[Editor’s Note: We publish a Weekly Transmission for GEM members, a series of long-form articles covering the spectrum from shipping container co-living spaces to the battle for listing acquisition in the first iBuyer world war. Below, we look forward to 2022 with a range of predictions to answer the question, “What’s next in proptech?” Two trends covered – affordable housing and blockchain/crypto/meta/web3 – are topics we will be exploring deeper with new GEM workgroups in 2022 and beyond. Many links included are to members-only articles, so won’t be accessible without a membership already set up.]
Last year’s central prediction theme was de-carbonization. Fresh off watching “Don’t Look Up,” there’s no other option than to focus on climate change for the second year running. It’s an imperative: We must act now. Not a year from now. Not ten years from now. Right now. As I said a year ago, “No matter where you stand in the debate about the causes of climate change, it’s coming.”
And count on the fact that proptech will not escape these changes.
While mega fundings will still happen (following on the heels of Blend, Divvy, Plume, Service Titan, Entrata, Pacaso, and others in 2021) it’s simply not enough to sprinkle “climate tech” deals into the mix. We need to overlay climate on top of EVERY deal. Investors need conviction to not invest in companies contributing to the world’s carbon footprint.
A couple of the most successful entrepreneurs of all time are beyond bullish. At the Middle East Green Initiative Summit in Riyadh, Saudi Arabia, Larry Fink, the CEO and Chairman of Blackrock stated: “It is my belief that the next 1,000 unicorns…won’t be a search engine, won’t be a media company, they’ll be businesses developing green hydrogen, green agriculture, green steel and green cement.” Meanwhile, Bill Gates mentioned in an interview at the virtual SOSV Climate Tech Summit that future returns in climate investing will be comparable to what the biggest tech companies have produced. “There will be eight Teslas [or] 10 Teslas. And only one of them is well known today.” Count on multiple “Microsoft, Google, [and] Amazon-type” companies, too.
Michael Beckerman, CEO of CREtech Climate, says:
The climate crisis represents the single greatest threat the real estate industry has ever faced. It’s also our industry’s most potent opportunity for both impact and financial gain. With real estate contributing a staggering 40% of all greenhouse gas emissions (embodied and operating carbon emissions), the world is demanding action. Government is beginning to aggressively legislate carbon reductions from the Built World. Tenants are demanding healthy and safe environments for their employees. And employees are prioritizing ESG in their career choices more than anytime in history. Meanwhile, lenders, investors, and insurers are going to make it very difficult and costly for real estate companies to operate without transparency into their carbon emissions. Then factor in the tremendous financial exposure for real estate companies in climate risk zones, and it’s clear no other industry has so much to lose as a result of the climate crises in the next decade as real estate.
While it will cost somewhere in the neighborhood of $15 trillion-$20 trillion to decarbonize the Built World, many in the industry are responding to this crises with the urgency it requires. They are leading the way in new NetZero developments, making current properties much more energy efficient, launching large climate tech funds focused on real estate and also helping to incubate many exciting and promising technology solutions. Companies such as Boston Properties, Oxford Properties, Hudson Pacific, Jamestown, JLL, CBRE, Savills, FifthWall, AO Proptech, 2150.VC and many others are showing that there are indeed strategies and solutions that can make a real difference in getting to NetZero. Unfortunately, without a massive global commitment from the majority of the real estate sector, the largest industry on Earth, we simply won’t get there in time to mitigate the worst of the coming climate crises.
Countless of the world’s leading voices agree that the time to act is now. Luckily for those willing to lead the new wave of climate tech, this unique moment will jumpstart some of our industry’s most financially lucrative opportunities.
Below is a range of trends of interest and predictions for 2022, sourced from GEM members.
WEALTH MANAGEMENT TAKES CENTER STAGE
Drew Meyers // Founder, Geek Estate
I stand firm in my belief that agents and brokerages who don’t make the jump to wealth managers will be out of the business in five or 10 years. You may also recall that Ryan Coon called for the continued convergence of real estate and personal finance in our 2020 predictions.
2022 will be the year that the deep intertwining of real estate, finance, and wealth management becomes utterly apparent. I’ll admit that Truebill and its 2.5 million members were a foreign company to me prior to Rocket Cos’ $1.275 billion investment in the personal finance app. But the sheer size of investment in the trend is a staggering bet by a $30 billion dollar mortgage giant. They aren’t dummies, nor are they messing around. The next step is layering an Awning-esque investment brokerage on top of Truebill. That, and more, is coming. The waters are getting increasingly murky for real estate agents who aspire to capitalize on consumers’ desire for investment advice: They will need to understand the entire landscape to thrive.
