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Where top VCs are investing in real estate and proptech (Part 1 of 2)

Arman Tabatabai 4 years

The multi-trillion dollar global real estate market is getting flipped on its head.

Business model innovation, data accessibility and the proliferation of mobile, SaaS and other cloud-native software have already given rise to a cohort of tech unicorns that sit amongst the world’s most influential real estate companies. Emerging technologies and growing capabilities across machine learning, 5G, IoT and more — coupled with fast-moving regulations and dramatic cost structure changes — have opened up opportunities for the next wave of innovation across a wide set of multi-billion dollar real estate verticals and sub-verticals.

And despite WeWork’s implosion garnering countless headlines in the real estate and technology worlds, venture dollars are continuing to spill into real estate tech (or proptech) companies at a rapidly increasing rate. Just upwards of $16 billion in venture capital has flowed into real estate-related startups in 2019 alone, according to data from Crunchbase and Pitchbook, with major fundraises happening across industrial, commercial, residential, and financial categories.

If we follow the money, it’s clear that more and more leading VCs are turning to real estate tech or proptech for ripe opportunities for juicy returns and disruption on a global scale. Given the countless subsectors where exciting new startups are popping up, we asked more than 20 leading real estate VCs who work at firms that span early to growth stages to share where they see opportunity within the colossal real estate category. For purposes of length and clarity, responses have been edited and split up into part one and part two of this survey (in no particular order). In part one of our survey, we hear from:

Answers have been edited for length and clarity.

Where top VCs are investing in real estate and proptech (Part 2 of 2)

Update: We have revisited our real estate and proptech survey to see how COVID-19 has impacted the market. Please see our survey update here.

Leading VCs discuss how COVID-19 is impacting real estate & proptech

Zach Aarons, MetaProp

What trends are you most excited in real estate tech from an investing perspective?

We like to track trends that play out in the broader real estate markets. Due to low interest rates and cap rate compression, real estate investors are now looking for yield through investments in non-traditional asset types. Industrial real estate has performed very well over the last few years, and we see a push toward workforce housing, medical real estate, and senior housing. We are looking at investing in technologies that benefit processes within these non-traditional asset classes.

How much time are you spending on real estate tech right now? Is the market under-heated, over-heated, or just right?

We spend 100% of our time on real estate tech (proptech). The market is definitely hot, but the addressable markets are enormous and adoption is still relatively low and accelerating. We believe that now is a good time to invest in early-stage proptech, provided it’s done prudently.

Are there startups that you wish you would see in the industry but don’t?

We would love to see more startups in the material sciences sector. Innovations like steel, bricks, timber, glass and reinforced concrete are hardly new, and they are still the predominant building materials of today. There have been minor advances like cross-laminated timber; however, we are looking for fundamentally new materials to bring into the building trades.

Plus any other thoughts you want to share with TechCrunch readers.

Proptech is the most fun sector in the world. No other sector shares the complexities and idiosyncrasies of technology that has to be applied to the built world. We are very lucky we get to do what we do.

Pete Flint, NFX

Real estate is the biggest asset class in the world by far, but the products available and service proposition surrounding it are still in the early stages of tech adoption. I see at least three major areas of opportunity for startups in real estate tech.

First is the real estate transaction process. Starting around 2005, companies like Trulia and Zillow, transformed the consumer research experience and home buyers increasingly began their search online. But the transaction itself spanning brokerage, financing and closing remains largely analog, complicated and inefficient. There’s an opportunity for startups to provide innovative solutions to help simplify and digitize the transaction process. Example companies in this area are Ribbon and Modus.

Second is the rise of alternative (or professionalized) living arrangements. I see a big opportunity for startups with a strong technology component to provide solutions for the mismatch between the way consumers want to live today and the aging housing supply that was built for a previous era with different needs and demographics. Companies like Lyric and Zeus are building alternative living solutions with a vertically-integrated short term rental strategy, while co-living startups are providing long-term rentals with value-added services.

Third is spend around the home. The large costs in time, effort, and money of designing, building, and maintaining a home provide an opportunity for tech-enabled solutions in construction, home management, and home maintenance. For example, Setter is providing a better consumer experience for requesting home maintenance services while Constru is bringing AI and machine vision to lower prices and reduce schedule overrun on construction sites. I see many more opportunities for startups like these in this space.

