Many proptech startups born and funded during the heyday of low interest rates are struggling. Investments in U.S.-based real estate startups fell from $11.1 billion in 2021 to $3.7 billion last year, with some companies selling themselves and others closing shop, according to PitchBook data. be.
Two recent examples are the recent casualties of a challenging interest rate environment and the long-standing slump in real estate fintech funding.
Fast Company reported last week that rental proptech startup Davie Homes will be acquired by Charleston, South Carolina-based Maymont Homes. Maymont is a division of Brookfield Properties.
EasyKnock suddenly shut down, NPR reported last month. The closure stems from several lawsuits filed against Proptech and the company's controversial sale-leaseback model, which involves purchasing homes from owners and leasing them back to owners at the same time. This follows a consumer warning from the FTC.
Nine-year-old Divvy declined to comment, but a source familiar with the matter confirmed to TechCrunch that Divvy is in talks with Brookfield and is “close to closing on a purchase agreement.” This person disputed that the acquisition was a fire sale. But neither the company nor those involved have disclosed how much Brookfield will be willing to pay for Divvy, so it's not yet clear whether that price is a bargain or a benefit.
Fire or not, its sale is not a total shock. Signs of trouble at Divvy began to appear in 2022, when the company began laying off staff. By November 2023, Divvy had made its third round of layoffs in the past year.
The once-popular startup had raised more than $700 million in debt and equity from notable investors including Tiger Global Management, GGV Capital, and Andreessen Horowitz (a16z). Divvy's last known funding occurred in August 2021. It was led by Tiger Global Management and Caffeinated Capital with $200 million in Series D funding at a $2 billion valuation. The Series D round was announced just six months after the $110 million Series C. Divvy Homes' last known valuation was $2.3 billion in 2021, according to PitchBook.
EasyKnock, a startup that bills itself as the first technology-enabled home sales and leaseback provider, was founded in 2016 and raised $455 million from backers including Blumberg Capital, QED Investors and Northwestern Mutual's corporate venture arm, according to PitchBook. It is said that he had raised funds. data. About $200 million of that capital was in the form of debt needed to buy homes, according to people familiar with the startup.
So what went wrong?
In its heyday, Divvy Homes worked with renters who wanted to become homeowners by renting for three years while they bought the home they wanted and built the “save up to own.” They argued that they were different from companies. That in itself.”
However, the Fed has begun raising interest rates in 2022 with the mission of curbing inflation. For companies like Divvy Homes, which bought homes as part of their business model, high interest rates were devastating, limiting their ability to buy homes and make money on those purchases.
EasyKnock's business model also included buying and renting homes. But the deal appealed to homeowners with bad credit because it gave them quick access to cash and the option to buy back their home in the future.
High interest rates also hurt as the company took on debt to finance its operations, a source familiar with the company told TechCrunch. But EasyKnoc had more problems. More than 20 lawsuits have been filed against EasyKnocks, with the Michigan Attorney General's office alleging that the company engaged in “deceptive practices” by purchasing homes from economically disadvantaged people at low prices and then charging high rents. ” he claimed to have done.
According to our sources, EasyKnock was insolvent and insolvent at the time of its closure.
And with interest rates still relatively high and financing remaining difficult, we can expect to see more news of this kind from the real estate fintech space in the coming months, and perhaps throughout 2025.
Know a proptech startup in trouble? Contact Mary Ann at maryann@techcrunch.com or Signal at 408.204.3036 or Marina.temkin at techcrunch.com.