TALKING TECH: REAL ASSETS · TALKING TECH: REAL ASSETS CLIFFORD CHANCE 3 TALKING TECH: REAL ASSETS Adrian Levy Partner Co-head of the Global Real Estate Sector T: +44 207 006 1536

TALKING TECH: REAL ASSETS A SERIES OF EXPERT INTERVIEWS BY CLIFFORD CHANCE

2018

PROPTECH IS DEAD!

Long live property!

For many years the impact of technology on the property market has been hailed as the next big thing. Proptech, as it became known, was going to change the real estate market and drive traditional property players out of business. But in a surprising move, rather than retrenching to the “good old ways”, traditional property companies have embraced proptech. Every sector, including office, residential, retail, logistics and investment, has avidly adopted new technology so that today proptech is mainstream and a critical part of any property business.

In this piece, we report on interviews we have had with leading players in the market, obtaining their insight into the impact that technology has had and will continue to have on their business and on the market.

The message that comes across loud and clear is that property should not be treated as a static asset but rather a service. End users are demanding changes such as greater flexibility, speed, customisation, community and sustainability. This is driving change in every sector; with the retail sector experimenting with data tracking and monitoring to enhance the customer experience, the office sector with flexible co-working arrangements and the residential sector with communal living in sustainable, intelligent buildings. Not only are end users demanding this change, but in a low growth economic environment the option of sitting back and relying on rental increases and capital appreciation has disappeared. Finding new revenue streams is now more important than ever before.

Changes to the market are raising new legal dilemmas such as, who bears the risk of an error in a property investment algorithm? Should there be greater standardisation and regulation of leases?

What data should property companies be allowed to retain and monetise? The law reacts to changes in behaviour and we expect significant changes to the law and legal practice in the coming years, some of which we have highlighted in the following interviews.

It may seem that everything is changing but one common message from all the interviews is that there is still room for the human touch. There may be a reduction in the number of real estate jobs for routine work but there will always be a place for human value add. If there is one thing that the property market has in abundance, it is a pool of high quality talent and so we remain confident that the property market will continue to embrace technological change until the term “proptech” falls into disuse.

Long live property!

ContentsProptech is dead! 3Venture Capital – Concrete VC 4Investment – PGIM 6Office – The Office Group 8Logistics – SEGRO 10Retail – URWLab 12Residential – Node 14Legal – Clifford Chance 16Key contacts and resources 18Contributors 18About Clifford Chance 19

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3CLIFFORD CHANCETALKING TECH: REAL ASSETS

Adrian LevyPartner Co-head of the Global Real Estate SectorT: +44 207 006 1536E: adrian.levy@

cliffordchance.com

Matt TaylorPartner Head of UK PropTechT: +44 207 006 2076E: matt.taylor@ cliffordchance.com

a potential success in the eyes of the VC community? “I’m a product person so I love solutions that really target a pain point for an end user,” explains Wescoatt. “Is it a good market, are there good stories that indicate there are wins to be had, is there an amazing founder? It’s the founder who is going to be making all the decisions, pivots and priorities that make the company successful.”

With trends such as sensors, user engagement, marketplaces, apps and digitising work flows influencing today’s market, Wescoatt predicts that big data, AI, machine learning and space as a service will be the main drivers in the future, while a little further down the line blockchain, VR and AR will have a significant impact. Yet while we are seeing an increasing digitisation of work flows, it’s the human touch that will add value. “Technology does pose a threat to operational or functional activities but creating value in the customer relationship part – that won’t go away. We may see some contraction in the sheer volume of people involved, but we will also see new opportunities created by taking away the heavy lifting, and seeing people create value in different ways.”

Forward thinking While the future is bringing with it an increasingly digital and tech-driven market, this will necessitate a change in mindset. This can be a challenge, says Wescoatt. “Where you have an industry which has been working in a certain way for a couple of decades, getting people to behave differently, such as sharing information into a digital platform, can

make people uncomfortable if they feel their intuition or skill could potentially be replaced.” But, he adds, the opportunity for individuals and businesses to harness the power of tech to add value cannot be underestimated. And the piece of tech Wescoatt is most looking forward to? The digitalisation of title. “Transactions will become much simpler and more automated. We’ll see much more liquidity in the property market where previously you needed significant capital to get in. We’re going to get a lot done.”

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“We expect increased M&A activity, partnerships and joint ventures. However, antitrust authorities around the globe are ramping up scrutiny around technology, particularly where tech startups are acquired by established players.”

— MATT TAYLOR

Venture Capital TAYLOR WESCOATT, CONCRETE VC

Taylor Wescoatt founded Concrete VC out of a need to bridge the gap for global real estate players to invest in the proptech sector. Here he talks about how the investment community is approaching the sector, if proptech has become mainstream and just what makes a promising startup.