While these are big opportunities, the challenge with investing in real estate tech is to find startups with teams that not only have world-class product and software capabilities, but also world-class knowledge of finance, real estate, and operations. And with the recent WeWork debacle, we have seen a renewed emphasis on the failings of low-margin businesses. So for PropTech startups that are looking for funding today, there’s an increased need to demonstrate good unit economics and long-term margin potential.

Ryan Freedman, Corigin Ventures

At a high level, I believe we are still in the early innings of proptech – maybe 3rd or 4th inning. I always like to make the comparison to fintech. Technically speaking, real estate is a larger asset class than financial services. Between 2013-2017, fintech had cumulative funding of $62.4B vs. proptech’s $10.1B. Even though proptech has ramped up the last few years, we still have a long way to go prior to catching up. In addition, you may recall that PropTech used to be a “sub-sector” of fintech prior to being its own behemoth category. There are several subsectors within PropTech today, that I think a few years from now will be their own categories – construction tech is one of those.

From an investment perspective, we’re spending a lot of time in construction tech right now. From a macro standpoint, we feel there is a supply-demand mismatch with respect to the size of the market and the amount of funding in the space. Construction accounts for ~$10T annual spend globally and employs ~7% of the global workforce. In addition, it’s one of the most antiquated industries in the world. This summer we spent a ton of time digging into the space and have now made a handful of investments. We’re big believers of founder-market-fit, and this category in particular requires category expertise to navigate a very old-school industry.

Another area we’re spending time in is broker-tech. We’ve seen the “tech-enabled brokerage” model be effective in a ton of different industries including PropTech. A lot of investors believe this space is “crowded” – which is true in some sub-sectors (i.e. residential) – but when you look closely within the commercial real estate industry, we believe there is a massive opportunity to disrupt traditional real estate capital markets firms.

Constance Freedman, Moderne Ventures

What trends are you most excited in real estate tech from an investing perspective?

Although we are squarely focused on investing in tech companies in and around real estate, we are most excited about companies that are outside our industries and our ability to open up new trillion dollar-plus markets for them. Our industries have >1.5 million independent contractors, 600,000 SMBs and 1000s of enterprises so any technology that addresses these customer profiles are a fit for our industries.

More specifically trends we are looking at right now include SaaS-based business services, AI and machine learning business applications, fintech, insurtech, green and sustainable living technology, robotics, digital communication platforms and mobility

How much time are you spending on real estate tech right now? Is the market under-heated, over-heated, or just right?

We’ve been investing in this strategy for more than 10 years. There has been substantial growth in real estate tech, particularly in the last 3 years with roughly ~$2B going into real estate tech in 2016 and ~$14B invested in 2018. Sector focused on and traditional VC firms are starting to recognize there is opportunity in these markets and significantly more focus is going into them. That said, less than 4% of all venture dollars are going into these multi-trillion dollar industries so we believe there is still significant green space for investment.

Are there startups that you wish you would see in the industry but don’t?

Yes, tons! A few thematic interests for us include:

  • AI/ Machine learning applications to address marketing spend and returns; predictive opportunity (where should we develop next? What type of retail will most likely succeed? Will rents rise or fall in a give geography? What geography is most likely to be the next hot place?); aging: health, wellness and community platforms; alternative healthcare options: digital services, insurance alternatives, tax savings platforms, community insurance opportunities, pet care; robotics; mobility; shared economy platforms (proven marketplaces a must!); green and sustainability (let’s save this planet dammit!); transactional efficiency; blockchain (there are realworld problems to address here particularly in property title and tax); experience economy.

At first glance, none of these themes have anything to do with real estate, but to us they have everything to do with it. We work with companies closely to help them define the value props for our industries, meet the right decision makers, open distribution channels and generate new business.

Tyler Sosin, Menlo Ventures

Menlo Ventures is very active in proptech. Broadly, proptech for us includes residential and commercial real estate – servicing key constituents via workflow software, cloud-native systems-of-records, transaction infrastructure, market aggregation, transparency, and innovation in delightful user experiences – to “consumerize” the market and bring it to parity with other large consumer markets, like banking (Chime) and transportation (Uber).

