Real Estate and the Cloud with Neal Gemassmer

In this episode The Propcast talks to Neal Gemassmer from Yardi about real estate and the Cloud.

Today’s topic is real estate and the cloud, those who are not familiar with Neal Gemassmer he is the vice president international of Yardi board member of the UKAA which is United Kingdom Apartment Association. Yardi is a leading provider of real estate asset financial property management software. Yardi provides fully connected investment asset and property management solutions across the real estate value chain, that includes servicing fund management, commercial office, retail, industrial, residential, for example, PRS, build to rent, and the student housing market. Yardi is a privately held company founded in Santa Barbara, California and Neal manages Yardi’s operations across Europe, the Middle East and Asia Pacific. He lives in Amsterdam and has an undying passion for innovation, technology, real estate and the human spirit.

Louisa

Okay, so today’s topic is real estate and the cloud. Let’s kick start with, I guess the very beginning of Yardi. And so many, many people see PropTech as a thing that’s emerged in the past five years, it’s a buzzword we keep on hearing. But Yardi has been around for decades, I think it was started in 1980. What’s your definition of PropTech Neal?

Neal 

Yes, I think it’s a PropTech is an interesting term these days. I think at the end of the day, though, PropTech can be defined as innovation and another effort to create value for clients. So, it’s to be creative. And I think the interesting point, though, being is that there has always been innovation in real estate and systems. And now with the advent of cloud based platforms, so both from a storage point of view, from a programmatic point of view, and the ability to have a lower distribution system in terms of making it easier to develop a program like an app as an example and distributed to a much wider variety, it’s easier than ever to develop something new. Yes and expose customers to it. And I think similar to other “ad” industry, term insurance, legal, FinTech, etc, add tech to the end, and it kind of defines the last five plus years of just the amount of innovation that’s going back into these vertical industries.

Louisa 

Yes. And I guess how did you first get into this industry then, where did your career first start?

Neal 

Yes, my career first started working for a company in California, called ZERCOM, and for many it’s not a company that people would recognize. But way back when laptops could not connect to networks and they were more like little suitcases ZERCOM believe it or not developed the first manner to connect a laptop to a network through a parallel port, i.e. the printer port. And so this was before Wi Fi, before onboard Ethernet, before modems, and so that’s how I started my career in technology. And then moved across to Asia and helped set up the business across Asia and Australia for ZERCOM, which eventually was bought out by Intel. And then over a period of time joined Yardi, about 10 years ago to help further increase the size of the operations and the focus across Asia Pacific. So, it’s kind of been an interesting ride over the past 15/20 years.

Louisa 

And what was it like getting into real estate technology? How did you make that transition?

Neal 

The interesting thing about real estate for me is that everyone is exposed to it right? So we might not know the terminology as to how an investor speaks about real estate, but we’re all born into real estate, right? So, in a hospital or in a home, we grow up in real estate. You know, we study and rent apartments, we go to restaurants, we go to malls and at some point in time we may buy our own real estate and you know, make or lose money but it’s all very familiar to us, and what attracted me into the to the industry was it’s very logical in terms of why one purchases real estate and how kind of the capital flows of how you need to make money off of it, how you need to maintain it, how investors invest in it, and build it and sell it, etc, over a period of time.

But what attracted me to it was just this idea that one could do it better, and Yardi, who are a non-charity, so Yardi’s actually the surname of the founder and Anant continues to be the president and the owner of Yardi grew out of a small California garage type of a story in Santa Barbara, so not too differently from your Hewlett Packard’s and your other groups that have innovated, and over the past 35 years Yardi has grown into really the largest global provider of Real Estate Software Solutions for the marketplace, and along the way has continuously adapted through different technology trends and innovation trends. And that to me, was just a really strong basis to further be able to increase the servicing and being able to support international markets. Yes, and so Yes, it’s been it’s been interesting over the past 10 years.

Louisa 

Was was there a market which you went into which was like the toughest and you know, why was that?

