Dec 2019

Written by

Mountain Partners

Mountain Partners Interview series: Andreas Muschter

Muschter Schmal

Every year, we are privileged to meet extraordinary people during the annual Mountain Partners Entrepreneurs’ Day by the beautiful Lake Tegernsee. It is our pleasure to share our discussion with you. Today, we meet Dr. Andreas Muschter. Since 2009, Andreas has been a member of the Board of Managing Directors of Commerz Real, a wholly-owned subsidiary of Commerzbank with more than 45 years of market experience in real estate investing and approximately EUR 32 billion in assets under management. In 2013, Andreas took over as Chief Executive Officer. Under his management, Commerz Real reported one of the most successful years in the company’s history.

MP: Andreas, on the subject of PropTech: Which models in this area would you consider to have the greatest potential?

AM: As a rule of thumb I would use the classic approach: Where are the biggest problems? Who has these problems? What do I have to do to solve these problems? An example would be this room here. I don't see modern technology, I see analog solutions. There are several disruptive technologies that, for example, make it possible to measure and then influence various consumptions. Sustainability will be a huge issue for us. I think it will be of similar importance as the digitization since real estate is responsible for 40% of global CO2 emissions and 25% of global water consumption. On average, existing real estate accounts for 99% of our cases. The first step in modernization is to make consumption transparent. If it were known how much energy the individual rooms or parties consume, this would lead to a rethink and, in the medium term, to changes in behavior. On the one hand, tenants are interested in such solutions, as they can thus reduce their ancillary costs; on the other hand, landlords are also interested in lump-sum ancillary costs. Such technologies then also make scoring models necessary, which objectively state whether a property is sustainable or not. All companies must report on sustainability and are measured against it. We therefore recently acquired a 4% stake in Arabesque S-Ray, a company that conducts analyses on the sustainability of its corporate customers. This could be a solution, for example, to develop a kit that can be installed in existing properties and linked to a smart meter to measure consumption in a first step. In the next step, measures can be offered, e.g. in the form of assistance and advice. Another topic would be space efficiency. 30% of the Office space is used, 70% is empty. On the one hand, sensor technology helps to identify the real usable space. If of 2,000m² only 200m² are used constantly, 1,000m² from time to time and 800m² never, this opens up possibilities for space optimization. The issue of sharing is a huge one, but it suffers from access authorization. Due to trade secrets, data protection, etc., it is not possible today to use office space in parallel. But if you manage to do it, together with face or vein recognition to secure individual areas and to separate them from each other, a huge potential arises. We are currently working on this ourselves. Commerz Real recently acquired a 25% stake in the “Share Your Space” platform. We are also currently building an end-to-end transaction tool that is AI-based. This will be able to read out real estate exposés independently. The goal is to increase from 3,000 to 300,000 processed exposés per year. This of course saves time and enables an immensely larger business area. Automation will also make us more accurate and we will be able to reduce our investment pressure accordingly.

Sustainability will be a huge issue for us. I think it will be of similar importance as the digitization, since real estate is responsible for 40% of global CO2 emissions and 25% of global water consumption.

MP: One hears that the IoT will be the decisive technology.

AM: Many of the current innovations that make it possible, for example, to walk through real estate virtually, are no problem-solvers for us. That's nice to have, but not the next big thing. Of course, this is part of it when you think about the question of how to market real estate in the future. We traditionally rent out real estate on a long-term basis. It's like insurance, and insurance costs money. The tenant naturally demands a pension for the increased risk in the form of rent-free time, development subsidies and the like. It is therefore much better for us to reduce to one-year contracts. In this way, we bear considerably more risk but have to grant considerably less other alimony. Then, of course, the land will have to be marketed differently. We need a digital rental agreement and, of course, a digital tour of the site. The space must then, of course, be offered worldwide.

MP: In the InsurTech industry, we also have all the broker processes that are completely digitalized. Of course, this generates enormous added value for all parties involved. Are there any CommerzReal partnerships with start-ups, or do you really develop everything yourself?

AM: They do exist. For example, we buy 25% of a crowdfunding provider. We make equity products, which is actually nothing more than crowdfunding. Crowdfunding providers currently tend to work with financing, so you become a creditor and not an owner. However, I believe that equity distribution via crowds is definitely a future market. In addition, we will have a stake in a company that has built digital applications for our sites.

I'm a friend of bringing together the best business model and the best management team. Then you have to knock down all the barriers that you can to make these people succeed as soon as possible.

MP: And what about the collaboration with the startups? Is it a pure investment or do partnerships go further?

AM: Pure investing would not be our business model. We earn enough from our operating business to be dependent on it. For example, we use the programming skills of the companies. We also have programmers ourselves, but we have to create our own environment for them, in which they can operate outside of our firewalls, etc. That's very difficult. Particularly exciting topics are passed on to our investments accordingly. We participate accordingly also under 25%, so that we do not have to consolidate them, because otherwise our entire regulatory system would fall on the startups. These are purely strategic investments for us. By definition, they are financial investments because they are below 50%, but the cooperation is still so close that we regard them as strategic investments.

MP: A stake of 25% also makes sense, you should give the founders enough incentive to drive their business forward.

AM: Exactly.

MP: So a full takeover at a later point in time is an option?

AM: You have to look at every specific situation. I'm a friend of bringing the best business model together with the best management team. Then you have to knock down all the barriers that you can to make these people successful as soon as possible. I have no problem at all with keeping the teams at the helm and working purely in an advisory capacity as long as the job goes well. In the company we have now founded, our lawyers spent three months preparing the IPO. This is not my topic at all, we are not PE investors. Of course, you think about how the exit could be, but it is important to implement the idea and make it viable. 90% or rather 99% of the companies enter the market before the idea can start rolling. Before we go crazy about the IPO and lose three months of valuable development time, we'd better let it go first. I've never seen people disagree in retrospect. However, I have often experienced companies entering the market well before the final spurt. Preventing that must, therefore, be the first goal.

MP: Thank you very much, Andreas.