Contact Us

CRE Startups Have Eased Off The Gas Pedal Despite Record Investment

An Oyo hotel in Shenzhen, China, as of November 2018

No one is eager to be the next WeWork anymore.

Startups in the real estate industry have spent the months surrounding the collapse of the coworking monster's valuation adjusting their growth plans to focus on sustainability, rather than grabbing as much market share as possible, The Wall Street Journal reports.

That change in strategy has come even as venture capital investment into real estate startups more than tripled from 2018 to 2019, when CRETech estimates that total equity and debt investment into the arena topped $31B.

SoftBank CEO Masayoshi Son took some responsibility for pushing WeWork to grow at light speed, losing billions of dollars in the process, and said late last year that his company's investments will prioritize profitability going forward. Two of the startups that have gotten capital infusions from SoftBank's venture-oriented Vision Fund, Oyo and Compass, have already made moves to reflect the new priorities.

Oyo, the India-based startup that licenses, brands and lists independently owned and operated hotels, hit a private valuation of $10B in October based on a breakneck pace of growth, including opening properties at a rate of one per day in the U.S. last year. This month, CEO Ritesh Agarwal told employees that Oyo "sometimes went ahead of [itself]" in its expansion drive, and that it would spend 2020 adjusting its growth plan, the WSJ reports. Oyo also laid off a portion of its staff this month.

Brokerage firm Compass announced the layoff of 40 employees in its New York offices this week, weeks after CEO Robert Reffkin admitted that the company had whiffed on its 2017 goal to have 20% market share in 20 U.S. cities by 2020, The Real Deal reports. Compass has not entered any new markets since the start of 2019, the WSJ reports.

Some of the layoffs were in the company's mergers and acquisitions department, with Compass acknowledging that it does not have any immediate plans to acquire more companies.

Flexible-stay hotel operator Sonder, which carves its units out of multifamily buildings, planned as recently as last year to open 4,100 units per month and soon become the world's short-term rental industry leader, has also taken its foot off the gas pedal, the WSJ reports.

Sonder CEO Frances Davidson told the WSJ that maximizing his company's pace of expansion "is less of a thing for us going forward," at least in part because he is no longer worried about a competitor making a splash with a massive, SoftBank-style capital infusion.