Neal 

I think a tough market for us initially was the Middle East as an example. So, between the period of 2005 to 2009, there was just a tremendous amount of people building assets, whether it was residential assets, office towers, retail malls, etc. but very little focus was being put on to asset management. And so asset management really being the term as to how to effectively manage those assets over a period of time and ensure that they’re taken care of, etc. And in 2012, after the global financial crisis, where the market in the Middle East collapsed, really, and as it did in many other markets and got reset over the last five, six years in the Middle East, it’s been an amazing market for us. And we now have over 80 people in the Middle East, because the market itself has really seen that asset management is so core to what they do in every sense.

And so that’s been one of those markets where initially it was very tough, but we had patience, we invested, we built a team, we put an infrastructure. And it’s turned out to be a very strong market for us. What our view and our vision is, is that it’s very tough to support international markets without being invested in that market. So it’s building the right team. It’s making the right investments structures. It’s understanding how the market works locally. And those are long term investments that require capital as well as the right team to be able to manage them.

Louisa 

Yes, you’ve worked with say, start-ups and larger software companies as they get into new markets and I guess that’s probably a huge reason why Yardi you are one of the leaders. A big issue or challenge, which a lot of businesses I work with come into, is all about hiring the right teams and trying to attract that talent in these new markets. Where would you say in the SaaS space, where would you say the biggest skill shortage is, and how do you how do you yourself attract the right talent instead of Yardi? Whether it’s coming from the financial service? Like how have you and your business dealt with it?

Neal 

Yes, you know people at the end of the day are really the foundation of any business. And so I think building the right team, having the right culture is super important. And I think we’ve done a good job at that by balancing a few things. And I think the first thing is making sure that we take care of our employees. So, ensuring that they have the right compensation packages, that they have the right health care packages, that we support them in all of those type of ways. I think what’s important as when we look at individuals, though, is to ensure that, and certainly something that I look at as we hire is people who have passion. And I would say have intellectual curiosity. So someone who’s always interested in learning more and to a degree questioning why things are done, and questioning why we can’t help our clients or how we can help clients differently, right and helping have that curiosity then really helps individuals within our team be thought leaders and trusted sources back to a client.

But I think going back to culture, the other things that are important to us is making sure that we take care of our clients too. And so not only employees but taking care of our own clients. And in the case of COVID-19, it’s an example of, it’s more than just a business relationship. It’s a long-term partnership with our clients and our clients go through ups and downs. And it’s important that we take that into account and we support them through tough times. And then a really important part of what we do to support the communities that we live and work. And so every office within Yardi has an amount of charitable giving’s that the local teams then are able to nominate charity organizations in the different markets, and in the UK would be a great example by which you know, we focus our giving’s on to you whether it’s food banks or disabled children, etc. In Australia earlier this year, we donated about $300,000 to two organisations fighting the fires and everyone that was affected in the Australian market. And I think that balance between, you know, focusing on our team, focusing our clients and focusing in on our community is a really balanced approach to creating the type of work environment that our employees can succeed in.

Louisa 

Yes, definitely. I guess it’s just ensuring that fairly early stage businesses,  when do they get to that point of putting that structure in place, but also I know from working with you as a client, and when I’m painting the picture of what life is like at Yardi, a lot of talent seems attracted to it. There’s not that many businesses like Yardi, which provide that whole culture. Obviously, you have targets, and you have to do your day to day job, but it’s the bigger picture of what people now looking at it, it’s not just the whole day to days. So what is the working culture like, what is management like, what else does the business provide to society? Which is awesome to see as well. I guess that’s definitely where you can stay competitive in the space.

Neal 

I think it’s important to remember to in terms of, you know, charity giving as an example, it doesn’t have to be in monetary terms, it can be in terms of events that the team takes place in, whether you’re a team of three or four or, you know, a start-up of ten people, the ability to give back to the community and raise awareness for community needs, I think is an important bond that that team members can relate to, and also that the community feels valued by. I think the other point that I kind of like to highlight too, is that individuals that we hire generally are not focused on title. i.e., you know, so as I interview individuals and they’re more concerned about title, so individuals who are more concerned about title, how big their desk is, how much office space they have as an individual, you know, all that seems like a bygone era, but it surprises me and often that that becomes a bigger component of the conversation. Those type of individuals generally don’t succeed through the interview process with us because we know that they’re not going to be successful as part of the team.

