BK Perspective Real Estate USA 2016

Perspective on Real Estate 2016 - U.S.
Technology Drivers & Disruptors
Codeacademy, Khan Academy and Skillshare, allow users
anywhere to learn to write code for little to no money.
Technology will reduce the barriers and costs associated with
educating and training workers for jobs in the new economy
as technological innovation reduces the need for less skilled
workers.
All of these technologies, plus a number of others, have led
to rapid growth in STEM (science, technology, engineering
and math) employment and in the rise of technology as
America’s primary growth engine. Significant investment
and wealth have been created alongside the hope that
these technologies are poised for exponential growth. Many
of these new technology firms are private companies that
have been funded by venture capital firms, high net worth
investors, private equity firms and the like. Investment
analysts have nicknamed private companies with valuations of
$1 billion or more “Unicorns.”
According to CB Insights, there were 144 “Unicorns” with a
cumulative valuation of $525 billion at the end of 2015. The
most highly valued of these, one and a half year-old, Uber,
had a valuation of $51 billion. Fourteen firms had a valuation
of $10 billion or more and seven had a valuation of $5 to
$9.9 billion. Mutual funds, banks, sovereign wealth funds and
hedge funds have recently begun investing in these start-ups
as well, and more than two-thirds of Unicorn companies now
have one or more such investors. All of this capital flowing
into technology start-ups has caused some to question
whether we are in the midst of a technology bubble that
could rival the 1998-2001 dot.com bubble.
While private market valuations are incredibly high and
there are some signs that many of these values will not hold
up, this cycle is different in many ways from that of the dot.
com era. First, most (but not all) of these companies have
proprietary technologies, are creating products and services
that the market desires and are generating revenues. Second,
public sector valuations are not nearly as high as they were
during the go-go days of the late-1990s. As of year-end 2015,
the P/E of the technology sector was 23.8. By contrast, in
March 2000, technology companies had a mean P/E ratio
of 156. Third, the current technology boom is much more
multifaceted and is not as one dimensional as was the dot.
com boom, which primarily focused on online retailing.
There are, however, significant risks. Firstly, private market
valuations are incredibly high and recent evidence suggests
that many of those valuations may not materialize when and
if the firms go public. In 2015, just five Unicorn companies
Fig. 2.11
CBInsights $10 Billion+ Unicorn Companies
Company Valuation (bil.) Date Joined Country Industry
Uber $51 Aug. 2013 United States On-Demand
Xiaomi $46 Dec. 2011 China Hardware
Airbnb $26 Jul. 2011 United States eCommerce/Marketplace
Palantir Technologies $20 May. 2011 United States Big Data
Snapchat $16 Dec. 2013 United States Social
China Internet Plus Holding $15 Dec. 2015 China eCommerce/Marketplace
Didi Kuaidi $15 Dec. 2014 China On-Demand
Flipkart $15 Aug. 2012 India eCommerce/Marketplace
SpaceX $12 Dec. 2012 United States Other Transportation
Pinterest $11 May 2012 United States Social
DJI Innovations $10 May 2015 China Hardware
Dropbox $10 Oct. 2011 United States Internet Software & Services
Lufax $10 Dec. 2014 China Fintech
WeWork $10 Feb. 2014 United States Facilities
Source: CBInsights, Data as of January, 2016
24 | Bentall Kennedy (U.S.) Limited Partnership