Opendoor Digital Real Estate Platform to Go Public by SPAC
Opendoor is the online consumer real estate market startup that is revolutionizing the online consumer real estate market. Privately held, the eompany announced in mid-September that it plans to go public via a special purpose acquisition company (SPAC). SPACs are also commonly known as blank-check companies. They are public entities that search for promising private companies to merge with and take public. Much media hype has surrounded blank-check companies this year. The most notable example was announcement by hedge fund manager Bill Ackman of his plans to IPO a blank-check company.
How Opendoor and SPAC Will Go Public
The SPAC that will be merging with Opendoor and taking it public is Social Capital Hedosophia II (SCH). Founded and led by billionaire investor Chamath Palihapitiya, SCH will provide Opendoor with a significant infusion of cash. Overall the deal will provide Opendoor with over $1 billion in cash proceeds. SCH will provide up to $414 million. Another $600 million will come from a fully committed private investment in public equity (PIPE). PIPE transactions involve the selling of publicly traded shares to private investors in a private placement. Of the $600 million, investors affiliated with the SPAC will contribute approximately $200 million. Institutional investors such as BlackRock and the Healthcare of Ontario Pension Plan will contribute the balance of $600 million. Opendoor will have an enterprise value of $4.8 billion in the transaction.
The Company’s History
Eric Wu founded Opendoor in 2014 as an online platform for buying and selling consumer real estate. This is often referred to as iBuying. While the company is headquartered in San Francisco, it got its start in the Phoenix real estate market. Opendoor directly buys homes in certain markets, makes repairs as needed, and then sells the homes on its platform. It is currently is active in buying and selling homes in 21 markets. The company plans to expand to other cities within the United States. With each expansion into a new market, the company continually learns from past successes and weaknesses to refine its playbook.
How Opendoor Makes Money
Opendoor makes money both through retention of the difference between the buy/sell price and through charging a service fee. The service fee is between 6–13%. In 2019, it reported revenues of $4.7 billion. Its revenue numbers are predicted to rise to $9.8 billion in 2023. Opendoor also offers complementary services such as title and escrow and financing. In the future, the company hopes to add other ancillary offerings such as home maintenance and warranties. Finding innovative ways to provide value-add services to the home buying and selling process will further boost future profits.
With a simple, user-friendly interface and machine learning capabilities, users are able to view properties through Opendoor’s website or its mobile app. The seamlessly designed digital experience enables users to virtually tour homes. They can get financing quotes and make an offer for a house online. Thus far, Opendoor has served more than 80,000 customers.
Real Estate Market Prime Target for Technological Disruption
Real estate is a huge market, worth more than $1.6 trillion annually, and a prime target for technological disruption. The consumer real estate market has increasingly been moving online, and coronavirus has accelerated that trend. Prolonged working from home has compelled many to relocate outside of cities and the Federal Reserve’s announcement that it plans to keep interest rates low for a number of years has increased the ability of many Americans to buy homes. Additionally, demographic trends play in favor of Opendoor. Over 75 million digitally-savvy millennials are on the cusp of starting families and becoming first-time home buyers.
The company’s 36-year-old founder and CEO, Eric Wu, was inspired to found the online real estate platform through a series of personal experiences starting from his childhood years. Raised by a single mother, Wu learned the value of home ownership from an early age. His mother purchased a home for their family when he was a toddler. She stressed that renting was a waste of money.
Once Wu enrolled as a student at the University of Arizona, he used extra scholarship money to purchase his first home near campus. At the age of 19. Wu used the scholarship funds to make the down payment and then rented out rooms in the house to other college students. From there on, Wu developed a keen interest in buying and selling homes. He accumulated money from collecting monthly rental income from other students. Then, he put that money toward a down payment on a second house. The trend continued so that by the time Wu graduated, he had portfolio of around 25 properties.
Bright Future for Opendoor
Opendoor is a leading player in attempting to reshape the real estate industry for the internet age. Their business model poses an impending threat to realtors. The traditional process of selling a home takes an average of 70 days from listing to closing. It also requires hosting inconvenient open houses. The growing startup has a prominent group of investors backing it, including Andreessen Horowitz, Softbank, General Atlantic, former Uber CEO Travis Kalanick, and Y Combinator’s Sam Altman.