The Prop and Tech Interview with Andrew Baum

[Music] hi everyone and welcome to a prop and tech interview today we have a fantastic guest and professor andrew baum who is the author of several books and research papers on proptech andrew has also been involved in several ventures related to the prop tech industry how are you doing sir and thank you very much for taking the time to be here thanks diego it's a pleasure to have been invited and um one day i'd love to come and visit you in in colombia and see how nice it is it's not a place i've been yet but i will be one day well i really look forward to that so before we start with prop tech talk um i wanted to ask you so i heard in another interview that you're a leicester city fan so right now there are third in the premier league table how do you think their chances are to reach in man city i think there are 15 points a drift right yeah yeah well we have our next game is against manchester to be at home i um i have no no expectations whatsoever i saw my first game in 1961 when leicester lost to arsenal one nil and i'm used to being disappointed so we'll see what happens but you know we've already won the league once that's that's incredible so you know if it never happens again it doesn't matter too much yeah of course that's very good so um first thing i wanted to ask you um you obviously have been working for ages in their in their in their proptech industry and like what we know right uh we call it proptech uh when did you fall in love with this um i um i think i i first fell in love with um with with academic life so i fell in love with research i think first and um and i just happened to be in real estate as a researcher and teacher and i've had a very fortunate lucky career happy career um in in around 1995 i was working for a business that had a leader a ceo who was very technologically advanced or tech friendly which is unusual in in the investment industry and this is exactly the time when uh the internet and email took off so 95 96 97 so i was lucky to be working with somebody who was into this there was then a dot-com boom in the late 90s and i participated in it in two ventures um and i created a company in 2001 which was effectively a prop tech company um and i've exited that twice the same business so that got me interested and then about about 10 years ago i started teaching mba students and executives at oxford and i i realized that what they wanted was not my expertise in real estate investment they wanted something for the future they wanted to future-proof their careers or their businesses so at that point i realized that i needed to understand technology global mega trends innovation and i think that just suited me because i've always been interested in change pushing the pushing the boundaries that's the attraction of being an academic you can think blue sky you know so um i've been very lucky and um i'm still enjoying it so thanks yeah so this is one of the first questions i had for you and it's related to appraisals or value of properties because um when i started in real estate about eight years ago i started doing a course on appraisals literally uh but i just found that it was really really bad and i like because there were so many people who were involved in this in this section in this section of the of the real estate industry but the way they were applying all these methods to calculate the price of property they just seemed to be incorrect for me and now that i have been involved in the proptech industry with elisa it's a bit more clear that the whole system is wrong i think so i have been doing some research on what you have written about intrinsic value of properties because um if you want to for example get the value of gold you have a bar of gold which you know there's an international value which determines how much a gram is worth but then for properties is a completely different story but at the end what you want is just to be able to make this object as a one thing and then give a price to it so you can transact it or sell it or rent it or do whatever so i'm just really looking forward to hear what your thoughts are on appraisal or value of properties in general i wrote my first book on property evaluation in 1979 so i've had plenty of time to think about this um so it's a warning this this answer could be a very long answer i'll try to keep it sure but i think the first first thing to say is that because um every every piece of real estate is theoretically a monopoly of the space it occupies so you'll see the word heterogeneous meaning every property is different and that means that you can't you can't easily value real estate you know so you can value an apple share because an apple share trades every day so you know what the trading price is the latest trading price so you don't need valuers of shares you know the market values these things because of liquidity we don't have that in the real estate market which is partly why everybody is so keen to see tokenized liquid markets in real estate it really would be a revolution instead valuers have to sort of they have to gather evidence of similar buildings that have sold that means that they're looking backwards all the time it's it's a backward-looking process it means that that means you can miss huge things like there could be a collapse in the stock market yesterday and the valuation of your house wouldn't change which is clearly wrong you know it's nonsense so it's intriguing to think about how technology computer automated valuation models could be used to produce much better real-time valuations of properties and i i think they will you know so 90 of all the properties in the world will be capable of being valued by computers to within 95 accuracy um pretty soon and then the last point i'd like to say is that i mentioned 95 accuracy but actually we don't really know what accuracy means either because