It was a big year.
With 2019 winding down, it’s clear that the year was dominated by news stories that were long in the making. There was the pocket listing controversy. The explosive growth of iBuyers. And the fundraising. Lots and lots and lots of fundraising.
It’d be easy to look at these stories as interesting, but isolated, headlines. The pocket listing debate after all isn’t explicitly related to a new fund that focuses on construction technology.
But on a deeper level there is one recurring thread that keeps coming up again and again: venture capital. Sometimes that’s because venture capital directly backed some new idea, as is the case with iBuying. In other instances, it’s simply because big money is influencing the industry to such an extent that everything is taking place in a venture-built ecosystem.
Either way though, the flow of investor money into real estate technology, startups, brokerages and more is arguably the most defining trend of the last year and decade.
“The biggest thing that I’ve seen that has changed is all of the money that has poured into the industry,” Rebecca Jensen, president and CEO of Chicagoland multiple listing service MRED, recently told Inman about her more than two decades of real estate experience. “It is unprecedented.”
So without further ado, here are some of the biggest trends of the last year and last decade, and how they illustrate the growing influence of venture capital.
A decade ago, no one had heard of iBuying. Then, in 2014, Opendoor burst onto the scene and changed everything. Indeed, given that the entire sector has emerged within the last few years, there’s little question that this was the decade of the iBuyer.
This year didn’t see the launch of a single massive new iBuyer on the scale of Opendoor, but it did see stunning growth of the larger trend. Opendoor itself has continued a strategy of aggressive expansion, most recently entering Salt Lake City. It now operates in 11 states and has promised to push into additional markets soon.
Other players are hot on Opendoor’s tail. Zillow, for example, expanded its Offers program to California’s Los Angeles and Orange counties just this month and now makes cash offers in 11 total markets. Redfin’s version of iBuying, dubbed RedfinNow, recently launched in Las Vegas and operates in 10 markets.
The list could go on. What’s wilder to reflect on, however, is the fact that a decade ago there were literally zero stories about any of these things.
It should also be obvious how this trend exemplifies — perhaps better than any other — the way that venture capital has changed the industry. Not only has Opendoor, for example, raked in hundreds of millions this year alone, but it has also raised billions in both debt and equity and achieved a valuation of $3.8 billion.
Offerpad, Opendoor’s primary competitor among dedicated iBuyers, also closed a funding round this year and since its founding in 2015 has raised nearly $1 billion.
As Zach Aarons, a co-founder and principal at venture fund MetaProp, recently explained, there is a direct relationship between all this cash and the ability of the iBuyers to exist.
“IBuying is something that can’t function without massive amounts of capital,” Aarons told Inman. “But it does make people’s lives better. It does allow people to get liquidity out of their homes. It does provide a valuable service for a lot of consumers of real estate.”
The result is a fairly linear trajectory from the massive flood of venture capital going to companies like Opendoor and the business strategies of nearly every significant company in real estate. Keller Williams and Realogy, for example, may not be getting Softbank money, but they’re having to react to that cash nonetheless.
Softbank and WeWork
WeWork imploded in 2019. The shared office space company was founded in 2010 and saw significant growth thanks to backing from Japanese mega-fund Softbank. At one point, the firm was valued at as high as $47 billion.
This fall, however, the company experienced a failed attempt to go public, lost its CEO, reported massive losses and saw Softbank step in to take over its leadership. By the time the dust had settled, WeWork’s valuation had plummeted to a dismal-by-comparison $8 billion or less by late October (it may be even lower now).
The WeWork saga is explicitly a real estate story because the company sublets office space.
But more fundamentally, it’s also a story about how venture capital inflects the intersection of real estate and technology — and what happens when it fails.
During a conversation with Inman, Ryan Gorman — who is currently the CEO of Realogy’s NRT subsidiary but will soon assume the top spot at a newly unified Coldwell Banker — pointed directly to WeWork and said that the real estate industry has recently been defined by “pseudo technology companies” that failed to deliver on their promises.
“The venture capital market in and of itself appears to be correcting more rapidly, candidly, than I anticipated,” Gorman added. “Softbank being the best example. The reckoning that came from WeWork’s valuation dropping is I think a significant wake up call for those who not only backed WeWork but also those who backed Softbank’s Vision Fund.”
If Gorman is right, that reckoning could lead to more cautious venture capital investments down the road. But for now, the current catastrophe at WeWork has also raised questions about other major Softbank-backed startups, perhaps most notably Compass.
Compass made a number of headlines after WeWork’s implosion thanks to its similarly rapid growth, huge valuation and lack of profitability. And while Compass has so far avoided the fate of WeWork, the debate about companies backed by big funds has dominated 2019 and shows how inextricably intertwined real estate has become with venture capital. Whatever happens, then, Softbank inevitably will be a big part of the chapter on this period when it goes into the history books.
For his part, Gorman described Compass as an “apt” comparison to WeWork, though he added that there are a number of other real estate companies built on a foundation of venture capital and the promise of technology. And while he didn’t name them specifically or speculate about their individual fates, he did argue that “long term, unsustainable business models fail.”
Pocket listings and more
Any 2019 wrap up would be lacking if it failed to mention the pocket listing drama that dominated headlines this fall.
The story began on Oct. 1 when NAR floated the idea of banning pocket and off-market listings. By the time NAR finally approved the ban, Bright MLS had jumped into the fray by adopting its own similar policy, multiple large firms had come out against the rule and many other power players had lined up on one side or another.
The pocket listing issue is a big important story that could potentially reverberate through many corners of the industry. And it’s obviously not connected to big money in the same way that, say, iBuying is.
But it’s still, as they say, all about the Benjamins.
It’s no surprise, for example, that Compass found itself leading the resistance to pocket listing bans. The brokerage has been among the pioneers of “coming soon” marketing, and observers have argued that the firm needs listings that are exclusive to its site — or, pocket listings.
That’s not to say the pocket listing debate is a direct response to Compass. Far from it. But newer players like the upstart brokerage, along with their disruptive practices and big war chests, are an essential part of the conversation about pocket listings and helped get the industry to where it is today.
Many other big stories this year — the bombshell commission lawsuit, a lawsuit between Realogy and Compass, etc. — can be seen in a similar light. In other words, even if they’re not a direct response to venture capital they are clearly operating in a world that venture capital built.
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