We’ve made two significant investments in residential real estate in HomeLight and Qualia; those companies are doing very well and both have ambitious “expansion” roadmaps that address many of the outstanding opportunities and inefficiencies in residential real estate. So, while we see opportunity out there, we have to be mindful of potential conflict when we evaluate new investments.

HomeLight fits nicely within the aggregator/marketplace model of internet businesses (first aggregating agents, and more recently i-buyers) and is quickly emerging as the leading trusted resource for home sellers. The company is also moving aggressively into services (title and mortgage) where it believes it has a competitive advantage with regards to distribution and product innovation. The company acquired Eave to supercharge these latter efforts.

Qualia is a network software business (SAAS) focused on digitizing the real-estate transaction process. Their insertion point (or “wedge”) is that title agency, which is the “transaction coordinator” for real estate. Qualia provides amazing software to title agencies to make them more efficient, digital, and better equipped to coordinate with their counter-parties (real estate agents, lenders, title insurers, appraisers, counties, etc.). Today, Qualia, via its title agency customers, powers approximately 10% of residential real estate transactions in the U.S.

So, where do we see opportunity in residential (at least from a NEW investment perspective?)

  • Services/SAAS to digitize and archive inspections – a key contingency in the home transaction process that is fraught with uncertainty and lack of historical data
  • SAAS to better digitize/expose MLS data (i.e. infrastructure for MLS)
  • SAAS/data – to reduce friction, increase transparency, and create more efficiencies in property tax assessment and collection (likely products sold to counties)
  • SAAS to further digitize mortgage servicing and to make mortgage servicers more efficient (initially a high-velocity wedge that sits alongside incumbents), ultimately building into something that can displace legacy incumbent software
  • SAAS/data services to improve securitizations/capital markets workflows

Businesses we respect but are not invested in (not an exhaustive list)

  • Blend Labs (front-end mortgage SAAS)
  • Reside (now Side) (transaction / white label brokerage platform for real-estate agents)

Next, we go to commercial real-estate. We’ve learned A LOT about commercial from our experiences with RealtyShares, which ultimately failed as one of the early commercial real estate marketplaces. Our takeaway: marketplaces — at least attractive ones — can only really flourish when there is a decent amount of modern data-infrastructure and cloud systems in use by market participants. And if condition has not been met, the “marketplace” has to be the “second act” behind a successful, highly adopted SAAS offering (think Carta, or Opentable). Otherwise you are managing the herculean task of trying to scale a marketplace via brute force, relying on costly, human-intensive, manual processes to coordinate participants. Through our RealtyShares investment, we (fortunately or unfortunately) discovered that there are a number of busted, manual workflows and data issues that need to be solved for before the “real estate exchange” can exist. Smart and scrappy founders should find those opportunities and take a run at them.

Some notable areas of interest for Menlo:

  • SAAS/digitization/automation for AVMs, appraisals, and inspections
  • Investment management SAAS (CRM, administration, accounting, reporting, waterfalls, payments, investor portals, etc.) – the “Carta” of Real Estate
  • Network SAAS for connecting extracting / normalizing data from disparate property management systems (i.e. Yardi, RealPage, etc.)
  • SAAS/contributory data network for better property / owner data
  • Owner/operator SAAS for building maintenance & construction – interfacing with contractors / bidders
  • SAAS to improve tenant management of leases & to help brokers, tenants and landlords better coordinate on lease transactions (and the production of legal documents)

Given we are still looking at this space, we’ll keep our prospects to ourselves 😊 But, we will give one shout out to JuniperSquare for building a really nice wedge in investment management SAAS.

Jeff Crowe, Norwest Venture Partners

We get excited about real estate because it is a massive market as the largest asset class in the world, including everything from residential, commercial, industrial, construction, development, leasing, investing, property management, and more. As with any other industry that tech is disrupting, both consumers and enterprises are requiring an easy, delightful, and more convenient experience, and we’re still in early innings. While large publicly traded businesses have been built improving online discovery like Zillow/Trulia/Redfin, the process of buying a home today has not changed much from a generation ago. Same with renting an apartment, leasing office space, or building a home. However, real changes are starting to occur under the hood, driven by software, hardware, data, and new business models that will become more prevalent in the next few years.

