Hamilton Ventures Research Insights: Vol. 2
Fintech Revolution: How Data Is Reshaping Investment Underwriting & Lending
Before we dive in further on the topic at hand, we wanted to give a shoutout to Matt Knight at Vertical/PTAG & Cherre - who published this Real Estate Data Market Map shortly after our first post on Data In Proptech.
If you really want to go down a rabbit hole of real estate data companies, it may be the best starting point out there.
Over the past decade, the real estate investment, underwriting, and lending verticals have experienced a data-driven revolution with the meteoric rise of Fintech startups focused on these sub-sectors. Many (not all) in this “first wave” of Fintech/Proptech data companies were focused on the single family residential (SFR) parts of the market. For example, Blend delivered value by creating a more seamless loan process for both borrower and lender via a cloud-based software platform that leveraged APIs, integrations, and big data. Sundae launched in 2019 to create a more transparent and data-driven buy/sell process for off-market residential properties. Meanwhile, Roofstock built one of the most data-rich experiences for SFR investors.
Looking forward, we believe that some of the most interesting (and successful) Fintech related companies leveraging data and AI in the real estate industry will be built for the commercial sub-sectors of the market. Some of the more interesting use-cases include:
Redefining traditional property valuation
Streamlining the lending and investment analysis processes
Helping asset owners and property management companies (PMCs) optimize rents and collections
Data-Driven Property Valuation
Traditionally, property valuation was a time-consuming process relying on manual assessments. However, with the integration of data, valuation has become more efficient and accurate. Unique factors such as light exposure, view, permit velocity vs. trends, and zoning regulations are now factored in by the new wave of startups. This is enabling quicker and more cost-effective appraisals and property screening. One such company doing this is Plunk (pictured below), which utilizes cutting-edge AI algorithms combining property-specific factors and real-time market data to better understand property valuation. It can even suggest remodeling projects and estimate how accretive it will be to property value. While Plunk is focused on single family real estate, Mapzot is providing a similar solution for Retail specific commercial properties.
Beyond Credit Scores
In the past, credit scores were the primary factors in lending decisions. However, data-driven underwriting now considers a broader range of factors, including feasibility, market value, and creditworthiness assessments (inclusive of non-traditional income – see our portfolio company Payscore). This shift allows for a more comprehensive and holistic evaluation of potential risks and rewards.
Additionally, moving beyond credit scores helps to reduce some of the historic systemic discrimination faced by minority groups during the property purchasing/renting process. One such example of the risks associated with only utilizing credit scores can be seen in the 2022 lawsuit against SafeRent Solutions (formerly CoreLogic Rental Property Solutions) where Black and Hispanic tenants argue they faced discrimination based on SafeRent’s heavy reliance on credit scores in rental decisions. While this case is still outstanding, the US DOJ issued a statement of interest in favor of the tenant plaintiffs in January of 2023 (see case details). As the regulations surrounding potential tenants and buyers continue to change over time, Payscore and other similar platforms will be well equipped to effectively screen applicants in a legal, data-driven, and cost-effective manner.
Algorithmic Investor Analysis
Data-driven algorithms have revolutionized investment analysis in real estate. These advanced tools replace subjective assumptions with more accurate predictions, thereby automating project feasibility analyses. This not only streamlines decision-making but also improves the accuracy of investment projections. One such company doing this is CompStak, which crowdsources and vets information using AI/Machine Learning to deliver superior CRE data. Previously this data was decentralized and often not well vetted leading to difficulty incorporating it into investment decisions.
In addition to data platforms such as CompStak there are dozens of Fintech data startups solving for different “jobs to be done” within the CRE investment analysis value chain. They are attempting to disrupt the incumbent positions of Costar & Altus Group (via Reonomy & Argus). A brief sampling includes:
Blooma (automated CRE loan sizing and underwriting)
ValCRE (automated CRE appraisals)
Archer (automated investment underwriting for multifamily properties)
Rent & Space Optimization
Data-driven approaches extend to the renter screening and approval processes. Beyond credit scores, novel data points like work schedules and family information are now considered. This comprehensive evaluation ensures a better cultural and financial fit for potential renters, ultimately leading to more stable and profitable tenant relationships. And in the event when flexible rent payments are needed, or a unit goes into collections, startups like Circa and Colleen are leveraging data and AI to help property owners and renters reach the best outcomes possible.
One company using data to maximize rental revenue for spaces is co-working company Regus, which uses real time booking and availability through their mobile application. This company also solves for another interesting use-case: easing the hybridization of businesses. Through the creative use of data Regus not only allows property owners to maximize their income associated with an asset but also empowers business leaders by enabling them to offer on-demand and flexible work accommodations.
The Continued Evolution Of Fintech In Real Estate
The Fintech and data revolution is poised to continue reshaping real estate - especially the commercial sector. Data-driven approaches have streamlined processes like property valuation and widened lending considerations by reducing biases. Algorithmic analysis improves the efficiency of investment projections and decisions. Renter screening with additional data points fosters stable tenant relationships. Ultimately, these Fintech data innovations benefit real estate professionals and enhance the overall real estate experience for occupiers.
As these trends evolve, we anticipate further advancements in how the market approaches real estate underwriting, lending, and investment. In particular, the marrying of generative AI technologies with proprietary data unique to real estate owners and lenders will be interesting to monitor. At Hamilton, we are excited to continue learning and investing as the innovation in this space unfolds.
Connect With Hamilton Ventures
If you are a proptech entrepreneur looking for guidance or capital please connect via our website, or contact TJ Fleming: tfleming@hamiltonventures.io
If you are interested in investing in our portfolio opportunities, reach out to Prashant Kothari: pkothari@hamiltonventures.io