Fifth Wall raises $503 mln from 50 LPs for real estate investing

Los Angeles-based venture firm Fifth Wall Ventures could well serve as a case study for the recent surge in real estate investing.

Two years ago, when the firm announced its $212 million debut fund, it raised primarily from nine strategic investors from the U.S. real estate industry. Fast forward to today and Fifth Wall, which calls itself the largest venture firm focused solely on tech related to the real estate community, announced it has raised $503 million for its second vehicle, or 60 percent more than its inaugural fund.

The sophomore effort was oversubscribed. The firm secured funding from more than 50 corporate strategic investors from 11 countries, including Gecina in France, MERLIN Properties in Spain, British Land and SEGRO in the United Kingdom, Kenedix and Mitsubishi Estate in Japan and Keppel Corporation in Singapore. LPs from the United States, included return backer CBRE, a brokerage and real estate services company, as well as Cushman & Wakefield, D.R. Horton and Equity Residential, among others.

Firm co-founder and Managing Partner Brendan Wallace noted that the fund size swelled, in part, to how the real estate and tech industries have converged in recent years. “Fifth Wall has become central to that convergence, fostering a level of strategic collaboration that has never before characterized the real estate industry,” he said.

He also said the firm will invest the new fund in startups seeking to bring the digital revolution to the long-lagging commercial, industrial and residential real estate sectors.

“Real estate has under invested in technology for decades, but I think the opportunity has arrived to make more intelligent buildings,” he said.

Wallace expects the fund to invest in 25 companies over the next three years, with deal sizes ranging from $10 million to $25 million.

Fifth Wall will also invest in Asia and Europe as well as North America, a reflection of the fact that the fund’s LPs are owners, operators and developers worldwide.

“Real estate technology is inherently global,” he said. “The pain points tend to be the same across geographies. A building in London, New York or Tokyo are not that dissimilar from one another.”

Fifth Wall has announced one of its first investments from the fund. The firm participated in a $13 million in Series A round in Cobalt Robotics. The startup is building robots to replicate the services of traditional patrols in workplaces.

Sequoia Capital led the Series A round, as the San Mateo, California-based company has now raised $51.5 million to date.

Other portfolio companies include the online home selling service Opendoor; the moving and storage company Clutter; and the home insurance provider Hippo Insurance. Fifth Wall also participated in a strategic investment in Lime last year, as part of the firm’s push to make cities more accessible.

So far, Wallace said that learning “the ins and outs of real estate” can be challenging, but Fifth Wall’s investors have overcome the learning curve to modernize the sector.

“We serve as the connective tissue between the innovative economy, the venture world and the real estate industry, and that’s an important role to play,” he said. “We’re playing it well.”

Fifth Wall was founded in 2016 by Wallace and Brad Greiwe. The pair have backgrounds in traditional real estate at Goldman Sachs and at Blackstone Group, and as entrepreneurs. Wallace co-founded Cabify, the ridesharing service in Latin America, and Greiwe co-foundedInvitation Homes, operator of single-family rental properties.

The close of their new fund close is well-timed. The flow of money into proptech has been on a tear.

Market researcher CRETech reports proptech deals set a record for the fourth-month period from March through June. Investments exceeded $1 billion each month.

And competition is growing. Year over year, the number of VCs investments in the sector increased 70 percent, CRETech reports.

A short list of VCs drawn to proptech include not just Fifth Wall, but 500 Startups, Founders Fund, General Catalyst, Thrive Capital and Y Combinator. 500 Startups leads the list, having made about 180 investments in the sector.

In May, 500 Startups participated in a $12.2 million Series A round in Seattle-based startup digital escrow platform Modus Real Estate Services. Other investors included the Hustle Fund and NFX in San Francisco, Mucker Capital in Los Angeles and Madrona Venture Labs in Seattle.

Meanwhile, SoftBank has pumped $4.4 billion in a series of rounds from its outsized $100 billion Vision Fund into shared workspace provider the We Company (formerly WeWork).

And Softbank’s other deals in the broad sector include a $867 million investment in construction prefab startup Katerra and a $450 million investment in digital residential real estate platform and a $120 million investment in home insurer.

No to be left behind, corporate venture is also jumping into proptech

For example, one-year-old San Francisco-based JLL Spark Global Venture Fund, a spin-off from commercial real estate broker JLL (formerly Jones Lang Lasalle), has invested in about a dozen companies from its $100 million first fund.

“There is a strong push to digitize an office building’s operations to gain insights about the commercial real estate lifecycle,” said JLL Spark Co-CEO Mihir Shah. “It’s clear that more and more technology entrepreneurs are looking at commercial real estate for the many untapped market opportunity.”

Typical investment size for JLL Spark ranges from a few hundred thousand to several million dollars.

In June, JLL Spark participated in a $31.4 million Series A round in Software Motor Co. San Francisco investor Meson Capital also participated in the round.

Software Motor is working to make electric motors, which consume 45 percent of the world electricity and used widely office building and industrial plants ,more efficient through technology.

Like Fifth Wall, MetaProp, a New York City venture firm, has latched onto proptech investing.

The four-year-old firm is currently investing out of its a $40 million second fund. And it has filed to raise a third, $100 million fund.

Zach Aarons, co-founder and managing partner, said MetaProp and his firm’s partners have invested in 115 companies over the past decade.

For example, In July, MetaProp participated in a $2.5 million seed round in New York-based automated construction platform developer Avvir. Khosla Ventures led the round, with Partner Evan Moore working on the deal. The investment included participation from U.K.-based venture firm Localglobe.

“Commercial real estate is one of the world’s biggest asset classes, but it’s also one of the last industries to adopt technology in a meaningful way,” Aarons said. “It’s time.”

Tom York is a San Diego-based contributor. He can be reached at tom.york@gmail.com.