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Many proptech startups born and funded in times of low interest rates are struggling. With investment in U.S.-based real estate startups falling from $11.1 billion in 2021 to $3.7 billion last year, some are selling themselves and others closing up shop, according to PitchBook data.
Two recent examples are the most recent losses and long years of a difficult interest rate environment slowdown in real estate fintech funding.
Rental proptech startup Divvy Homes is being acquired in a fire sale by Charleston, South Carolina-based Maymont Homes, Fast Company. informed last week. Maymont is a division of Brookfield Properties.
EasyKnock Shuts Down Abruptly, NPR informed last month. This was followed by a shutdown Several lawsuits have been filed against proptech and one FTC consumer alert about its controversial sale-leaseback models.
While 9-year-old Divvy declined to comment, a source familiar with the matter confirmed to TechCrunch that Divvy is in talks with Brookfield and is “close to signing a purchase agreement.” This person argued that the purchase was a fire sale. However, neither the company nor the source shared how much Brookfield might pay for Divvy, so it’s not yet clear whether the price is a bargain or a bargain.
Its sale, fire or not, is not entirely shocking. Signs of trouble began to appear at Divvy in 2022 when the company began laying off employees. By November 2023, Divvy had its third layoff in a year.
The once buzzing startup has raised more than $700 million in debt and equity from well-known investors such as Tiger Global Management, GGV Capital and Andreessen Horowitz (a16z). Divvy’s last known funding round was in August 2021. $200 million in Series D funding It was valued at $2 billion by Tiger Global Management and Caffeinated Capital. A Series D round was announced just six months later $110 million Series C. The last known value of Divvy Homes was $2.3 billion in 2021 PitchBook.
EasyKnock, a startup that bills itself as the first technology-enabled home sale-leaseback provider, was founded in 2016 and has raised $455 million in funding from backers including Blumberg Capital, QED Investors and the corporate venture arm of Northwestern Mutual, according to PitchBook. collected. data. About $200 million of that capital was in the form of debt that allowed the company to buy the homes, according to a person familiar with the startup.
What went wrong?
In its heyday, Divvy Homes claimed to be different from other real estate tech companies because it worked with renters who wanted to buy the home they wanted and then leased back for three years while building “the savings needed to own.” themselves,” he said.
But the Federal Reserve began raising interest rates in 2022 to curb inflation. For companies like Divvy Homes, which buy homes as part of their business model, the high rates were devastating, limiting their ability to buy homes and make money from those purchases.
EasyKnock’s business model also includes buying and renting houses. But its arrangement appealed to homeowners with poor credit scores because it gave them access to quick cash and the ability to repurchase the home at a future date.
Sources familiar with the company told TechCrunch that high interest rates are also hurting it as it borrows to finance its operations. But EasyKnock had additional problems. more than two dozen lawsuits were filed against EasyKnocks and Attorney General of Michigan the company allegedly used”deceptive practices” by buying homes at low prices from those in financial distress and then charging them high rents.
According to our sources, EasyKnock was bankrupt and heavily indebted when it closed.
With interest rates still relatively high and financing still tight, we can likely expect more of this type of news from the real estate fintech space in the coming months and possibly all of 2025.
Do you know of a proptech startup in trouble? Contact Mary Ann maryann@techcrunch.com or via Signal at 408.204.3036 or Marina.temkin at techcrunch.com.
