Friday Flash: Institutionalized

There is absolutely no inevitability as long as there is a willingness to contemplate what is happening.
— Marshall McLuhan

Let’s not kid ourselves. There are problems with the way things are in this business.

If we’ve done nothing else with this newsletter over the years, we have tried, in our small way, to at least speak about them openly. 

The ass-backwards incentives, the tribal infighting, the seemingly ineradicable bias, the “bar” so low that it’s practically subterranean… these are real things. 

But damn if there isn’t a lot to like about the residential real estate business in America. 

The personal-scale, neighborhood-level, fiercely competitive kind of business practiced by agents, brokers, and team leaders every day is capitalism at its best.

And for every lazy, unscrupulous butthead that clears that low bar, there’s another who on their second, third, or fourth act finally finds their thing in real estate; one who hustles their way to wealth on a path that doesn’t require an inside track; a smart cookie who jumps in because they know they can do it better. 

This business is messed up and marvelous at the same time. I love that. 

But that is changing right in front of our eyes. 

Residential real estate is being institutionalized. Put away. Drawn into a madhouse where asset managers, quant jocks, and billionaires run the neighborhood. 

John Burns Consulting calls this “Investor Mania 2.0” and has identified 200 companies leading this transformation. 

Corelogic reports that investors accounted for 36% of all Phoenix home sales in Q1 2021. The number was 34% in Austin, 26% in Houston, 31% in Tampa. These are all historic highs. 

There are plenty of traditional mom and pop investors in these numbers, but big players, with big money, are vacuuming up homes like never before and converting them to rentals. 

This week, investment manager Invesco said it is pumping $1.5 billion into property management company Mynd to buy 20,000 single family homes over the next 3 years. 

In the press release announcing this deal, Invesco’s Managing Director says, “We know single-family rental represents a tremendous opportunity to invest in an emerging asset class that will allow us to provide a high-quality living experience to Americans seeking their next home.”

This sounds depressing and ominous to me. 

I’m all for keeping real estate diffuse, local, and weird. 

Worth noting

Colorado brokerage 8z took a stand on office exclusives last week. Company President Ryan Carter’s video message was clear and strong: “We will be on the right side of history.”

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RE/MAX announced some news about its First app this week. RE/MAX acquired First about a year and a half ago and I’m glad to see it is being used widely. First’s application of predictive analytics to an agent’s contacts always seemed to be on target while a bunch of other companies misfired by applying them to properties. 

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Speaking of RE/MAX… corporate buying back RE/MAX Integra, the crown jewel of the brand’s independent regions, for $235 million, is a big deal. 40,000 agents are involved in the U.S. and Canada (Integra will retain its RE/MAX Europe business). Integra Co-Founder Walter Schneider is an unheralded legend in this business. This is RE/MAX getting its house in order for the long, hard battle for agent mindshare that lies ahead.

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Circling back to a deal from a few weeks ago… Avenue 8, a new virtual brokerage, raised a $14 million Series A. What’s interesting here is that the company charges agents a flat fee that is reportedly north of $2,000 per transaction. That’s several times higher than other transaction fee shops (e.g., EXP, Fathom, HomeSmart), but because Avenue 8 is focusing only on high-end markets, the effective “split” comes out to 90%+ for the agent. Seems that fee-based can also be upscale. Keep an eye on ‘em. 

That’s it. Have a peaceful weekend.