New business models such as the iBuyer model, revolutionized by portfolio company Opendoor, is fixing just that. They allow consumers to sell a home with just a few clicks, get the cash in their account in a few days, and then buy a home with the same frictionless experience. Soon, trading up your home will be as easy as trading up a car. Other new rent-to-own models like Divvy Homes or Zerodown are expanding access to homeownership, while next-gen tech-enabled residential real estate brokerages or property managers create a seamless experience for consumers. On the commercial real estate side, flexible office space operators like portfolio company Knotel allow for flexibility, lower cost, speed of transaction, and transparency for enterprises looking for office space.

We will see continued innovation around cost-effective solutions, as more people move into cities, rents keep escalating, and millennials live the shared economy lifestyle – whether it is co-living companies like portfolio company Common, that is building communities and more affordable housing while creating more value for landlords, the prefab ADU (accessory dwelling units) companies innovating on the construction process, or short term rental companies building on top of the Airbnb ecosystem. We have also started to see real technology innovation like portfolio company Bumblebee Spaces that is using AI, computer vision, and robotics to create a new way to live by unlocking vertical space in a room.

With the explosion of new proptech companies, we can also expect to see consolidation in the space, especially for capital intensive sectors like iBuying and flex office space. Second or third-tier players may have a tougher time raising capital. One thing investors will need to keep in mind for proptech companies is that at the end of the day, public markets may value them differently, as we have seen recently with WeWork.

Micah Kotch, URBAN-X

What trends are you most excited in real estate tech from an investing perspective?

We just invested in cove.tool, a web-based platform for discovering smarter ways to make buildings high performance while saving on construction cost. On the construction side, we’re really excited about cohort 05 startup Toggle.is who are using robotics to increase safety, efficiency and productivity for the world’s most ubiquitous building material: reinforced concrete.

Real estate assets are a large part of most investment portfolios, but there is little discussion about how to reassess the risks of climate-related floods, droughts, fires, etc. We have investments in firms like One Concern to model and respond to these issues, but we’d like to see more startups focused on resilience strategies, and potential new approaches to insurance.

Since we spend so much time in buildings at work, there’s a connected thread of real estate tech related to the ‘Future of Work’. What does the next evolution of the co-working world look like? We’re in the early chapters of flexible workspaces, which may further break down into:

  • Spaces for group meetings
  • Spaces for productive individual work
  • Activity specific spaces, etc.

This is not just about ‘white-collar workers’. Contextere is a Cohort 02 industrial software company creating AI powered solutions focused on human performance. Their intelligent personal agent delivers actionable intelligence to the last tactical mile for the blue-collar workforce. There are related opportunities in connected logistics, and we’re excited by Founders who are asking, “What happens as we continue to scale up deliveries? How do we deal with the associated waste impacts? Can we get more services delivered on-premises and avoid quality of life issues that come with the on-demand economy?”

How much time are you spending on real estate tech right now? Is the market under-heated, over-heated, or just right?

It depends on how you define ‘real estate tech’. Our thesis is informed by the notion of connected cities which includes mobility and transportation, real estate and construction, infrastructure and industry, public health and safety, energy, water, waste, food systems and civic technologies. It’s nearly impossible to take the building out of the equation in any of these areas, and taking a human-centric approach to building new solutions is table-stakes in the 21st century. We spend all of our time looking at companies in these sectors. The percent of companies focused on real estate and the built environment is significant.

Given the size of the industry, the low degree of internet penetration in traditional construction, and the changing demands of the market, there is a lot of room to run. According to Re:Tech Real Estate Annual Report 2017 and CRETech April 2019 Report, investment in real estate tech has tripled in the last three years (from $4.2B in 2016 to around $12B in 2019), but we’re still in the early stages of development. Some segments of the industry are getting crowded: fractional ownership, construction site analytics, digital concierge services, co-living. Here in the US, real estate is the largest industry representing 13% of the US GDP, yet real estate companies typically have reinvested less than 1% of revenue into R&D, compared to 3-8% of other industries. At the same time, if you look at the GPs of the twenty largest VCs, most don’t come from the real estate industry.