Two years ago, Taylor Wescoatt saw a problem in the real estate market. The market was full of capital-rich players, but there was very little investment by real estate giants into the burgeoning proptech sector. With a background in tech – he has built products for startups including CitySearch, Emoov and eBay – Wescoatt could see a disconnect here. His solution? To found proptech startup platform Concrete VC. Since then, the company has partnered with names such as JLL, Fora, SEGRO and Hammerson as a wave of new technology trends move into the global real estate market.

Capital cities In late 2016 Softbank raised $100 billion in capital, 20% of which was deployed into proptech. As Wescoatt points out, that is two times more than the entire VC industry in the US raised that year. “It’s a staggering amount of money, and money creates winners.” This certainly points to a distinctly confident approach by the real estate investment community towards proptech. Yet a large proportion of this capital is coming from VCs in comparison with the traditional real estate players.

This relative lack of penetration, says Wescoatt, is largely because the market is “still early in that transition. Mainstream is a long way away”. But is this gap narrowing? “Yes. We’re seeing people like Brookfield committing $300m, and JLL Spark creating a $100 million global venture fund. It’s happening.”

Product placement With a huge shift in the market, it’s an exciting place to be, and proptech startups are growing hugely in number and popularity. But with the sector developing rapidly, what is it that makes

CLIFFORD CHANCE VIEWPOINTBig is beautiful but beware!To maximise utility and scalability tech solutions need to provide a comprehensive package to a number of problems and not just resolve individual issues. This has led to the view in the tech space that “Big is Beautiful”. To achieve size and global reach, we expect increased M&A activity, partnerships and joint ventures. As Wescoatt points out, investment activity will produce winners, many of whom will drive out or acquire competitors. However, antitrust authorities around the globe are ramping up scrutiny around technology, particularly where tech startups are acquired by established players. For example:

*Scrutiny is extending to smaller tech deals, with new merger control thresholds in Germany and Austria catching deals where there is minimal turnover but significant valuations. A similar change to the EU regime may soon follow.

*Competition authorities are levelling the playing field for new entrants against existing incumbents: OnTheMarket was judged not to have acted anti-competitively when it restricted estate agents to using only one other portal but if a larger rival had done the same it would almost certainly have had a different result.

CLIFFORD CHANCETALKING TECH: REAL ASSETS


How is proptech affecting the transactional side of the business?JS: From an efficiency standpoint it is still a little on the margins, and we’ve not seen much evidence yet of it speeding up the execution of deals. The tech will eventually automate certain elements of deals which will in turn make them more streamlined, less costly and less time consuming.

How far do you see proptech leading to a digitalised real estate market?PH: Where you have a deal where each asset has its own characteristic, it takes time to analyse big data, test hypotheses and weigh up cost benefits. So there are limits as to how far we can actually speed up the process. I can’t see a totally digitalised market, because suddenly having access to a million different data points doesn’t necessarily help. You still have to posit a hypothesis, do an independent analysis, and study the processes. More data is great, but there’s so much more work that needs to go into it. In real estate, value, price and worth are all very different things and tech isn’t going to change that.

JS: The idea that there’s some data driven pricing model for real estate and that an algorithm will take over is not realistic. But the collection of big data does offer opportunities on the operational side – on a very granular level we can see where and how space is being used, optimise

resources and allocate capital efficiently. In terms of targeted marketing, you can understand a whole lot more about retail consumers, and use it to tailor the offering

– although after capturing the data you do have to confidently evaluate it. This in turn improves investor confidence.

How is proptech affecting the future of real estate investment?PH: We are increasingly moving towards modern buildings becoming smarter, with tech developing the valuing of locations and creating more effective decision making around that. Sustainability will continue to impact the investing agenda. Proptech is very much in the minds of everybody in the market, although looking at how tech can help solve questions of efficiency doesn’t necessarily mean that the collective mindset around this area will change overnight.

JS: As Peter mentioned, proptech will become less isolated as a topic, but will fold into the way we do business – and this evolution will drive an increasing sophistication in owning and operating buildings. Proptech is already revealing and enabling trends that will have implications for how we evaluate investments in the big picture, in addition to how we operate assets every day.

Investment JOHN SAROKHAN AND PETER HAYES, PGIM

John Sarokhan, Global Investment Risk Director and Peter Hayes, Global Head of Investment Research at PGIM Real Estate give their views on how proptech has affected the transactional side of investment, the future sophistication of buildings, and the opportunities offered by big data.

How have global proptech developments influenced your business strategy at PGIM Real Estate?John Sarokhan: It has certainly affected the way we look at asset operations, and emerging trends are driving demand. Having said that, emerging tech trends are just that. From an investment perspective, we need to consider these trends as part of our big picture outlook, but we also need to begin to factor in these new technologies in our decision-making today so that we are better prepared to take advantage of them if/or as they become more commonplace in the future.

