Fifth Wall’s Brendan Wallace On Spotting Real Estate’s Next Hot Tech Early – Commercial Observer
Stratford Wallace’s family had owned a lot on the Southeast corner of 41st Street and Eighth Avenue in Manhattan since 1886.
Then, in the early aughts, the State of New York used eminent domain to wrestle the land from the Wallace family’s control.
Wallace told Forbes in 2008 that, had he been given the chance to negotiate, he would have asked for $30 million. However, according to his son Brendan Wallace, the eminent domain declaration left him no choice but to accept the $12 million offered by the Empire State Development Corporation, the state’s economic development agency.
Today, that lot, along with several adjacent others, is the site of the New York Times Building.
The younger Wallace, 44, is the founder of Fifth Wall, which bills itself as “the largest investment firm focused on technology for the built environment.” Since its inception, the firm has received commitments of approximately $3.1 billion from roughly 115 limited partners, including CBRE, Hilton, Hines, Marriott, Public Storage, Related Companies and Starwood.
Wallace recalls walking around the city as a child with his father, visiting his father’s properties and developing an early obsession with land in the process. (Stratford Wallace died in 2022 at age 85.)
“Land is the input to the entire economy, and the one asset they’re not making more of,” said Wallace. “And, it’s anti-inflationary. If you look at land values, they have outpaced basically every other measure of nominal and real growth.”
The Los Angeles-based Wallace, a sports enthusiast and history buff, was a newlywed of three weeks as of his late September conversation with Commercial Observer. With degrees in political science and economics from Princeton and an MBA from Stanford, he is also a veteran of Goldman Sachs and Blackstone who could have worked in any industry.
But, from his earliest days, there was little doubt that his future would find him closely connected to real estate.
This interview has been edited for length and clarity.
Commercial Observer: Congratulations on your recent wedding. Where did you and your wife meet?
Brendan Wallace: She’s a big extreme sports athlete, and we met on a mountaineering trip. I have a ski house in Park City, Utah, and I have a group of friends I go backcountry skiing with. It was a chance encounter on one of those trips.
Where are you from originally?
I was born and raised on East 91st Street in Manhattan.
Talk about your earliest exposure to real estate.
In the late 1970s, my father and his brother started buying run-down real estate in Times Square: nail salons, a kung fu studio, a Chinese restaurant. Times Square built up around them. I have a deep fascination with land. It’s an opportunity hiding in plain sight that people don’t think about.
When my father bought this real estate, he didn’t have the money to develop it. They were run-down buildings. So, he went to a handful of developers and said, “I’m going to lease you the ground, but I’m never selling the ground.” He basically converted a bunch of old, run-down assets into ground leases in Times Square.
Tell me about the Times building site.
It was pretty run-down. New York City exercised eminent domain to condemn the property as blighted, and they basically gifted it to the New York Times to build their tower.
My dad fought it all the way to the U.S. Supreme Court, and lost. The site was underdeveloped, but saying something is blighted and should therefore be condemned, and that the public sector should use its authority to coerce control of land, he viewed that as an abuse of power.
[In 2003, Stratford Wallace told correspondent Mike Wallace — no relation — on “60 Minutes” that the site was “not blighted property.”]
When you think about it now, did watching that happen have any effect on how you conduct your business?
In one way, yes; in another way, no. I’ve always been fascinated by how cities use eminent domain as an instrument of urban development and how it can lend itself to overreach. But what I do think it instilled in me is a really deep appreciation for land.
If you look at GDP growth and land value appreciation, land consistently outpaces it because it’s basic economics that in a world of growing productivity, value accrues to the scarce asset. Land across from the Port Authority Bus Terminal — the hub for the tri-state area to enter the most important city in the U.S. — is extremely valuable land.
My dad loved the history of New York City. When I was a kid, I would go with him to collect rent, and he would point out buildings, and who did what, and who bought what when. That lore, that mythology of real estate, is something I always loved. So, I wanted to be in real estate ever since I was a kid. My dad shaped that in me. Real estate is in my blood.
