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Disrupting Real Estate, Valor's Investment in Loft

January 06, 2021

Despite the significance of any real estate transaction in one’s life – buying a house, renting an office space, securing a mortgage loan, renovating an apartment – nothing ever seems seamless. In fact, the path to getting to a deal can be a true hassle, requiring an overwhelming amount of coordination between several parties, tons of paperwork, and in-person appointments. High transaction costs, information asymmetry, and long delays only add to this stressful equation.

Having spent almost 7 years of my career in real estate I feel like I have a deep connection with this reality; and after spending a few years in venture, I have come to believe that no other sector in the built world shares the complexities (and consequently the opportunities) for technology to drive efficiency. I’m excited about the (long due) transformation that is taking place in this multi-trillion-dollar asset class called “proptech” and its applications on a global scale. Testament to this potential, the proptech category has come to amass billions of dollars in venture capital over the last few years and that capital is being deployed across a multitude of verticals and sub-verticals.

Loft is Valor’s first investment in the proptech space. Founded by Mate and Florian, two German immigrants and serial entrepreneurs (founders of Brazil based Printi, acquired by NASDAQ listed Vistaprint), the company has just completed its second anniversary and, although young, they’ve gone from a pitch deck to one of the fastest growing proptech powerhouses in the world, having raised around $250M in equity and $100M dollars in debt from high caliber international investors like Andreesen Horowitz, Vulcan Capital, Thrive Capital, and others. We are excited to have partnered with the company on the Series B and to have doubled down on the recently announced Series C.

Tackling the problem of the residential property market. 

In any economy, residential real estate is by far the largest asset class. Brazil boasts a $3.5T residential market that transacts around $10B in commissions yearly. Used inventory exchange hands around 60 thousand times a year in São Paulo alone. Yet despite this being the single most important transaction in one’s life, if you have ever tried to buy or sell a home in Brazil you know how painful this process can be: multiple touchpoints with brokers, banks, cartórios (notaries), insurers, etc. Here are a few of the underlying reasons of why this is the case:

  • The Incentives between all stakeholders of a transaction are severely misaligned here. Unlike in the US, there is no broker exclusivity, so brokers rarely try to maximize your chances of selling your apartment.
  • Also unlike in the US, there is huge pricing asymmetry. No-one knows what the fair market value of a property is because there is no public transaction data (and no MLS, which is a publicly available database about properties for sale).
  • Compounding that problem for us Brazilians, all processes are highly bureaucratic and entirely paper-based.

Loft is organizing this mess, if you will. In a nutshell, the company is building an online transactional marketplace for residential real estate.

  • One, through transparency: they are the only company in Brazil building a proprietary MLS based on offline data that they themselves collect, digitize and analyze from the cartórios, or registries.
  • Two, by providing liquidity: Loft is able to do that in a variety of ways, including making immediate offers to sellers based on their pricing algorithms, in what is called ibuying. A thesis pioneered by US based Opendoor, which is a startup now worth over $14B dollars.
  • The third pillar of the strategy is through certainty: Loft acts as the central clearinghouse for all transaction-related flows which creates a much higher degree of certainty in the transaction.
  • Fourth, Loft aims to remove transactional friction: The company is digitizing the full process, from visit scheduling to the signing of transaction docs.
  • Lastly, Loft’s platform also seamlessly integrates a variety of add-on services which traditionally would be completely separate work streams for transacting parties, including financing (mortgages, home equity), legal services, renovations, etc.

While solving these Brazil-specific real estate pain points is a tremendous opportunity in and of itself, what made Valor particularly excited about the opportunity is Loft’s longer-term vision of creating a world in which properties are as liquid and easy to transact as any other asset. Transactional marketplace peers such as Carvana have shown that this is possible for high-value items like cars. We’re looking forward to seeing Loft do the same for residential real estate.