When proptech meets fintech  

Today, the race to space is so hot. However, while the race to planet Mars used to be the most popular, this time the focus is on planet earth. Some startups are building satellites and rockets that can launch them to have a good look at our planet. These satellites are intended to provide good imagery of our planet to know, understand, monitor and improve, say, agriculture (that’s from crop health to areas that are more arable, etc.) and determine areas that are denuded or deforested to help mitigate climate change.

Most startups though have remained, literally, on earth and just kept their feet on the ground. Some of them are on fintech (or financial technology), while others are on proptech (or property technology). Fintech refers to “any business that uses technology and innovation to provide automated and improved financial services.” This is a technology that we are so familiar with and have constantly used. ATM is one and probably the oldest fintech and is still prevalent until today. Mobile wallets like PayPal, PayMaya and GCash are fintechs too. 

Proptech, on the other hand, is defined “as the usage of technology and software to assist in today’s real estate needs.” To owners and possible users of office spaces, “this could mean everything from digitally facilitating unique workplace experiences, to offering advanced data and analytics capabilities for real-time feedback, to even helping them purchase, sell, and manage their assets.” Plainly, proptech’s main goal is “to make everything about owning, leasing, or working in a building unique, easier, and more efficient.” Simply put, it also means that “it’s not just for those who own and manage real estate, but the people who lease and work inside the buildings.” 

One of the most popular proptechs is a household name, Airbnb. It is an “online marketplace for lodging, primarily homestays for vacation rentals, and tourism activities.” Apart from Airbnb, however, the San Francisco (USA) based Pacaso, a unicorn,is into an innovative second home co-ownership. So impressive that, despite not being a hi-tech company, it attained unicorn status in just five months from its launch. Probably, the timing helped them a lot as it targetedpeople who were looking for a second home for refuge. At the time that most people were trying to retreat to vacation homes, especially in the countryside, amid the ongoing pandemic. 

In Pacaso’s business model, it “helps people co-own vacation homes by sharing ownership with others. Pacaso buys the homes, forms a company, and then sells shares in the property, with a minimum investment of one-eighth.” The “percentage size of ownership determines the length of time people get to stay at the property.” Then, it“acts as the agent on behalf of the group and handles maintenance, financing, legalities and more.”

Though quite similar to a “timesharing” model, it is different in the sense that the buyer is an owner of a real estate, not just an owner of the right to use. 

UnlikePacaso, however, which focuses on people needing second homes, Withco, an emerging startup, is helping small businesses own their rented spaces or properties.  Knowing fully well that rent is usually a huge operating expense for proprietors, Withco programmatically identifies and buys commercial real estate that houses existing tenants deemed to be high-quality small businesses.”  Then, they “negotiate and buy the property, while placing the tenants on equity-building, lease-to-own plans.”

This business model addresses situations wherein lessors are selling their properties and tenants are left to fend for themselves. Whether to stay or leave. Yet, there are instances, say, if the location is really ideal for the tenant’s business, where leaving is not an option.  Taken advantaged to by the new owner/lessor, the tenant might just bear the brunt of increased rental fees than lose the business. 

This is where Withco comes in. On the buying side, it“approaches local landlords with data-driven offers that promise both speed and liquidity in the closing process.” On the tenant side, “small businesses open up their books and undergo comprehensive evaluations to determine if they are a healthy company suitable for the path to ownership.” Then, Withco also “sticks with the small businesses over the entire lease-to-own cycle as a financial business consultant.”Ultimately, therefore, the tenant becomes the building owner.

Truly, this is where real estate and finance meet. Where proptech and fintech intersect.