When I graduated from Stanford, I got a job at Goldman Sachs in investment banking, but I really wanted to be a real estate person. I told them I wouldn’t be joining the firm unless I could be in the real estate group. They promptly informed me that’s not how it works, and I was like, “Well, that’s how it’s going to work for me.” So they put me in the real estate group.
After Goldman Sachs, you worked at Blackstone with Jon Gray, who is now the company’s president. What was that like?
I worked in the real estate private equity group around the time Jon took over and worked on the buyout of Sam Zell’s company, Equity Office Properties Trust, in 2007. [Zell, who died in 2023, sold the 573-property portfolio to Blackstone for $39 billion.]
I learned an enormous amount from Jon. He applied a technocratic precision to the real estate industry I had never experienced before. That was profound for me.
I moved to Los Angeles to help sell off those [Equity Office Properties] assets, then that segued into the buyout of Hilton Hotels, which was the high-water mark of the bull market cycle. Because, right after the buyout of Hilton, the market crashed.
What was the most important thing you learned from Jon?
The thesis behind the Equity Office Properties buyout was that the price of the public company was less than the price of the individual assets if you sold them off. So, you could buy wholesale and sell retail.
That arbitrage, that asymmetry, existed in a very temporary context, and it was a product of the dynamics of public REITs. Jon Gray very astutely saw that. His view was that these assets would trade on a per-pound basis eventually. And, sure enough, they did. Seeing someone articulate that so clearly and be so committed to that vision really impressed 23-year-old me.
It impressed on me that while we love to believe that markets are efficient, even at the largest, most institutional scale, they can, in the short term, be extremely inefficient, and the shrewdest minds are those that identify the eventual collapse of those asymmetries and the reversion to parity, and get in front of it. That was the lesson I really took away from the Equity Office trade.
At Fifth Wall, we’ve been very good at identifying new asset classes before they become new asset classes, and that’s because there’s this temporary moment in time where institutional real estate investors don’t see something as real estate. They see it as tech, or as a flash in the pan, or as something to dismiss. But it always converges to being real estate, and a lot of value is created. I’ve borrowed some of that from Jon.
I also should mention that one of my closest mentors is [Starwood Capital Group Chairman and CEO] Barry Sternlicht, and he taught me a lot about the power of willing something into existence. That’s been the hallmark of his career. It’s different than what I learned from Jon, but it’s more a point about individual agency and will — that if you will something, you can actualize it. I don’t think anyone has done more to actualize new asset classes in the industry than Barry.
We sit between those two things: having a Blackstone-informed technocratic vision of markets, but also a view of the power of agency, vision and risk-taking at particular moments in time. Those two things go hand in hand. That’s the art and the science of the real estate industry.
That said, talk about how you started creating companies.
Identified was the first company I launched. That was in 2010, when social media exploded, and people realized that its true power is its underlying data.
Myself and another classmate identified that you could use that data to do something that had never before been possible, which is target jobs to people that were previously very hard to target jobs to. So, if a hospital wants a labor and delivery nurse, or a trucking company wants a truck driver, they’re very hard to identify. They’re not on LinkedIn.
But we figured out that you could identify them on social media, and we built the largest platform to port targeted ads into social media and deliver relevant job opportunities to blue-collar, semi-skilled workers. We raised a very big venture round, around $22.5 million, while we were still students, and had a team off campus. We were growing it very quickly, and then Workday, the big public enterprise software company, decided they wanted a recruiting solution, and they made us an amazing offer. So we sold it in a stock deal three years after we built it.
Then me and the same co-founder saw Uber taking off in San Francisco, and I thought it was one of the most brilliant applications of technology to terrestrial space: how we use technology to actually make our physical lives better. My co-founder was Spanish, and he was like, “Why don’t we copy it and launch it in Spain before they get there?” And that’s exactly what we did.
We put together our own money, hired a team and brought on a CEO, this other classmate of ours from Stanford who’s also Spanish. We founded Cabify from our apartment in San Francisco. Today, it’s the second-largest ride-sharing service in Spain, and in the top five in Latin America.
