Proptech allocations are looking increasingly strategic

With investment in real estate technologies rising almost 40% in the last year to more than $30bn, capital allocations are becoming more formalized.

Proptech, the nascent but fast-growing corner of the real estate market, has taken another step forward in its maturation over recent weeks, evidenced by a couple of notable capital closings.

Fifth Wall, the world’s largest venture capital firm dedicated to this space, last week collected €140 million for its debut European Real Estate Technology Fund, according to a statement. The oversubscribed fund received commitments from real estate heavyweights, such as managers PGIM Real Estate and Azora Capital, adviser BNP Paribas Real Estate and investor Ivanhoé Cambridge, and took Fifth Wall’s capital under management to $3 billion.

On the other side of the world, Australia’s Taronga Ventures has brought its debut proptech fund to $170 million with commitments from investors including Canada’s Ivanhoé Cambridge and Dutch pension manager APG Asset Management, PERE reported last week. The fund is expected to close at its $200 million hard-cap.

These two vehicles are the latest additions to an already swelling proptech capital marketplace. According to PERE data, the top 20 proptech managers collected approximately $5.5 billion of equity since 2016, as per our Proptech20 ranking, published last April. Of these funds, 63 percent were launched after 2018.

Including the aforementioned closings, the next iteration of the ranking is anticipated to be significantly bigger. Look out for that later this year.

These private fund vehicles are expecting to capture an increasing proportion of the proptech investment market, which also continues to grow exponentially. According to the Center for Real Estate Innovation and Technology, there was $32 billion invested in proptech in 2021, up 39 percent from the prior year.

Notably, the commentary accompanying investor commitments to the Fifth Wall and Taronga’s funds signals that institutional capital is putting greater thought toward strategic and geographic allocations to the sector as it grows.

Ivanhoé Cambridge, for example, made an initial foray into proptech through North American funds launched by MetaProp, Round Hill Ventures and Green Point before its recent expansion into Asia-Pacific proptech, which chief investment and innovation officer, Sylvain Fortier, described as part of an effort to “diversify our proptech portfolio” by selecting an “Asia Pacific partner.”

Beyond this now discernable regional-specific approach, investors could next start to form specific allocations to the asset class. Investors currently have a variety of ways in which they allocate equity. Novo Capital Investors, the investment arm of Danish conglomerate Novo Holdings, for instance, committed to proptech fund 2150 from its venture capital allocation. Conversely, APG is drawing capital into the space from its direct real estate bucket.

According to PERE’s Proptech20 research, the top proptech funds have already reached the $1 billion mark. Multiple hundred-million-dollar funds like Taronga’s Asian and Fifth Wall’s European vehicle, are now common. Given the sector’s exponential rate of growth, both on the capital raising and deployment sides, it will only be a matter of time before such a more formalized allocating approach materializes.