Real Estate: Ghost Town or Gold Rush?

5 min readApr 29, 2024

Written by FirstMark Partner Adam Nelson

Famously, when asked why he robbed banks Willie Sutton said “because that’s where the money is.”

As the largest asset class in the world, real estate (RE) is most certainly where the money is. As such, you’d expect that as major platform shifts like embedded fintech and AI come to the forefront of the tech ecosystem, new entrants will follow Willie Sutton’s example and chase the money.

In reality, however, proptech has seemed like a bit of a ghost town that’s getting more barren by the month. It’s gotten so sparse out there that OGs like Brad Hargreaves need to write articles about who’s still writing checks in proptech — a far cry from the scores of VCs taking to Twitter to proclaim their GenAI bona fides.

Under the surface though, here at FirstMark we think several trends are pointing to a massive opportunity sitting at the intersection of real estate and technology and toward a renaissance in venture funding and interest in the coming years. While we are by no means RE specialists at FirstMark, our latest Series A investment in Backflip is the second RE-centric investment we’ve made recently, following our long history with companies like Airbnb, Vacasa, Kasa, and Orchard, so in this piece, I’ve done my best to explain why we are so excited about this space, and the trends behind our thinking.

A Trillion Dollar Opportunity

Real estate is a $20 trillion market that employs ~9M people and, as we saw in the Global Financial Crisis, it is a foundational piece of the financial system. In the last proptech boom, this scale was most obvious in business models that sought to monetize the underlying assets (e.g. WeWork, Sonder, Opendoor, Better, etc…). These models, which focus on monetizing the physical real estate itself, have proven to be both capital-consumptive, competitive, and highly macro-sensitive. While there may be winners from those markets it’s becoming an increasingly difficult venture model to support.

The venture model we are excited about within the real estate industry combines two converging trends: vertical SaaS and fintech.

We see significant opportunity in the software layer that manages the physical assets of the real estate industry, and we view it as a natural progression that combines software workflows (i.e vertical SaaS), but takes it a step further by leveraging the inherent payment and capital flows (i.e Fintech) that the industry relies on. Not all vertical SaaS opportunities are created equal, and not every vertical can truly support a fintech attach.

One heuristic we use at FirstMark to assess the potential of vertical SaaS opportunities is that we look for $100bn+ of transaction volume. At $100bn+ of transaction volume, we believe you can build a venture-backed business through payments/fintech take rates. Many vertical SaaS businesses will struggle to find pools of payment or capital flow that support $100bn+ of volume, conversely, real estate has several sub-asset classes that would easily top that, making clear to us the potential for dozens of $1bn+ opportunities. In property management software alone (which one can argue is a form of vertical SaaS), AppFolio, Entrata, and Real Page account for over $25 billion of enterprise value, and this is before we include the market leader Yardi, which is reportedly doing well over $1bn in revenue.

A Platform Shift in Full Swing

Institutionalization and the power of distribution: The trend over the last decade in real estate has been the rapid institutionalization of asset classes, most notably SFR, commercial, and multifamily. Blackstone’s RE footprint alone accounts for ~$600bn in market value today and an estimated 55% of multifamily units are owned by institutional investors. Similarly, property management has increasingly centralized to large asset managers and rollups that can provide management at a regional or national scale depending on the asset class. We need to look no further than the massive ~700K unit portfolio managed by Greystar for evidence of this market dynamic. This centralization has created opportunities for enterprise product needs and distribution efficiency that historically were hard to execute against given the more fragmented market structure that existed at the start of the 2010s and support the low/slow growth of the market leaders in spaces like PMS. We think enterprise SaaS solutions (and particularly now with the ability to offload / augment human workloads with AI) can create a number of vertical winners slowly in the software and automation realm.

Similarly, the other strength of institutionalization is the levered distribution potential through intermediary layers like property management (e.g. Bilt and Flex). Recent unicorns in the ecosystem, have shown the virality that can be created by counterparties having access to hundreds of thousands of customers at the transaction layer for their highest monthly cost.

We’ve talked about the shifting business model of embedded financial services as creating a Negative CAC distribution opportunity (and outlined the emerging players going after the opportunity in our Market Map), and the intersection of payments, insurance, and multiple different flavors of lending come together in profound ways that create the opportunity to monetize the same underlying asset multiple times over as an originator, payment facilitator and a software provider. We see these dynamics fundamentally changing the economic model of already exciting markets like property management systems, as we’ve outlined in our thesis around our investment in Revela.

Adding Fuel to the Fire

We’ve spoken before about the opportunity at the intersection of alternative assets and technology platforms that was on full display at our inaugural Alternative Capital Demo Day a few months ago. While we still think that given the potential of this market, there remains a large capital gap, we were encouraged to have an audience of over 100 folks representing endowments, private credit funds, insurance companies, etc. seeking to learn more and get involved.

We’re also excited to see the continued creation of more propco/assetco vehicles from partners like Upper90, Coventure, Alpaca, Setpoint, and others, which should offer more fuel into this market. While this isn’t necessarily a straight line of adoption, the emergence of more standardized propco and debtco structures should move some of the lower-risk, more asset-heavy capital dynamics to the right capital sources and allow tech-enabled models to continue to grow across property management, lending, and other capital value chains.

While all of this can enable the tailwind we expect to see, perhaps the most exciting piece of this moment in proptech is the less competitive funding environment. The outlier outcomes in real estate technology have either been long-term compounders like Yardi, Real Page, and Costar or venture-backed n-of-1 companies like Airbnb, Zillow (post-acquisition) that have been able to grow with relatively little funded competition. That contrasts greatly with the ZIRP era, where it was the norm to have over a dozen companies all targeting the same opportunities that, taken together, often cratered the attractiveness of the market and impaired the ability to support venture outcomes.

While we’re not exactly in proptech winter, the heat that’s brought tourists into “sexier” areas of tech is a welcome respite for more rational financings of a smaller group of players that are able to consolidate talent in the market and foster the type of outlier returns that is the promise of the broader space.

Given our excitement about the Real Estate ecosystem, it should not come as a surprise that we jumped at the opportunity to lead Backflip’s Series A. Click here to read more.