Are there startups that you wish you would see in the industry but don’t?

We’d love to see more startups tackling the issue of aging in place. How can we make tech more valuable and accessible for the huge amount of the population that wants an active retirement, lifelong learning opportunities, and is living longer with more disposable income than any other generation of retirees? How can we leverage new technologies and interfaces to bring services to people’s homes instead of having to relocate them? How do we solve for the isolation that has come with ubiquitous connectivity?

We’re really interested in founders solving problems at the intersection of real estate and energy (URBAN-X Cohort 03 alumni company Blueprint Power), real estate and infrastructure, real estate and transportation. As building designers use new tools like parametric design, we’re also excited about corresponding advances in new materials like cross-laminated timber, hydroceramics for cooling buildings, and thermoplastic carbon fiber construction materials that represent huge leaps forward in seismic reinforcement.

Plus any other thoughts you want to share with TechCrunch readers.

The affordable housing crisis won’t be solved by the largesse of big tech alone. Policy has a big role to play in this vertical. Whether entrepreneurs are selling to developers, property managers, homeowners or renters, they need to deeply understand the ecosystem in which they’re operating.

Merritt Hummer, Bain Capital Ventures

What trends are you most excited in real estate tech from an investing perspective?

Technological innovation in real estate depends upon access to transparent, accurate data. In residential real estate, we saw pioneering companies like Zillow and Trulia digitize multiple listing services (MLS) in the 2000s to create national databases of housing stock. These databases include not only listings available for rent or purchase, but important characteristics such as the square footage, floor plans, pricing history, and interior features of each unit. The availability of rich, structured, and centralized data enabled a subsequent wave of innovation in residential real estate, from automated valuation models (first made famous by Zillow’s Zestimate) to tech-enabled mortgage lenders to iBuyers, all of which rely on the “single source of truth” of the consolidated MLS.

In commercial real estate, there is no such public directory. You can’t just look up a property down the street and immediately understand its rental revenue, square footage, number of units, leasing history, and so on. The publicly available data that does exist is highly fragmented and structured differently across properties, rendering it useless for many purposes. The paid subscription databases are known for exorbitant fees and incomplete or inaccurate information. Commercial real estate suffers the consequences of no trusted repository: longer sales processes, less precise valuations, information asymmetry among market participants, and ultimately less liquidity in the market. I liken this to trends in the news industry today: if a group of people can’t agree on the facts, then how are we supposed to negotiate solutions?

If this were an easy problem to solve, it would have been solved by now. There are promising startups out there (including one of our portfolio companies, Reonomy, and others, notably Cherre) whose objective is to unify property data across disparate sources. I am excited for these companies and others to solve this foundational problem in commercial real estate. This “single source of truth” will unleash many more creative applications of commercial real estate data. But first, we must agree on the facts.

How much time are you spending on real estate tech right now? Is the market under-heated, over-heated, or just right?

I spend the majority of my time on proptech, with the balance of my time spent in fintech. While I am optimistic about the potential of the proptech industry in the long run, there have been significant mispricings of proptech startups in the short run as investors figure out how to value these businesses. The real estate companies masquerading as technology companies are definitely overheated. Certain founders are really effective at pitching their businesses as tech companies even if they’re not. WeWork is the most prominent example, but there are others that have received less attention, including some of the short-term rental companies and VC-backed social clubs with physical spaces.

On the contrary, there are pockets of proptech that are overlooked. Technology serving the multifamily asset class is just starting to become interesting. We would love to invest in a company disrupting title insurance. Property management is an industry yearning for better solutions. There hasn’t been a true innovation in access control in millennia; the key was invented in the 6th century BC. Eventually, we will probably open doors with biometric identifiers. Obviously we’re not there yet.

Kia Nejatian, & MJ Cootsona, Plug and Play

Modular

Real estate tech has been a really exciting industry to immerse ourselves in over the past two years. With the immense amount of capital deployed and innovative ideas, there have been a few themes that have really stood out to us recently as intriguing investments and impactful inventions.

