Total Investments in Proptech Companies Dropped 23 Percent in 2018

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Despite a growing number of startups and investor confidence at an all-time high, the total money being pumped into real estate tech companies dropped last year, a report by data and event platform CREtech found.

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A total of $9.6 billion was invested into real estate companies in 2018, which was a 23 percent dip from the $12.6 billion raised the year before, according to the report.

Proptech experts blamed the sluggish numbers on a changing market with investors more sophisticated, the uncertainty over the national economic climate and a crowded field of private equity funds.

“We’re going through this weird transition right now,” said Ashkán Zandieh, the chief intelligence officer for CREtech, who compiled the report. “The first half of the year was really great, about $3 billion, but then we noticed this roller coaster for the latter half of the year.”

Another reason the numbers were down is Japanese bank’s SoftBank massive $2 billion investment into WeWork, the largest deal last year according to the report.

The deal, along with SoftBank’s $4 billion infusion into the coworking giant in 2017, skewed the investment numbers higher for both years and left other investors seeing sticker shock in the real estate techology market, said Dhinaker Dhandi, a vice president at Altus Group, an advisory services and software provided for real estate companies.

“People are a little concerned about the high prices that might impact future funds,” he said.

Other major deals in 2018 include a $1.5 billion investment into Chinese real estate company Lianjia, $500 million into WeWork China, $400 million into residential brokerage Compass and $400 million into Opendoor, according to the report.

Dhandi said the slowdown is one sign that the market is maturing past the huge boom of the past several years, and things should continue to slow down as investors get savvier.

“There was a lot of new money, new venture capital and a lot of new people coming into the space. There was a learning curve,” he said. “Venture capitalists are getting smarter, they want to make sure they’re investing in the right value.

“You cannot sustain that level of innovation and that level of new seed funding,” Dhandi added. “At some level, this will start to plateau.”

Both Dhandi and Zandieh said investors have started to shy away from participating in seed rounds and instead began focusing on later-stage companies, hopeful of an upcoming public offering.

“These companies have been tried, tested and proven,” said Zandieh, the founder of research company Re:Tech, which was acquired by CRETech in January. “There’s very, very little player development these days and more and more proven athletes.”

And so far 2019 has been off to a rocky start. Numbers CREtech provided shows that the total funding amount from January to February dropped by nearly 78 percent, from $2.9 billion to $645 million. But, there is 236 percent more money invested into proptech companies in February of this year compared to 2018.

However, thanks to a few large deals that closed at the end of the month, February narrowly avoided becoming one of the worst months for investments on record, Zandieh said.

Things weren’t all doom and gloom for real estate techology growth last year. The CREtech report found that the total number of deals was up nearly 50 percent in 2018, from 347 to 509. And a study by technology accelerator MetaProp NYC found that investor confidence in proptech was at an all-time high at the end of last year.

“There is still a lot of momentum,” Dhandi said, adding that a lot more commercial real estate landlords have been getting into proptech investments themselves. “There’s a lot of enthusiasm.”