Louisa 

Yes you’d be surprised at what conversations I have with some candidates, some who I know they could do the job, but they have a few questions like, do I get a standing desk? Or do I not get a standing desk? They basically want to be head of markets within literally a matter of months and it’s like look, you’ve got to have a proven track record, I’m sure these businesses you will reward but it has to be off the back of good work and performance. But whether that’s individual performance, team performance, all these things, and it’s crazy how some candidates need to be educated like that, but you can’t train someone to think like that. And then for business like yours, I do think you have to be as a team player. That’s why people buy into the whole Yardi family culture as well. Just personality.

Neal 

Yes, and I think people sometimes forget in the very good times, and I’ll define good times when there’s this rapid growth and it seems like anything that someone touches turns into gold, right? People need to be reminded that it takes time to build up businesses, and solid businesses that last, right. And I’m not talking about businesses that last 50 years, because those are really hard to find. And in fact, the odds are against almost everyone, but businesses that can survive for five or ten years. And there’s been so much focus on innovation and practice these days of having a better mousetrap that either looks and feels better today. But there’s no longevity to the platform, there’s no barriers to entry from someone else copying it. And to degree, there’s no willingness to pay in terms of creating value that someone is able to then provide to a customer, and then how much you know what’s the willingness for a customer to pay on an on a recurring basis so that you actually have a business that’s viable, moving forward. And I think sometimes those things are forgotten when rapid innovation comes around.

And we’ve seen this over the last five or ten years and certainly twenty years ago with the with the dotcom bubble, as we saw that to where valuations were outrageous, but again, there wasn’t willingness to pay on a long term basis, and many of those companies did not survive. It didn’t mean that the technologies weren’t relevant. In fact, the opposite if we look at in terms of what was kind of the initial ideas of marketplaces, the additional idea of online transactions, the additional, you know, more digital type of processes online and through smartphones. All of that was thought of back then it just took time for the right pieces of either infrastructure or technology, or banking regulations was meant to come into alignment for someone really to take advantage of all the all the pieces of the puzzle.

Louisa 

Yes, you’ve mentioned earlier about I guess the various markets which you expand into, all the sectors of real estate, which seem to be  never ending which Yardi is growing into, whether it’s PRS, which is just growing massively. Obviously, it’s growing massively. Are there any other areas of expansion for Yardi that you have planned? Is it top secret or what?

Neal 

So, it’s a good question. Absolutely top secret so I can’t answer questions! No, I mean, an area that we’re very passionate about and have a lot of focus right now is the build to rent sector in the UK and Ireland. And all be it the market is still smaller in terms of purpose built apartments that are institutionally held, that provide an end to end experience for a resident through the application process, through kind of the community building process, and be able to manage kind of their relationship with others in that apartment building, to renew leases, make payments, that’s a that’s a very big focus of ours and we’ve built up a sizable team. And it’s been interesting in terms of all the learnings that we have in North America based on the volume of market size. And of course, the UK and Ireland have differences in terms of how they need to operate. But that digitization of the end to end processes just really interesting to us.

And then I would also say co working in flexible office space, and whereas flex space isn’t new, because business centres have been around for a long time and the UK is one of the largest markets globally that has just this established history of business centres and flex and co working spaces etc and just a number of leading operators. What is new though, is in terms of more corporate occupiers looking at flexible space to dominate their working environments, and I think the COVID-19 situation in terms of people working from home, have thrust any organization now to need to have a methodology for the majority of their employees are all of their employees to working from home. And I think that this then creates this unknown impact as to how much space will corporate occupier need in the in the future? How do building owners and operators and developers manage through these different occupational type of space needs and requirements, and that will shape lots of opportunities for innovation to take place in new technologies and new thought processes.

Then the other just to add maybe an additional part – France. So France is a big focus for ours for us right now for the food, the wine en Provence! But because we see demand, and so you know, so we’ve established an office and an entity, and we’ve got people on the ground. And so that’s kind of our latest real focus area on the European point of view is to further build up a sizable team in France to both support our existing clients, which are many, move hopefully to that next phase of innovation, Yes, digitising real estate in France.

Louisa 

Yes, we’ve got a few clients in Paris, it’s a tough market to get into, which a lot of businesses want to get into. How have you found that?

