Fifth Wall pulled together 50 investors from around the world to raise $503 million, and the company had to turn away some investors. The pool is more than double the $212 million Fifth Wall raised in its first fund in 2017.

Commercial Realtors are seeking not just more property, but technology that makes their jobs easier, Fifth Wall co-founder Brendan Wallace told Karma in an interview.

“They’re looking to identify new technologies that can help them accelerate the commercialization of the space they already have, rather than simply buying additional space or adding new assets to their portfolio,” said Wallace.

Global proptech startups raised a record $9.9 billion in the first three month of this year, compared with $1.4 billion in the first quarter of 2018, according to a CREtech report. The momentum carried on as April, May and June all saw investments that passed $1 billion. 

• The three-year-old VC firm is looking to invest in real estate financial services, energy efficiency, mobile and logistics, as well as construction technology, according to Wallace.
• Commercial real estate has a reputation for being slow to adopt new technology, but Wallace thinks that is going to change because “real estate financial markets have become more liquid and more transparent.”
• Karma Takeaway: Investors’ appetite for proptech has grown substantially as real estate owners globally seek to use technology to optimize their businesses. 

The post Fifth Wall Closes $503 Million VC Fund As “Proptech” Demand Soars appeared first on Karma Impact.

In 50 of the country’s largest districts, it would take at least five years for teachers to save for a 20% down payment on a home, according to a study by the National Council on Teacher Quality. And that’s if they made the district’s maximum salary and saved 10% of their annual income.

San Francisco-based start-up Landed wants to help. The company, the brainchild of three Bay area entrepreneurs, provides capital for teachers to make down payments on properties.

“We want to see Landed as an option to ‘the bank of mom and dad,’” co-founder Alex Lofton told Karma.

Typically the company pays half of a down payment (about 10% of the value of the sale). When a homeowner sells the home, Landed takes a 25% share of the gain in the property value. There’s also a buyout option on the part of the homeowner. It also generates revenue through referral fees from brokers.

“We’re more than down-payment support,” Lofton said. “We see ourselves as a set of projects that will help people feel more secure.”

Two months ago, four-year-old Landed completed its third, and biggest, funding round with an investment from Reddit co-founder Alexis Ohanian’s venture firm, Initialized Capital. Now, the founders say, they’re thinking about further funding and looking to expand nationwide. 

So far, the for-profit company says it has helped more than 200 educators purchase more than $100 million worth of residential real estate. It has partnerships with more than a half-dozen school districts, which inform educators of Landed’s services. 

It’s currently doing business around its Bay Area headquarters, in Southern California, Denver and Seattle and just signed an agreement with Hawaii’s school district. It hopes to use its new funds to expand out East, and officials say they are in talks with Boston and Washington, D.C., districts.

Capital for the down payments comes from outside philanthropies and other investors, including a $5 million fund that Landed is managing for the Chan Zuckerberg Initiative, a non-profit created by Facebook founder Mark Zuckerberg and his wife, Priscilla Chan, to promote science and education programs, among other initiatives. 

Soaring property values in wealthy areas, as well as the fact that homeowners spend at least a decade in a home before selling, would boost the value of the down payment Landed grants the buyer. In Palo Alto the median home price has more than doubled to $2.93 million over 10 years, according to Zillow’s 2018 Consumer Housing Trends Report. 

Teacher Shortage

Landed’s growth comes as many districts struggle to recruit and retain talented teachers. Citing a 2016 study predicting a shortage of 110,000 teachers by 2018, an Economic Policy Institute report found that there was “no sign that the large shortage of credentialed teachers’’ is going away. 

Cost of living issues, of which home buying is the biggest expense, are a contributing factor to the teacher shortage. The Economic Policy said that “teachers have long been underpaid compared with similarly educated workers in other professions, with a pay gap that has grown substantially in the past two decades.”

“It’s not the driving cause of all shortages, but it is one of the reasons that school districts are having difficulty filling positions,” Hannah Putman, managing director of research for the National Council on Teacher Quality, told Karma. 

History and Workforce

Lofton, Jonathan Asmis and a third co-founder, Jesse Vaughan, have long-time interests in education and social impact issues. Lofton’s mother was a teacher and Asmis has educators in his family, so they understood the profession’s salary limitations. 