Peter Hayes: Three years ago, we became very mindful of these innovations and took the decisive step to look into and understand the trends that were becoming evident. We asked ourselves what were the opportunities, how was

proptech changing what occupiers want, and what did this mean in terms of our portfolio? We realised we had to take this into account when underwriting, developing our strategies and looking at our capital expenditure and exposure to risk. We actually don’t know at the moment how many of these startups have legs and will still be around in ten years’ time. Quantitative easing helped release capital into this area and so from a risk perspective we want to see how the business model evolves and survives through downturns.

How far has proptech become mainstream in today’s market?JS: It is becoming mainstream, as evidenced by investors identifying and acting upon opportunities knowing that if they don’t pay attention they will be left behind. Tech and disruptive innovation have almost become clichés, but in reality, it’s always been there. It’s an evolution, we’re just trying to put a wrapper around it at the moment.

PH: I don’t see proptech as a stand-alone industry – it definitely has an effect on the operational side of real estate but it will eventually be absorbed and fold entirely into the business.

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CLIFFORD CHANCE VIEWPOINTComputer says no!Tech will have an increasing role in driving efficiencies in investment transactions which will lead to more automation, increased speed and a decrease in manual oversight. All good things.

But like driverless cars, who’s at fault if the algorithm gets it wrong? If an error occurs, who should investors turn to? Is it the investment manager who relied on the tools? Is it the advisor who provides the tools to the investment manager? Is it the programmer who designed the algorithm? Is it the data scientist who fed in the data? The answer may be some, all or none of the above. But over the next few years all market participants will need to keep a watchful eye on terms and conditions as the risk is parcelled up and passed around. Ultimately, perhaps insurance will fill this gap? But don’t forget that many insurers are funded by investments in property.

“Who’s at fault if the algorithm gets it wrong? If an error occurs, who should investors turn to? Over the next few years all market participants will need to keep a watchful eye on terms and conditions as the risk is parcelled up and passed around.”

— ADRIAN LEVY



Peter HayesJohn Sarokhan

extract more value from your asset? One of the answers is to work it harder to generate income outside of normal working hours. How to increase revenue streams beyond rent is one of the biggest changes in approach.

How far are investors and funders comfortable with the changing valuations associated with flexible occupancy?It’s a challenge for funders, there’s no question. Traditional real estate foundations were built on long term income with triple-A covenants. But the funding sector is starting to understand that occupier demand is changing. If

tenants are not going to commit to 10-15-year leases because that doesn’t suit their business model, funders have to listen. The average length of stay for our tenants is 34 months and it’s growing, which gives lenders a sense of comfort. But this is a distinct shift in how people are using space. Change will be slow, but developers who are able to react and adjust will be successful in persuading funders to support them.

What are the most important pieces of tech for office sector businesses right now?The front facing digital presence is crucial. Websites, digital interfaces and apps have to be compelling, attractive and function brilliantly. Billing platforms and CRM software must be efficient. We’re experimenting with building sensors but are finding that the information received from people logging on to wifi is more potent. Data capture is potentially able to deliver enormous value.

There are obvious differences between a proptech startup and a traditional property sector business, but which elements in today’s market link the two?A proptech startup is a company identifying a problem and developing a solution which they provide to a traditional real estate company – the guys that own the asset and hold all the cards. But it is advancing so fast that the danger is we’re investing in tech that is going to be irrelevant in a short period of time. You have to make calls. Those proptech startups do not necessarily understand real estate but do know how to isolate problems.

The office sector is going through a massive shift currently. How much of a role have technological advancements had to play in this?Technology is the tool that is going to allow the shift to really happen. The entire real estate industry recognises that the office world has moved on from being a landlord centric industry to a tenant centric user of space and this is discussed in the context of digital tools. If you’ve been used to having managing agents who collect rent every quarter, deal with rent reviews, broken toilets and fights over dilapidation then it’s a tough leap. That’s the challenge. Part of that is investing in the right tech resources.

Who are going to be the key players in your sector in the next two decades?Our particular sector is between 7-8% of the market, and is going to grow to 25-30%, so businesses like us are a big part of it. There will be significant blending. The big land owners will remain key players as they move forward providing they truly invest and commit. You can’t dip your toe into proptech and see what happens, but change the way you provide real estate. Because if you just dabble it’s not enough. People see through it.

Office CHARLIE GREEN, THE OFFICE GROUP

Charlie Green co-founded London-based The Office Group, a pioneering shared workspace business, in 2003 with Olly Olsen. With investment from a socially aware private equity fund, it now has 33 flexible working buildings across the UK and in June 2017 Blackstone acquired a majority interest in the business. Here we talk to Charlie about the changing landlord-tenant structure, the increasingly discerning demands of occupiers, and the office sector of the future.