First of these is modular construction. We’re excited about this because of the diverse effects it holds for both commercial and residential real estate. On the one hand, large multi-family developers could drastically cut costs with successful implementation of modular solutions, while single family home buyers could approach homeownership at a much earlier stage with the affordability and availability of prefabricated housing.

Across the U.S., there is an estimated shortage of 7.3 million housing units, and in California alone there is a need for 3.5 million units. Couple this with the fact that 50% of the labor pool exited the market in 2007, there’s a heavy imbalance in supply and demand. The startup Rize Modular is one we have our eye on, tackling the housing and labor shortage nationwide by introducing a solution that is scalable and technology-driven for residential, commercial, and industrial.

Co-Living/Future of Space

Interestingly the lack of affordability and housing inventory also touches on our second point, Co-Living and the Future of Space. More and more people are competing in a saturated market with rising housing prices that are cutting into a sizable part of their income.

The need for affordable solutions is not coming fast enough, but co-living has been an alleviation gaining traction. Especially popular in dense urban, tech-centric areas (SF, NY, etc), co-living has become a viable option for millennials and younger generations to afford housing while gaining a sense of community.

Home Buying/Selling

Lastly for us is the innovation in home buying and selling. The real estate transaction process is broken. For example, typically homeowners need to sell their current residence before placing an offer on a new home since it’s unlikely they have enough money for a downpayment.

Doing so may result in conflict between contingencies, loan approval, closing dates, etc. Disruption has finally come for the inefficient process of buying and selling a home. iBuyers, algorithm powered home flippers, are changing the way we carry out residential real estate transactions. Over the past few years a number of companies, including Properly and Felix Homes (Plug and Play portfolio), have emerged with the goal of fixing the real estate transaction process. Toronto-based Properly uses machine learning to help homeowners determine what their home would sell for and receive cash offers. They offer price match guarantee, meaning if the home sells for more than Properly’s offer, some of the difference is refunded to the seller. Another startup that has popped up with their own spin is Felix Homes.

The company has labeled itself “Agency 2.0” – 50% iBuyer, 50% brokerage. The Nashville-based startup guarantees to buy your home at a prearranged amount if they can’t sell to another buyer. In the event the subject property doesn’t meet the criteria for purchase, they also have a flat-fee service that will list homes for $3,500 (regardless of the homes value). These platforms’ ultimate goal is to get closer to the transaction and consumer by offering an end-to-end service (mortgage preapprovals, appraisals, etc.).

Startups in the industry:

At Plug and Play we sit at an interesting intersection between innovative corporations and some of the world’s best startups. One of the critiques we hear most often is that the startups have incredible technical ability but sometimes lack the practical knowledge of the industry. Some of the most successful startups we’ve seen have founders with mixed experience in both traditional real estate and technical fields, and it would be great for the industry to see more startups with combined skill sets. With that being said, the collaboration between startups and corporations in real estate tech is still in its early stages and many of our partners are most excited to explore emerging technologies. It’s an exciting time for forward-thinking real estate companies as they have the chance to be early adopters. Blockchain is a hot topic on the horizon for many of our partners as it expands and begins to tackle the real estate industry. While cross vertical in nature, its application for transactions, contracts, and multiple aspects across the buying/selling experience are enticing.

Extra Thoughts:

Building on that thought, the relative infancy of collaboration leaves tons of room for growth and opportunity. Our main goal for the corporations and startups that are part of our ecosystem at Plug and Play is to meaningfully connect them. We aim to find technology solutions for some of the world’s leading real estate and construction companies, and we’ve seen tremendous growth in collaboration even throughout the last year. More startups are emerging with solutions, while more corporations are stepping forward and embracing innovation. As this involvement expands, these leading corporations will inevitably find gaps that startups will seek to fill and we are excited to play a part in filling those gaps, helping both parties accelerate towards meaningful partnerships.

Robin Godenrath, Picus Capital

Being experienced in the physical real estate investment space we were following and pushing the application of software and technology since early on. Software and technology proved to create substantial value in basically all parts of the value chain and will certainly continue to do so in the foreseeable future. Therefore, we are probably spending more than 1/3 of our time on real estate tech solutions today with the following three core underlying hypotheses:

Software and technology will dominate the entire real estate value chain.

