Public real estate startups recently shed more than $42 billion in value

American homebuyers have done fairly well in the past two years, with average home prices rising sharply.

Unfortunately, the same is not true for those putting capital into emerging new public real estate companies. There, the opposite applies, with shares of several housing-focused companies hitting new lows this month after an already difficult year.

Overall, project-backed US real estate-focused companies that have gone public in the past two years are down an average of 85% below their offer price, according to a Crunchbase analysis. Nothing above their offer prices.

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Some of the worst performers are down 90% or more. This includes online purchasing platforms Open door And the OfferpadBeside alwaysUpstart Homeowners Insurance.

For a broader understanding of how venture-backed real estate firms perform in the public markets, we have compiled a chart of seven below that have first appeared in the past two years:

Altogether, it’s a pretty amazing drop. A total of more than $42 billion has been wiped out of the post-emergence market capitalization as of early this week.

To put that in perspective, $42 billion is well above the combined market value of the second and third largest homebuilders in the United States. (those companies, linar And the Bolt groupwith a combined market value of approximately $31 billion).

It’s the type of undo that usually has some very obvious reasons. In the case of the new general real estate players, we can point to four:

1. Ratings were too high in the beginning: Markets were more bubbly when the companies on our list first appeared, with valuations reflecting more sunny future assumptions than current fundamentals.

Take Opendoor. When it first appeared in Nasdaq In December 2020, after the SPAC merger was completed, it ordered an initial valuation of approximately $18 billion.

That’s an ambitious value considering that in the three quarters before the launch, the company posted a profit of $2.3 billion, and a net loss of nearly $200 million. Even for a SaaS, this is an overall earnings-based assessment. But Opendoor’s business – buying and selling real estate – has much lower gross margins than software.

or consider compassFast growing real estate brokerage. The company, which is also a relatively low-margin company, recorded a loss of $270 million over the year prior to its 2021 initial public offering. However, it was able to value it post-demarcation at around $8 billion.

2- The performance of companies was below expectations: Many of the companies on the list did not meet investor performance expectations.

Compass, for example, published a file Bigger net loss than analysts have predicted in three of the past four quarters on the calendar. Cuts have also been made, including the latest reports lay off Almost 50% of its technical team of 1500 people.

WeWork His performance was also poor. In the last quarter, the business space provider missed analyst earnings estimates by a wide margin, sending shares lower.

Meanwhile, Opendoor faces all kinds of problems. The company paid $62 million this summer to settle a Federal Trade Commission (FTC) charge that it had summoned potential home sellers “using misleading and misleading information.” The company is also facing multiple shareholder class lawsuits with allegations including that its algorithm failed to adapt to changing market conditions.

3. Investor preferences have changed: A year ago, money-losing growth companies were running. Now, they’re out, with general investors favoring dividends, dividends, and old-fashioned value stocks. This leaves our crop of largely unprofitable new public real estate companies at a disadvantage.

4. Real Estate Markets Transformed: Then of course, the US real estate markets are rapidly transforming. Today, the average 30-year mortgage rate is hover about 7%. This means that buyers can no longer finance homes at last year’s rates, when rates were half that. Inventory seated. Prices are deflated. And the demand for new mortgages faded.

While such changing conditions are not necessarily disastrous for new public players in real estate, they do require some adjustment, and in some cases lower expectations.

Where does that leave startups?

Even with lower public valuations, venture investors continue to fund real estate-focused startups well.

So far this year, investors Put about 4.6 billion dollars to seed through the growth phase rounds of US real estate-related startups, according to Crunchbase data. That puts 2022 on track to be lower than last year, when $7.95 billion went into space. But looking at this investment financing sharply Across most sectors year over year, it’s not a bad show and indicates a strong level of investor confidence.

The totals include some very large rounds. The largest financing went to viv, a construction technology company focused on the home construction sector. You raised $400 million in February Series D led by Warranty. Then it came flowThe Adam NewmanA home rental apprentice got $350 million from Andreessen Horowitz in August.

Another big tour went to Rovstockan online home rental investment platform, which raised $240 million in Series E. And in March MethodsA real estate finance startup that aims to make it easier for people to buy a new home before selling their old one, took $220 million in financing in June.

The overall picture: While public investors may not find much to like among public real estate companies lately, private markets are still seeing a lot of upside in this area. We’ll watch if their enthusiasm continues.

Clarification: Dom Guzman

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