How far have tech changes influenced the office sector?I don’t think we’re even scratching the surface of how proptech is driving the office sector. For all the attention that proptech is getting today and the investment into it, you’re not going to see the fruits of that labour for some time. But over the next few years there will be significant advancement. We know the areas of concern but there’s a huge amount of noise to distill through. A

lot of people want to invest in proptech because they acknowledge that it is ripe for investment, but you have to question what is the right technology.

What is the key tech that will underpin the development of the sector?We’re all learning what is worth investing in and which solutions make our lives more efficient. It is a constant evolution. We’re in the distilling and filtering phase. It’s fascinating because proptech covers everything. For The Office Group we do not present as a tech business, but as a real estate company that relies on and invests in proptech in a way which is fundamental to our future growth. We have to layer technology over our fundamental skill set. We’re a real estate company that has had to embrace proptech, not a tech company that happens to be using real estate as the asset plane.

Is the market ready to embrace the changes being driven through by tech development?The problem with real estate is you have this anachronistic structure that is weighted far too heavily in favour of the landlord. Things like 10-15 year contracts and upward only rent reviews are not relevant to how businesses perform today. That agility is incongruous with the lease structure. The flexible office sector is the clearest expression of how we respond to demand changes being driven by technology. It is creating a better educated, more discerning occupier of space.

Will we ever see a full digitalisation of the office sector, or will the human touch still be relevant?Technology should release us to be more human about our experience.

What do you expect the office sector to look like in 10-20 years?You’re going to see accessible, intelligent, sustainable buildings. We’re going to understand how to control and run those buildings much more efficiently. Environmental issues should be a driver for this kind of technology. We will be capturing data that allows us to be more intelligent about how we design and use buildings.

What are the biggest changes you’re seeing in the office sector?With traditionally very rigid parameters for returns, in a market where you have plateaued rental growth how do you

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CLIFFORD CHANCE VIEWPOINTOut with the old…?The once-traditional office market is ablaze with co-working, space as a service and tenants re-branded as customers. But the mainstay of the market, the FRI lease remains remarkably resistant. Will the pressures of flexible space and an increasingly data-led approach change the lease of tomorrow? Some predict the following:

• Flexibility is the future – lease lengths will drop, tenant and landlord breaks will become more common and controls on alienation will give tenants more flexibility, but landlords will remain focused on having a good tenant covenant

• Upward only reviews – it would take a brave landlord to move away from these, but as tenants seek shorter leases and flexible working reduces demand, some investors may lead the market to attract the best tenants

• Less control – flexible spaces and improvements in fit-out technology will lead to an increasingly hands-off approach from landlords to tenant alterations

• Who owns the data? The information created by the building’s occupiers could be as valuable as the rent. Who will control it – tenants, landlords or the individual occupiers themselves?

• Standardisation of leases will be driven by automated drafting tools and by standardisation of data fields. Digital versions of buildings may be created, leading to dramatically quicker and more accurate due diligence on investment transactions and a smarter approach to asset management.

“The information created by the building’s occupiers could be as valuable as the rent. Who will control it?”

— MATT TAYLOR



LogisticsJAMES POWER, SEGRO

James Power, Director of Digital & Technology at SEGRO discusses smart buildings, the continuing importance of location, and the potential for power generating warehouses of the future.

Proptech in the logistics and industrial sectorHow far is proptech driving the industry forward?It has brought technology into the boardroom in a very real way and made us think about our business and how digital influences will affect it.

Has logistics property led or lagged the rest of the real estate industry in the adoption of proptech?A lot of the early action in proptech was very consumer and end user orientated

– at a proptech show event two or three years ago I had to look pretty hard to find something relevant to the industrial sector. Now we’re seeing automated warehouses and it’s an interesting area to which the supply side has very much woken up. A lot of startups are solving problems they have experienced as consumers, so there are fewer involved in industrial

activity where there are more commercial relationships involved. Nonetheless, there are now developments happening that are as transformative as in any other sector.

Which area of proptech do you think will most impact the logistics sector?Asset technology, the internet of things, smarter warehouses which provide a better experience for operators and occupiers, power generation and storage

– all these advancements have a particular industrial flavour and these automated processes are significantly influencing the sector.

Demand for logisticsHow have you seen the wider technology revolution change demands in the logistics market? There has been a sea change in consumer behaviour driven by tech and ecommerce which has driven major changes in supply chains. Location remains a critical issue, with modern sustainable buildings top of the agenda, and a trend toward taller buildings and greater floor loading. These may sound unglamorous but they are critical to the industry.

Do you think this will continue to change? Sustainability will continue to be a very important issue. Business expectations have moved forward to the point where operating as carbon neutrally as possible is expected. There are really interesting things happening around power generation, storage and consumption by warehouses.

The impact of specific technologies in the industrial marketDo you think driverless lorries and drones will have an impact on the logistics market?We’ve got reasonably far to go until autonomous delivery vehicles will be in regular usage due to regulatory and cultural hurdles – large scale adoption is not going to happen tomorrow. But the concept does widen the envelope somewhat in terms of the location of warehouses. More immediately, electric goods vehicles will become more common as operating costs drop below traditional vehicles, and that is already

driving demand for charging points at our warehouses. We’re monitoring this very carefully.

