D. Alexander marks one of the first publicized bids to “institutionalize” yet another segment of the market.
From the people who brought you dotloop, single-family rental pioneer Waypoint Homes, Ben Kinney Companies and other real estate ventures comes a new hospitality brand: D. Alexander.
The venture, akin to a “short-term rental fund,” seeks to pool capital to buy single-family homes and rent them out to travelers under a slick brand.
The venture appears to mark another bid by tech investors and private equity to institutionalize real estate investment strategies once dominated by smaller entrepreneurs.
“Through institutional ownership … and technology and a brand wrapped around it, we believe we can create essentially a new asset class and new segment of lodging altogether,” said D. Alexander co-founder Alex Allison, a founding member of Zillow Group-owned transaction platform dotloop.
The trend goes back at least until the 1980s, when big investors gulped down apartments after a market crash bankrupted many banks and smaller investors. In the late 2000s after the subprime crisis, private-equity giants like Blackstone’s Invitation Homes churned foreclosures into long-term single family rentals. More recently, iBuyers such as Opendoor and Zillow Offers are putting home-flipping on steroids (with less of a focus on fixing up homes before reselling them).
And now D. Alexander is trying to funnel institutional capital into single-family rentals. It plans to own 50 to 100 homes within a year, with each generally worth between $500,000 to $1 million. Allison declined to share more details about the fund, including whether it owned any property yet. But he did note that the firm has commitments from strategic investors with strong industry credentials.
The startup’s value proposition to consumers is a standardized short-term rental experience with a luxury feel. The pitch to institutional investors is yields that beat those of long-term rentals by “multiple magnitudes,” said Dustin Abney, the other co-founder of D. Alexander. He was also part of dotloop’s original team.
D. Alexander plans to deliver on this value proposition by using: dynamic pricing to maximize rental revenue; housekeeping and uniform home designs; mobile phone-entry for guests; automatic listing syndication across short-term rental sites including Airbnb, HomeAway and Vrbo; and automatic guest review collection.
When it comes to short-term rentals, “if you don’t own the home, it’s challenging to control the experience and deliver hotel-like amenities,” Allison said in a statement.
So D. Alexander will own the homes. The same principle helps explain the transformative potential of iBuyers. Opendoor and Zillow Offers have unprecedented flexibility to innovate around the real estate transaction because they actually control the real estate.
The market for D. Alexander is big: “alternative accommodations” are expected to generate revenue of about $27 billion in 2019, according to Skift Research. That’s a bit under half of some estimates of total annual real estate commission revenue.
D. Alexander’s A list of strategic investors offers ample room for synergies.
Not only does the company have strong connections to dotloop and Zillow Group. It’s received backing from Colin Wiel and Doug Brien. They co-founded Waypoint Homes, a single-family rental investor that eventually found its way into the hands of Invitation Homes.
Tossing D. Alexander a rope into the real estate brokerage industry is another one of its investors, Ben Kinney Companies. Founded by real estate entrepreneur Ben Kinney, it owns brokerages and business tools for real estate agents.
Kinney, who said he himself has acquired many properties for short-term and long-term rental purposes, told Inman he believes his firm can help D. Alexander “source great properties in some of the top real estate markets.”
A last notable investor in D. Alexander is Scott Shatfold, founder of AirDNA. It’s a data analytics firm that helps property managers, hoteliers and investors “optimize their listings, find lucrative properties, and outperform the competition.”
Shatfold told Inman in 2016 that hedge funds and other big investors were looking for a way to cash in on single-family rentals. But they wanted to enter the space quietly given government crackdowns on short-term rentals.
Allison said D. Alexander is focused on non-urban tourist destinations in the Northeast and Southeast with friendly regulations.
D. Alexander casts distributed ownership among many, what he calls “fragmentation” of the market, as a problem. Consolidated ownership in fewer, more adept hands is preferable for pleasing consumers, he says.
This is a logic that is increasingly ordering the American economy. Why own a car or scooter when Uber, or someone else, can own it for you, the thinking seems to go?
But will there be any downsides to increased corporate ownership of the economy’s most valuable asset class?
Barry Zigas, director of housing for the Consumer Federation of America, has previously issued the following warning about Wall Street’s new housing experiments:
“Every step increases the commodification of these transactions in a way that potentially pits investors with the ability to operate and manage sophisticated trading strategies against everyday homebuyers and homeowners.”
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