle?
Matt Knight: Yeah, I think the thing you said that resonates the most with me is just, I don't think people care who's head of HUD or, who's making all these appointments. It's just the fact that they know now the most savvy businessmen and women can say, whoever it is.
Just let me know who it is and I'll plan my strategy around them. Right. And, I think that's this phase we're getting into is now. Well, I don't know what this doge things is, but I've seen this presidency before and well, we know how to work around it or whatever happens. Right. So anyway, any other big reflections on the full year?
Like, if you look back at 2024 prop tech contact, multifamily tech, like anything in general, stand out as sort of noteworthy, surprising or anything else, just worth commentary. Great.
Chris Moreno: Yes, I always try to think about what's [00:09:00] something that surprises me or continues to surprise me and I think that when you ask people, they really don't know for sure.
And that's okay. Like what I mistake I've made younger in my career was I thought I needed to have 100 percent certainty. Or then, you know, you realize that you only need 90 percent certainty. And as you go along, you realize you only really need 60 to 70 percent certainty on many things. Certain things do need to be in the 80, 90%, but it's amazing how many people say or think, and they are, this is the future.
And I will always kind of say, you know, I always look for those always and, and never statements and then ask deeper questions of, huh, what are, what are they seeing that I'm not? So I think a lot about, when people say modular housing will never work. Right. If we take a great example from this year and very recent news, a Greystar jumping in and people saying, ah, bust boom, you know, other companies tried to do prefabrication, tried to take [00:10:00] it to a warehouse, tried to do X, try to do Y, that won't work.
And Greystar's proving that maybe it can work and maybe we're not going to see. 30 percent reductions and maybe you don't have to see 30 percent cost reductions in every single technology thing we do. But if you can see five to 10 percent cost reduction, which I think they said, Matt, in the article that a five or 10 percent reduction in a, even a hundred million or a 200 million property.
And then you scale that to 50 or 60 or 80 properties, right? Or even to larger developments, you're not talking about tens of millions or even hundreds of millions of dollars, not even taking into account what they said in the article is going to be the speed. Increase. So there's a financial piece, but there's a speed increase that then increases the ability to collect rent sooner, I think too many people try to always look at the initial ROI.
And it's funny because [00:11:00] people, you know, we'll, we'll eventually say, Oh yeah, wait a second. The number one thing this year, Matt, in, in marketing has been reviews. Well, what is the ROI on a review? That's really, really hard to say if your property has a 3. 1 score on Google or Yelp or apartments. com. Versus a 4.8 That's worth something, but we don't, it's hard to say there's an actual exact ROI dollar, but there is, if your occupancy numbers are better or if your wait list is better or your, your rent prices are higher because you have higher demand. So there's just some things like, I think that stayed out to me, Matt, that I continue to hear and see.
And I really love when people have a unique perspective and have gone deep. As a friend here in Atlanta says, he looks for people who are spiky. And I, I love people who are spiky on something or get really passionate about a topic, especially like you, Matt, you, you get pretty excited on some of these topics.
Matt Knight: Oh, I suppose so. Yeah. I mean, one of the ones that you, you got to there was the issue of attribution, [00:12:00] right? And very few owners and managers do pilots in a way where they can attribute, say, a rent growth or an occupancy growth to one thing. Right. It's like, we're gonna do smart apartments. We're going to change our SEO.
We're going to do more of the ILSs and we're going to, you know, tweak our pricing algorithm to get better, you know, free rent for the first year. Okay, great. Occupancy went up 600 bibs. Which one of those did it? Right. You don't know, right? Where you're kind of guessing. And so all I can tell you this. All six of those tech providers are going to claim it was them, right?
And so I think that's one of the more thornier issues we as an industry face is how do you pilot so well that you can attribute upside and downside to be fair to a vendor, or are we even open to that? Like, I think that's a thorny question. We have to get to that, to your point, as we see movements in the market.
We're trying to figure out what even, what even caused that? Does that make sense? Am I saying that in a way that I think I'm [00:13:00]
Chris Moreno: interpreting to it? You're saying is, is it is very hard. Like, is it causation? Is it correlation? And you can never truly 100 percent oftentimes say with certainty that something is due to something else.
It's usually a combination of factors, right? Especially when you develop a building and there's delays. Okay. Maybe the delays were from. The board of the city or the neighborhood pushing back, and there's might've been some, but maybe it was also a delay in resources and you were already going to be behind, but now it's blamed on something else.
And I, I agree. Like, I laugh sometimes Matt at some of the surveys that are done because they'll, you know, you might say something that says Oh, you can charge 20 more a month. If you have X, they go, well, okay, what does that mean? Because Theoretically, like for the pool, pool is a great example, right? Of, you know, they'll put a number behind that or behind a gym.
And technically [00:14:00] everyone's different. So technically people will put different valuations. If I have a dog, I might pay more because there's a dog park, but if I have no dog, that dog park is irrelevant to me. Potentially. If I have a child, A playground or activities for kids are incredibly valuable location of school.
It's incredibly valuable to me, but zero to a 26 year old or any other person who has no kids. So I think the mistake around your point around attribution is people almost always want to have a definitive rather than realizing what I hear from some of the smartest people. Is that they are like, we had no clue.
