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MortgagePoint » Your Trusted Source for Mortgage Banking and Servicing News 50 May 2023 F E A T U R E MAKING STRIDES Here are the keys to accelerating proptech and real estate technology through venture capital. B y C H R I S B I X B Y I t's no secret—we've all seen the headlines and experienced the fallout from the difficult rate environment, declining real estate valuations, and depressed mortgage originations. Though it's an exceptionally challeng- ing time for the industry, the fact is, many properties will be sold this year—and next. The National Association of Realtors (NAR) is forecasting a decline in existing home sale volume by approximately 7%, but still forecasting 4.8 million homes to be sold. The Mortgage Bankers Association is assuming that interest rates will continue to impact mortgage origination volumes and is fore- casting $1.9 trillion in mortgage originations for 2023, which, while down over 50% from $4.4 trillion in 2021, still represents a fairly typical year for mortgage volumes. In the grand scheme of things, the mortgage market, while down, is not going to disappear. The need for mortgage loans is not going away, nor is demand for technol- ogy and digitalization. The pandemic caused consumers to behave more digitally—and they emerged much more mobile-friendly. This caused banking, ecommerce, and fintech to make great strides in digitization— and now real estate and mortgage are follow- ing suit. However, these sectors are still in their infancy in terms of true digital adoption with considerable opportunity ahead. How Is Digitization Being Accelerated and Funded? T hroughout its history, venture capital has often been associated with innova- tion, disruption, and technology. It takes many forms and offers new points of view, perspectives, and provides financial re- sources for industries undergoing significant change. Specifically, venture capital investment is accelerating digital adoption in the mortgage and real estate industry by giving it consider- able attention and bringing capital to areas that have not historically received signifi- cant funding. The mortgage and real estate sectors are benefiting from a new wave of best practices gleaned from other industries that underwent digital disruption—and are just now being funded—which, in turn, is increasing competition and inspiring more and faster innovation. Proptech emerged as its own investment category in the mid-2010s and has been rap- idly growing due to the continuous influx of venture capital dollars. With approximately $2 billion invested in 2015 to approximately $12 billion at its peak in 2021 according to Keefe, Bruyette & Woods (KBW), there was the explosion of venture capital funds and firms focused on investing in real estate technology companies such as Airbnb, OpenDoor, Zillow, Better, and Porch. Last year, venture capital investing in proptech was approximately $9-10 billion based on KBW's research. The U.S. proptech sector represents a large ecosystem of start-ups and rapidly growing companies that offer technology- enabled and/or innovative products, services, and business models across various aspects of the residential and commercial real estate markets. It encompasses technology that supports various areas within the real estate industry including searching, evaluating, financing, building, closing, and managing a property, loan, or investment. Over time, as more customization has en- tered the market, it has broken into various, nuanced subcategories including residential real estate technology, commercial real estate technology, construction tech, green-tech, and mortgage tech. How Proptech Is Paving the Path to Digitalization T here are five key areas where proptech is advancing digitization in the mortgage industry: 1. Driving efficiencies and cost savings for lenders through technology, AI, and machine learning: Proptech firms are introducing technology that C H R I S B I X B Y is Managing Director of Venture Capital Strategies of Rice Park Capital Management, a private investment firm managing various investment vehicles and venture capital funds on behalf of institu- tional investors, family offices, and high-net-worth individuals. Bixby is responsible for sourcing, underwriting, structuring, and managing investments in early to mid-stage technology companies operating in the real estate-based finance, equity, services, and payments sectors. He can be reached at cbixby@riceparkcapital.com. Rice Park is registered as an investment advisor with the SEC and only transacts business in states where it is properly registered or is excluded or exempted from registration requirements.