How have warehouse sensors affected logistics?For us, as warehouse owners, it’s very early days. But we see that the future is about smart warehouses that have a digital fabric complementing the physical structure. It’s going to be very significant in allowing us to be cost effective and accurately monitor the health of the building. Connected smart warehouses talking to their “digital twins” will mean that they are increasingly self-maintaining and corrective action can be taken immediately.

Proptech means that transactions can move forward more efficiently. Have you seen this affect the management of deals?We haven’t seen a lot of evidence of this happening so far, largely because we are dealing with relatively large lot sizes often comprising complex multiple assets. But it will happen in time. Platforms will allow businesses to trade assets in a much more liquid way. The tech that enables this does exist, but there are still a few big steps to take to make it work in the real world.

How far is data collection changing and challenging the industry? Most of the kind of data we see doesn’t have privacy implications, but when there are devices connected to the internet then cyber security becomes significant. Collecting a lot of data, some of which is proprietary to the occupier, is of legitimate interest to both the owner and operator of a business. There are some challenges as to who owns the data, which is not a debate we’ve historically had to have. For us, accessing and processing data we haven’t had before will require new skill sets and can open up new opportunities to benefit our customers.

Looking forwardHow do you foresee the logistics sector changing in 10 to 20 years?In common with other sectors we would expect to see innovation with service models and operators offering a much wider range of services. Specifically in the logistics sector, we think the key change will be that smart connected warehouses with digital twins will be the norm. They will be sustainably built, well located, well connected to the outside world, and there is a fair chance they will generate, store and manage power. This potential new network of power may solve what people are calling the energy trilemma: availability, cost and sustainability. From an owner’s point of view, there will be much greater insight into what’s going on in the building without actually having to be there.

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CLIFFORD CHANCE VIEWPOINTSustainability wins!The nexus between logistics and sustainability is far from new. Sustainability has long helped drive the greening of logistics businesses, for example:

• siting distribution hubs to reduce delivery miles;

• acquiring greener vehicle fleets;

• shifting to cleaner rail or shipping modes.

The urgency of climate change mitigation has led to greater pressure on businesses from new regulation and shareholder intervention, and the increasing adoption of stringent green energy targets. Considerable technical and commercial innovation is needed for businesses to keep making steady improvements to sustainability.

The development of renewable energy and storage technologies is a case in point. Adding renewable generation capacity to industrial facilities can help businesses reduce reliance on expensive electricity from the grid while becoming more green. In the right regions, the vast roof space of logistics warehouses is well suited to electricity generation from solar panels. Incorporate new battery technology on-site into the mix, and a logistics site will have access to its own green energy night and day, improving the economics. New business models are evolving where the site can earn extra revenue by selling any surplus energy to the grid via so-called aggregators (which might be owners of batteries rented to a number of site occupiers). These technologies and business models are developing so fast that often the only drag is regulation which struggles to keep up. Opportunities like these are likely to help shape the future of logistics infrastructure.

“New business models are evolving where the site can earn extra revenue by selling any surplus energy to the grid via so-called aggregators.”

— ADRIAN LEVY



of our offices through innovative services. Proptech investment is also a powerful way to make sure our assets are ready to pursue our very ambitious CSR strategy, “Better Places 2030”, which should help us reduce our carbon footprint by 50%. To achieve this ambitious objective, we must make our assets perform better and in a less carbon intensive way: this is why we invest in startups specialised in energy management, and carbon assessment.

New relationships, startups and traditional property playersSince its creation in 2015, your lab, URWLink, has screened over 700 startups. What is it that makes a successful proptech startup?The future is about collaboration between players of various size and operating in different sectors. We need to bring aboard the most successful partners and source new solutions that can complement the ones we develop internally. Our URWLink platform identifies new, innovative solutions and partners and drives our collaboration with them. We are seeing really dynamic proptech startups, and in this specific sector there are two key success factors. Firstly, to be able to work with very different stakeholders, because our assets all have different characteristics. They also have to be very adaptable to work with, and to be able to collaborate with large players like us whilst having a clear perspective of their own business model. This, for example, is the case with Phenix, a French startup with which we collaborate on waste management and circular economy, that has a high learning capacity to work with new partners such as shopping centers, hypermarket and cities.

Large traditional real estate companies and proptech startups are increasingly

teaming up. What are both the challenges and the rewards of this combination?It is not always easy to find the right balance, but collaboration with startups can bring a lot in terms of culture. It stimulates speed and agility in execution, brings us new solutions that we would not be able to develop internally, and opens up the possibilities at large. There are some challenges of course, because change isn’t easy. But our teams are passionate about innovation, very agile and open minded. It is a very exciting moment that we share with the startups we team up with.