We actually were completely wrong here. And and it's funny to watch, but they said they knew this was where the market was going. They knew this is what people want. And I think that relates to AI, Matt, is if you think about it, four years ago, three years ago, and we were hearing over and over AI and ML and decks and VCs got tired [00:15:00] of hearing that, Oh man, AI and ML, but they're not telling us what it is.
It goes back to the idea of attribution. Tell me the story so I understand fully. Don't just say X equals Y or because of X, then Y happens or Z, you know is another outcome. I want to know, tell me around the story. Okay. This is why reviews are becoming an important thing. This is how AI can help to reduce the cost.
Here's an example of what we think it can reduce the cost by. Here's the speed. Here's the responsiveness. So I think a lot about the different pain points that teams come into and how does something help? And I think the other piece, Matt, is that you're seeing companies that are insurtech companies, fintech companies, gov tech companies in real estate, right?
Construction tech companies. And they have to find their first customer, of course, and then they have to sometimes change a lot. And I think Uber or Airbnb or certain companies that, you know, they were [00:16:00] technically illegal And then had to start to see if there was a need and then they were able to change laws.
So that's a big thing I think about, Matt, is, where is the movement happening? Whether it's Waymo out in Scottsdale where you live and that coming down to Atlanta and people saying, well, that's crazy. I'm not going to sit in a car that doesn't go on a freeway. That will change and AI that is now becoming it seems like a waterfall that's flowing and it's unstoppable And people who don't react to it people who don't change people don't see it or aren't aware of other markets and how other markets are changing Between geographies and types of markets, that's going to have a spillover effect to every market in the country.
So I'll pause there. I mean, you, you got me pretty excited. I think, I think we can continue on this for some time.
Matt Knight: Yeah, I guess my hot take is, is PropTech is almost like marketing where it's hard to attribute it to one part of your strategy, but you can tell when it's working, what, how does that hit you?
Chris Moreno: Yes, I agree. I think also the challenge with it is that [00:17:00] many people will be early. And then you're right is like, it may not work. I think sometimes people will, I'll hear people say, we tried that. It didn't work. Therefore it will never work. And what I tend to believe, you know, having seen a lot of these businesses is that they were just at the wrong time or the implementation was incorrect.
Right. So if, you know, if we go back to some friends who worked at Katerra, Katerra, many of the people we talked to that were there said they were actually really close to being successful. And at many of these companies, they are really close. Like WeWork, another good example, WeWork just probably opened way too many locations that were unprofitable at any leases, you know, and you can ask different people, but I talked to a few people who used to work there and they said, WeWork.
Was working in many of their locations. And so there is a viable business model. There's no doubt about it. I work here [00:18:00] at Atlanta Tech Village, right? Great community, great atmosphere. But I think, and you're seeing switch charge right now, right. Out of Atlanta exploding, you're seeing Saltbox exploding.
You're seeing Industrious growing in very positive ways. And I think to your point, Matt, the hard thing of many of these business models. Is that they are niche. They're unique. They serve. They don't service the entire market. They service probably 2 to 5 percent of the market. And I think that's the other thing is like there is riches in niches, right?
I'd rather see someone who knows a core audience. It's very clear. Like sleeping on your friend's couch that can then eventually become the website for any hotel in the world, right? Sharing a car with somebody in an Uber eventually being any car you ever want to ride in even autonomous vehicles. So Yeah, you get me pretty pumped on this.
It's always fun Like what are your thoughts Matt around the niches versus VC saying your TAM isn't big enough To Airbnb when the CEO Brian Chesky [00:19:00] says our TAM has never changed. Like, do you have an opinion on that, Matt?
Matt Knight: Yeah, I think market sizing is always nuanced, as you know, and. There's this good saying recently about the best startups grow their TAMs, like they grow the actual market.
They don't just grow the markets they're focused on. And I think that's true with us. I mean, I've never seen a company in PropTech that I was interested in that didn't have something he'd grow into. Or she could grow into over time in the real estate world. So if it works for one, it'll work for another, but anyway, we're getting, we should do a whole episode on TAM and now you're getting me into where I want to write an article about mental hurdles and PropTech, people having recency bias and confirmation bias and being, you know, pattern matching or patterns don't exist.
So with your permission, I may go off on a tangent and write an article about this, if that's all right with you.
Chris Moreno: I love that, Matt. And to your point, you could do a whole article around. Where people get in trouble of saying straight up, no, I see this with VCs. Probably more than anybody [00:20:00] from founders or other VCs.
You know, I, I'm surprised by some folks when they say, Oh, I don't do PropTech or I don't do X and I'm, and I'm like, Oh, but this is actually a FinTech deal, or this is actually a consumer deal disguised as enterprise. It just so happens to be in real estate. So I'm always surprised that that's probably one of my biggest takeaways as well, Matt, is how many people.
don't have unique viewpoints and miss out on the the opportunities for scale, but that's for another call another day.
Matt Knight: Yeah, I know we're out of time, so we'll do like a 25 predictions next time and we'll catch up in the new year, but until then, happy holidays, man.
Chris Moreno: Thank you, Matt. Always appreciate it.
Share this post