Family Office Real Estate

Real estate, debt-fuelled investors, and the perfect way for family offices to get richer

The $35 trillion US housing market – backed by owner-occupiers and debt-fuelled investors – provides family offices with the perfect way to get rich in a buoyant market. 

True to type, they are buying bricks and mortar as US house sales recover from the pandemic. In a new twist, tech-driven real estate advisers are also raising record sums – far more than on 9 February, when Family Capital last looked at the sector. 

The latest data shows purchases of luxury homes rising 41% year-on-year in the quarter to March, according to Redfin. High-end sales going up 26% and mid-tier 14.8%.

Lenders say new technology offers stronger risk controls than the banks, whose subprime lending produced the banking crisis of 2008

Prices at the luxury end (around a median of $975,000) rose 14.7% over the same periods. The high-end ($440,000) rose 14.3 % and mid-tier ($280,000) 12.4%.  

Rent trends vary. But the Zumper National Rent Report puts the annual rise at 6% for rents on two-bedroom property. Multi-family residential property is easily the top investment option among family offices, according to a survey by Evergreen Property Partners, reported by Family Capital on 3 June. 

Evergreen’s DJ Van Keuren does not believe housing is in a bubble: “Family offices are wise to be chasing rental multifamily as the current conditions are still there from pre-COVID such as cost of living, quality of life and jobs.” Not every type of commercial real estate has offered such a good experience.

But fintech is leading to unprecedented opportunities to disrupt the sector, building on the experiences of new platforms like Zillow and Opendoor and lenders like Rocket Mortgage and United Wholesale Mortgage.

Lenders say new technology offers stronger risk controls than the banks, whose subprime lending produced the banking crisis of 2008. 

We shall see. But there is no doubt the banks are still hobbled by post-crisis regulations, making it easy for rivals to enter the market. 

Fund raisings achieved a record of $6.2 billion in the first half of 2021, according to Pitchbook, quoting fintech pioneer Frank Rotman, founder of QED Investors: “There are so many interesting trends going on in the residential space that it’s hard not to pay attention.”  

The sheer size of the residential market can provide enormous leverage to new entrants. For example, Better.com founded by Vishal Garg in 2016, is already negotiating a $7.7 billion merger with a SPAC called Aurora Acquisition chaired by Thor Björgólfsson, Iceland’s wealthiest investor.  Better originated mortgages of $24 billion last year and $14 billion in the first quarter of 2021. 

The new breed of providers often claim to democratize mortgage in the same way Robinhood seeks to serve retail investors.

The larger newcomers who have raised money since February are listed below, roughly in line with their maturity.

UK-based LendInvest runs a mortgage platform for intermediaries and raised $500 from JP Morgan this year to fund its mortgage book. Its equity backers include Atomico Tiger Infrastructure Partners, co-sponsored by hedge fund veteran Julian Robertson; and GP Bullhound, run by veteran investor Manish Madhvani. 

Generation Home has just raised money from Mithril Capital, co-founded by Peter Thiel, Monzo co-founder Tom Blomfield and Joe Cross, former head of growth at Wise. 

Another backer is Firstminute, whose general partner Brent Hoberman ran Lastminute.com in the late 1990s internet bubble and later sold it. 

Generation has raised a £300 million debt facility from NatWest and wants to help first-time buyers to get on the property ladder as painlessly as possible. 

Mate Pencz’s Loft, based in Brazil, is backed by the likes of Baillie Gifford, D1 Capital Partners, Vulcan Capital, Tiger Global and a string of repeat entrepreneurs. It wants to simplify residential transactions in Latin America through a platform.

Homeward is based in Austin, Texas, fast becoming a new home for the tech sector. It finances house buyers so they can make all-cash offers for property before they sell their existing premises. It has just raised $136 million from Jim Breyer, Norwest Venture Partners and Javelin Venture run by Jed Katz.

Mortgage platform Blend has raised $300 million from Tiger Global and Coatue, both familiar faces in the VC world. Its technology has facilitated $1.4 trillion in loans during 2020, from customers such as Wells Fargo, South State Bank and Evergreen Home Loans.

Thumbtack offers clients a way to manage their household finances. It has just raised $275 million from investors led by Qatar Investment Authority, including Tiger Global, Sequoia Capital and Blackstone.

Casavo, founded by Giorgio Tinacci, wants to simplify European house transactions by handling transactions on a platform. It has raised 200 million euros from investors led by the Agnelli family’s Exor Seeds, Greenoaks Capital, 360 Capital and Picus Capital, supplemented by a loan facility from Goldman Sachs.

A newer kid on the block is Tomo which has raised $70 million in a seeding round led by Ribbit Capital.  Other investors included Zigg Capital, a VC specialist co-led by David Eisenberg and DST Global, founded by Yuri Milner.  Co-founded by former executives who used to work for Zillow, Tomo wants to help first-time buyers compete for property by offering mortgage approvals within hours and guaranteeing closing dates.

Tech-driven Lower has just raised $100 million backed by Accel.  Run by former mortgage banker Dan Snyder it says it sets out to offer borrowers lower rates, lower payments and better recommendations.

Accept.inc is led by Adam Pollack and has raised $90 million through its funding round through VC investors like Signalfire, DN Capital and Y Combinator. It calls itself an ‘iLender’ seeking to use risk assessment to empower buyers who qualify for a mortgage to make all-cash offers.

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