Neal 

But I think the strength needs to be to not try to service an international market, like France from London, as an example, you need to build a local team, you need to be committed, you need to localize you need to you know again, build up the local force. And I think as, as we’ve done across the last 40 years, and in particular over the past 15 years, is we now have operations in France and Germany, and the Netherlands, and the Middle East, and India and Singapore, Hong Kong, Tokyo, Shanghai, Sydney, Melbourne. And so much of this, this focus has been as to make that investment by which then the local market and local owners and operators or real estate feel more comfortable partnering with you. Yes, I mean that you always get it right. But the commitment of a local presence is a huge part of that statement. But it’s hard to do if you’re a start-up.

Louisa 

Yes, I think there are various associations and communities which you can join. Like, board member of the UKAA, you’re part of the UKPA, there’s obviously all these associations in all these countries. And it’s, I think it’s so important for people to get involved in it and meet the people leading it, because these associations are there to connect people do whether it’s I guess nowadays, online webinars, what can you learn and take from it to , I guess, and help you get involved and grow in that area. And I often don’t think people use these associations enough, the people who set them up want people to communicate through these associations but there are a lot of people just  join and you know, I’ve seen Yardi, you’re very involved, I think you’ve spoke in a webinar about the UKPA last week. I know your very active with the UKAA. What are your thoughts on that?

Neal 

Yes, I think associations are hugely important. And I think that it’s like any partnership, though, it’s easy to join, but you only get out of it, what you put into it. And again, people will often forget that too. And so we heavily support organizations whether you know, some of the ones that you name, so the UK were a founding member of that and that the UK, is an offshoot from the North American Apartment Association, really focused on helping educate and create value and the industry around build to rent because it was really not present to the same degree and so that’s been a really interesting process over the past few years. But then other organizations like the British Property Federation, the UK PropTech Association, all of these are really valuable.

Then you have other groups like you Unissu are helping kind of connect a lot of PropTechs and other individuals in terms of promote overall membership directory point of view and other initiatives that James and the team are doing. That’s really interesting to us too, because again, it makes the world a smaller place. You need to participate and become active and help add value to those communities as much as participating in them. There’s so many webinars and white papers and but I do encourage anyone who’s interested in the space to, to participate in not only those associations, but anyone who’s interested in property, per se, there’s just a number of newsletters and websites that you can get free information.

And it kind of it goes back to that intellectual curiosity, what kind of drives someone to learn. And you know, the example that I give maybe selfishly is that when we moved to Amsterdam four years ago from Hong Kong, we were shopping the family and I were shopping in a shopping centre. And I thought to myself in my geeky nature, I wonder which platform the shopping centre uses to manage the mall. And it later found out that it was a competitor, so we haven’t been back! No, but it’s kind of like it’s in terms of if you want to be passionate about the business that you’re in, is every individual really optimally needs to think like that in terms of where’s that next opportunity? How is someone managing the process today? Whether it’s how do you manage your you know, your employees and your corporate tendencies? How do I make the experience better? How do I connect people and add value during that process?

Louisa 

Yes. So obviously, we spoke about different markets, I guess, bringing in new talent, looking at different parts of real estate, with some various new emerging technologies or some fairly early stage start-ups in the software space, how are you going to stay top of the tree, with these new businesses coming to the market?

Neal 

Yes, it’s interesting. I think that on one side, our goal is to grow the business gradually. And so we may not always be the first to market with the latest technology, because we want to give some thought in terms of really the value proposition and whether this will work for our clients. But the level of innovation happening the market is just tremendous. And so what we generally find is that we’ll innovate in an area. And then over a period of time we’ll kind of consolidate our thoughts in that process.

And an analogy that I sometimes like to use is Apple, and that these days everyone thinks that Apple is the most innovative company, and to a degree it is, but if we look back at technology, they didn’t invent everything. And a few examples to that would be as they were not the first company in the cloud. They did not develop the smartphone they did not develop the mp3 player. They did not develop a handheld device with the touchscreen interfaces that did not develop an online music store. Initially. Right. So all of these things were developed by other groups, Apple just made it much better. And one of the ways that they were able to do that was the user experience. So the platform was easier to use, but it was also fully connected. So Apple had strict guidelines in terms of kind of its ecosystem, which made the end to end interaction with someone who is on a device, as well as in terms of the security around it, programming languages and others to have a fully connected ecosystem was really something that’s driven success for them. And I think Yardi in many ways is similar to that that thought process too.