HOUSING AFFORDABILITY
Matt Hoffman // Partner, HousingTech Ventures
“Meet the new boss, same as the old boss.” As The Who so aptly sang in Won’t Get Fooled Again. The year ahead is unlikely to look too different from 2021 as we continue to stagger from the effects of Covid-19, coupled with the looming uncertainty of the 2022 elections in November and the ongoing chorus of complaints about housing unaffordability by those: doing nothing about it, continuing to do the same things that are enabling it, or actively opposing innovation and change in order to protect their own little patch of dirt.
Having said that, here are some things that I expect to see in 2022:
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Consolidation: A bunch of housingtech startups are going on their third or fourth years in need of cash and market share, and all of them are seeking the same customer. As gas tanks empty, expect to see a slew of mergers between startups with similar and complementary solutions. The cream of the crop will get picked up by the largest incumbents, such as RealPage, CoStar, and Zillow.
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Agitation: We are going to start to see pushback on the single family rental market as jurisdictions enact “no-rent” covenants on detached single family homes (not unlike in some condo regimes).
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Identification: Bad actors in the multifamily market are going to be exposed at a greater rate as municipalities adopt technologies that enable more transparency with regard to violations and enforcement, and empower renters to document and pursue their rights.
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Re-imagination: Work from home has given the suburbs new life and threatened some cities (e.g. DC lost 2.9% of its population in 2021). Planners, politicians, and business groups are more actively engaged than ever in figuring out what a different future looks like, and that means opportunity for people with innovative housing solutions.
- Digitization: we will lay the groundwork in 2022 for a blockchain based real estate economy that will be the SOP in 2025, from title, to finance, to closings, to tax, to brokerage, to fractionalized ownership.
Regardless of how 2022 plays out, expect a growing group of people dedicated to making the housing market a more transparent, equitable, profitable, and sustainable place to do business…and the GEM will play a role in bringing them to the table.
RACING TOWARD BUYSIDE EXTINCTION
Jim Klinge // Broker, Compass
Eliminating buyer-agents is the easy solution to reach buyside extinction, and it’s well underway. Redfin has dumbed-down buyer representation by paying their newest agents $50 to open the door for buyers. These new agents literally have no experience or anything to offer the buyers as far as advice, and are directed to the professional agent back at the office for help—oh, great, to someone who has never seen the home. The resulting trend is to expect nothing from buyer-agents, and now the big listing teams treat outside agents like the enemy. Buyer-side commissions are dwindling, there is no transparency about making offers, and buyer-agents are treated with disdain. By now, home buyers don’t think they need help—heck, they can find all the homes for sale online—what else is there? When they find one they like, they can reach out directly to the listing team. Soon, there will be no need for the MLS, and the search portals will be optional. But the listing agent can, and will, charge 4% to 5% to transact. It will be called compression, but it is a result of the industry ignoring the value of buyer-agents for decades that they will become extinct.
RISE OF THE LIVE ANYWHERE MOVEMENT
Jimmy Woodard // Co-founder, Cloud Castles
Look, we all know the WFH phenomenon isn’t going away. It’s impossible to put the cat back in the bag regarding our collective and newfound lifestyle flexibility. Nomadism is here to stay (a history lesson for those keen to dive in).
To capitalize, Airbnb will launch two initiatives:
- “Live from anywhere,” targeting the medium-term rental market
- “Work from anywhere,” offering office spaces, houses, and ADUs as workspaces, which will come with a merger with WeWork (or a smaller competitor such as DeskPass, FlexDesk, or Codi)
GO FOR BROKE ON SECOND HOMES
Drew Meyers // Founder, Geek Estate
At prices upwards of $500,000 and even north of $1 million, the audience for shares of Pacaso homes is limited. But, once share prices drop close to $100,000, or even less, shares in second homes will fly off the shelves. The largest opportunity is not to target those willing to pay a million dollars for a slice of a $5 million mansion, but rather offering fractional ownership on a $200-300K ski cabin.
Pacaso already had a crazy 2021, leaping from a $75 million Series B straight into a $125 million Series C in a matter of months. Expect more funding, and the driving down of share prices. And, don’t worry, if you can’t afford U.S. prices: A few international players have exported the model to Central America and beyond (Ancana/Kocomo in Mexico).
Remember, if the idea of a Pacaso-style proptech house shared among founders, execs, and VCs interests you, I’d love to hear from you.
