Future City: An iBuying Icarus

National /
Nov.November 15, 2021 07:00 AM

Make it rain

Proptech is on track for a record year fundraising and M&A, according to GCA , the global proptech advisory firm.

More than $4.4 billion in equity and debt capital flowed into the U.S. proptech market during the third quarter, bringing the 2021 total so far to $13 billion. The highest fundraising quarter on record is the 2021 first quarter, when investors plowed $4.6 billion into the space.

There were 13 financing rounds of more than $100 million during the period, and 24 rounds of more than $50 million. There were also 40 M&A deals, driven primarily by “strategic consolidators,” the firm said.

An iBuying Icarus

Zillow abandoned its iBuying business after seeming to only temporarily back away from it, sending its stock into free fall.

It turned out Zillow’s property estimate tool, which it had relied on to purchase thousands of homes it hoped to flip for a profit, was significantly out of sync with the market. And the company didn’t have the resources to renovate and sell the homes it had bought on the fly fast enough.

Buyers who had been outbid by Zillow in competitive housing markets took to social media to lampoon the company, which was forced to lay off a quarter of its staff.

Zillow recorded a $304 million writedown on roughly 10,000 homes in the third quarter, and it expects to write down another $265 million in the fourth — on top of $230 million to close the business.

“Put simply, our observed error rate has been far more volatile than we ever expected possible, and makes us look far more like a leveraged housing trader than the market-maker we set out to be,” CEO Rich Barton said on an earnings call.

Doubling down

JLL bought the Boston-based building operations software firm Building Engines for $300 million — the latest in a string of blockbuster proptech deals.

Building Engines, through its Prism app, helps landlords manage systems like heating and ventilation as well as the vendors who service them. The company has more than 1000 clients, who manage some 35,000 assets.

JLL will onboard a trove of data as well as clients with the deal, which comes just two months after its purchase of the artificial intelligence startup Skyline AI — another data play. The brokerage will use Skyline to estimate future property values and steer investment activity.

Warm welcome

Nextdoor’s stock surged as the social networking app for neighborhoods made its debut in the public market via a Khosla Ventures-backed SPAC deal.

The company, which makes its money by selling ads and sponsored content on its hyper-local platform, saw massive growth during the pandemic. Its user base grew from 48 million in 2019, to 58 million in 2020, to 63 million as of the middle of 2021.

“More people came to the platform during the middle of an emergency, but they came and they stuck around,” Nextdoor CEO Sarah Friar said.

Nextdoor expects sales to grow 47% this year and 40% in 2022, but the company’s operations are still in the red. It expects to lose $101 million this year.

Home is where the backyard is

The housing market boom has seen demand skyrocket even in the “granny flat” niche.

A Los Angeles-based startup called Cover that builds custom accessory dwelling units, or ADUs — commonly called granny flats, or backyard homes — raised $60 million to expand in its hometown, before going national.

Demand for backyard homes boomed during the pandemic, as millennials and zoomers moved back home and property owners sought other sources of income.

Cover’s leadership say its offering is unique in the crowded modular home field because it avoids conventional construction methods involving drywall and wood. The company is vertically integrated, managing all steps of the process from design to delivery.

Small bytes

• Airbnb’s reported record Q3 revenue and profit, thanks to the “work from anywhere” trend.
• The startups Level Home and Dwelo merged and raised $100 million in Series C funding to bring smart locks to middle-market multifamily buildings nationwide.
• CompStak, the pioneering commercial real estate data crowdsourcer, raised $50 million in a Series C round.
• Bridgit, the construction labor management platform, pulled in $24 million in Series B funding.
• GetCovered, a startup at the intersection of proptech and insurtech, raised $7 million in a Series A round, aiming to become the “Shopify of insurance” for legacy carriers and agencies.
• Doorsey, the online homebuying platform, launched, promising bid transparency to level the competitive landscape for buyers.

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