May 2020 Newsletter

Letter from the Editor

Spring has arrived! We hope you have had a nice start to 2020. Of course, we have been spending most of our time indoors, and every day does feel a lot like the last one. There are emerging concerns about the real estate tech industry, and smart buildings in general, but as we note below, there are emerging opportunities too.

This newsletter is a long one, due to the overall growth in content (in general), the continuing debate about how Coronavirus will impact commercial real estate, and the broader Coronavirus impact on the economy (for this newsletter, the "economy" is mostly vendors, owner/operators,  startups, investment/VC, etc).

We have been in touch with investors, CEOs, and other stakeholders to compare notes and share insights about what might happen in the coming months. Please reach out if you want to chat. We'll share some of these general thoughts below. We also are writing more, in an attempt to share these insights widely and keep lines of communication open.

On the travel/conference front, everything has gone virtual. Joe has participated in a few events in the past weeks, including IFMA's Proptech Live. He also was interviewed on James Dice's new Nexus podcast, which really digs into the nuts and bolts of smart buildings and provides a valuable perspective on this tech. Joe also was interviewed in this Propmodo article on the impacts of social distancing in the office. It's great to continue interacting with other industry leaders, even virtually. However, one of the biggest challenges with this "move to virtual" is that many vendors are having trouble generating leads and growing the top of the funnel (since events are not happening). At the same time, it may be easier to pick up the phone and call someone - which could accelerate some deals.



The biggest debate right now in commercial buildings is - what happens next? There are two sides of the debate:

1. Employees love working from home so much, they don't return to the office in an significant way. (See Morgan Stanley and Black Rock, for example)  
2. Working from home was fine for a while, but it's harder to get work done and the social outlet at the office is missed. Workers return to the office in droves. 

And, our friends over at Eden have some data on all this, which shows office openings (though not specifically office occupancy). Eden also published a good back-to-work guide.



At this point, many of these projections and data points are possible, maybe probable, but still uncertain. Another article, this one interviewing a leader from CBRE, indicates that offices could be half empty for a year. But it also has some interesting ideas, such as a 7 day workweek to enable more employees come come into the office in a staggered way.

A few other insights and observations:

• We've seen a number of major tech companies, plus many smaller tech firms and startups, trim staff over the past few months. This article argues that the same may happen in Proptech and that a wave of consolidation may occur. BisNow is reporting that there already are distressed deals on the market. We're starting to see signs of this consolidation, which may be a good thing for the fragmented industry. It should also make it easier for building operators to procure these technologies, as there will be fewer options so less need to interview and research a dozen or more similar firms. 
• On a related note, this CNBC article summarizes - across all of tech - what may happen in a recession. It's applicable to smart buildings, too.
• We are seeing and hearing about a slowdown in VC funding - but have not yet seen all the downstream impacts of this. It's a trend we're watching closely. And, at least one VC has written a great blog post noting that returns increase in those investments made right after economic crises. The post goes into more detail - but the takeaway is that as the dust settles, VCs may start writing checks rather quickly, in search or great companies. 
• We have seen a number of new products responding to Covid-19. These offerings appear to be focused on: remote access to critical systems, managing and monitoring occupants in the office, or tracking contractors that come for maintenance. It will be interesting to see what is developed in the next year, as there is more time to build more robust capabilities. Additionally, some vendors are offering free trials, which likely is a lead generation activity since there are no conferences or meetings. 
• McKinsey published a good paper on the Coronavirus impacts on commercial real estate - and the section "taking the digital leap" resonates with us: "Before the crisis, the real estate industry had been moving toward digitizing processes and creating digitally enabled services for tenants and users. Practically overnight, physical distancing and the lockdown of physical spaces have magnified the importance of digitization, particularly by measures such as tenant and customer experience."

Joe Aamidor recently published an article layout out the opportunities for HVAC service providers moving forward. After that article was published, we found an interesting article in the New York Times on ventilation and the transmissibility of coronavirus: "Very little virus was detected in the air of the isolation wards or in the patient rooms of the hospital, which were well ventilated. But elevated concentrations were measured in the small toilet areas, about one square yard in size, which were not ventilated." (Admittedly, this is not scientific, but still interesting.) 

As for what all this means: it may be too soon to tell. Of course offices are ready to reopen, many solution providers are looking at new offerings, and employers are drawing up plans to keep employees safe and productive. The next few months seem to be very experimental, but habits and day-to-day operations will change. A bigger question from our point of view: what impact does an economic slowdown have on smart building technology adoption? 

As always, we look forward to hearing from you about how we might help with your product and market strategy needs. 

In this issue of Smart Building Insight:

• Relevant fundraising, M&A, and partnerships.
• News, reports of note, and some of the coronavirus-related developments. 

