Real Estate Disruption and Companies

By pjain      Published Oct. 14, 2019, 9:23 p.m. in blog Startups   

Real Estate Disruption Keys and Trends

Real Estate SaaS, Tech Disruption

Hotels, Rentals, Room-share

OYO

  • Business model: Exploit high vacancies at low-end of hotels in third world

    • Buy or franchise run-down hotels, fix up, train staff, Promote with ratings
    • Take a commission (25-30%)
  • USP/Differentiation Improving fallow assets (old/out of date hotels) No global player for budget hotels Uses a tech platform to help hotel partners with distribution

  • Funding - Total funding: $1.6 billion

    • SoftBank investment: ~$1 b to support their prior rounds as a lead investor every round since 2015
    • Lightspeed Ventures and Sequoia Capital getting out - selling 50% of their stake for $1.5 b they not only passed, but having the full inside information and are GETTING OUT!
    • Ritesh Agarwal invests $700m in latest $1.5 b fundraising round
  • Valuation: $10 billion on $200 million in revenues (50x revs)

  • Problems

    • Overpaid: Hooters Casino in Las Vegas for $135 m (sold for $54 m just 4 years ago)
  • Management/Leadership: Ritesh Agarwal — 25, first venture

    • it’s a bad strategy to assume your CEO is the next young Zuck/Gates which are rare indeed

Brokerages, Trading Real estate

Opendoor

  • Business model: Use AI for valuation

    • Sell your house to Opendoor in less than 24 hours in all-cash deal;
    • 360 degree: resells house, and offers financing to a captive market
    • Basically it feels like a levered bet on US real estate market.
  • USP/Differentiation

    • Provide immediate cash to homeowners - net interest rate margin in ZIRP era
    • BM$ firm collects service charge
    • Real estate is a Hugely inefficient market ripe for disruption
    • Compelling value proposition (liquidity in traditionally illiquid asset class)
  • Funding Total $1.3 b in equity and $3 b in debt

    • SoftBank investment: $400 million
  • Valuation: $3.8 billion

  • Management/Leadership

    • Management and board have little real estate experience
  • Problems/Risks

    • The risks of iBuying are substantial in a downturn - get stuck with
    • Can algorithms replace nuance of valuation in real estate? Things do change!

Zillow

Trulia acq by Zillow

Refin

Compass

  • Business model: Use technology to pair top brokers with home buyers
  • USP/Differentiation

    • Proprietary technology and 19% of non-broker employees work in “technology”
    • Better UX for real estate eg Glassdoor rating with 4.3 - the highest rating
    • Has acquired 14 other brokerages
  • Funding - Total funding: $1.6 billion

    • SoftBank investment: $600 m - drunk capital and overpaid
  • Valuation: $6.4 billion

  • Problems

    • C-Suite turnover is a sh*tshow: includes the CFO, COO, CMO, CTO, CPO, General Counsel, Head of Product, VP of Product, and VP of Communications
    • Burning Capital to make as growth (some brokers receive entire commission for their first 8 deals)

Income property Investing Slices

Roofstock

WE - WeWork, WeLive

People love WeWork like they bought Pets.com's 60-pound bags of dog food delivered next day for less than cost was awesome, except for crying shareholders.

  • Leases long and Rents-out short term - a glorified money-losing landlord does not deserve PE . FFO bad?

    • Now largest office leasor in NYC
    • Can rent by day or month
    • Rent a desk in open office
    • $1.9b '18, >-0.9b H1'19 = LOST MORE MONEY CASH than Uber or even their revenue .. built in huge losses
    • Expenses at We 4x since '16 > '18
  • Unknown Metrics - tapering growth

    • ?not provided - Occupancy rates
    • ARPU/member - $6k - no idea - but declining trend
    • Slowing Growth rates
  • ARC - to buy and hold property assets - like a REIT

    • This is a separate company - leasing to We
    • Risk management by leasing out to other companies
    • If you actually own the building .. harder to get out in recession!
  • WeWork invests in partners - tenants - so if there is a downturn, and that does no do well, could hurt that

  • Governance - 3 Classes of stock - little control

    • Founder Adam & Wife control the company, Also pays other relatives
    • Line of Credit from We for $500m - ? self serving!
  • Space-aaS - Aspirational branding

    • space-as-a-service business
    • Leveraging off glut of VC funding small companies
    • Cloud like model of variable expenses
    • SEXY designs of its offices help facilitate an inspiring working space
  • Community technology”

    • Its app helps its customers book rooms, find events and connect with one another.
    • Sexy - employees WANT to work there
    • SERVICE Employees at the company’s workspaces are a “community team” made up of “strong operators” who are “also mission-driven individuals inspired by the opportunity to connect and empower others,” according to the filing. “They work each day to support our community holistically, understand our members’ personal and professional goals, program local experiences and events, recommend services and make introductions among members who can help each other succeed.”
  • Global Expansion may be ill thought

    • MNC synergies a selling point
    • 700 locations - too rapid growth at any cost
    • Many of its locations are very immature
  • Overvalued - lured in billions of dollars from tech investors

    • valuation up to $47 b in Jan'19
    • Softbank is burning at both end

Oyo

Opendoor

References

Resources


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