How Proptech Benefits From The Squeeze Between Investors And Institutions

By Kevin Lynch

Proptech startups are booming.

According to recent data from Crunchbase, VC-back real estate companies have raised nearly $11 billion this year, up about 22 percent from a year ago. That surge is being fueled by a number of important trends like low interest rates, a red-hot construction market, and government spending, but the center of this proptech surge is the flood of institutional money into real estate.

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Most notably, Blackstone has deployed billions to gobble up everything from movie and TV studios to a staggering percentage of the San Francisco residential market. As of last year, Blackstone was the world’s largest private owner of commercial real estate—by backing $378 billion worth of property.

This bet is centered around many of the emerging core themes of the modern economy, like e-commerce, the thriving media space, and the ever-climbing urban rental markets like San Francisco, New York City and Los Angeles.

All of those properties require and benefit dramatically from implementing the latest technology, especially at the scale Blackstone operates them on.

Technology that makes finding property easier, creates additional inventory, or reimagines the commercial and residential markets is extremely impactful and valuable to Blackstone and other entities operating at this scale.

Combine that demand with the hot venture capital market and you’ve got a recipe for rocket-propelled valuations for proptech startups. This once unsexy, overlooked space has become the darling of investors in record time.

Real estate has long been viewed as one of the last vestiges for innovation and disruption, but with the societal shifts accelerated by the pandemic this perception is no longer true, and the companies positioned at the sweet spot of this squeeze between institutional demand and capital supply have experienced mind-boggling growth.

Startups like Opendoor, Cover and Compass have grown into monster valuations and have accelerated through funding rounds at lightning speed while simultaneously deploying that capital to add more rocket fuel to their growth.

That squeeze is certainly supported by the long-existing trends away from homeownership and toward the sharing economy.

Airbnb kicked this trend off, but it has only continued through the pandemic. Combine that with the massive infrastructure bill and the future looks particularly bright for the previously neglected property technology space.

There’s no doubt that the continued flood of capital into real estate and venture will give rise to some of the pillars of the future economy.

Kevin Lynch is an investor at Maschmeyer Group Ventures focusing on proptech, fintech, insurtech and e-commerce.

Illustration: Dom Guzman