Future planning, sustainability, data and the retail experienceWhat area of proptech do you think will most impact retail in the future?We believe that proptech will drive change on several dimensions, from data analytics to property management. Energy management is one of the key proptech areas as developing smarter buildings with better energy consumption is a challenge for the whole property sector. We aim to set up new standards towards a much more sustainable model, and this involves adopting the best technologies.

What do you expect the retail sector to look like in 10 to 20 years?The sector will likely be much more unified, with no more barriers between the offline and online worlds. This trend towards the convergence in retail is already ongoing and we expect it to develop further. At the same time, shopping should become much more individualised, thanks to a smart use of data but also to the rise of new technologies allowing personalisation. Last but not least, we should also see the rise of the experiential dimension, with people rediscovering the joy of spending time and experiencing things together.

Retail JULIE VILLET, URWLab

Julie Villet, Director of URWLab and CSR at Unibail-Rodamco-Westfield, discusses how proptech has impacted their investment strategy, the value of partnering with startups, and the shopping experience of the future.

Retail’s revolutionHow has the retail market changed with the wave of proptech features coming into the market?Proptech in retail drives massive changes in three main areas. Firstly, the way we collaborate with retailers has evolved, particularly in the range of services we can bring them. Secondly our relationship with our suppliers – new tech developments can improve the way we work with more efficiency and better quality. Finally the way in which we interact with the customers who visit our shopping centres in search for an ever more distinctive experience.

What are the most influential trends shaping your environment currently?A major trend is “omnichannel as the new normal”. Our ambition is to better serve our customers, who expect a rich and seamless experience across all channels. Innovation is playing a key role in achieving this. For example, we have developed initiatives such as smart parking access or delivery solutions to improve the omnichannel customer journey.

The other trend is the right use of data to improve this customer journey. While aggregated data has given us a better understanding of the dynamics in and out of the mall to make better decisions – for example, through tools such as traffic heat maps – we are also very focused on providing a more personal shopping experience and developing individualised relationships with our clients.

How do you view the usage and collection of big data in a retail environment? Are there challenges and risks here?Big data is a key lever of innovation in the retail environment. The main challenge is betting on the right tech and the right management systems to collect and manage the data we have access to. We believe the GDPR regulation, which may have been seen as a risk by some, actually provides a helpful framework to use the data we collect. This is an evolution that we have been anticipating for some time and carefully working on, and we have actually seen a rise in opt-ins thanks to our qualitative approach.

Strategic thinking in investmentHow have proptech developments shaped Unibail-Rodamco-Westfield’s investment strategy?Innovation is one of the three pillars of our strategy: proptech developments directly contribute to our ambition to create more attractive and more sustainable places. This is why we innovate constantly and developed a new “Connected Mall” standard that has already been rolled out in 45 shopping centres across the Group. We also invest in proptech startups when we identify a good value-creation opportunity for us, our clients or our customers. For example, we invested in Workwell, a startup dedicated to wellbeing at work, to enhance the value proposition

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CLIFFORD CHANCE VIEWPOINTAs shopping more and more becomes a leisure focused activity, the importance of placemaking and a carefully curated shopping experience will only increase. Landlords and tenants will benefit from much better information about the customer journey enabling them to analyse consumer demand and maximise the effective use of space. A diverse range of tenures, with everything from the traditional anchor to the pop-up will allow landlords to provide a varied and ever-changing offering to customers.

These changes of course bring a range of challenges – the demands of data-protection require a robust and considered approach to data collection and analysis and the changes to traditional lease terms will force investors and finance providers to re-consider valuation models. Concepts such as turnover rents become increasingly challenging in an omni-channel retail environment where the true value of a retail store is not necessarily reflected in the revenue through the tills.

For all of these issues, the future of retail promises to deliver unique and exciting opportunities for shoppers, retailers and investors alike.

“A diverse range of tenures, from the traditional anchor to the pop-up will provide a varied and ever-changing offering to customers.”

— MATT TAYLOR



ResidentialANIL KHERA, NODE

Anil is the founder of Node, a company that has a portfolio of curated residential co-living communities in design-led spaces across the globe. He was previously managing director at Blackstone in London. Here he discusses the problems in the residential sector, and how proptech has a part to play in solving them.

The property market is broken. This might seem like a strange statement coming from a man who manages a portfolio of properties across the globe, but Anil Khera is out to fix what he calls a “dysfunctional market” and believes that proptech is part of the solution.

The problem, he says, is that most developers want to build condos or flats that are sold to speculative investors who bank on the capital appreciation as a pension plan but are less interested in the rental side. “What this has done in our cities is create dysfunctional living residences with multiple landlords, no real cohesive management nor a focus on customer service for the residents that live there,” says Khera. “There’s a lot of room for people in this sector to reduce this trend and create something that’s not based on short term profit but something that’s good for society and offers very attractive returns for institutional investors.”

