Family Office Real Estate

Looking for the next property hotspot – family offices are backing tech-driven real estate platforms

Family offices are backing a second generation of tech-driven real estate platforms following a surge in house prices and mortgage refinancings across the US.

Companies backed by Chamath Palihapitiya, Adam Neumann and Louis Bacon are among those investing in ventures keen to disrupt a booming market.

Neumann has reinvented himself in the residential market through his family office, 166 2nd…

The $27 trillion residential sector is buoyant after getting a sugar rush from cuts in mortgage rates due to Covid-19. Mike Feroli, chief US economist at JP Morgan, says housing will lead economic growth in 2021. Price rises of 65% over a decade will continue. A bidding war has developed for half the property on the market, say agents Redfin.

Technology is making it easier to find, and manage, buyers, or tenants who do not like dealing with estate agents and banks. Through machine learning it can match buyers, sellers, borrowers and lenders, leading to a blend of client proposals.

But family offices should not be parted with their capital too easily. Today’s newcomers need to compete with a first generation of determined category killers. And estate agents and banks remain well-entrenched. 

Platforms continually use their input and new ventures such as CoStar’s Homespan(house sales) and Propertymatch (tenant management) are happy to sell them data services.

By popular acclaim, the US platform to beat is Zillow started by Richard Barton and Lloyd Frink, co-founders of Microsoft spin-off Expedia, plus Spencer Rascoff. 

By developing partnerships with the media, Zillow has data on 110 million homes in the US. It tracks valuation estimates, mortgage services, credit checks and rental services. It launched Zillow Home Loans in 2019.  It offers:  “The full lifecycle of owning and living in a home.”

Its market value has more than tripled to $37 billion-plus in a year, and the firm has bought a rival, Trulia, for $2.5 billion. It compares itself to category killers Amazon and Uber, and Goldman Sachs says its sites attract two-thirds of real estate site views, enhancing prospects for advertising income from traditional providers. 

Its nearest competitor is Move, a 1999 dot.com survivor, bought by News Corporation for $950 million in September 2014.  Move’s best-known brand is Realtor, which has used NewsCorp syndication to develop its platform with the help of AI.   

A dark horse, Redfin, was originally backed by Vulcan, a family office set up the late Paul Allen, co-founder of Microsoft, and now owned by his sister, Jody Allen. It offers its clients commission savings on purchases and sales, rather than getting advertising income. Along with its platform, it runs a well-drilled team of in-house agents. Like Zillow, its market value has tripled in a year to $9 billion. 

Former Facebook executive Chamath Palihapitiya, a backer to Sir Richard Branson’s Virgin Galactic, has become a cheerleader for the realtor revolution after merging a listed SPAC with Opendoor Technologies.

Opendoor makes sellers an offer for their home through an algorithm using key data, supplemented by a video walkthrough. It goes on to refurbish it for resale. 

The company, backed by Softbank, charges 6% to 9% for the service, although this means vendors can avoid estate agents, who charge nearly as much, plus exposure to an open market which leads to a risk of Covid-19 exposure when buyers visit the house.

Palihapitiya has invested $169 million with an associate. He is convinced Opendoor has the same growth prospects as bitcoin in 2012 and Tesla in 2016, despite ongoing losses. 

The SPAC transaction valued Opendoor at $13.5 billion and the company is now worth $14.5 billion. 

Redfin partnered with Opendoor in 2020 but Zillow has started a rival service. Another, called Offerpad, secured funding from Citibank in 2019.

Adam Neumann was a co-founder of office space provider WeWork, which over-reached but now hopes to achieve a SPAC listing under new management.

Neumann has reinvented himself in the residential market through his family office, 166 2nd, which has invested in Alfred, a provider of tech-driven tenant management services and Hometalk, a community DIY site. 

His family office has now provided funding to Valon Mortgage, whose chief executive Andrew Wong was a principal at Soros Fund Management. Other backers are Andreessen Horowitz, Jefferies Financial Group and New Residential, an affiliate of Fortress Investment Group.

Valon, recently authorised by Fannie Mae, is seeking to create efficiencies in mortgage provision, cutting service costs by half. It plans to be servicing $10 billion this year.

Such savings would be attractive, but much depends on the quality of its software. Valon is also competing head-on with dominant tech-driven mortgage provider Black Knight, once controlled by Fidelity.

There is no shortage of equity release providers. But Hometap has just raised $100 million from investors, including insurance companies, Iconiq, reportedly an adviser to Facebook’s Mark Zuckerberg, plus G20 Ventures, representing 20 entrepreneurs around Boston.  Making a virtue out of simplicity, Hometap is offering clients a capital sum, equivalent to 20% of their home for ten years. 

Divvy Homes is planning to disrupt the rental market, whose deficiencies have been exploited by landlords for many years. 

Through a rent to buy approach, straying into fractional ownership, Divvy buys a house earmarked by a client in need of a new home. 

The tenant deposits 1% to 2% of its value, then rents the property for three years, with 25% of the monthly payment going towards a future down payment. He, or she, can buy the property at any point during the lease, with Divvy helping to find a mortgage. If they decide not to buy the home, they can cash out their savings, minus a fee, and continue to rent. 

The acid test will come this year, when a range of three-year leases fall due. Some will be glad to get on the housing ladder. But Divvy will also need to deal with criticism relating to costs, maintenance and rents which are rife in the let residential sector. 

Its clients include people with poor credit ratings, millennials and those with a temporary cash-flow problem. 

Its earliest backer was Max Levchin, a co-founder of payments group PayPal. Ray Tonsig’s Caffeinated Capital is on board along with the GIC sovereign wealth fund of Singapore and Andreessen Horowitz.

Family offices who figured in the latest $110 million fundraising led by Tiger Global Management included Moore Capital, led by former hedge fund manager Louis Bacon and Jaws Venture, led by hotelier Barry Sternlicht.

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