Investor confidence in proptech reaches all-time high for 2021

The proptech market is set to explode in 2021 as real estate lending transactions become further digitized and commodified, according to a Keefe, Bruyette & Woods report.

The confidence indices for proptech — any type of business providing innovation to the real estate industry — among sector CEOs and investors both reached all-time highs in the latest biannual survey conducted by MetaProp.

The CEO index shot up to 7.7 at year-end 2020 from 4.7 in the middle of the year and 7.2 at the end of 2019. Investors had even more faith, measuring at 9.2 from 5.9 and 8, respectively. The confidence scale ranges with scores 1 through 10, with 10 being the most confident.

Over the last year, remote online notaries reported exponential growth, while volume surged for digital lenders and digital closing platforms alike.

“The pandemic is going to end up proving a watershed event in terms of adoption and acceleration of digitization across the industry,” Ryan Tomasello, director of equity research at KBW, said in an interview. “It unlocked pent-up demand from millennials — the largest cohort of the population and growing and in terms of homeowners — for a move to digital.”

A 96% share of proptech investors expect capital to keep flooding in during 2021. That compares to a 70% share from mid-2020 and 85% the year prior. Meanwhile, 84% of CEOs predicted the fundraising to be frothy in the upcoming 12 months, nearly doubling the 44% from six months earlier and an uptick from 81% year-over-year.

However, within the mortgage industry a disconnect remains between the desire to adopt streamlining tech and actually executing on that. The pandemic era’s non-stop deluge of refinances in particular created a conundrum for many lenders who needed automated processes but lacked the capacity to implement them.

But it’s inevitable that originators will be forced to adopt such capabilities as younger homebuyers enter the market and expect a tech-enabled experience, Tomasello said.

The volume rush highlighted the industry’s inefficiencies and generated heightened interest for investors. It caused a bevy of mergers and acquisitions and initial public offerings within the sector — a trend that’s on the upswing.

Just over three-quarters of investors expect proptech M&A to increase in 2021, compared to 63% when surveyed in the middle of 2020 and 53% at the end of 2019. Meanwhile, a survey-high 48% share of proptech CEOs forecasted that their companies will be bought, go public, or gain major liquidity by the end of 2023. It jumped from 42% shares in both mid-2020 and year-end 2019 who projected that in a three-year horizon.

“We've gradually seen category leaders emerge and be acquisitive, looking to increase scale and grow their product offering,” Tomasello said. “We do expect M&A to be an ongoing theme and expect a surge in special purpose acquisition company activity. SPACs have accelerated throughout the broader market, and we've seen a number of SPACs going directly after the proptech space.”

KBW identified 14 proptech-focused SPACs seeking targets and 16 with proptech ties seeking targets. Those 30 SPACs have a combined $28 billion in spending funds.