COSTAR LAUNCHES A MLS IN THE METAVERSE
Robert Hahn // Managing Partner, 7DS Associates
CoStar has never operated an MLS. It operates the closest thing to an MLS in the commercial real estate world, but in residential real estate, with all of the complications and different cultural norms from commercial, CoStar is a total novice. Before it can step in as a white knight, CoStar probably should know a thing or two about operating an MLS.
The Metaverse offers them the perfect opportunity to do so.
If digital land and digital buildings start trading, buyers and sellers and landlords and tenants will need a single place that has all of the inventory with some kind of verification of the property. I expect that CoStar will be a player in digital CRE in the Metaverse; they have the expertise, the credibility, and the opportunity to become that. It is a trivial matter, then, to extend that system to digital “residential” real estate as well. I’d guess that personal homes won’t be a huge thing in the Metaverse because, well, people don’t actually live in the Metaverse. But having been a longtime MMORPG fan, who owned a virtual house, furnished it with my trophies, had parties and Guild meetings there and so on… I’m fairly certain that at least some people of the Metaverse will want to own their own virtual “homes.”
It’s not a perfect match for the MLS in the real physical world, just like the Metaverse is not the real physical world. But it’s a close enough representation, just like the Metaverse is, and it will provide much needed practice for the team at CoStar to be ready for when the rules of the physical world changes. (Read longer version here).
BLOCKCHAIN ACTUALLY BECOMES USEFUL
Teresa Grobecker // CEO, Real Estate Consortia
Appraisals have become increasingly expensive and time-consuming as fewer people become appraisers. Appraisals are disproportionately more expensive in inner cities and rural areas, which disproportionately impacts lower-income buyers and minorities. In October 2021, the FHFA announced that desktop appraisals will become the norm, not just a bandaid during the pandemic. Going forward, realtors will still play an instrumental role by collecting the appraisal information through a Facetime-like app with a licensed appraiser. The sanitized report will remove racial bias from appraisals and the process will offer affordability and a quicker turn. Appraisal inspections—along with AVMs, inspection data, and land reports—will all be packaged and uploaded to the blockchain ledger as data NFTs pre-listing.
And finally, seller title policies will be logged on the blockchain and used as title-starters (the seed of a title report). Blockchain can also potentially reduce search fees, which are hard costs incurred by title companies. Reducing these hard costs could potentially pass savings on to the customer. Title insurance (finally) becomes more affordable.
As blockchain finally grows up and provides trackable monetary utility in the real estate transaction, real estate transactions will happen faster—DOM will drop by half—and transaction fees will undergo a pricing transformation.
METEORITE HITS THE SPAC MOVEMENT
Drew Meyers // Founder, Geek Estate
Vacasa, Sonder, and Inspirato are all embracing SPAC partnerships. Southport Acquisition Corp and its Ellie Mae veterans are seeking $234.6 million and a mortgage and real estate partner. And, amidst the recent lay-offs mess and Vishal Garg’s resulting “break,” the Better merger with Aurora Acquisition Corp is likely to proceed. All that said, the proptech SPAC craze will officially evaporate/crater in the year ahead.
The public markets simply don’t support the current valuations of companies being taken public. View is down since hitting the market, as are Hippo, WeWork, and Latch. Let’s be honest: How much proptech can public markets absorb? There are only so many transformative companies able to scale in the wake of skyrocketing customer acquisition costs in this age of endless noise.
CONSOLIDATION + M&A
Matt Knight // Founder, Proptech Angel Group
As great as the SPAC-a-palooza was in 2021, don’t expect that to continue in ‘22 (agreeing with Drew). It wouldn’t surprise me to see the same quantity of PropTech exits in 2022 as ‘21 but via a different avenue. One of our most important IPOs will be among them, and there are multiple interesting late-stage PropTech companies that will be highly-compelling acquisition targets.
Much like VTS did with Rise and Lane, expect to see more consolidation in the crowded niches. With all of these newly-public startups awash in cheaper capital, expect them to start buying more than they build relative to their feature sets.
And I wouldn’t confine that simply to the younger startups. With RealPage (Thoma Bravo) and Entrata (Silver Lake) now PE-owned, look for the PE playbook – sell/close non-core or low-margin business units and buy high-margin or new-market businesses.
CONTINUED EFFICIENCY GAINS PRICING RESIDENTIAL ASSETS
David Bluhm // Co-founder, Plunk
The world’s largest asset class both demands and deserves better than Home Price Index Reports based on a data-limited approach, published quarterly and reflecting information that is more than 60 days old.
