A rental platform that offers free service to tenants might not sound like the most lucrative business model, but one West Coast private equity firm thinks it will be.
San Francisco-based Anacapa Partners has acquired New York City’s Loftey, which aims to make the apartment hunting process easier on renters’ wallets and generate leads for agents.
Under the deal, Loftey co-founder Ori Goldman will transition out of his role as CEO and co-founder Corey Lerner and managing director Ashley Messina will become co-CEOs.
Dollar figures were not disclosed, although Lerner called it “a really significant investment financially.” Messina’s LinkedIn page calls Loftey a $20 million startup that grew from eight employees in 2016 to more than 80 three years later.
Anacapa will provide the startup with operational resources, strategic advice and capital to expand when needed, said managing director Jeff Stevens.
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Loftey uses technology to set up appointments, streamline the search process and organize applications and lease signings. It collects referral fees from landlords and large management companies for bringing them tenants and claims to negotiate rent savings for tenants of $25 to $200.
But tenants might still have to pay traditional broker fees, which in New York City are 15 percent of the annual rent. That fee is determined by the landlord or broker.
The company says it has generated more than 300,000 rental leads for agents and landlords since its inception in 2015. It works with its own agents and those at other brokerages such as Compass and Oxford Property Group.
“There’s less of a focus on maximizing profit on every one deal; it’s not really our startup’s goal,” said Lerner. “It’s more about growing our customer base and our brand for that long-term value.”
Traditional brokerages including LG Fairmont, Triplemint and Elegran Real Estate have also made lead generation part of their business model. But these firms rely on other ways to make money.
Triplemint, for example, uses a machine learning algorithm and predictive analytics to identify those likely to sell homes. It has raised more than $17.7 million in venture capital money in recent years.
Loftey’s site says its frugal business model means it often makes “less money than the other guys.”
Keeping up with demand can be tricky, Lerner said. Loftey’s in-house agents used to handle all of its transactions, but the startup has since partnered with agents at other firms and wants to expand that further.
The financial backing from Anacapa will let Loftey work with more agents at other brokerages who can use the leads and reach more renters in New York, Lerner said. While the platform has mostly operated in Manhattan, it aims to do more business in other boroughs before expanding to other cities.