Starting with real estate search and real estate financing, over real estate transactions up to yield maximization the increase in process efficiency and the revenue increase potential is just massive. Therefore, in each of the verticals, we already witnessed the emergence of numerous tech giants in real estate in the U.S. and Europe. The classifieds were the starting point with the disruption of the real estate search & discovery process. Digital mortgage players brought the mortgage process online and more innovative models even help customers to buy their home with cash offers before they are approved for their mortgage by forecasting the probability of being approved. On the transaction side of things, iBuyers are using technology and data to offer an attractive solution for home sellers interested to sell fast and hassle-free. Tech-enabled broker models use technology and data to make the traditional brokerage process more efficient and improve the customer experience throughout the journey. But also beyond the real estate transaction, co-living and tech-hotel models are changing the type of a real estate asset to maximize the yield generated.

Another trend which really excites us in the real estate tech market is the increase in asset liquidity. Today, internet and digital solutions allow more efficient and flexible capital access. The expectation to order consumption goods with the click of a button and in no time now also begins to apply to more bulky items such as cars and properties which are associated with significantly more complex transactions.

Whilst iBuyers made the transaction faster and the market more liquid to some extent, we are very excited about models that tap into the equity locked up in real estate which was very difficult to access so far. One prominent player which already started providing first solutions in this space is for example Point in the US. Such models do not only imply an opportunity for homeowners, but also for the real estate investment side. Leveraging fractional ownership or asset-backed lending structures, access to real estate as an investment class gets facilitated and becomes accessible for a broader population as well.

We are still early.

While the investment activity and the market cap in the real estate tech space increased a lot in the last decade, we think that we are still fairly early in the game. If you look at the key players tackling different verticals in the real estate value chain even some of the highest funded players are still continuously re-developing their business models. Zillow, for example, started a significant push in the iBuyer market recently while OpenDoor envisions to build an own proprietary real estate inventory.

We are convinced that due to the strong synergies between the business models in the different verticals we will see a lot of consolidation and cooperation in the next couple of years. However, it is difficult to say which players are best positioned for that race as classifieds have the first touchpoint with the customers, transactional models have strong customer credibility and a large value creation element for the customer, and financing models create a long-term relationship with the customer.

Our investment focus in the previous years was predominantly Europe and the U.S. and we still see a lot of opportunities to be captured in the real estate tech space here. However, we already see some tendencies of overheating in the market when the valuations of real estate tech companies drift away significantly from the fundamental value behind the actual businesses. Often very significant asset-heavy or personal-heavy elements of the business models with clear implications for long-term growth and steady-state profitability just seem to be ignored.

Furthermore, there are still some rather uncaptured markets, such as LATAM and Southern Europe. We believe that these markets are in particular interesting with regard to the real estate value chain as it is still possible to build an E2E property player capturing the entire value chain combining search, financing, transactions, and asset utilization / yield optimization.

In our opinion, this would be a game-changer, highly defensible and definitely a multi-bn USD opportunity. This was also the idea behind our investment in the Southern European iBuyer Casavo which we never understood as a non-repeat transactional model. Real estate tech companies in less mature and less sophisticated markets benefit from low transparency, low market liquidity and inefficient best-practice processes.

India and SEA are coming.

In terms of geography, we are also excited about India and the South East Asia region. In general, we observe many developments there which happened in more developed markets 5-10 years ago but with a very different pace. Mobile penetration is skyrocketing, opening up completely new markets. The emergence of a much broader middle class leads to an increased appetite for consumption and accelerates market growth in traditional markets such as the mortgage market in India which is growing by roughly 20% YoY.

Whilst on the B2C side of the market some successful startups already emerged, the B2B side still appears to be very under-digitized. One of the learnings from Europe and the U.S. definitely was that large, “old school” markets with high resistance to change, such as the real estate market, require yield pressure, more demanding customer expectations and game changing-software solutions providing substantial industry-standard improvements to start moving. As we already witnessed numerous real estate tech disruptions in the U.S. and Europe in the last decade, we are thrilled to follow future developments in India and SEA very closely and invest actively.