um some valuation affects the selling price you know if you if you put your house on the market you're going to ask somebody what do you think i can sell it for and that's going to affect the price that you ask for it so these aren't independent scientific measures they're all wrapped up by the way the real estate industry works yeah so i have this great idea i want to share with you so um for the last for the last two or three months this thought has been in my head that um started to appear because in colombia we started doing the you know like the documents of the property that when you take them to the notary and then you sign them um it's not the right thing in english right yeah um so they we started doing like electronic or digital signing signature of this document and this has been like the big revolution in colombia and like everybody is like very happy and there is a lot of hype into that but i think there's a first step for this but i think the signature is just like a really tiny part of this long process but yeah i think uh the only way to really get going the process of digitalizing the whole asset is to change like i don't know if you've seen like the numbers up in front of the house so you have the 12 whatever or whatever you call it in your country um so to replace that with like a qr code or something that can bring all the documents related to the property so you bring the the past history of who's on the property also the the area of the property how much has been sold in the past and all this information related to that so you've got this information which brings the past of the property right so there also you have the electricity bills which show how efficient the property can be in carbon measurement uh carbon emission measurement sorry uh but then you have how do you measure the inside of the property so because like our app is like doing the inventory of the property so i think like why can you just like do the inventory inside of the property and then together with this information boom you get the inventory in 30 minutes so yeah if you do this for every single property in the country or in the world you will be able to have like real-time value properties if you i don't know if you can like make people do the inventory of their property every month or something like that but i think that's kind of the the way it's in my head and i want to share with you two things yeah it's a it's a great vision i mean we start with the um the the difficulties i mean there are two difficulties i mean number one number one a lot of people are reluctant to show the inside of their homes to the outside world you know security privacy um some houses in the world are not on the market will not be on the market for a very long time older occupiers just won't be motivated to do this that's one that's one issue the second issue is is is that while this this i'm sure this will happen by the way i'm sure this will be the way the world goes um but for now we have this challenge about how do you motivate people to do this you know what what is the encouragement um the positive way of looking about this i think is if you think about facebook for houses so you think about everybody has their facebook page why doesn't every house have its own facebook page with the the history of the owners the pictures the everything on it and then we would cease to be in a world where properties are on the market or not for sale you know everything would be on the market you know if i want to if i want to go and live in medellin i could say right where do i want to live i want to live in midland columbia which street do i want to live in i want to live in that street okay here are the 15 houses on that street i'm going to write to the owners of all those 15 houses and make them an offer um and and by the way the price of the houses will be on the screen anyway you know it'll be on the site so every house will have a property passport with digital records of the architectural plans the heating bills everything um and that's the way the world should go and it hopefully will go but you know in the uk we have a huge problem that you know so many of our houses are so old that to get anything digital attached to our houses will be difficult you know we don't have digital plans um so somebody has to pay for the digitization of these homes and it's not obvious yet what the financial reward is at some point we'll start to prove academics will start to prove that houses with good digital files sell for more money than houses without digital files and then the market will suddenly start moving so you know yet another job for the academics to do to make the world a better place if it can prove that houses with good digital records sell for more than houses without them then they will change the world you know that will move it on so yeah i think you're right we just have to take our time it's going to be a while before we get to it if i can be of any help for that i'm more than happy because i think about this like all the time so now the next question will go around cryptocurrency and everything that has to do with tokenization of the asset as such so um right now obviously one of the what one like one of the or probably the only way to transact a property is literally just making a monetary transaction of the currency of the of the official currency of the country in a bank or or in cash or i mean i don't know anybody's house in cash probably but uh this is like the only way to do it so how do you envision this cryptocurrency or this organization of assets in general what's your thought on that okay i think the first thing i'd want to say is is that i would separate crypto currencies from tokenization that they're not they're not necessarily connected i mean they they might be but they're not necessarily connected um i think people who live in hard currency areas like the