"The End of the Beginning"

Venture Money Update... On my flight back from the PikeNet Expo in New York, I had a chance to catch up on some reading and was struck by the number of articles chronicling the failed promise of the Internet. The Wall Street Journal's (Oct 25, 2000) lead real estate headline was, "Bricks Struggle to Click with Online Real Estate." It even had a picture of a boarded-up computer. One would have to conclude that the great Internet experiment had failed. Nobody showed up. The money was gone. Nothing left but the lifeless carcasses of cash asphyxiated dot-coms. The end.

I smiled and recalled Winston Churchill's speech to war-torn Londoners in the midst of the Battle of Britain, "This is not the beginning of the end. It is the end of the beginning." In fact (almost) everything at the Expo pointed to a far different conclusion than the popular media would lead you to believe. There is more money, funding more initiatives, affecting more real estate practitioners than before the Internet bubble burst last spring. I can feel your eyebrows rising in disbelief, but consider the following.

More money: Investment concerns like CalPERS and Cohen & Steers have recently announced investment funds dedicated to commercial real estate technology. CalPERS alone is dedicating $125 million to the category. Strategic investors like pension advisor AEW, service providers like Marcus & Millichap and Cushman & Wakefield, and REITS like BRE are actively investing, as are a host of new consortia -- Constellation, OTC and Octane, to name a few. These companies and concerns have publicly announced war chests in the hundreds of millions. Don't they read the news? Start-ups like FacilityPro, SiteStuff, LOCATION-net, manageStar and Realeum have recently been funded to the tune of almost $100 million. RexOffice threw a big kick-off party during the Expo. And new initiatives like iBuilding and Zethus have yet to enter the stage.

More initiatives: There are over three (some say five) hundred e-companies in the CRE space now, with many more on the way. Will some of these fail? Of course. At least 80% of all new ventures fail within five years. Internet companies will come and go even faster. Will that mean that the impact and influence of the Internet is at an end? Hardly.

Perhaps the most compelling of the initiatives and the ones likely to have the greatest influence are not those being introduced by "pure play" dot-coms but those just beginning to percolate quietly inside the halls of the traditional players. One of the panels at the Expo featured mortgage providers (the real real estate owners) GE Capital, Prudential Mortgage, J.P. Morgan Mortgage and Fleet who together underwrite more than $25 billion per year or more than 10% of the mortgage market. All are proceeding aggressively with Internet strategies that they anticipate will cut the underwriting process in half. If lenders automate internal processes, how long will it be before external partners are asked (forced) to follow? Welcome to the beginning of the next phase of the Internet's real role in commercial real estate.

--Bob Potter