Despite the pandemic’s impact on real estate, proptech is thriving
/By Luke Lennon
Director of Brand and Community, MassChallenge FinTech and HealthTech
We all know SPACs are hot -- in 2020, SPAC activity exploded by four times that of 2019.
What’s interesting, however, is how much activity has targeted real estate and proptech, even in light of the pandemic. Take Opendoor’s merger last fall, for one, or Porch.com in December – and Doma (formerly States Title) being one of the latest to jump on the SPAC train by announcing their $3B deal last month. Overall investment in proptech hit a record high in 2019, and even with a nearly quarter decrease in global venture capital funding in 2020, the year closed with $23.75B invested in proptech.
The takeaway? Even with COVID-19’s impact on real estate, proptech is here to stay, arguably outgrowing its long-time parent fintech and moving into a place of its own. Here are some of the takeaways from the past year:
Buy or Rent Finances are Part of One’s Larger Financial Picture
Even with the notable decrease of rents in some of the country’s most expensive metropolitan areas at the height of the pandemic, destination cities are still around 10-15% more expensive than a year ago, with home prices rising at their fastest pace since 2006. Meanwhile, income hasn’t kept up. Household income in the U.S. has risen 13% since February 2020, mostly a result of federal assistance during the pandemic, and historically wage growth has been creepingly slow (especially in regards to the racial and gender wage gaps).
That’s where proptech startups come in – there is an increasing opportunity to rethink how real estate is transacted and consumed. For example, new financing models are gaining popularity, such as rent-to-own or equity-based financing with more startups such as Landis emerging and frontrunners like ZeroDown and Divvy leading the way (Divvy announced their $110M Series C this past January). Additionally, startups such as HomeZada are re-envisioning the home as an asset by providing consumers a more holistic view of their home finances and expenses.
There Remains Sizable Opportunity to Leverage Real Estate Data
In KPMG’s 2019 survey of global real estate companies, only 25% of respondents said they have a well-established data strategy, and one third said they have no data strategy at all. Combine that with the fact that real estate amasses extremely large amounts of disparate data, and you have an issue. Proptech, however, is chipping away at cleaning, understanding, and utilizing these vast amounts of property and consumer data.
Growing fintech Beekin, for one, applies data and algorithms to predict individual renter behavior and power more insightful operations, marketing, and customer service. Cambridge-based Hosta Labs uses AI with a semantic engine to take different types of data, including spatial, for applications across insurance, cost segregation, and retail. Bigger players in the space are being gobbled up in a series of M&A activity, such as Thoma Bravo’s acquisition of RealPage last year, after RealPage itself acquired 8 companies from 2017-2019. This appetite for data-driven proptech solutions isn’t just concentrated in the U.S. – in Brazil this week, real estate platform Loft, which provides a digital end-to-end solution for home buying and selling, raised $425M at a $2.2B valuation – one of the largest venture rounds ever for the country.
The Mortgage Lending Space is Over-Crowded – But There’s Still Opportunity
Historically, the mortgage lending process has probably seen the most startup attention within the proptech space, particularly through automation and digitization of complex and manual workflows. The number of new entrants across Underwriting/Origination, Loan Processing, Appraisal, Title/Closing, and Integration shouldn’t be a deterrent though. Especially with the increasing move to online banking, opportunities for further innovation exist in areas such as fraud prevention/detection and risk mitigation.
In closing – real estate has had quite the year, which has only fueled innovation in the space. It will be exciting to see what more will develop around proptech’s intersections with asset management and insurance, as well what proptech can do to advance environmental sustainability, co-living solutions, and housing equity. Housing is a critical piece of an individual’s current and future financial wellbeing, and fintech and proptech are well-positioned to advance this industry and the people it serves.