After that, I interviewed with a bunch of venture funds, and I noticed that no one came from the real estate industry. I was like, well, real estate’s massive. It’s 13 percent of U.S. GDP. It’s the largest asset class and the largest lending category. Why has no one built a fund to focus on how to change this industry with technology?
That was the original thesis for Fifth Wall. I actually brought that to Blackstone. They were going to be the anchor investor in Fifth Wall. I did a bunch of work with them on the thesis, then they decided it was too small for them, and said, “Why don’t you do it?” So I did. That’s how Fifth Wall was born.
Talk about the journey of getting Fifth Wall off the ground, including acquiring the funding and making it operational.
I got a co-founder, Brad Greiwe, who had been chief technology officer at Invitation Homes early on and had built that business with Blackstone. He was on the front lines of tech and real estate.
When we started fundraising, no one would give us money. Institutions were like, “Well, real estate tech’s not a thing.” But I was like, “It’s going to be.” Their attitude was, “Come back to us when it is.”
So, I went to large institutional owners, operators and developers of real estate — groups like CBRE, Marriott, Host Hotels, Lennar, Hines, some of the most iconic institutional names in real estate — and I said, “You should have a strategy to identify the tech that’s going to change your business.”
Someone actually told us, “I was waiting for someone to walk into our office and say this.” So we hit at the right time. This was around late 2016.
We ended up raising quite a bit of money from owners, operators and developers of real estate — nontraditional LPs. Once we did that, institutions were like, “Now you must have an unfair advantage because you have the kingmakers as limited partners. You have asymmetric information.” And we started to build a Fifth Wall brand. We built our first fund in 2017, which was $212 million.
Tell me about some of the firm’s other early wins.
Our first big win came pretty early on, when a new type of business emerged called an iBuyer. The thesis was, why is the largest market on Earth, residential housing, entirely a peer-to-peer market, where end users sell to other end users? There’s clearly a lot of inefficiency in that. It takes a long time to sell a home. There should be a solution to intermediate that, and we wondered if we could build something like that in the residential space.
So, we paired homebuilders up with Opendoor. We were a $155 million fund at the time. We made a massive fund investment, $82 million, in Opendoor from September 2016 to March 2019. That deal catapulted us because we sold at the IPO. It ended up being a multiple over 4.
We also made other investments in fintech around that time, including in Blend Labs and Hippo. As those went public in 2021, that really validated our thesis. It was the first external public markets validation of proptech as capital.
What’s the most satisfying aspect of running a firm of this sort?
Here’s what I’m most proud of. We’re consistently prescient about how the real estate industry is about to change and new asset classes are about to emerge, and we tend to get there early. We were the largest investor in iBuyers of any venture fund, and helped institutionalize that as a new asset class.
We were also very early into the flex office category as large early investors in Industrious, which ended up selling to CBRE.
Most vindicating was Lime, a micromobility company. When we invested in that, all these real estate investors were like, “I don’t understand how this is real estate tech.” And I was like, “This is the definition of real estate tech because transportation in a city is the core defining asset value.”
The biggest real estate opportunities, I believe, are the first derivative of some technology change. If you can see that and spot it ahead of time, that’s where the biggest opportunities exist.
The reason I love that frame is that we’re on the verge of three huge catalysts at the same time that are going to remake the real estate industry: AI, autonomous vehicles and robotics.
Those three trends are going to create multiple new massive asset classes of real estate. With our funds and some of the companies we’re building now, I think we’re in a unique position to capitalize on that.
What are some factors that cause you to reject an investment you’d otherwise be excited about?
The first is people. Startups are products of their founders. You can’t overstate how founder-dependent these companies are.
I have a well-attuned sense of what I look for in a founder. It’s a constellation of things, but you know it when you see it. You just feel it in someone — you just know. By the way, I get it wrong sometimes. I decide this isn’t the right person, and I’m wrong about that. I don’t shoot 100 percent. But I’m looking for this feeling that an individual has the ability to bend reality to their vision despite obstacles.
