The Real Deal New York

The 10 biggest real estate tech deals of 2016

The year's highlights include a blockbuster merger, a new unicorn and a securitization
By Konrad Putzier | December 21, 2016 09:30AM

From left: Jason Smith, Robert Reffkin, Eric Wu and Nick Romito (Credit: Lexi Pilgrim for The Real Deal)

The real estate tech industry in 2016 could be summed up in one phrase: the big kids took over the playground

Though there was a drop in the number of new startups and many fledgling companies struggled to secure financing, the established firms scored big money from investors and took steps to cement their market dominance. No, the post-2012 crop of startups still hasn’t led to an IPO. But this year saw some deals that make one a lot more likely in the near future. 

This dealmaking may come as a surprise to skeptics who have long predicted that venture funding would dry up.

Richard Sarkis, co-founder of real estate data company Reonomy, told The Real Deal in August that faced with slower-than-expected growth, venture investors are no longer looking for unicorns, or startups that quickly hit a $1 billion valuation, but for “cockroach startups”: companies that don’t grow as quickly, but prove resilient in the long run.

As the tech industry matures and companies grow, bigger deals could be in store for 2017. One of the firms ranked below, Real Matters, plans to go public in the first quarter. Meanwhile, the VTS-Hightower merger that takes one of the top slots could be a precursor to a merger wave.

Here’s a semi-subjective list of the biggest real estate tech deals, compiled with the help of PitchBook, a database for M&A, venture capital and private equity. TRD included both large venture rounds, significant mergers, and even a securitization.

1. Opendoor, $210M fundraising round

Opendoor’s Eric Wu

Opendoor has arguably the riskiest business model of any company in this ranking, but investors are betting big on it. Say you want to sell your home quickly. Opendoor will buy it from you, make fixes if necessary and then list it for resale on its website. Buyers can search the site for properties, tour them by using key codes and purchase them with a 30-day money back guarantee. In effect, Opendoor seeks to replace brokers, but with with the added twist that it actually owns properties for a time. That comes with risk, but the firm claims it developed an algorithm to find good deals and minimize investment losses. All homes are in the $125,000-$500,000 price range.

On Nov. 30, the California-based company announced a $210 million funding round led by Northwest Venture Partners, bringing its total funding to $320 million.

“I don’t think Opendoor will have revenues the size of Wal-Mart next year, but we’ll be in the billions of dollars very fast,” Opendoor’s executive chairman Keith Rabois told Forbes last month.

Brandon Weber and Nick Romito

Brandon Weber and Nick Romito

2. VTS-Hightower, $300M merger

No actual cash traded hands in the VTS-Hightower merger, but the deal (which valued the combined company at $300 million) features high up on our list. Insiders immediately called the merger, announced in November, a historic moment for the real estate tech business – up there with CoStar’s IPO. “This is a seismic shift in the marketplace,” Peter Boritz, CEO of Real Data Management, said at the time.

VTS is flush with capital (see below), has big backers like the Blackstone Group and Joshua Kushner’s Thrive Capital, and now has a near-monopoly on the enormous and potentially very profitable market for commercial real estate portfolio management software, making it a contender for an IPO in the not-too-distant future. It could also launch a merger wave observers have been predicting for a while.

“This is the tip of the iceberg for these deals,” Zach Aarons, co-founder of tech accelerator and advisory firm MetaProp NYC, said at the time. “It creates an opportunity to roll up many different startups in CRE tech under this umbrella.”

From left: Ori Allon and Robert Reffkin

3. Compass, $75M fundraising round

Is Compass even a tech company? While many in real estate think of it as primarily a brokerage, venture investors apparently beg to differ, pumping millions into the Union Square-based firm. In August, the company became the residential brokerage world’s first unicorn, hitting a $1 billion-plus valuation after raising a $75 million Series D round led by Wellington Management. Compass has raised $210 million to date, with backers include Thrive Capital, Salesforce CEO Marc Benioff and Advance Publications.

The company, founded by Robert Reffkin and Ori Allon, has been growing aggressively and poaching brokers from rival firms. Predictably, this strategy has won it plenty of enemies. In October, Douglas Elliman sued Compass over an alleged “scheme” to steal agents and contracts.

