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The real estate industry — like so many other sectors — was forced to adapt this year.
Now, investors are ready to pour capital into the startups they believe are best-positioned in this new era, from companies tackling construction tech, financing and digital workflow tools to those finding ways to monetize vacant spaces, flex offices and yes, even co-living arrangements.
TechCrunch surveyed nine firms that are writing checks today for startups in the sector. Our first survey, published last week, provided a broad view of the residential and commercial real estate landscape, and homed into the trends that have emerged and accelerated in the past year. In short: Optimism still runs high for startup hubs as well as supercities like New York and San Francisco. However, the move toward e-commerce and remote work — a trend that started before COVID-19 upended the way people live, work and play — has accelerated.
This second installment of responses focuses on the opportunities and risks for startups that these investors are betting on (or not).
For additional context on where top investors believe the market is headed, be sure to check out our real estate and proptech investor survey from late March and the previous ones from late last year (when everyone thought 2020 would be something different).
- Clelia Warburg Peters, venture partner at Bain Capital Ventures
- Brad Greiwe and Brendan Wallace, co-founders and managing partners, Fifth Wall
- Zach Aarons, co-founder and general partner, MetaProp
- John Helm, managing director, Real Estate Technology Ventures
- Adam Demuyakor, co-founder and managing partner, Wilshire Lane Partners
- Casey Berman, founder and managing director, Camber Creek
- Florian Reichert, partner, Picus Capital
- Stonly Baptiste, co-founder and partner, Urban Us
- Andrew Ackerman, managing director, DreamIt Ventures
Clelia Warburg Peters, venture partner at Bain Capital Ventures
How do current trends translate to opportunities and problems for proptech companies? For example, co-living is among the worst-performing asset classes with a risky tenant demographic. Are there still worthy investment opportunities in previously hot areas like this?
Because real estate is such a complex business, some of the investing trends we have seen around proptech are fad-based and not deeply rooted in fundamentals — and I do agree that some of these fads may not weather the challenges presented by the pandemic.
Co-living is clearly facing challenges, and likely will for some time as younger consumers have more flexibility to opt out of living in larger cities with supply constraints and high pricing. However, there are also a number of underlying trends that suggest that the way that we rent or own properties is going to continue to evolve. I believe we will see shorter lease terms, more amenitization (including a trend towards furnished apartments or renting furniture) and more options for shared community resources. This could extend into co-living, but in the short to mid-term, means that I think we will see more rapid growth in companies offering more hybrid short to mid-term stay innovation models (Sonder, Zeus, Kasa, Whyhotel, etc.) and companies servicing landlords or consumers who are doing this themselves (CasaOne, Feather, HelloAlfred, Hom).
Flex office is also an area that I think will be challenged in the short term but I believe could see a major recovery once companies start to think about their ongoing office commitments. In my opinion, premium players such as Convene and Industrious who have focused on building relationships with enterprise clients and increasingly use management contract models with landlords will likely see major growth 12-18 months from now.
Real estate fintech companies have a unique set of challenges in this time, given limited real estate sales and higher costs. How do you see these companies successfully adapting?
I don’t think these companies are challenged across the board. In fact, real estate fintech companies focused on disrupting the residential real estate transaction have largely seen a bump, not a decline, in their business during this time. Nationally, the residential market has remained brisk (with some obvious exceptions, like New York), and many of the companies providing equity-based alternatives to debt financing (mortgages or HELOCs) are seeing a big surge in demand. Obviously it’s also been a great time to refinance a home, so many companies in the mortgage space are seeing a big jump in demand as well. Even iBuyers, who many thought would be facing the ‘economic challenge which undermined their whole model’ have instead seen meaningful growth during this time. I think this moment may prove to be a watershed in terms of consumer openness to different tools to facilitate and finance the residential home transaction.
What are other big problems and solutions that everybody else is missing?
Increasingly, there is a whole ecosystem of really smart people working in and around proptech, so I don’t know that there are many big problems no one has noticed. (I would contrast that with five years ago when I don’t think much of the industry had woken up to the degree of disruption and innovation that was coming!)
With that said, I think we are primed to see a massive expansion of innovation in construction, and I am excited by the quality of entrepreneurs I see actively building in that space, as well as the engagement of industry-leading incumbents.