Part of the issue is that we are living in an increasingly urbanised world, and when global mobility and housing affordability issues are added into the mix, it is clear that innovative housing solutions are very necessary. “In the last 30 years property has pretty much been a one-way, no brainer bet,” explains Khera.

“If you bought almost any property in a global city that had positive demographics you didn”t have to do much to get fantastic returns. Today, in this later cycle, interest rates are lower and yields are lower. To create that next returns cycle, it’s not necessarily just going to come from macro investment in a sector. You have to look for other ways to drive value.” This is where proptech comes into play for Khera, who says that he is looking for innovative solutions

to increase efficiency, but also to cater to the requirements of new clients “who really want to invest in technology within a property context”.

Technical skillsWith very strong demand to embrace proptech on the tenant side, products such as plug and play, digital enabled lifestyles, and the Instagram effect have all helped create a new kind of residential consumer. “People are willing to pay for flexibility, community, a turnkey lifestyle solution”. However, notes Khera, the traditional property industry “tends to make business decisions based on historical data and think of property as a product, not a service”.

“By the time these new concepts are tested, they are in the rear-view mirrors of people who didn’t need the data to prove something we knew was there the whole time,” he says. “The old property market is just catching up whereas the innovators have taken a vision and run with it based on a better understanding of the customer. It’s all going to come together over time. Whenever you’re innovating in a sector it takes the old guard a little longer to embrace it, but when there is a provable track record it then becomes the mainstream”.

Human resourcesWith the integration of VR and AR technology and increasingly quick feedback times for building maintenance, it is clear that smart technology is going to continue to have an extensive impact on the residential property sector. However, this does not, argues Khera, mean that we will see the end of the “human touch” in this market. “We as humans want to interact with each other. But what technology can do is take out the mundane interactions and the repetitive tasks by making them automated in order to enrich human experience - that’s where I see the value add in proptech. We’re on the cusp of something very major.”

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“Institutional rigour will lead to increasing professionalism and standardisation. In turn this will probably lead to increased regulation with benefits for end-occupiers more used to deposit disputes than hotel-style service.”

— ADRIAN LEVY

CLIFFORD CHANCE VIEWPOINTToo big to failThere is increasing institutional interest across all aspects of the residential sector from PRS to affordable housing to student accommodation, care homes and retirement living.

Size brings strength, as efficiencies of scale and institutional rigour will lead to increasing professionalism and standardisation of a market that is currently dominated by individual landlords and small-scale operators. In turn this will probably lead to increased regulation with benefits for end-occupiers more used to deposit disputes than hotel-style service.

However, regulators will focus hard on this area, particularly as the downside of increased consolidation is that in any subsequent downturn, the next Lehman could be a provider of housing to hundreds of thousands, if not millions of people. Post-Grenfell, the focus for investors must also be on ensuring the highest standards of health and safety and that management agreements contain rigorous protections for occupiers and owners alike.

The rewards, but also the risks of residential property have never been greater.



in the company focused on how the business is going to innovate. Everybody needs to embrace the spirit of innovation, rather than going through one person, an Innovation Director. At Clifford Chance we have certainly adopted this approach.

The speed of changeAL: There’s definitely been a shift in mindset and culture with technology changing the market at a rapid speed. As Justin Trudeau said at Davos this year,

“The pace of change has never been this fast, yet it will never be this slow again.”

MT: Tech can make a massive difference to the speed at which deals are done. The approach to due diligence across all disciplines is becoming more focused and more technology augmented than ever before. It promotes much more complex transactions; there’s a natural bandwidth limit that humans have, and being able to supplement that with increasing powerful tools allows for more complicated and larger deals. Manual drudgery is being taken out, freeing up more time to focus on value points, and we’re seeing clients take advantage of this by taking on increasingly ambitious and complex deals.

Big data: collecting, managing and capitalising on itAL: Law firms receive a huge amount of data and clients will be looking to us to see what, within the confines of confidentiality, we can provide in terms of market analysis. Proptech is all about transparency, about sharing info. This means larger firms will be in a much better position, simply because they receive so much more data. Big is beautiful.

MT: Deals are increasingly cross-border – it is very rare that we work on a transaction that doesn’t have at least some international element. That means the ability of a firm to share market knowledge across the globe is critical. The challenge is to find a way of taking the data that a firm has, analysing it on a systematic basis and then pushing out key insights at the right time. If you can deliver this, your clients are getting much more than a lawyer with knowledge of his or her local market, they are getting the combined knowledge of the whole firm behind them, and this is where global

reach and a broad but deep range of experience is key. It will give clients the benefit of the scale of a firm and so, as Adrian says, Big is Beautiful.

The key drivers in proptech: connectivity, liquidity and digital footprintsMT: Connectivity is crucial – tools need to work together otherwise you have huge friction costs in moving between them. Better connectivity also drives standardisation and aggregation. When you start to aggregate systems and bring them together on one platform it becomes something incredibly powerful which can change a market.

