The PropTech Disruption of 2023: Four Early-Stage Trends and Startups Reshaping Residential Real Estate

There are many questions right now in both the commercial and residential real estate industries in the United States. According to Bloomberg and Morgan Stanley, “1.5 trillion of U.S. Commercial real estate debt comes due for for repayment before the end of 2025” (Source). In a high interest rate and inflationary environment, less and less institutional investors are buying commercial real estate. Institutions and retail are opting for highly liquid investment opportunities, keeping money on the sidelines, and even trying to get out of assets that are illiquid. With a clear sight of struggle ahead in commercial real estate, there is bound to be technological disruption. We will start by going over commercial real estate trends and then dive into residential real estate trends, as well as focus on four software startups and trends within residential real estate. Let’s cover commercial real estate first to understand the second and third order factors that may have an impact on residential real estate.

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1. Occupancy Levels: Although offices are returning to in-person, we will likely not return to a pre-COVID environment. Occupancy rates are reaching lows, and the current situation is on record to be worse than previous downturns. (Source)

2. Macroeconomic Spillovers: In the current macroeconomic environment, there are spillover effects from high inflation and high interest rates. It will be increasingly challenging to pay back debt. High interest rates discourage buyers from buying.

3. Developers converting commercial to residential: This will not happen overnight. In the next decade, projects will embark to convert commercial real estate into residential real estate. If not, these commercial real estate buildings will be at risk of financial distraught if low occupancy continues and debt payments are not made on time. (Source)

4. More time is spent at home: If less individuals are spending less time in the office, they will naturally spend more time outside of the office. With work from home, some may value where they live more and more. More value is placed on residential real estate now.

In residential real estate, there is no doubt that people are looking for homes right now or for places to rent, especially in large city centers and throughout many states in the United States. Now, they may not be able to find the perfect home right now due to high interest rates and high prices — and sellers may not want to sell at lower prices. Unless you have the capital to be flexible in your purchase, it can be difficult to find the “perfect” home if it is beyond or slightly out of your budget.

In the world of technology, when we see problems, we see opportunities to help people. The inefficiencies in the market are going to be addressed through early-stage technology companies increasingly over the next few years — targeting how renters and landlords interact, as well as how buyers and sellers interact.

Today, I want to focus on the most interesting trends at the early-stage startup level in residential real estate. These trends and early-stage startups are evaluated both from a product and venture perspective below.

Four Emerging Early-Stage Software Trends in Residential Real Estate in 2023

1) Software is aiming to help landlords and lenders close deals faster in residential real estate.

• Startup and Team: Trigo (YC W23) founded by former founders and startup builders — Sam Stein and Abe Wheeler.

• Problem they are solving: According to Trigo (YCW23), the largest rental database (FICO) only provides 3% of rent data coverage. Deals take a long time to close, and lenders are limited on who they lend to.

• Solution: Trigo (YC W23) is helping provide landlords and lenders with a Rent Data API to help close deals faster and with more accuracy. They provide 75% rent data coverage, within 48 hours. They screen tenants 2x faster and help write 17% more loans.

• Market: $43 trillion housing market in the United States. (Source)

• Terms: Seed stage, YC funding so far.

2) Software is helping landlords with retention by finding tenants that renew at higher rates and providing tenants with more accessible optionality.

• Startup and Team: Renew founded by real estate veterans Rob Hayden and Kevin Murphy.

• Problem they are solving: “100M+ people go through the lease renewal process each year, […] [and] a typical multifamily property turns over nearly 50% of its residents each year.” (Source)

• Solution: they offer a unified property management system that encourages retention and renewals for customers. Renew creates an authentic and personalized experience to encourage customers to renew their leases. They also help customers find other properties within the real estate portfolio.

• Market: $43 trillion housing market in the United States. (Source)

• Terms: $8M+ in Seed funding from “Upfront Ventures, Goldcrest Capital, Allen & Company LLC, Walkabout Ventures, and RXR as well as executives from other top real estate companies” (Source).

3) Software is helping tenants find alternatives via credit to eliminate their security deposits.

• Startup and Team: Standby, founded by experienced operators Elvar Thormar, Egill Agustsson and Clint Miller.

• Problem they are solving: security deposits can be pricey for renters, and landlords are want to ensure that their tenants can pay the security deposit up front. This is an inefficiency in the market for landlords particularly because it can take time to find renters, as well as secure their properties.

• Solution: Standby offers a line of credit to renters, enabling renters to not pay an upfront security deposit as well as use that money towards other purposes. Standby runs identity and credit checks on renters in order to provide the line of credit. Landlords can more efficiently reduce vacancy rates and find a secure way to protect their properties through Standby.

• Market: $43 trillion housing market in the United States. (Source)

• Terms: $5.3 million in Seed funding.

4) Software is helping tenants pay rent by giving them cashback rewards, as well as landlords use incentives to help properties excel financially.

• Startup and Team: Stake founded by operators Rowland Hobbs and Jimmy Jacobson.

• Problem they are solving: Renters may feel like they are “throwing away cash” when paying for rent. (Source)

• Solution: Stake helps renters gain capital, and they help landlords generate revenue more efficiently. They offer cash back for spending through a branded debit card that offers 5% back for 90 days to begin. Stake is also very landlord-friendly: they incentivize renter actions through rewards, and this enables landlords to help their properties perform effectively.

• Market: $43 trillion housing market in the United States. (Source)

• Terms: $12 million Series A funding.

Summary

To summarize, these are four key trends emerging in the early-stage Proptech startup ecosystem in 2023. The core takeaway is that these early-stage startups are optimizing the relationship between renters and landlords. Landlords will see increased occupancy rates if they take advantage of software, and renters will see more flexibility in the options they have when evaluating rental options. These four trends are the following:

• Helping landlords and lenders close deals faster.

• Helping landlords with their retention strategy and providing renters quicker optionality.

• Helping tenants use credit as an alternative to eliminate their security deposits.

• Helping tenants pay rent by giving them cashback rewards, as well as enabling landlords to use incentives to help grow efficient revenue streams.

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