EXCLUSIVE: WeWork Backer SoftBank On Its Disruptive Real Estate Push
No company in the world may be having a bigger impact on real estate right now than SoftBank.
The Japanese telecoms giant has made a series of massive bets on companies that are disrupting the sector, via its tech-focused $100B Vision Fund, and using its own balance sheet. The aim of its founder, Masayoshi Son, is to invest in companies and technologies that will change the world, and property and construction are playing a huge part in this.
SoftBank and the Vision Fund have invested around $10B in WeWork, the flexible office company now valued at $47B that is branching out into the worlds of co-living and education. It is the lead investor in digital residential sales platform Opendoor and resi software company Compass, valued at $2B and $4.4B, respectively.
This week it invested $200M in Clutter, a tech-led storage business that picks up and delivers stored items as well as providing the storage space itself.
It invested $865M in construction startup Katerra, and is investing in companies that are not real estate firms per se, but will have a huge impact on the sector. These include Nuro, the driverless delivery vehicle company it backed with $940M earlier this month.
All of these companies are fundamentally impacting how real estate works, but not all of them were obvious choices for a fund that raised huge amounts of capital to invest in tech. So why the big push into a sector that is not always associated with the bleeding edge of technology? And where else might SoftBank be looking to invest in real estate?
Bisnow caught up with SoftBank Vision Fund Investment Director Justin Wilson, who is speaking at the FUTURE:PropTech conference in London in May. Bisnow is the event’s media partner.
He talked about the fund’s investment thesis, the sectors and technologies it is looking at as most resilient in a downturn, and why it doesn’t really matter that companies like WeWork are making big losses now.
Bisnow: Why have you made such big investments in real estate?
Justin Wilson: We didn’t have an objective as to how much capital we would deploy in the real estate sector when the fund kicked off. But there are plenty of studies which show you that real estate and its associated segments account for about 17-20% of global gross domestic product, and the real estate sector is larger than the securitised debt and equity market globally. So we wanted to take the time to explore that sector. We are one of the world’s largest funds, so the sector gives us the opportunity to deploy capital at scale.
Then there is the fact that the sector is only just going through a lot of the explorations that other industries have already gone through, and it is an extremely fragmented market with the possibility to be consolidated — global brokerage fees are about $80B annually on $1.5 trillion of assets, and innovative players are going to be able to lead the consolidation of that industry. We’ve spent time looking at a lot of different themes, activities and geographies and our investment in real estate is in line with its overall role in global GDP.
Bisnow: Give us a quick overview of your investment thesis. What are some of the key metrics you look for when making investment decisions?
Wilson: We like backing entrepreneurs with a big vision for how technology, data and artificial intelligence can be leveraged to radically disrupt the status quo.
As late-stage growth investors, we like to see demonstrable product-market fit with fairly meaningful revenue scale and growth. We like businesses with $30M-plus in revenues with a track record of being able to double their size given the overall total available market in the industry. We prefer platform businesses which can aggregate large pools of value and strong margin profiles which give companies an ability to experiment and succeed even with unknown obstacles ahead and less than flawless execution.
Bisnow: What sort of real estate technologies are on your priority list?
Wilson: We continue to meet with companies across the value chain in both residential and commercial real estate. However, with greater market uncertainty and signs of macro softness, we’re particularly interested in segments of the industry which have demonstrated a greater degree of resilience through a down market. When I think about some of the spaces that are more resilient, or not as correlated to other sectors, I’m thinking of things like rental housing — the rental market tended to be fairly resilient during the last downturn. On the commercial side we have spent time looking at storage.
Then there are the data-led software businesses that real estate companies would use throughout a downturn, as they look at optimising their businesses and becoming more efficient. On that real estate PropTech side there is a huge amount of opportunity.
Bisnow: Tell us about your latest investment in driverless delivery vehicle firm Nuro, and how it might impact the real estate world.
Wilson: There are some broad themes we have invested in around the fact that the consumer increasingly expects an experience where they can order groceries, drugs or other goods and have them delivered almost immediately. That has become the norm around the world. Nuro plays to that increasing expectation from consumers. In terms of how that affects the built environment, it is not just about how you get objects from A to B — there are whole businesses and infrastructures being built up around how you get things across that last mile to the consumer.
Bisnow: What are some of the really big challenges that no one has solved yet, that PropTech founders can try to focus on?
Wilson: No one has yet come up with a full stack, end-to-end software solution that covers the full spectrum of everything that an investor or operator would need. Something that covers where to build, what to build, the leasing and asset management side, investment and lending. I’ve been surprised at how fragmented that world continues to be, and the fact that there is no software package that powers commercial real estate. There’s still a lot being done in individual platforms and Excel. Companies are coming at it from different angles, but it is still fragmented. That is an area ripe for investment.
Bisnow: WeWork is still losing money — how long can a company continue in revenue growth mode without turning a profit?
Wilson: There is no single answer; every company is different. But one thing you can say is that every single company we invest in we have a great conviction that it will turn a profit. All the companies we invest in, we see a great growth trajectory and they are causing great disruptions in their market, and as long as we believe it is possible to make a profit we will continue to invest. You have to remember that in the tech world a lot of companies operate in this model — Amazon made billions of dollars of losses for years before it ever turned a profit.
Bisnow: Can WeWork be the Amazon of real estate?
Wilson: That’s the ambition.
Bisnow: People think about tech companies as typically being asset and liability light, but companies like WeWork or Katerra have huge assets and liabilities. How would you explain that seeming contradiction?
Wilson: We haven’t only invested in asset and liability-heavy businesses, and not every real estate business is asset and liability heavy — if you look at something like Compass then that is an agency model, whereas something like Katerra, you are building a factory and investing in a lot of machinery, which is capital-intensive. But we have a quantum of capital, we have a very large, long-term fund, our investment thesis is very long term, and so we are not afraid of investing in disruptive companies that need a lot of capital investment over a long period. If we were a smaller fund, we wouldn't have the confidence that we could invest in a company with ongoing capital needs. Given our scale we can take a long-term view.
FUTURE:PropTech, where Wilson is speaking, is the world’s largest PropTech event — more than 1,500 people attended last year. It will be held in London on 13 May. Bisnow readers can get a 15% discount on tickets. Please use discount code Bisnow15.