Similar to how the 2009 recession brought about the inception of many of the behemoth iBuyer companies we have today (due to a plethora of distressed single-family assets resulted from the carnage of the financial crisis), the COVID induced economic downturn has once again incentivized big moves from iBuyers. Last week, we woke up to the news of Opendoor (the largest iBuyer) announcing a $4.8 billion initial public offering (IPO) in the form of a newly popularized SPAC transaction.
SPAC (Special Purpose Acquisition Company) offerings are the flavor of the month substitute to traditional IPO’s, where a company is formed strictly to raise capital through an IPO for the purpose of acquiring an existing company. SPAC’s allow companies to skip the iterative road-show process, in addition to, realizing less volatility experienced in traditional IPO’s. Opendoor is partnering with acclaimed venture capital investor Chamath Palihapitiya’s Social Capital in this venture. Though Opendoor is not the first iBuyer to go public (some of their largest competitors in Zillow (NASDAQ: Z) and Redfin (NASDAQ: RDFN) have been public for years), Opendoor’s long awaited IPO hit the market by surprise.
Opendoor was founded in 2014 providing a multitude of services. Like other iBuyers, Opendoor’s online portal allows retail consumers to view the real-time value of their home, search virtually for their new home from active listings anywhere in the nation, and if they wish to proceed, request an offer for their home from Opendoor and sell their homes at a cash offer within in a matter of 48-hours. The portal provides Opendoor, in what has traditionally been a static single family industry, a platform to analyze real time searches before transactions take place. Essentially, providing Opendoor an exclusive window into the pulse of the single-family industry, where trends can be formulated long before materialized. With information of this magnitude, Opendoor has capitalized by acquiring single family assets in 21 high-growth markets nationally, garnering a portfolio that returned $4.7 billion in revenue in 2019, and a forecast of nearly $10 billion revenue by 2023 . Though Opendoor has its fair share of competitors, Opendoor is by far the dominant leader, towering over its next closest competitor by nearly 4.5 times, amassing 70% of the iBuyer industry.
Opendoor’s revolutionary technology may be setting the stage of the digital transformation in real estate, while this current crippled coronavirus economy may prove to be an opportune time to venture publicly and amass an greater share in the single family industry. Coming out of the 2009 financial recession, there has been a massive underbuilding of housing supply causing a large affordability issue in cities. Additionally, a plethora of fiscal issues continue to cripple cities, most notably, the federal governments elimination of state and local tax deduction (aka SALT deductions) and increased taxes has resulted in massive migrations. The migrations from gateway’s and higher tax states to more user-friendly cities have been culminating for the last few years, however, the coronavirus has substantially expedited this trend illustrating the mass migrations. The coronavirus has forced work-from-home on everyone, as a result, many people are optimizing for quality of life. Gateway cities’ historical densities, run-down infrastructure, high-cost of living, coupled with imperiled state budgets engulfed from COVID, has been taking a toll on its citizens and these citizens are re-evaluating the allure of living in large cities. Given these considerations, the stagnated, highly populous states like California and New York have began to lose people in droves. The younger, cheaper, vibrant cities are gaining enormous market share, markets in which Opendoor has already launched and is achieving scale.
All the while, the single-family industry has been thriving through COVID and is believed to continue to underpin the economy for the coming years. Interest rates grounded around 3% will drive an enormous amount of homeownership as we are seeing the emergence of the 75% of millennials into the housing market. This only further benefits Opendoor, since the first place these digitally native millennials begin their search are on iBuyer portals like Opendoor. As more transactions begin to occur in the high-growth cities Opendoor is already established in, it will result in more of an opportunity for Opendoor to acquire heavily and amass market share at even greater scale. The well-timed IPO will allow Opendoor the liquidity along with the ability to act nimbly and offensively through this turbulent market. And as we all know, recessions are ripe for investing opportunities. There is no better time for an IPO from Opendoor to catapult them into complete market dominance.