When the pandemic and the rise of working from home wreaked havoc on the office market, one commercial real estate startup didn’t suffer in the downturn. In fact, business boomed.
The company is KODE Labs, a Detroit-based provider of “smart building software” they call KODE OS. Many big commercial buildings in the U.S. are incredibly inefficient, gobbling more electricity than occupants need, blasting them with too much air conditioning, and bathing them in a constant glare of fluorescent lighting. Using a network of sensors that gather extensive data, KODE Labs makes all that controllable at the touch of a button. Or, to be more accurate, maybe without having to touch any buttons. The building can be set to autonomously adapt based on data flowing into the company's operating system.
“By collecting and normalizing data from building systems, we provide a single pane of glass through which operations for the entire real estate portfolio can be monitored, controlled, and optimized to improve energy efficiency, extend equipment lifespan, and increase tenant satisfaction,” the company explains on its LinkedIn page.
Founded by Edi and Etrit Demaj — brothers who were born in Kosovo and came to the U.S. as refugees during the Kosovo War in 1999 — KODE Labs experienced a massive growth spurt during COVID. With office vacancy rates soaring, real estate investment trusts and other building owners were eager to upgrade space, make it more attractive for tenants, and find ways of shaving down costs. KODE Labs’ system helps in all of those areas. The bootstrapped startup, which was launched in 2017, roughly tripled its business just within the past year and a half.
We caught up with Edi Demaj (which was a challenge, because he has been extremely busy over the past several months), and he explained more about why his company has grown so quickly, and how he sees it as leading a “smart building” revolution.
This interview has been condensed and edited for clarity.
Business of Business: First of all, can you just explain who you are and what your company does?
ED: So I am one of the co-founders of KODE Labs. KODE Labs is a data-first real estate tech company that enables the smart buildings of the future.
Right, and what has COVID done for your business?
Interestingly, when COVID came along, we were all concerned with what was going to happen? What we do is we basically make it possible for real estate owners, managers and tenants to essentially have access to all of their systems and data inside of these buildings from anywhere in the world. So when COVID hit, there was a realization of, “Wait a second, most real estate is actually not smart.” And especially in the U.S. and North America, we still have quite a ways to go. What COVID did is kind of accelerated the desire for these building owners and managers to want to integrate, automate and make their buildings smarter. And that’s where we came in.
It sounds weird to say, but COVID has been good for us from a business perspective. Obviously, it's been horrible for other reasons. It’s one of those things that has made us all realize that, “Hey, we spend 90% plus of our lives inside of these buildings. Are these buildings healthy or not? What sort of experience do we have in these buildings?"
"You start to talk about energy consumption, and now we’re talking about sustainability...You can’t address it unless you have the technology and the platform that can help normalize all of this data to then help drive these different outcomes and use cases. .”
You start to talk about energy consumption, and now we’re talking about sustainability and how buildings contribute to over 40% of gas emissions globally. Well, that’s something we can address. You can’t address it unless you have the technology and the platform that can help normalize all of this data to then help drive these different outcomes and use cases. So, anyway, I guess in summary, COVID has made our business even more interesting, and has made all of the things that we have been building for a few years now even more relevant.
And one area of focus post-COVID, you know, is office buildings. You deal with office buildings, right?
Office buildings are definitely a big percentage of our business. But we deal with all types of larger buildings including mixed-use large portfolios. That is 10,000 square feet, all the way to the millions and millions of square feet. We have some of the smartest buildings in the world that are on our platform now, like RiverSouth in Austin, Texas as an example. It's a building that industry-wide is known to be the smartest building in this part of the world. That's a building that's all on our platform.
So part of this is focusing on smarter buildings and the data…it's all driving towards saving money, right?
At the end of the day, people invest in buildings because they need to generate a return. But the other part is the fact that if you don't have a building that can offer these good experiences, you're just not going to attract the tenants that you need to attract. If you look at studies over and over for over the last decade plus, a smart building is valued at 5% to 15%, higher than a building that isn't well-connected, doesn't have automation, that doesn't have the integrated experiences. So, you know, these investments that are being made to make these buildings smarter lead to the ability to charge higher rents, because you're saving tenants on the utility and operations side.
If I’m looking at two different buildings and one building is fully automated — it has all of these cool experiences, I have my app that lets me into the building seamlessly, I can control the temperatures, etc. — versus a building that doesn't have any of this, its an easy decision. What we're doing is we're building autonomous buildings. And this is kind of an approach that really, you don't hear in the real estate space a lot. And its because the space is quite antiquated. And most of the companies that have been in the space for a long time, like Johnson, Siemens, started all these big companies but they haven't really had a big incentive to take it to the next level, from a software standpoint.
And that's where we come in and say, “Hey, look, it doesn't matter what systems you have, it doesn't matter how much money you essentially want to spend on hardware, as long as it has some means of communication.” And we could do it in a way that's really, really fast, which is a big deal in our space, because everything takes forever.
Okay, so it's more about generating a return than saving money, necessarily.
I mean, it’s both, right? You generate a higher return if you're able to save money. You generate a return if your occupancy rate is at 98% versus 50%. If you look at two different buildings, and you go, “Okay, this building is fully automated. From the time I park to the time I leave my office, here are the different amenities that are available to me” versus a building where I push a door, I go to my office, sometimes temperature works, sometimes it doesn’t. The lighting, I have to go flip a switch physically, I have no access to anything, those are completely different experiences. What you’re willing to pay for one versus the other are completely different.
"Then you get into things like air quality, and being able to track that. Those are things that people just haven't done in buildings for a long, long time, not in a way that's meaningful.”