After hearing about a Stanford program that helps the school’s tenured professors purchase homes in the Palo Alto area, where the median price can run well over $2 million, they zeroed in how they might provide a similar service for public school teachers. Their idea dovetailed with a recent trend among districts to provide housing incentives to recruit teachers, even building housing complexes where educators can rent apartments.

“There is a lot of interest across the country,” Lofton said. 

There’s enough interest, in fact, that Landed  faces increasing competition from other privately funded firms, including Patch Homes, Point, and Unison Home Ownership Investors, all of which offer versions of home-equity financing. Point and Unison have raised $30 million and $40 million, respectively. 

Lofton said that the three co-founders have complementary skills. Asmis handles the company’s financial management and funding rounds. Lofton oversees outreach to school districts while Vaughn focuses on building relationships in the real estate community. 

Miriam Rivera of the venture capital firm Ulu Ventures, an early Landed investor said she was impressed with the company’s mix of educators, technology and financial services executives.

“They brought different professional and life experiences to a market that hadn’t been looked at in a new way in a long time,” Rivera wrote in an email to Karma.

Landed has raised $11.6 million, including Initialized’s $7.5 million investment in April.  

Process and Challenges

In its signature program, Landed provides up to half an educator’s down payment for purchasing a home. For example, for a $750,000 house — a little higher than the median for Los Angeles — Landed would provide $75,000 of the 20% down payment. The company sees a return only when the homeowner buys out the investment prior to the ending of a mortgage agreement or sells the home. 

If the property increases in value, Landed receives an additional 25% of the gain on top of its original investment. But if the home decreases in value, the company shares in the loss. For a $750,000 home that gains $100,000 in value, Landed would receive an extra $25,000. In this “shared equity investment, the potential return to investors depends on what happens to the housing market,” Lofton said. 

But the company also earns referral fees from a network of real estate agents who help teachers find homes. This part of the business functions as a separate real-estate brokerage. 

To be sure, the Landed model could create a financial burden for teachers to repay the company at a future time. Landed is banking that the home buyers will earn more as their career progresses and follow sound money management. Landed has consultants to work with families on budgeting and financial wellness. 

In a phone interview with Karma, Dan Goldhaber a professor at the University of Washington and director of the school’s Center for Education Data & Research, raised a different issue about school districts participating in real estate initiatives. While these efforts “can help with retention,” Goldhaber is more inclined to boost teacher pay. “Direct compensation would be a better solution,” he said.

The post Landed, After Latest Funding, Looks to Expand Teacher Down Payment Program Nationwide appeared first on Karma Impact.

Alarmed by the erosion of margins caused by climate-related events in recent years, investors in both REITs and equity projects have started including such risk into their investment decision-making process, in some cases leading firms to forgo investments in certain markets. There have also been measurable drops in valuations for entire regions.

A CDP report published last week showed a vast majority of companies across industries incorporate climate risk into their business strategy, estimating the costs of this growing threat at a trillion dollars.

Real estate is particularly vulnerable. A study published in the Journal of Financial Economicsin March concluded that real estate in areas prone to sea level rise already is selling at a 7% discount to comparable properties. And a 2018 study of coastal markets by the First Street Foundation, a nonprofit specializing in flood assessment, found that properties in the U.S. Southeast and the New York metropolitan area lost $7.4 billion and $6.7 billion, respectively, due to damage and valuation implications from sea level rise.

An increasing number of ESG fund managers and engagement officers are pushing REITs to add climate risk management to their evaluations of a project’s viability, according to a joint report from the Urban Land Institute and Heitman, a Chicago-based REIT.

This report quotes Mary Ludgin, Heitman’s head of research, saying the firm is not likely to abandon Houston, New York or even Miami in the near term, “but could and has caused us to opt not to buy assets with high exposure to environmental risks.”

Calculating this risk before committing money may sound like common sense. In fact, it’s a sea change for an industry that has not been out front on climate issues.

The new trend has cheered ESG fund managers who previously found that REITs and large real estate portfolio managers preferred to rely on insurance to hedge potential risks rather than calculate the potential hit to a project’s internal rate of return (IRR).

