Digital Real Estate Closings Reach Escape Velocity
In this story:
• Doma Holdings Inc (NYSE:DOMA)
• Redfin Corp (NASDAQ:RFIN)
• Realogy Holdings Corp (NYSE:RLGY)
• Compass Inc (NYSE:COMP)
Real Estate transactions have historically been cumbersome affairs with multiple different touchpoints along the value chain, each having its own network of legacy offices with little incentive to change.
The average time from offer to possession of a home averaged 30 – 45 days in the last few decades.
But with the rapid evolution of internet connectivity and distributed software just as the COVID-19 pandemic created demand for remote transactional solutions, a race to disrupt that legacy framework and win international market share of the entire ecosystem has begun.
Investors who bet on the right horse are likely to reap significant rewards if they are patient and diligent.
Voxtur Analytics (TSX.V:VXTR) has spent the last three years building its overnight success story, and has consolidated a group of companies covering escrow, title search and insurance, property tax assessment, and soon, automated attorney opinion letters.
The company’s shares are up 4-fold in the last year, and it is on track to hit $100 million in top line revenue for fiscal 2021.
But Voxtur is a small fish, valuation-wise, in a sea of well capitalized US sharks, each of whom are looking for ways to win the whole Real Estate Transaction enchilada – which could be worth as much as $100 billion in terms of total consolidated addressable markets.
There is a plethora of companies driving this de-frictionalization of real estate transactions, and collectively, they are driving an exponential step-up in transaction volume, resulting in increased capital velocity within the real estate industry.
It all adds up to higher potential transactional value per time unit and per player. A byproduct just happens to be the shortening of the timeline from offer acceptance to closing from months to days.
“The more of the transaction you can make instant and enjoyable and more affordable,” said Doma Holdings (NYSE:DOMA) CEO Max Simkoff in a recent webcast with JMP Securities analysts Matt Carletti and Ron Josey, “the more you win.”
Simkoff envisions a “not too distant” future where you can “sign a purchase contract on a Friday evening, and move into your new home on [the following] a Monday morning”. In his view, this is definitely a “winner take all” proposition.
These new companies are focused on digitizing and automating major components of the real estate transactional ecosystem. Most of them have a niche specialty, and use their incumbent segment status to lean into the value chain of the whole industry.
Consolidation Feeding Frenzy
Doma is arguably the best capitalized example of such companies.
It was formed out of States Title Insurance merging with Capitol Investment Corp. V, a SPAC sponsored by Mark Ein’s Venture House Group that resulted in Doma Holdings with an initial valuation of US$3 billion when the deal was announced in March 2021.
Doma is the shiny new cadillac on the block, with former Treasury Secretary Larry Summers on the board and investors such as BlackRock, Fidelity, the Gores Group, Hedosophia, SoftBank’s SB Management, Wells Capital and Zillow co-founder Spencer Rascoff. National homebuilding giant Lennar – a cornerstone early investor and captive client – is also among the blue chip investors that characterize the company.
But the whole key to success, in what is essentially a wholesale consolidation of the real estate transaction services industry, is growth through acquisition.
Before it was Doma, States Title acquired North American Title Insurance because of its local presence in multiple US markets.
Another major transaction just wrapped up in the title insurance business when private equity firm Centerbridge Partners invested US$210 million for a 70 percent stake in Realogy Holdings Corp (NYSE:RLGY) title insurance unit, which will become a joint venture among the two companies if/when the deal closes in Q12022.
Compass Inc (NYSE:COMP), who says it is “changing how agents and clients navigate the process of finding or selling a home” announced the acquisition of not one but three separate title companies: First Alliance Title LLC, based in Denver, CO, KVS Title out of Washington, DC, and LegacyTexas Title in Dallas – Fort Worth, Texas. The terms of these transactions was not disclosed.
Redfin Corp (NASDAQ:RFIN), a technology-driven online real estate brokerage, reports that “forty-four percent more homes are pending sale than at this time in 2019, but only 3% more homes recently hit the market—down from 12% growth over 2019 just 7 weeks prior”.
A third of homes are finding buyers within a week of hitting the market, up from 30.8% at the end of the summer. This week, Redfin is comparing today’s market with the pre-pandemic fall market of 2019 to highlight how hot the market remains, even as most measures are settling into typical seasonal patterns.
“Winner Take All”
Doma is the favorite in terms of capitalization and industry reach. But Voxtur Analytics has, by far, the deeper dataset and most developed cross-ecosystem platform set. Considering the value of Doma and the other large cap companies discussed, Voxtur may soon be the next unicorn in the Prop-tech space.
Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.
Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.
Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.