Two huge pieces of real estate news landed within hours of each other Thursday morning: Compass, the New York City-headquartered real estate brokerage that has been on a cross-country acquisition spree, and Opendoor, the San Francisco-based online homebuyer and seller targeting 50 markets, each announced funding rounds worth $400 million a piece. The common denominator? The primary backer in both rounds was the SoftBank Vision Fund.
Today’s rounds come on top of the previous $450 million that the Vision Fund plowed into Compass, as well as a number of other eye-popping bets on real estate tech. So what is this fund, and what are its designs for the industry?
SoftBank’s $93 billion Vision Fund, which officially closed a little over a year ago, was founded by the Japanese holdings giant SoftBank Group Corp., which has invested in telecoms and made a fortune off Chinese e-commerce website Alibaba.
With far more cash to spend than any other venture capital fund in history, it has become something of a rainmaker in the startup realm.
Because the residential real estate industry in the U.S. is so large, with many different, specialized sub-markets (construction, financing, selling, etc.) SoftBank sees opportunities to build successful, profitable and disruptive new businesses that leverage technology across the entire real estate supply chain.
It has invested $865 million investment in construction-tech startup Katerra, as well a $120 million round in Lemonade, a tech-powered provider of homeowners and renters’ insurance.
For $3.3 billion in late 2017, SoftBank Group Corp. also acquired Fortress Investment Group, a private equity firm that also operates real estate investment and lending businesses and has $40 billion in assets under management.
SoftBank has also backed Social Finance (SoFi), which offers mortgage financing, and Housing.com, which merged with Indian listing portal Proptiger.
Sources familiar with SoftBank’s real estate investment strategy say SoftBank has decided that Opendoor and Compass are the leading representatives of the two dominant residential brokerage models of the future: the iBuyer (Opendoor), which caters best to the mid-market range, buying and selling homes at price points between $100,000 and $400,000, and the tech-powered, full-commission brokerage (Compass), which is often the ideal fit for pricier transactions exceeding $400,000, those sources said.
Notably, SoftBank does not believe brokerages that base their value proposition on charging lower rates than market incumbents (such as discount brokerages Purplebricks and Trelora) are likely to gain meaningful market share in the U.S. anytime soon, according to those sources.
Synergies between SoftBank’s portfolio companies invite the question of whether SoftBank might broker partnerships or even mergers between them.
The sources familiar with SoftBank’s thinking noted that people who buy homes often want mortgages, home repair loans and home insurance and that SoftBank has invested in companies that provide those — SoFi and Lemonade.
Meanwhile, Fortress Investment Group, the asset manager acquired by SoftBank Group Corp for $3.3 billion, has provided a considerable share of the credit that Opendoor has used to buy homes.
Jeffrey Housenhold, the managing partner at SoftBank Investment Advisors and the a Opendoor board member, said in a statement that the “digital transformation” of real estate is “only beginning.”
“We believe that [Opendoor CEO] Eric [Wu] and his team are redefining home buying and selling by rethinking the status quo and providing a faster and more seamless experience for the customer,” he added.
Housenhold has told Wired magazine that SoftBank is evaluating real estate-related investment opportunities in everything from 3-D scanning, mortgages and title services to blockchain, home services and smart homes.
Alexander Paci, a real estate analyst at CB Insights, told Wired in April that SoftBank is taking “an ecosystem approach” to investing in the real estate industry that would be comparable to its strategy in the ride-hailing business.
SoftBank has poured cash in Didi Chuxing in China, Ola in India, Grab in Singapore, 99 in Brazil and Uber in the U.S. Some of these ride-hailing firms have forged partnerships, such as Didi’s acquisition of 99 and Uber’s China operations, Wired reported.
No matter what moves SoftBank makes next in real estate, they’re likely to reverberate across the industry. The mammoth investor has the muscle to vault upstarts far ahead of their competitors.