For both REITs and the hundreds of smaller groups that syndicate equity investments in multifamily real estate, getting these calculations right can be the difference between success and failure. For a multifamily project, for instance, projections of quarterly income from a 100+ unit rental apartment project are typically based largely on the difference between the cost of capital and existing operating expenses. Often, such projects also including funding to improve the property, thus adding to valuation before a sale seven to 10 years down the road.

It doesn’t take a direct hit from a mega-storm to squirrel those numbers. Heavy rains create complex new problems for drainage and waste water that can manifest hundreds of miles from landfall. Outdated urban infrastructure in many Midwestern U.S. cities and the loss of wetlands to agriculture upstream has exacerbated flooding along the Mississippi, Missouri and other rivers. Droughts in California, cyclonic storms on the Atlantic Coast, all have macro effects.

Now, as insurers, also begin to face climate realities, the idea of hedging downside risk with flood insurance is falling out of favor.

A 2018 study by climate consultancies 427 and GeoPhy cites the example of American Homes 4 Rent, a Maryland-based REIT whose Houston portfolio suffered more than $21 million in damage due to hurricanes Harvey and Irma in 2017. Insurance covered only $11 million of that tab. Whether insurance will even be available for some regions is in question. After Sandy in 2012, property insurers along the expensive New Jersey shore withdrew from the market entirely, though they have trickled back since federal and state insurance subsidies were augmented.

Given the quickening pace of violent weather, it should be no surprise that the numbers have finally forced the sector to take stock. Munich Re, a leading provider of catastrophic insurance and so-called ‘catastrophe bonds,’ says number of extreme weather events annually around the world has increased 250% since 1980. That has been a cold splash of water to the sector.

Again, it’s worth pointing out that much of this positive movement is being driven by risk-return calculations rather than any mission to ‘save the planet.’

And as major REITs and others in real estate increasingly face climate change, don’t be surprised to see a new greenwashed wave of enthusiasm for climate resilience in their marketing materials. Yet it’s better than the alternative.

The post Real Estate Gets Serious About Climate Risk appeared first on Karma Impact.

On Our Radar: Deals we are paying attention to for their impact on industry.

Technology startup KeyMe that caters to the locksmith industry has raised $50 million in growth financing from the global credit team at BlackRock to fund the expansion of its self-serve smart kiosks that cut keys for houses, cars and businesses at retail and convenience stores across the U.S.

KeyMe has more than 2,300 kiosks.

KeyMe CEO and founder Greg Marsh maintains that the U.S. key-copying industry is worth about $10 billion to $12 billion annually. “It’s a massive offline service, which hasn’t seen innovation in decade,” he said in an interview last year.

The company contends that its kiosks are the first and only ones to duplicate most of the vehicle and radio-frequency identification (RFID) keys. It copies keys in under 30 seconds with 10 times more accuracy than the industry average, claims the company. Mobile apps available for both iOS and Android let customers scan keys and save a digital copy, so that if a customer loses a key or is locked out of a car, home or office, he need only go to a kiosk and log in through the KeyMe mobile app.

The convenience is driving more customers to stores that have KeyMe kiosks, which in turn prompts more stores to request kiosks.

“Our existing retailers are currently requesting more than 10,000 kiosks,” Marsh said in an interview with Retail TouchPoints last year. “For every single kiosk that we launch, within 48 hours, our marketing team is getting that specific location listed on Google Maps as the best place locally to copy a key. Through SEO, we typically rank No. 1 for that listing. When someone types ‘copy keys’ into Google, our listing is coming up first,” he added.

Marsh said many shoppers who search KeyMe online are “new movers” — people who have recently relocated to an area and are making big shopping decisions, typically spending some $15,000 within the first two months of moving, according to Retail TouchPoints.

“We are making keys in a fundamentally different way than has ever been made before,” Marsh said. “Manual key cutting has a 15-20% error rate, which is horrible. Every key that is inserted into our kiosk is training our artificial intelligence. Now that our training set is made up of tens of millions of keys, we are very good at making keys.”

“We are excited to support KeyMe’s next phase of growth with this investment, which offers our clients the potential for attractive risk-adjusted returns,” said Jason Ridloff, managing director in BlackRock’s global credit team.

