Hey everyone! Today is a big day for Initialized.
Opendoor, a company we invested in at the earliest stage, begins trading on Nasdaq.
Startups like Opendoor and Airbnb are transforming one of the world's largest markets.
Let's go hang out with my partner Kim-Mai Cutler to talk about
what's actually the future of housing? Of real estate?
How can tech, finance and cities work together to bring about a society we want to live in?
Let's get started.
- Hey, Kim, thanks for hopping on, what a day.
Man, Opendoor is SPAC today.
- Yeah, pretty crazy, I mean, this must be
a really big deal for you.
This is the very first IPO for an Initialized company,
and, you know, you've been following Eric
and the team the whole way.
I mean, if you look back on the early days, how,
how did the company even happen?
- Eric's actually, you know, he's someone who
has been a friend to me in the firm for a really long time.
He actually sold his last startup to Trulia, previously,
so he'd been in the real estate market for a while.
Honestly, it started with a very simple idea,
which was, hey, when people actually buy
and sell these things, they tend to use very little data.
If you're a software engineer, you realize,
oh, there's data.
In fact, there's a lot of data,
and can we put it into a software system
that then actually gives you a dynamic price,
one that you know you can make money on?
But, where it really became real, I think, was when
Eric realized, what if we actually offered it to customers?
If you wanted to sell your home very, very quickly,
could you do it through a website?
That's what my favorite thing about it,
it was a very simple idea,
maybe hadn't been executed on the way it needed to be,
and once they did it, it started working.
I guess it goes to show, like it's the simple ideas.
But, it's a good day for real estate tech broadly,
and, Kim, you are our resident expert, all things housing.
How's that been, like?
Identifying that, and then really some of the startups
identifying that, and then really some of the startups
that you've been able to find?
- A lot of the
rules and norms that attractive metros in this country
put in place, also happen to make housing more expensive.
You know, transitioning over into the venture side,
I've really tried to find tools and products
that make housing more broadly accessible to people.
You know, and that's manifested in a number
of different ways from, from Landed,
which is helping educators and homeowners purchase homes
in really expensive markets.
You know, Seattle, Denver, the Bay Area,
D.C. and Hawaii, and more, to companies,
Like Abodu which is really making it possible
for homeowners to quickly add a secondary unit,
In their backyard, which is becoming
a really important lifeline in the context of the pandemic.
Because, you know, when you want to keep your family safe,
and possibly even separated, or whatever,
you need to do it, because, you need to social distance.
Or you're bringing kids home from college,
because, they can't attend school in person,
these secondary units are really becoming important places
to keep extended family close, but also healthy.
And Abodu was able to find out a very fast and quick way
to get these housing units into backyards
in literally weeks.
Which, from my experience
having studied the West Coast markets,
it's just kind of, actually, it's totally,
it's completely mind blowing.
Because, historically, given all the rules
that were set in place around planning, and zoning,
and variances, and all this other stuff,
if you want to do multi-family projects,
it often takes years, sometimes, even more than a decade
to get a mid-sized project done end-to-end.
And there happened to be this change,
or series of changes a couple years ago
in the California State Legislature, which is also being,
there's also parallel regulation and legislation happening
up in Oregon, and Washington, as well,
that made it really easy to add secondary units.
And so, that's kind of unlocked the flood gates,
so to speak, of people adding these.
- Yeah, it's crazy, I mean, San Francisco alone is one,
a $1.3 trillion market with a T, (chuckles)
which is really insane.
But isn't that one of the big problems,
people basically started treating their homes,
not necessarily as just places that they live,
but it's actually
both an investible asset, but also the biggest component
of their net worth.
- Yeah, that, I mean, that's the big contradiction
in American housing policy.
If we had picked a different path,
we would be in a very different situation right now.
But the path that we took is based off of
the Anglo, like British English, you know, model,
property-centric model where, you know,
housing isn't just shelter, which is an essential need,
one of the base essential needs in the Maslow's hierarchy.
It is also, it's also,
many households store the vast majority
of their life savings in.
And so, you have this incentive structure, where
this is just laced into every layer of American society.
Federal, financing, everything, where housing has to be,
somehow has to be affordable, and also
has to be a great investment.
And you run those two ideas along far enough,
along enough years and decades, you start,
it just doesn't make sense, it's a contradiction.
And I think that's what we're experiencing today,
which is, you know, the post-war Baby Boomer generation,
you know, got on the property ladder several decades ago,
when housing was much cheaper,
relative to household incomes.
And they've been able to
ride that property ladder, and accumulate wealth through that.
But what that has meant in the context of an economy
where wages for a lot of the
workforce are not moving as quickly as property,
is that people fall to the bottom,
and don't have access to it, and so,
you know, cities tried- - Yeah, it's generational now,
isn't it? - Right.
Yeah, so cities try to compensate for that
in a number of ways.
And I think, you know, the Bay Area tries to do
the right thing, like they try to do things
with inclusionary housing, and all this other stuff,
but those, those solutions aren't really scalable.
- We also need to build, which, which we haven't.
And then the ADU Law has been something
that you've been tracking for a while.