Then you get into things like air quality, and being able to track that. Those are things that people just haven't done in buildings for a long, long time, not in a way that's meaningful. And then you have systems, you have visitors, vehicles and parking, the things around the building. There are billions of data points inside any one building over a short period of time, believe it or not. When you think of it in real time, every second, it's how do you take all that, normalize it using an advanced ontology, and build an engine around it to help drive these experiences that people want.
They don't want to be in a building where they can't track anything or they don't know if enough outside air is coming in or not, or what their energy usage is like. It’s crazy, but there are literally hundreds of thousands of buildings that charge tenants for power, as an example, at a pro rata share. You may be a tenant that has laptops and that's it, versus a tenant that's doing some other service or thing like crypto mining, that uses a lot more energy. If you’re paying pro rata, you're picking up a piece of their usage, because these people just haven't put something as simple as a sub meter that could track energy usage.
It's an antiquated space, which is why myself and my co-founder decided “Hey, we're gonna step into the space, we knew the power of software, because we've built other companies in the past, we understand real estate infrastructure and building systems because we've been doing that for a long time.” And we said, “Well, if we put all these things together, we could really build something unique.” And what we're seeing in the space, and I say it humbly, we literally are the most advanced smart building platform in the world today.
Others are starting to catch up. But our plan is to continue to drive as hard as we can to stay ahead of it. And that's what's led to things like us having clients like Bedrock, Stream and QuadReal as an example, which is the number one, ranked REIT for sustainability in North America, and number two, globally. We’re a company that's only been around for three years. Amazing.
That definitely makes sense. And the fight over work from home, does that factor into what you do at all?
There's a lot of talk going on, right? Yeah, there's a lot of talk around that. I don't think that we're ever going to be in a place where people are going to want to spend 24/7 in the house. I mean, that's insane. Will there be some percentage of people that want to do that? Maybe. My personal view on that, and all the things that I'm reading from consulting companies like a Deloitte, Ernst & Young, Accenture and some of these guys that are doing these big research papers and things in and around that space, most companies are going to have at least 75% of their staff be at work four, five days a week. So I don't think it's going to have as big of an impact.
I don't think it's going to impact occupancy rates, I think it will impact the way they use the building, which makes the ability to have a smart building, and the ability to control things at your fingertips and use this data to make fast changes even more relevant…It's like technology exists today that can process data, and drive systems to do the things that need to get done, again, based on the needs of the occupants of the building, and that's where we really come in because others just aren't doing it in a way that is seamless, fast, affordable and advanced enough.
"So I'm a first generation immigrant here in the U.S., both myself and my co-founder, who's my brother. We are here because quite literally if we were not here, we would probably not be alive, period.”
That ties pretty well with this whole work from home thing. If you're a company where you have 20% of your space that's only in use Monday, Wednesday and Friday, that impacts your use of energy among other things. And are you actually optimizing for that or not? Or do you leave everything on? And that's just a simple example, you leave everything on all the time because there's somebody in the office. So if it's 50 people versus 100 people, the way that your core systems need to work is completely different.
That's really cool. Can you give some kind of rough idea of how much your business has grown over the past year or so like, percentage wise or whatever?
I mean, from a number of buildings, and clients that we have on-boarded and are continuing to onboard, from COVID to a year and a half post COVID, we’re well over 100%. In some parts of our business, we’re well over 200%. It’s just the buildings and how fast can they come online? I mean, every big real estate company in the world has had some sort of conversation with us at minimum.
So what does the smart building space look like in the future for you?
I think the real estate space is getting smarter and smarter by the day. It's taken it a bit, but I think we're getting there now at a much faster rate, due to COVID, the need to compete in a connected world, as well as other reasons. I think in the future, you're not building new real estate unless you understand every system and piece of data that's going in and being generated by your building. Because with everybody, in every industry now, the conversations are about data. Can you see it? Can you control it? Can you see it from anywhere? Can you control it from anywhere? And can you use it to optimize for whatever goals you have? So I think that's kind of a mindset change that's happening. What's going to happen in the future in real estate is more and more of that versus, “I build a building, how fast can I lease it to somebody for five years, and do whatever minimum I need to do to put these tenants in there, make sure that their spaces are clean, my financing is in place and have a good day.” That mindset is dying.
You have an interesting personal story. Do you want to share anything about that?
So I'm a first generation immigrant here in the US, both myself and my co-founder, who's my brother. We are here because quite literally if we were not here, we would probably not be alive, period. We come from a country in Eastern Europe called Kosovo, and have lived through some rough times. And we're fortunate enough to have had an opportunity to move here. We moved here, went to school. We did all the things you do when you’ve moved to a new place. We have been fortunate to have really been able to live the American dream and have an opportunity to start, invest and build multiple companies along the way.
I co-founded basically one of the fastest internet providers in the history of the Internet [Editor’s note: It was called Rocket Fiber, and it was acquired in 2020 by Everstream.] and with KODE Labs, we think we're going to really contribute to changing the real estate space. KO stands for Kosovo, DE stands for Detroit, because those are the two places that have given us so much. We’re excited, we have a team of over 70 team members now and are continuing to grow and scale.
And your company is like all over the word now, right?
We have clients from Austin, Detroit, Cleveland, Vancouver, Toronto, Australia, London, really all over the place.
I think I read somewhere you haven't taken outside financing, right? You built this yourself, essentially?
Correct. Yeah. It’s self-funded. No outside financing to date. It's myself and my brother primarily and our core team that have backed the company to date. But we're a profitable company now. So fortunately, we don't need to continue to back it. We may consider outside financing, but we're not in a rush in any way, shape, or form. It's not stopping us from being able to do what we need to.