It harkens back to what I said about Barry. What I’ve taken from him is this capacity in individuals to bend reality to their vision while enduring enormous amounts of pain, uncertainty, negative feedback, drama, and all the things that come with building a company. You just feel that sometimes in interacting with someone, so not feeling that is one reason where, even if I love the idea, I won’t do the company.
The second is timing luck. Lots of companies are brilliant ideas that launch at the wrong time, and you have to get a bit lucky with the market coalescing around your product. If you’re a step too early or a step too late, you miss the window. You want to spot moments where this juggernaut of technological and sociological capital markets change is aligning and coalescing to create it. That’s the part that requires a bit of luck, and you have to be comfortable with that.
Can you reveal a company you didn’t invest in for one of those reasons that you later saw as a mistake?
There’s a company called Base Power that’s building distributed batteries across the grid. They have this way of very elegantly load-balancing this pressure on the grid that’s now coming from AI and all these different use cases. When we looked at it, I thought it was early. I was like, “I think the market’s not quite ready for this.”
What I missed was identifying that there was this coalescence of consumer focus on affordability and cost with demands on the grid, and also a desire more geopolitically to repatriate our battery business back from China to the U.S. That company is a juggernaut now. We may still end up investing in them. I hope we do, but, yeah, we got that timing wrong.
Over the past month, we’ve heard warnings from the heads of several major AI companies saying that AI development should slow down. You’re very invested in AI. What are your thoughts on some of these warnings and the potential dangers of AI?
When the leaders of some of the largest frontier labs are saying we need regulation, there is a cynical view where you can say, “Well, they’re just trying to pursue regulatory capture in a very obvious way,” and I don’t doubt that there is some element of that there.
But I think both things can be true — meaning that might be part of the ambition, but I do think they are actually scared of the potential of this. I don’t know the right solution, and this is where we really need our public sector to deeply consider this, because if nuclear taught us anything, it’s that these answers are never simple and the geopolitics of this matters. And, if we decide to self-regulate and that slows our own progress, how does that position the U.S. versus the rest of the world in a geopolitical strength contest?
It’s not enough to say, “Let’s allow for unfettered growth of AI.” It doesn’t work like that. There are a lot more inputs needed to generate even the thing we’re scared of, which is that you need land, power and chips. And what I don’t see is a very clear national strategy around those things.
So, I’m kind of saying two things, which is, I think that the desire for regulation and control over AI is well placed, but what we should be doing hand in hand with that is trying to mobilize our economy to secure the things we need to make more of this. We need an appropriate way to develop land, power and chips, and I have not seen that.
In some ways, this highlights the immutability of real estate as a category, because we need land, and the beautiful thing about America is that we have a lot of it, as well as a lot of power. If we can mobilize those things in the right way, we can position ourselves to develop AI in a humane, thoughtful and geopolitically prudent way.
But none of that matters if we don’t get the land and the power.
What is your next frontier for Fifth Wall?
We’ve invested in most of the biggest things in the intersection of real estate and tech. In the past two years, I’ve developed two themes which have now matriculated into companies that I’m building confidentially. I’m not talking about them now, but they are real estate companies, and they’re evergreen opportunities whose time has come.
Since starting Fifth Wall, the recognition that tech is very important has been vindicating. I’ve been asked to join the boards of many real estate companies, and I’ve been asked to lead a couple of big real estate companies. I’ve not entertained any of that, but I am committing myself to developing these two new companies.
There’s so much talk of American dynamism and reindustrializing the U.S. But a core input to that is that we’re really big and we have a lot of space, and many of the problems we struggle with, including affordability, utility costs and housing, are self-imposed. These are not inherent contractual problems. These are problems of policy, and one part of it, I think, can be unlocked with a better solution.
So, I’m very excited about these two ideas, which are squarely rooted in an evergreen sociological reality about how humans are always going to use space to create the economy and civilization, and that’s why I’m super excited about them.
Larry Getlen can be reached at lgetlen@commercialobserver.com.
