At Inman CEO Connect on Tuesday, First American Chief Innovation Officer Paul Hurst broke down what’s going on with the stock market and why SPAC mergers are so popular.

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The list of real estate technology companies that have gone public over the last few years is long: Opendoor, Offerpad, Compass, Rocket, and that’s just to name a few. On top of that, the market is crowded with real estate companies such as Zillow, Redfin and eXp Realty that were already trading shares.

When 2021 began, the future for these companies’ shares looked bright and by February many were hitting all-time highs. And then the growth largely stopped.

Though there are exceptions, tech-infused real estate companies have struggled in the stock market over the last year, prompting some head scratching among those who have noticed that the housing market itself has been on fire.

So what’s going on?

The answer to that question was part of the focus of a panel at Inman CEO Connect Tuesday titled What Does The Revaluing Of The Proptech World Mean For Big Companies? The session included a presentation from Paul Hurst, chief innovation officer of financial services company First American, who said that there are two big reasons property technology stocks have not only fallen, but also underperformed compared to shares from companies in the broader technology sector.

First, Hurst said, investors have looked at rising interest rates and concluded that 2020 and 2021 were the boom years in real estate — but that 2022 won’t see the same kind of growth.

Hurst then went on to say that the second factor may be that a lot of real estate tech firms went public, many of them via mergers with special acquisition companies (SPACs), but that the valuations of those deals were based on very forward-looking revenue projections. Now, investors are taking a second look at some of those valuations and deals.

“There’s been a huge compression in real estate tech stock,” he said.

Hurst also noted that SPAC deals may have become popular recently because “private capital is expensive.” Companies that have pursued SPAC deals include iBuyers Opendoor and Offerpad, even as additional SPACs are waiting in the wings and looking for future potential mergers.

Such firms, which are also called blank-check companies, allow would-be public corporations to begin trading shares without jumping through the usual hoops that come with a conventional initial public offering (IPO). And for that reason they’ve become increasingly popular both in real estate and in the broader market.

But Hurst explained that their popularity may also come down to the fact that “going public in a SPAC is cheaper than taking private capital.”

Email Jim Dalrymple II

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