Other KeyMe investors are Battery Ventures, Comcast Ventures, Questmark Partners, River Park Ventures and White Star Capital. According to Crunchbase, since 2012 the company has raised $155.8 million.

Peter Green is an award-winning business and investigative journalist based in New York.

The post BlackRock Invests $50 Million in Robotic Retail Keymaker KeyMe appeared first on Karma Impact.

On Our Radar: Deals we are paying attention to for their impact on industry.

Blackstone Group is spearheading an investment upswing in Chinese commercial real estate.

The New York-based private equity giant has executed two major deals this year and reportedly is mulling a third. If it occurs, the latest purchase would bring Blackstone’s investment via the three transactions to almost $3 billion.

Blackstone’s moves are an extension of last year’s surge of foreign investors entering China’s largest urban real estate markets. In 2018, foreign investment in Chinese real estate grew 62% to $11.6 billion, according to the Los Angeles-based real estate investment and services firm CBRE Group.

Foreigners see opportunities amid flagging demand for office and retail space in the country’s major cities. Vacancies have increased significantly as the Chinese economy has slowed and the government has reined in homegrown companies’ investment activity.

CBRE predicts that property funds targeting China will boost invested assets significantly over the next five years. Blackstone has been open about adding to its growing real estate portfolio, which has more than $136 billion in assets under management.

In February, Blackstone agreed to purchase 50% stakes in two shopping centers in Xi’an and Zhengzhou, along with a third center in South Korea, from The Taubman Company in a deal valued at $480 million. Taubman is a Bloomfield Hills, Michigan-based real estate investment trust with assets in the U.S. and Asia.

In March, Blackstone agreed to pay nearly $900 million to repurchase almost 70% of Hong Kong-based International Construction Investment Management Group, a real estate company. Blackstone reportedly is considering a $1.5 billion acquisition of Chamtime Plaza, which includes a shopping center and five office towers.

Last year, Blackstone and the Singapore real estate developer and investment firm CapitaLand were the leading property buyers. CapitaLand and the Singapore government executed 2018’s largest real estate deal, teaming up to purchase Shanghai’s tallest twin skyscrapers.

James Peter Rubin is a veteran journalist who has written and edited for CapitalWatch, ThirtyK, TheStreet.com, Forbes and the Economist Group, among other media outlets.

The post Blackstone Leads Robust Foreign Investment in Chinese Real Estate Market appeared first on Karma Impact.

On Our Radar: Deals we are paying attention to for their impact on industry.

It’s a common dilemma. A homeowner wants to buy a new place while selling the old one at the same time. Easier said than done.

Cue the iBuyer startup Perch, which announced April 2 that it raised $20 million in equity and $200 in debt in a Series B financing round.

Perch, a New York-based company with offices in Texas, offers both selling and buying properties in a way it claims is less stressful to the customer than the traditional approach. Online real estate sites including Zillow help customers sell their house, but do not offer ways to replace it with a new one.

According to the Real Deal, Perch launched its platform in Texas early last year, first in San Antonio, then in Dallas. Austin is the company’s next market, and it has plans to move into more next year.

The two-year-old Perch provides an offer to buy a customer’s home that is good for up to six months. During that time, the customer can use its real estate agents to buy a new place, and, should all go well, close on both deals the same day. Customers also can stay in their old place for up to two weeks after closing for a rental fee. The home sale fee is 6%, and other services, such as notary and title search, are offered at additional costs.

“Last year, there were over $1.5 trillion in home sales,” the company said in a press release, “with almost all of that listed and sold through a traditional home-selling process that involves months of uncertainty and inconvenience.”

As for the April financing round, FirstMark Capital led the equity investment, with Accomplice and Juxtapose also participating. In May 2018, Perch announced it raised $30 million, a Series A investment led by the same financing team.

Michelle Lodge is a New York-based writer whose work has appeared in Time, Fortune, Barron’s, the Miami Herald, the British Medical Journal as well as on CNBC.com.

The post iBuyer Real Estate Startup Raises $220M in Equity and Debt to Scale Up appeared first on Karma Impact.