The effect of election years on real estate is well documented, with experts offering varying degrees of alarm when it comes to declining property values.
However, its impact on one growing corridor of the real estate industry has been mostly ignored. According to Nick Romito, the founder and CEO of leasing and asset management platform VTS, funding for real estate technology start-ups have dried up as investors start to get skittish about the election.
“We see a lot of companies, who did get funding 18 months ago to three years ago, who likely won’t be able to get funding again because the valuations just aren’t there,” he said during the recent MIPIM Proptech Summit.
“Especially with the pending election, there’s a lot of uncertainty about how it’s going to affect the market. Things like that trickle down to venture capital.”
Romito’s comments clash with July data from research company CBInsights.
According to the firm, real estate tech startups raised more than $1.8 billion in the first half of 2016. The total figure, which is spread out between more than 100 deals, represents an 85 percent increase from the same time last year.
More than half of the industry’s total financing came in the second quarter. During that period, real estate tech startups raised $1.37 billion in 44 deals.
Funding levels, meanwhile, were at record levels in spite of a 31 percent drop in deal activity.
When taken on a quarter-on-quarter basis, financing increased by more than 200 percent. The biggest deals were real estate listing platform HomeLink’s $926 million Series B funding round and property management software SMS Assist’s $150 million Series D.
Romito made his case by pointing to metrics such as company valuations and the number of IPOs. “Guys who were raising money at $100 million last year are now raising funds at $40 million. It’s a different world,” he said.
“You’re seeing a lot less IPOs over the past year. That’s just not a good thing for the technology capital market. You like to see a lot of IPOs, frothy investors. We don’t have that. So that trickles down to the start-up world. If you look at the number of Series A and Series B now versus next year, I bet it’s going to be a lot lower.”
In spite of pointing to the polls as a source of volatility, Romito said that the election’s results won’t alleviate concerns no matter who wins. “I don’t think anyone thinks there’s a great choice,” he said. “I think that’s leading to a lot of uncertainty now, with our economy and how the rest of the world looks at us.”
Niran Shrestha, the founder of construction workflow platform OnTarget, doesn’t see a widespread pullback from real estate tech investors, saying that financing will always gravitate towards good companies.
“If you have a good business, people always want to fund you. For companies that have real value, and I believe that in real estate technology there’s real value there because we’re providing real ROI, there’s always funding,” he said.
Shrestha doesn’t see the elections as a threat. Instead, he sees investors’ lack of familiarity with real estate technology as a much bigger obstacle. “Primarily, because it’s a new industry, people don’t understand the space so well, especially with construction and real estate technology,” he said.
Nonetheless, Romito predicts that the down cycle will create more consolidation, with larger companies buying competitors to expand their platforms. “Do you know how many requests I get to buy things?” he said.