As Wall Street moves more intentionally into residential real estate—now investing in housing at a massive scale—there will be an increasing push to develop the same analytical and forecasting tools that enable confident and frictionless investing in most all other asset classes. This will require both access to real-time, ground-truth pricing for an individual home as well as real-time tracking and monitoring of overall market and segment performance.
THE BIG GO BIG IN M&A
Greg Robertson // General Manager of MLS, Lone Wolf Technologies
The past few years have been all about PE firms gobbling up smaller independent software companies, W+R Studios being one of them. In 2022, the consolidation will continue but it will be the bigger companies merging with other larger companies to become even bigger entities.
ZILLOW-AIRBNB DO THE UNTHINKABLE
Drew Meyers // Founder, Geek Estate
Rich Barton is no stranger to big bets, having already acquired Zillow’s largest competitor and the number two residential portal back in 2014. This time, he’ll see that joining forces with Airbnb offers the chance to achieve complete domination over demand for short-term, midrange, and long-term accommodations, as well as deliver near unlimited real estate porn for voyeurs. There is an immense opportunity to better serve home sellers with a marketplace that offers what they genuinely want:
Any and all options to monetize their most valuable asset. That means everything from a Zestimate to a CMA to multiple cash offers from competing investors. Beyond that, an estimate for both long-term and short-term rental income, as well as a binding “bid” by a verified property management firm to take over management of the home in exchange for a percentage of the revenue.
The two companies working jointly on a home ROI dashboard with a built in marketplace would be a home run. Can egos and incentives line up?
COSTAR NABS ZAVVIE
Drew Meyers // Founder, Geek Estate
It’s no secret CoStar has set its sights on Zillow. On the heels of Zillow’s exit from iBuying, I made the case for Zillow acquiring Zavvie and integrating its product as the de facto “marketplace” into Zillow’s Premier Agent offering. CoStar snapping up Zavvie from under Zillow’s nose would be a nice move to stir the pot … and give them even deeper inroads with Zavvie’s very strategic network of mid-size brokerages.
REDFIN AND FLYHOMES GET HITCHED
Drew Meyers // Founder, Geek Estate
I can’t image the year ending without at least one of the major power buyers (Ribbon, Homeward, Flyhomes, Knock, Orchard) being acquired by a publicly-traded market leader. The union of two Seattle-based tech-enabled brokerages fits the bill for Redfin, a company that historically has not been super active in the M&A department (however, they did acquire RentPath in 2021).
Stephen Del Percio // VP & Assistant General Counsel, AECOM
I’m casting a wider, open-ended net with three broad predictions for the AEC/contech industries in 2022.
Civil infrastructure will remain central to the zeitgeist of the US built environment:
Another natural disaster—hurricane, heat wave, tornado, flood—will wreak havoc on critical components of US infrastructure (I wrote this prior to hundreds of motorists being stuck for 19 hours on I-95 in northern Virginia during a major snowstorm less than three days into the new year) while at least one high-profile infrastructure project funded through the IIJA (i.e. the Biden infrastructure bill) breaks ground prior to the 2022 midterm elections in January (the Gateway Tunnel in the NY Metro area, maybe?). Either, or both, will renew criticisms that the IIJA was too small and support a push for additional infrastructure spending in a new version of the Build Back Better Act, which stalled in the Senate prior to the 2021 winter recess.
As new federal (and state match) spending shakes loose from the IIJA, savvy entrepreneurs will apply existing proptech solutions to create new infrastructure-related data sets and run analytics against them, helping public- and private-sector actors capitalize on new project and investment opportunities created by this new funding environment.
I’m not entirely sure what this one will look like. But with $500B+ in new federal spending on its way (although perhaps not until the second half of calendar 2022), there is a lot of opportunity here to redirect venture and human capital out of the trenches of construction job site hardware, where so much of the contech activity has resided over the last few years.
The AEC industry leans hard into blockchain tech; a major legacy player launches a cryptocurrency, a token, or an NFT that crosses $1B in market cap.
According to sites like cryptoslate.com, most of the tokens launched to date that have some connection to transportation- and/or energy-related solutions are trading well below $50M in market cap (with a handful of exceptions). The engineering brainpower and push for digital innovation within legacy AEC companies will figure out a way to capitalize on NFTs and/or the fledgling metaverse land grab.
Closing
And, with that, that’s a wrap! Agree or disagree? What are we missing? Leave your thoughts in the comments.
Predictions from around the Internet
Prior Geek Estate Predictions & Reflections
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