Louisa 

Obviously with the new players coming to the market, why do you think that’s been so much, I guess, so much growth? Do you think this growth will continue? You’re obviously doing something right. So there’s definitely a big enough space for more businesses to come into it, but why do you think that’s been such as a surge in it?

Neal  

I think the surge has been because capitalists cheap investors have seen both family offices individuals and other individuals or entities, institutions investing and the term “PropTech” is you’ve seen a few “exits”. And you’ve seen a number of “unicorn” type of valuations. And so there’s a lot of money being thrown at it. That’s kind of number one. And so that generally creates entrepreneurs. Right? So this combination, is does the capital create the entrepreneur or does the idea create the entrepreneur? And in essence, the capital that then follows but I think the base again is that if we look back 10 years ago, it was much tougher the investment to develop a new product, a software product, or a platform was much more expensive and harder to do because storage costs were expensive. Programming costs were expensive. So processor costs were expensive. distribution channels were tough. Smartphones really didn’t exist in many ways, right? And all that’s changed, right? So now you can go to whether it’s the Google Cloud, the Amazon Cloud, the Microsoft Cloud, or a number of other Clouds and get really inexpensive processing, power storage.

And then through distribution channels, i.e. online stores, whether it’s the Apple Store or the Google Play Store, it’s much easier to then distribute new products, whether it’s a free product or something that you charge for. And then finally, in terms of just the programming languages that allow someone to develop a great user experience is much more simple now than it was 10/15 years ago. So I think all of those things have attributed to just a number of different start-ups in the field and online stuff contributing to new start-ups in field.

I think what’s interesting to me though, is that how many are successful, and for every 50 start-ups that launch every year, there’s probably by the end of the year, there’s probably 90% of them, maybe an over exaggeration, that are on fumes within 12 to 18 months. And you’ve seen that in the UK. And so that doesn’t mean that the next amount of capital doesn’t go into the next start-up that has a better idea. And they’ve learned, I think that’s happening, right. So, it’s just the recycling of the capital, and the emergence of entrepreneurs that are pivoting to create something new. But it’s tough to then determine which of these PropTech’s are going to be successful and have longevity beyond, you know, one or two or three years. I think that’s the biggest challenge right now.

Louisa 

Yes. And so if we look at what does the future of SaaS in this current time look like to you?

Neal 

I think the question of will applications be in the cloud or if that ship has sailed. I think that you know, the market is gone down a SaaS model. I think there’s lots of different definitions as to what the cloud and the set and SaaS models mean, right. And an example of that would be is data aggregated? Does an individual have a single tenanted platform at a database level, is the application multi-tenanted, etc. So, there’s lots of different variations of that. The reality is, though, for those organisations that are still focused on I want an on premise solution, because I’m scared of my data, and security, I think that those organisations to a large degree, are hugely under estimating how well their data is protected number one, and number two, is in terms of how they ensure that in an event, that their core data sets go down, or even in a in a home environment.

Now, we’ve seen that organisations that have on premise solutions, it was just a really tough journey for them to be able to overnight, move to a work from home environment because of all the different challenges with technology but the cloud will continue to grow. I think there’s just huge investments by the industry at large. I think the big question will be is jurisdictional data requirements. And increasingly, whether it’s things like GDPR, or other regulations that restrict where data can reside. And I think that’s something that individuals need to think about. And then also GDPR, obviously, introduces just a ton of additional legislation. But more importantly, controls that both the data processor and the data controller and GDPR speak, need to be able to validate that if someone wants you to delete the data that you may have captured from them over a period of time that you can do so and validate that you have across all the different data points by which you may hold that data.

Louisa 

Yes, I’m definitely going to be doing an episode on the power of data, and it’s the difference in legislation across every single market. You know, it’s completely different who owns the control of it in the US compared to over here. And I guess how it will change in the years to come. But Neal, it’s been an absolute pleasure having you on the Propcast this morning and also learning more about real estate in the cloud. You’ve shared some really incredible insights and it’s doing great and learning about it, how Yardi has transformed over the years and I guess how it will continue to grow from strength to strength in the future, ultimately, how will affect the way the real estate world.