AL: The holy grail is a platform that does everything from building management to transactional activity. Can you imagine one package that gives you real time reporting on all aspects of a building; past financial performance, future anticipated performance, changes to legal documents and asset level information? If this is standardised and you layer onto that the tokenisation of real estate, it would allow a building to be sold at any time. That’s incredibly powerful and could change market liquidity and the way we look at real estate as an asset class.

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LegalADRIAN LEVY AND MATT TAYLOR, CLIFFORD CHANCE

Clifford Chance partners Adrian Levy, Co-Head of Global Real Estate Sector, and Matt Taylor, Head of UK Proptech, discuss how proptech has become the industry buzzword, how it will effect deal-making and affect the future of the market.

Moving into the mainstreamMatt Taylor: Proptech has gone from something people have heard about to something that everybody wants to translate into concrete action. There is currently more focus on practical technology, like sensors in smart buildings, because the tech is relatively easy to implement and fits within existing processes. The more far-reaching technologies, such as machine learning and smart-contracts, need a significant change in management approach and therefore take much more time to win hearts and minds.

Adrian Levy: A few years ago, there was an incredible sense of industry wide FOMO (fear of missing out) – people were

paranoid that they were being left behind and that one morning they would wake up and realise that their business was extinct. But things have moved on and everyone in the industry is now talking about proptech and trying to understand how it could disrupt their business and how they could be the first mover.

Proptech startups: how the innovators are changing the marketMT: One of the real challenges for startups is demonstrating a track record, which until now has been an issue with big real estate players who have had a procurement driven approach to suppliers. What you are now seeing is a real effort by the traditional players to change this and become more partnership driven through schemes such as labs, incubators and innovation centres.

AL: Although property companies have come a long way and are embracing technology, I think some businesses are missing the point. To change the culture of a business you need to have everybody

“Proptech is all about transparency, about sharing information. This means larger firms will be in a much better position, simply because they receive so much more data. Big is beautiful.”

— ADRIAN LEVY



Matt Taylor

Adrian Levy

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ABOUT CLIFFORD CHANCEOur international Real Estate Group acts for the industry’s leading players advising on the full range of real asset related transactions and is a leading specialist in real estate investment, banking and private equity transactions.

With local and cross-border expertise we focus on high-end transactions, notably in corporate real estate, real estate finance, real estate M&A, large-scale development and regeneration, construction, hotels and high-value leasing, environment, planning and litigation.

Our integrated network of leading individuals has the commitment, resources and know-how to get deals done wherever they are including in times of uncertainty.

We are considered to be the powerhouse for creative, market-leading ideas achieving better results for our clients. Consistently ranked by peers and clients alike as the No. 1 for real estate related matters we were once again ranked as the standalone top tier firm in Chambers Europe 2018: Europe-wide Real Estate with clients and industry sources describing Clifford Chance as “incredibly capable due to their broad resources and depth of expertise.”

KEY CONTACTS

CAVENAGH LAW LLP CONTACT

Carol Anne TanHead of Real Estate South East AsiaT: +65 6661 2065E: carolanne.tan@

cliffordchance.com

Matt TaylorPartnerHead of UK PropTechT: +44 20 7006 2076E: matt.taylor@

cliffordchance.com

Adrian LevyPartnerCo-head of the Global Real Estate SectorT: +44 20 7006 1536E: adrian.levy@

cliffordchance.com

Catherine CookPartnerHead of HousingT: +44 20 7006 4367E: catherine.cook@

cliffordchance.com

WITH SPECIAL THANKS TO OUR CONTRIBUTORSTaylor Wescoatt, Concrete VC

Anil Khera, Node

John Sarokhan, PGIM

Andrew Hayes, PGIM

Charlie Green, The Office Group

James Power, SEGRO

Julie Villet, URWLab

Anastasia Hancock, Writer

Paul Spraggins, Photography

RESOURCES

https://www.linkedin.com/showcase/clifford-chance-global-real-estate/

Visit Talking Tech, our tech news website which follows key tech law trends globally

https://talkingtech.cliffordchance.com/en/home.html



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This publication does not necessarily deal with every important topic nor cover every aspect of the topics with which it deals. It is not designed to provide legal or other advice.

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© Clifford Chance 2018

Clifford Chance LLP is a limited liability partnership registered in England and Wales under number OC323571 Registered office: 10 Upper Bank Street, London, E14 5JJ

We use the word ‘partner’ to refer to a member of Clifford Chance LLP, or an employee or consultant with equivalent standing and qualifications.

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TALKING TECH: REAL ASSETS · TALKING TECH: REAL ASSETS CLIFFORD CHANCE 3 TALKING TECH: REAL ASSETS Adrian Levy Partner Co-head of the Global Real Estate Sector T: +44 207 006 1536