us the uk euro block um think differently about this you know from from my point of view crypto is risky it's outside the system it's capable of fraudulent behavior and all that sort of stuff if i was living in a weak currency area i would probably think about it completely differently as as a much preferable alternative to dealing in a currency and i was living in an african country for example where the currency is not reliable not exchangeable then i think i think very differently about it so so my my whole head is is governed by the idea that sterling has been a reasonably reliable exchangeable currency and therefore i'm not that interested in bitcoin frankly so if i were to want to tokenize a london office building i would almost certainly do it in sterling or i wouldn't attach it to bitcoin and and the more you know i would want to reduce the barriers to to success and and the cryptocurrency might be a barrier to success in my market now if i were dealing in ukraine or or azerbaijan the cryptocurrency might be the opposite of a barrier it might be the the solution to creating this sort of liquidity safe cross-border transaction so um so i think that's important to say that there are slight differences in the cryptocurrency part of it tokenization is is going to happen it's going to happen first in um in sort of in property funds in in regulated funds that buy buildings on behalf of institutional investors that they're those those investments need to be tradeable through a digital exchange much more efficient than they currently are once we start doing that then eventually we might start moving towards a tokenized market for units in buildings but but my experience in the real estate market has been that every time we've tried to create a market for units in buildings it's failed now current technology may be the trigger to change all of that but there are there are reasons why it's not easy to suddenly create a a liquid market for in units of buildings and that the first the first reason for example is that often the building is worth more money in one ownership and it is where it's split into lots of parts and the reason for that might be that it's split into lots of parts it's very difficult to decide who's in charge who pays for the repairs who decides when to sell it so we have a lot of work to do before tokenization is a reliable a reliable scheme and we would start with property funds i think and that's where it'll happen yeah so i saw in an interview you did a few months ago or at the may probably years now um and you talked about prop coin so that's that was a very it's very funny because you think about stuff that i think about that's that's a very interesting thought um so how do you think this could play out because if you can somehow pay a little bit of an important purchase in your life with a part of your house and you can start transacting with it it doesn't make sense that the property you own is also the intrinsic value of your currency uh again again i think if if you're in um if you're in a weak currency area where you you've stopped it from currency devaluation and then i i think i can see how that would happen i mean i the one of the worst one of the worst presentations i've ever seen was was of um this this idea where the value of uh of a piece of cryptocurrency was attached to a square meter of a residential property so that every square meter was one one unit of bitcoin or prop coin or whatever it was called and uh it wasn't thought through very well let me put it that way it was a bit of a stretch a bit of a stretch um but yeah i think you know we've had a world where um in some countries real estate can be a more real more reliable low risk asset than can government bonds so greece in 2011 for example you know nobody wants to buy government greek debt in 2011 but it didn't mean that an office building in athens was worth any less than it would have been before so we may be it may be that in certain markets and south america has clearly suffered from this problem for several decades you know that the real estate assets might be more reliable stores of value than currency or government debt and in that situation then it may be that we we do start to see this this idea of a prop coin backed real estate market emerging it was a i i sort of talked about prop coin in a report i wrote in 2017 and apparently within a week three people have registered prop coin as a trademark for real wow okay yeah that's that's probably uh a result of your impact in society right now shows how um how bad a businessman i am you know i should have registered before i wrote about it yeah of course that's true uh anyway so i want to move a little bit uh towards another topic that has been intriguing i told you i'm living in a co-living space right now in medellin um this weekend i visited uh another building which is a co-living but we're actually moving there and it's a french holding company and these guys have built this amazing shared space so i'm going to send you actually a video later on for you to check it out but it's just like it's an 8 straight building and there is a swimming pool in the rooftop there is like a restaurant there there is a uh sauna there is like everything you can imagine is like dream in a building so um me and my wife we are both digital nomads we both from work from home we are in the range of 30 years old well i'm 30 she's 27 and this is probably the range of people that this kind of places are aiming towards right so i'm saying this because yesterday i had another podcast recording with um someone from a real estate investing fund from colombia and they were saying that most funds are struggling right now to invest into assets that are returning healthy cash right now so if there is like a really good um attraction from a lot of people to move towards these co-living spaces does it make sense that cash is going