4. Real Matters, $72.41M fundraising round

Real Matters’ Jason Smith

Real Matters, founded in 2004, is a Canadian company that offers appraisals, mortgage closings, insurance inspections and title searches through a mix of field agents and cloud computing software. In April, the firm announced a CAD 100 million funding round (around $72 million at the time) and immediately used that money to acquire Linear Title & Closing Ltd. for up to $96 million. In November, Real Matters raised another $30 million. It’s planning to go public the first quarter of 2017, according to Reuters.

5. LendingHome, $71M securitization

Matt Humphrey, James Herbert and LendingHome’s homepage

This deal was buried in a December press release, but it’s an important one: LendingHome securitized $71 million in real estate loans in a single deal arranged by Nomura Securities. It had securitized another $55 million worth of loans back in March. Welcome to RMBS 2.0.

The California-based firm, founded in 2013, offers 30-year mortgages and one-year bridge loans on single-family homes. Borrowers can apply online in a process the firm claims takes just 20 minutes, and once approved, a loan closes in 14 days. LendingHome then sells these loans on to institutional investors – either directly or in the form of mortgage-backed securities. “We saw this as an opportunity to take a fragmented market and clean it up,” the firm’s co-founder James Herbert told TRD last year.  Investors appear to agree: the firm has raised $109.3 million to-date from firms including China’s Renren. It claims to have originated more than $1 billion in mortgages.

6. VTS, $55M fundraising round

Nick Romito

You know it’s been a good year when you make the ranking twice. In May, shortly before it began serious talks with Hightower about a merger, it raised $55 million in a Series C funding round led by Insight Venture Partners. Now that it merged with Hightower and virtually doubled in size, it can spend some of that money to acquire other tech startups that help broaden its offerings. Following the merger, the firm’s CEO Nick Romito hinted that acquisitions could follow, saying the firm has “been looking at things for about a year now and plan on continuing to do so. It’s a big part of our go-forward strategy.”

7. Cadre, $50M fundraising round

JaredKushnerRyanWilliamsJoshKushner

From left: Cadre co-founders Jared Kushner, Ryan Williams and Joshua Kushner

Cadre may not top this ranking, but it wins the title of real estate tech startup with the strongest ties to the White House. Trump-whisperer Jared Kushner is the firm’s co-founder, and Peter Thiel, another Trump adviser, invested in the startup. Oh, and China’s richest man is also an investor, and Michael Fascitelli sits on its investment committee.

In January, Cadre announced a $50 million Series B round. It had raised $18.3 million in its Series A round a year earlier.  Cadre is a members-only online investment marketplace that connects institutions with commercial real estate deals in prime markets. The firm also invests in deals along with its users. In July, the company hired former Starwood Capital exec Marcos Alvarado.

8. Breather, $40M fundraising round

Breather’s Caterina Rizzi and Julien Smith

Breather is another Canadian, but New York is its biggest market so we’ll let that one slide. The Montreal-based company rents rooms in office buildings, furnishes them, and offers them as short-term offices or meeting rooms on its website. Earlier this month, it raised $40 million in a Series C round led by Menlo Ventures, bringing its total funding to $73 million. Breather’s CEO Julien Smith told TRD at the time that the company operates around 150 spaces in New York City, and that adding another 300 over the coming year is “realistic.”

Smith said he doesn’t see the firm as a competitor to WeWork, another provider of flexible work space. “They’re a replacement for your office,” he said. “When you’re using our service, it’s really just buffer space.”

RealtyShares’ Nav Athwal

9. RealtyShares, $30M line of credit

It’s become a little quiet around real estate crowdfunding recently, but RealtyShares is a reminder startups are still out there trying to shake up real estate finance. In September, the California-based startup secured a $30 million line of credit to pre-fund its deals (in other words, it will use that money to invest in real estate deals and then make them available to investors, as opposed to merely intermediating).

The company, founded by Nav Athwal, offers small-time investors the chance to invest as little as $5,000 in real estate deals and claims to have originated more than $100 million in deals. It is competing with platforms like Fundrise and Realty Mogul, which both launched real estate investment trusts over the past year in a bid to win over investors.

10. Zumper, $17.6M fundraising round

Zumper’s Anthemos Georgiades

In October, online apartment search platform Zumper raised $17.6 million in a Series B funding round led by Breyer Capital and Foxhaven Asset Management. The California-based company offers a free search platform, and claims to have 40 million users. Earlier this year, the company acquired PadMapper, a search platform that caters to college grads. The startup’s total funding to-date stands at $39.2 million.