We are excited to announce our investment in Loft, which in a little more than one year has gone from a PowerPoint presentation to one of the fastest growing real estate companies we’ve ever seen.
First, some context. I’ve long talked about the colossal inefficiencies of the US housing market, with $100B of residential real estate commissions that consumers (on both buy and sell side) pay for a terrible experience. But it turns out that the experience is far worse, and thus the opportunity perhaps even bigger, in many other parts of the world.
São Paulo, one of the largest cities on earth, sports some interesting facts about residential real estate:
- There is no broker exclusivity, so if you hire a broker to sell your house, he/she will not show it to other brokers, because *they* will try to have you hire them to also sell your house. Whoever brings the buyer gets the commission.
- There is a very small fix-and-flip market in Brazil. Why is this important? In the US, a dilapidated house on a nice lot will sell quickly, because somebody will fix it up and sell it. Location, location, location, right? But there needs to be financing for this arbitrage (or as I see it, liquidity) — in the US, there’s a nearly $100B fix-and-flip financing market (which yielded our investment in PeerStreet). In Brazil, it’s virtually non-existent, so old houses sit on the market much longer because there is much less arbitrage to fix this problem.
- Compounding that problem, many buyers want newer/refurbished homes, but don’t know what homes would cost to renovate, so avoid older housing stock. A seller might make some improvements that a buyer doesn’t want, further creating waste (this happens in the US as well).
- There is no central listing exchange, or what in the US we call the MLS (multiple listings service). In the US, things like Opendoor are exciting because by aggregating proprietary supply they can potentially build a transactional MLS. But in Brazil, there isn’t even a non-transactional MLS!
- There is a *lot* of vertical housing stock. Why is this important? It makes automated valuation models (AVMs) much easier to run, so a well-tuned buyer of homes can programmatically buy, refurbish (more cookie cutter than Picasso homes), and sell.
The net result is that homes sit on the market far longer because of a lack of information and capital.
Enter Loft. We were excited to lead their Series A in July of 2018, even more excited to co-lead their Series B, and now further increase our ownership in their Series C. They are building a transactional marketplace for the biggest asset class in the world, starting in the biggest market in Latin America, on a time horizon that makes it hard to believe it’s been less than a year since the PowerPoint. They buy homes, fix them (often according to formulaic specifications provided by active buyers), and sell them — what is now known as “i-buying,” with the vision of turning this into a transactional marketplace.
We are thrilled to partner with the founders, Mate and Florian, and the 400+ person strong team down there.
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