From an early age Merav Oren would walk around construction sites with her contractor father. As a child, she was fascinated by them – the noise, the dust, the workers’ many languages and mainly the cranes. As an adolescent, she also began to learn about the various problems in the industry – projects that go over schedule and budget, and work accidents.
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Later on, Oren was not particularly interested in the construction industry. She served as an operations officer in an Israel Air Force F-16 squadron, and worked for a decade at Intel in financial and managerial positions. But during family get-togethers she was surprised to hear the same complaints and problems repeatedly from her father and her younger brother, a civil engineer.
While technology has changed industries such as communications, the media and tourism, it hasn’t penetrated the world of real estate and construction. The construction process has barely changed for decades – the plans are drawn up on paper, the equipment is not sophisticated and coordination among the various groups on construction sites is carried out mainly by talking and shouting.
What Oren sensed accords with a report by the McKinsey and Company consulting firm published in June, which found that going over budget and over schedule are norms in the industry. Major real-estate projects go over schedule by 20%, and cost 80% more than the original plans. In the long term, productivity in the industry was less than the overall growth rate of the economy, and in certain markets has even declined since 1990.
The contractors’ financial return is often relatively low and fluctuating. At the same time, unemployment in the industry has fallen to an all-time low in the United States, which should indicate an upcoming shortage of workers. This illustrates the need for tools that will make existing manpower more efficient.
In recent years there has been a slow change of adopting technologies, which Oren identified, among others. The startup Versatile Natures, which she started with her partner Dan Shelly, tries to make cranes smart. The partners have developed a technology that includes sensors in the crane’s hook, which identify the load it is lifting, its speed and its location on the building site. The company’s software can warn of anticipated collisions between cranes and the load or other objects on the site, and report to the crane operator when he invades forbidden areas and represents a danger to the public.
“We chose to begin with a crane that transports over 70% of the materials at the construction site, and therefore controls a large part of the process,” explains Oren, the CEO. “But if you ask contractors and construction workers, they can tell you that it’s also its biggest bottleneck. At a building site there’s always someone waiting for a crane, but often it’s wasted on lifting unnecessary loads – like food for the workers, planks or a jerrycan of water.
“In other places the crane stands idle due to lack of coordination – the workers don’t know it’s not in use. Our solution warns about that and saves precious time.”
Recently, Versatile Natures concluded the proof of concept (POC) stage, participated in the MassChallenge startup accelerator program in Israel, and is seeking investment. The company is engaged in construction technology relating to various aspects of the building process – materials, equipment and services.
The field is in its infancy but is arousing interest among investors, with $800 million raised since 2012. All nine exits took place in the past year.
Contractors don’t usually invest in innovation. According to McKinsey, the R&D expenditures of construction companies are very low – less than 1% of revenues, compared to 3.5% in the motor vehicle industry and 4.5% in aviation and space.
Attorney Jeremy Lustman, head of the Israeli delegation of international legal firm DLA Piper, believes that construction companies will be interested in investment in high-tech. He says that 10 years ago nobody thought that car manufacturers would invest in technology companies, and nobody would have believed that Bank Leumi would invest in startups in the field.
Yogev Katzir of Housing and Construction Holdings (Shikun U’Binui) said that the big contractors aren’t really investing in technology companies as yet, but are interested in cooperative projects and in purchasing services from them.
Shikun U’binui is actively seeking such cooperative projects. In the past year 12 companies tested their technologies in the field in Shikun U’Binui projects, and benefited from a dialogue with the professionals.
“The McKinsey study found that the construction industry is among the last to adopt digital methods – the only industry that uses it less is agriculture,” says Katzir. “Anyone not in the field may not understand the challenge, but in every project there are two trailers full of plans, the construction managers have loads of paper. Plans change dozens of times and the engineers and project managers invest considerable time getting things in order and comparing versions.
“One of our successful pilots was with the startup ShapeDo, which developed software that compares plans and finds the changes automatically. The startup RidarTechnologies transfers all the paperwork to a tablet, enabling the team in the field to communicate and distribute tasks. A large project may have dozens of subcontractors and suppliers, and with the tablet the construction managers can document construction defects and send them quickly to the relevant people.
“Another challenge is information. Now there is no easy way to keep track of the raw materials or the equipment. We did a pilot project with Aqua Rimat, which monitors water usage and warns of problems. The manager used to get figures about water usage once a week. With the new system, if there’s a leak when nobody’s at the site, he can close it from home.”
Shikun U’Binui is already purchasing services from a number of startups. Katzir says that it’s a huge market, with lots of competition. Technology that lowers the price by a small percentage significantly improves the potential for profit. If something is good it will be adopted.
Accountant Amit Harel says that startups are looking for heavy and traditional industries that they can change by streamlining processes – among them the construction industry. Most of the innovations for the industry are adaptations of things that are already in use in other industries. Technologies can save energy, enable comparisons with the original work plans and reduce mistakes. And drones, like that of Dronomy, can create a 3D model of the building site to help with decisions regarding the progress of construction and safety.
Drones help not only in construction, but in the work of real-estate accountants, who photograph projects and monitor the progress of the work, which is important for registering contractors’ income.
Another flourishing technology market, Real Estate Tech, centers on the real-estate industry, providing software solutions for managing assets and information about transactions and trends in the field. Startups in the industry raised $6.4 billion in the past five years – eight times as much as in construction. One startup, Compass, brings together home buyers and real-estate experts, who provide information about the area and home prices.
Cherre is an Israeli company that works with real-estate agents in New York, providing tools for managing transactions, analyzing trends, pricing and market fluctuations. CEO and founder L. D. Salmanson says that firsthand information is very useful particularly for cooperative apartments, where ownership is not measured in square meters.
The startup CrediFi works with commercial real estate. Ely Razin, founder and CEO, says “the value of commercial real estate in the United States alone is $15 trillion, like the size of the stock and bond markets. But while the capital market has platforms providing reliable information for decision making, in real estate information is not accessible. For years the market relied on personal connections. Information is in the hands of a few people, which creates inequality for a new investor or someone who lives far away.”
CrediFi says that its model is “Bloomberg for the real-estate world,” and like Bloomberg, it wants to eventually become a fintech company that will enable brokers and investors to conduct transactions through it.
“The real-estate world is very localized and divided into various segments,” says Lustman. “Every information company concentrates on a number of markets and evaluates a specific segment, because dealing with hotels, offices or residential apartments isn’t the same thing. Due to the unique characteristics, one player isn’t enough to change the rules of the game.”
What about integrating advanced technologies like virtual reality in real-estate transactions?
Salmonson: “In the luxury buildings market VR is already common, it’s part of the commotion surrounding sales. You aren’t selling a property, but a piece of art and an experience. Otherwise it’s hard to demand $50 million for a penthouse in New York – there’s nothing in economics that justifies that price. We see that Chinese buyers, who in the past would also purchase distant properties based on pictures, use VR in order to get an impression of the property. In commercial real estate, companies want to populate the commercial areas years before construction is completed, and building a simulation of the entire complex is likely to be more attractive than sketches and simulations on paper or from models.”