Investment News

• New funding rounds:
  • Our friends at Nelumbo, which makes a surface modification solution that can be used to improve the efficiency of heat exchanges (a critical HVAC component), raised $14M in their Series A. The technology can be used for a range of other applications, but they've focused on just a few - including HVAC. HVAC major Danfoss, which already had invested and partnered with Nelumbo, joined the round.
  • Switch Automation raised $5M from Singapore-based Gaw Capital. 
  • Brainbox.AI, which makes autonomous HVAC technology, raised $12M. 
  • Access control firm Proxy raised $42M in March, focusing on touchless access control. This is before the full impacts of Coronavirus were truly felt in the USA, though the press release messaging does talk about the pandemic. This appears to be the type of Proptech firm that will weather the storm well.
  • Vutiliti, which has a easy-to-deploy wireless CT for energy monitoring, raised nearly $12M in its series A. 
  • New York's David Energy, which focuses on using on site energy and storage equipment in buildings as grid assets, raised $1.5M. 
  • Locatee, which make indoor space utilization software, raised $4M in its series A. 
• Following Trane Technologies a few months ago, United Technologies spun off Carrier and Otis at the start of April. They are now independent companies. Carrier retains Noresco and Automated Logic. 
• Acquisitions:
  • As it turns out, mCloud is not buying BuildingIQ and it's unclear just what happened. MCloud has been fairly acquisitive of late. However, Snaps Holdings is making an investment in the company instead.
  • Legrand acquired a high-end architectural lighting vendor, Focal Point. It seems that all of the larger controls firms are positioning themselves with high end offerings. 
• We've discussed the increasing interest in sustainability, and Congruent Ventures recently announced a new $92M fund focused on it. 
• New partnerships:
  • Axiom Exergy, which provides thermal energy storage for grocery stores, announced that it is working with Clima-Tech to install its technology into 200 grocery stores. Axiom recently moved more towards a software vendor (instead of a hardware + software firm) and this deal may be an indication of the scalability of that decision. 
  • Osram and Somfy have announced a partnership focused on daylighting. These offerings do fit well together and daylight is becoming more important in indoor spaces. 
• Alphabet's Sidewalk Labs was in the news recently, first for pulling out of the Toronto project (mostly due to uncertainly in real estate valuations, it seems) and second, for spinning off Sidewalk Infrastructure Partners with $400M. We've been thinking a lot about infrastructure and how smart buildings could lead the way during an "infrastructure renaissance". 

Noteworthy Articles, Reports and News

• This post from Barclays reminds us of a Gartner Hype Cycle, but with many more technologies. Specifically it plots a range of technologies that will have significant societal and economic impact in the next 10 years. Smart buildings are included as high impact but not necessarily high probability (at least not compared to some other technologies).
• Our friends at Impala Ventures wrote a good white paper on reopening and operating offices post-Coronavirus. We have seen a fair number of these papers - but did read this one and recommend it.
• Our friend, Proptech investor Matt Knight, wrote a good piece highlighting the overall size of the Proptech market. 
• It isn't that insightful and is certainly paid content, but we found it interesting that SAP is writing about smart buildings. 
• Sustainability in focus
  • Powerhouse's Emily Kirsch wrote a great piece about some climate + coronavirus opportunities in the future. We see the momentum for sustainability and climate to accelerate, and potential grow into more of a sustainability + health + wellness story.
  • A good article laying out the case for a cap and trade regime based on individual buildings (the buildings, not companies, would participate in the cap and trade).
• Product launches:
  • It's a very crowded space, which has attracted a lot of attention in the past few years. But, Tishman Speyer now is launching its own tenant amenity app. 
  • Hines has launched its own co-working product. 
  • Health and wellness was becoming more important before coronavirus, so it should explode as the economy opens back up. This launch from Signify includes snap-in sensors that can help quantify the conditions in the indoor space. 
  • FM Systems is launching a platform that appears to pull a variety fo data from various sources together for workplace and employee monitoring and analytics. 
  • Coronavirus related:
    • Augury launched a solution to support remote monitoring and analysis of critical equipment. 
    • iOffice launched a range of products to support return to work, all under the "Safe Right" brand.
    • Specifically to manage and track contractor access - a big issue in facility management - SafeAccess, a mobile app to support this, launched. 
    • There were plenty of other launches - we'll continue to track what we see in the market.
• We've seen growth in power-over-ethernet (PoE) for lighting for a few years now. We also have heard of PoE variable air volume (VAV) boxes. This article, from a Navigant Research analyst highlights how PoE is a key part of smart buildings of the future. 
• Navigant also published a report on commercial building automation systems, forecasting a worldwide market size of $44B in 2029. We see a fair number of these reports, and while they all are forecasting healthy growth (in many cases, for the same reasons), there is certainly a range of market size estimates - usually due to how the market is defined (and what's in, what's out).   
• ACEEE's annual employment report for energy efficiency was published. It also highlights that a fair number of these jobs are at risk due to coronavirus. Our hope is that these jobs come back stronger than ever, especially as businesses look at ways to cut costs (hint: energy efficiency).
• Axios has launched a new "future of work" newsletter. 
• Lawrence Berkeley National Lab continues is streak of great reports on the building management system space, with this new write up on the fault detection and diagnostics (FDD) industry.
• Harris Williams published its energy management market quarterly sector review.
• Software Equity Group published its Public Market Update, which includes some insight on the proptech and smart buildings markets.
• To all the points about cutting costs and using energy efficiency to do so, GreenBiz published a good piece that interviewed a number of individuals to better understand this opportunity (and some potential challenges).