to move towards this right now sure absolutely i think number one a lot of cash will move towards residential real estate in all of its formats because we're moving we're in a world which is moving away from owner occupation and towards renting so that means that residential property is more likely to produce income for pension funds and investors to invest in so that's number one number two um your generation i'm sure is less committed to single home ownership for life but i do see your generation of wanting to invest in real estate so i would see no reason why you shouldn't own units in the in the bigger building that you're part of without necessarily owning the entirety of your apartment and of course in co-living you don't own an apartment anyway you share the space so why wouldn't you own 2 out of 100 units in the entire block and be able to trade those when you move out or be able to add to those units as you make them make some money um so that you have an ownership of the entirety but you know a shared ownership of entirety i can see that happening and that would also then be associated with tokenization and the digital platform and and so on so you can hold it as a as an income an investment you could you could keep it when you move out you could you could sell it when you move out whatever so i can see that happening and um i just had a call before i came onto this call i was talking to a company that is um building single-family rental portfolios in europe that's that's a big thing for the future as well you know that didn't exist five years ago um because because residential property in all its forms is going to become more and more investable and it uh it produces the right sort of income stream for pension funds you know it's sort of um effectively inflation indexed in the way it works um so yeah i i think that's going to be an exciting part of the future yeah so that's that's that's a very exciting thing you're saying because the way i have envisioned this and i have also been involved for amex i'm currently involved in some talks with people about doing something like this and the way i envision this is that you can manage the it does have to be one building it could be a chain of them or it could be just like a franchise or whatever you want to call it and then it could be part of a holding company that is literally sold in shares so if you want to invest money in real estate you don't need to go and buy this beautiful three bedroom apartment as as most real estate or building companies are offering you to do you can literally just put this money index to this to this fund which invests in co-living spaces so you don't necessarily need to own one or two you're just owner of a share of the of the whole company which is going to return healthy cash because these places are really really really packed of people yeah yeah now i i agree i think it it's uh it's interesting that it introduces the idea of utility tokens as well so a utility token would give you the right to use the building as well as to own the building so um you know the utility token could be your representation of your ownership of a part of the company that owns the buildings but it also gives you the right to occupy the building for some nights a year or to get coffee from the cafe or to have a party or whatever so this idea of a you know this sort of hybrid between an investment token and a usability token i think will will work in residential real estate and co-living is the obvious place to start it yeah i want to ask you a little bit and this is this last question i have uh where this um this this co-leaving uh movement begin have you like did you know that have you tracked this down somewhere um well i like everything it probably started in the us it probably started in new york city when the house prices were so high people were starting to live in you know what's been happening is that people have been um unable to buy apartments in new york and london and so they start to cohabit you know so you get you get people doing what's called rent to rent so you rent a three bedroom apartment and you sub rent one bedroom to somebody sub rent another bedroom to somebody else you're effectively then in co-living space why not then design the co-living space deliberately rather than by accident and then all of a sudden you realize that you you know like in japan you have these sort of tiny hotels you know this idea works and if you're gonna have a nice lifestyle why wouldn't you live in a nice city thursday friday saturday sunday monday and have two nights in small accommodation in the middle of new york or london on a tuesday wednesday and what sort of space would you like to be in well you don't need a living room you don't need much all you need really is a bed and a bathroom so i can see see that so the format has has moved on a little you know it's become a little bit high-end for a lot of people which um which then becomes a consumption decision for your your generation you know would you rather consume really nice per living space with your rooftop swimming pool and your gym and all this sort of your sauna or would you rather save money so you can buy your own apartment one day a lot of a lot of the mentality i think comes from whether you have kids or not and diego when you when when and if you have kids you might change your attitude towards us a little bit but you know you don't have to have kids i don't want to i think you're probably wise yeah all right professor so it was a real pressure talking to you i am i'm really grateful for you taking the time to talk to me and i hope we can stay in touch in the future it's been a real pleasure and can i just say that the future real um program so uh any of your listeners can sign up this program and we hope they do so thank you for your time yeah thank you you

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