Brandon Donnelly

Daily insights for city builders, delivered every morning at 6 AM ET. I’m Brandon Donnelly — a Toronto-based real estate developer and founder of Globizen. I’ve been writing here since 2013.

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Tag: proptech

  • Some tweets about construction costs

    Today was the 2019 Land & Development Conference here in Toronto. I was on a panel in the morning about Proptech. I then sat in on a discussion about construction costs. But after that I had to get back to the office to prepare for a couple of meetings.

    Here are my tweet takeaways (from the back of the room) during the construction cost session. You may need to click through to see the full thread.

    https://twitter.com/donnelly_b/status/1133758132767907840

    The construction cost escalations that we have seen over the last 2-3 years have had a significant impact on new construction in this region. Niall Finnegan’s view is that we are 85% of the way through this “storm.”

    From his experience, it takes 18 months or so for hard costs to respond to changes in demand. And so the storm we are currently in is a result of elevated condo sales from 2017-2018.

    The general consensus from the panel was that costs should start to moderate sometime soon, though maybe not this year. Nobody really knows when that will happen. But if/when hard costs do adjust, it typically happens quickly.

    One comment that didn’t make it into my tweets, but that I found interesting, was about how uncertainty and volatility in the market — like what we are seeing today with construction costs — could actually stifle innovation.

    Because it creates additional project risks, it limits people’s appetite for other kinds of risks — like trying new things. I can see that.

  • Redfin is rolling out an online purchase option for homes

    There’s a lot of money at work right now trying to reinvent the way that homes are bought and sold. Perhaps the most popular trend is “instant buying” or algorithmic home buying. I have been writing about this for years, mostly because of Opendoor. But now there are lots of companies competing in this space. With this model, home sellers get the benefit of an almost immediate sale, though usually it’s at a slightly lower price.

    Redfin, on the other hand, is returning to something that it first tried out back in 2006: a buy now button on its online listings. It failed back then. But maybe it was simply too early. The feature allows unrepresented buyers — that is, buyers without an agent — to make online offers. Naturally, it’s far from a single click process. But when accepted, the seller ends up paying about half the amount of commission.

    According to the New York Times, the company started testing the feature in late March in the Boston area. Of the 120 homes listed on Redfin with a “start an offer” button, 5 ended up being purchased via an online bid. That’s more than I would have expected. But Redfin positions these offers as being the stronger option because they save sellers money. There’s also an option to tour the home on your own.

    Given this initial response, the company is now working to roll out this feature nationally, market by market. Is this the future of home buying?

  • Real estate startup Knock raises $400 million

    I have been writing about the real estate startup Opendoor for many years here on the blog. Another promising startup in this space is Knock, and today it was announced that they just raised a $400 million Series B round (led by Foundry Group).

    They share some similarities with Opendoor, but they are also different in that their focus is on home trade-ins. They tell you what your current home is worth, help you find a new home, and then coordinate “a seamless swap.” For more on how they work, go here.

    One of the ways in which they are similar to Opendoor is that they front the cash for new home purchases. In the case of Opendoor, they buy your home with the plan of selling it in the future. And with Knock, they buy your home with the understanding that your old home will get sold.

    It is certainly a more capital intensive model compared to the way that home sales are handled today. But many investors are clearly betting that it is exactly what is needed to change the status quo. 

    (Credit to Jeremiah Shamess for sharing the above news with me today.)

  • Airbnb announces new Backyard initiative

    Airbnb has just announced a new initiative called Backyard, where it will be looking at new ways in which homes can be designed, built, and shared. They are, in a broad sense, becoming architects.

    The initiative has been in the prototyping phase for some time now, but the plan is to put forward some sort of product in 2019. Despite the name, the initiative won’t just be focused on small backyard cottages or accessory dwelling units.

    Here is an excerpt from Fast Company:

    “Backyard investigates how buildings could utilize sophisticated manufacturing techniques, smart-home technologies, and gains vast insight from the Airbnb community to thoughtfully respond to changing owner or occupant needs over time,” Gebbia says. “Backyard isn’t a house, it’s an initiative to rethink the home. Homes are complex, and we’re taking a broad approach–not just designing one thing, but a system that can do many things.”

    This is yet another example of tech and real estate coming together. But as I’ve mentioned before on the blog, I think eventually we’ll stop making that distinction; it will just become the way in which we build companies.

  • The rise of proptech

    A friend of mine flipped me this New York Times article today talking about the rapidly growing interest in proptech and about Opendoor – a topic and a company that I have written about many times before on the blog.

    Here’s a snippet about proptech:

    The hauls are part of a race by investors to pour money into technology for real estate, or what Silicon Valley now calls proptech. Having watched tech start-ups upend old-line industries like taxis and hotels, venture capitalists are casting about for the next area to be infused with software and data. Many have homed in on real estate as a big opportunity because parts of the industry — like pricing, mortgages and building management — have been slow to adopt software that could make business more efficient.

    On the Opendoor front, which is the largest/most valuable company in the proptech category, they have now raised over $1 billion. By the end of this year they plan to be in 22 cities across the United States.

    Interestingly enough, they have started experimenting with other business models, beyond just buying and flipping homes. They now circumvent agents and sell some homes directly to customers.

    But Eric Wu, the CEO of Opendoor, believes that you can’t automate proper advice and so that will remain. The role of agents is simply about to shift from “administration” to that of “advisory”.

    I have been arguing for years that the home buying and selling process is ripe for change. And what we are seeing today is really the start of that.

    According to the NY Times, real estate tech startups raised $3.4 billion in funding last year. Some firms, such as Fifth Wall Ventures, are entirely dedicated to the space.

    This is money betting on change.

    Photo by Grant Lemons on Unsplash