And now that it's here, it's actually the most ripe way
to get perhaps thousands- - Yeah, I mean, it's-
- of units per city. - Well, it actually,
actually, I mean, there's legislation
that affects millions of lots, and millions of lots.
I mean, it's not, it's not thousands, it's millions, really.
This is what
suburban West Coast markets are comfortable with.
This is what the electorate's comfortable with.
This is what policymakers are comfortable with, so that's,
that's what's going to happen.
You know, a lot of the bills that we've tried
to do around more mid-rise, or high-rise
along transit corridors has been blocked or stalled.
But the laws around adding a unit in your backyard
have just passed through every year.
Consistently, this is what voters show that they want,
and so, this is what the broader housing market
is going to deliver.
- I mean, I think that's why I like Abodu so much,
it's, for $200,000...
You might have a,
a dirt backyard that is literally doing nothing.
And you can turn that dirt backyard, for $200,000,
into something that might actually be worth four
or $500,000, depending on the city it's done in.
And it might be a two-bedroom apartment.
That's like unlocking value directly out of the ground.
I mean, actually, L.A. is 2.2 trillion.
So it's like, if you take LA and SF,
that's 2.2 trillion, plus $1.3 trillion worth of housing,
and you could increase that housing stock by even 5%.
I mean, that's hundreds of billions of dollars
in value being created.
- I think I would also clarify that like people see
the sticker price up here, and they, they see it,
and it's looked really high to them.
And, admittedly, it is high relative to the median cost
of a home in America.
However, if financed with a home equity line of credit,
like the payments on a monthly basis can be,
you know, a thousand dollars, $1100, $1200,
which is, you know, coverable by
median rents in the area, even after the pandemic drop.
And then, on top of that, that figure, relative to what
it costs to build a mid-rise building, per unit,
honestly, it's a third of the cost to build
a mid-rise unit in the Bay Area.
The price is high, but if you compare it to
the alternatives, and what's actually politically possible
and feasible here it's, on a comparative basis,
much cheaper.
- I think the reframe there is, honestly, like,
if you look at these cities, they are on par,
they are considered world-class cities,
at least, partially because of the access to capital.
- I mean, access to talent is one thing.
I mean, cities, cities are like
colliders for ideas and ways of living.
And, it'll be very interesting, obviously,
to see what happens in 2021, hopefully,
as people can start to return to in-person activities,
and stop social distancing.
You know, I definitely think there's obviously going to be,
on a relative basis, more opportunity
in other metros throughout the United States.
But, obviously, I also think there's this,
you know, there's going to be this wonderful urgency
to come back into the moment, and to be with other people
in real life.
- 2021's going to be great.
- I don't want to like curse '21, '21.
- All right, you're right. - But I am, I am,
I am like- - Remember...
I take it back. - I'm looking forward!
I'm looking forward to it, and, yeah!
- While tech can only do so much,
this is a good example of, you know, if we can actually
help unlock several hundred billion dollars worth of value
in even two of the top 10 most valuable real estate cities.
- Yeah, but, I mean, obviously,
many jurisdictions have this problem.
And I also think that, more broadly,
people are living longer, and families,
a lot of the housing that we built
throughout the United States is both car-centric,
and just very centered on this idea of the nuclear family.
And it's so obvious now that, as parents age,
we want to live in multi-generational households.
Or, as markets get expensive,
if you want to live near extended family, it's,
for a lot of people it's just not going to be possible
to get into the house, get onto the housing ladder
in nearby markets at all.
Like, I have a friend who is in the process,
his brother is in the process of building a two-story ADU
in his backyard in the East Bay.
And so, it's going to be like two brothers living
next to each other in two houses.
- There's definitely- - That sounds wonderful.
- Yeah, I know, I mean, like, there's no other way that you,
the market here is so expensive, it would be hard,
you'd be hard pressed to think of another way
for people to do that, but, ADUs make it possible.
- Yeah, I think that's one of the things that you
and I share, we both grew up in the Bay Area.
Which is actually relatively odd for tech people.
Most of the, 90% of the people you run across, I think,
don't have a link to San Francisco,
to the San Francisco Bay Area.
But that's what makes this so odd.
That's one of the sad things, that
most of the people I grew up with,
either they work in tech now, or they had to leave.
They moved to the Central Valley, they moved to Sacramento.
That's the funniest thing about this Miami stuff.
I'm not leaving to go to Miami.
It's worth it to me to stay here.
I will pay my seven or eight figures worth of taxes,
because, it's actually worth it.
This is my home.
And I want those tax dollars to actually go to my community,
and this is my community.
I'm from here, and this is where I want to stay.
- I'm of several minds of it, about it.
I think it's a good thing if the industry
is more broadly accessible in more metro markets
in the United States.
And, at the same time, I'm third generation here,
and this region, and my, this region has done
so much for my family, that I
feel very emotionally tied to it, and I want it
to continue thriving and prospering, going forward.
I feel both things at the same time.
Our hope is that it'll create
a really great billion dollar business
that employs thousands of people, as well,
as well as housing people.
I feel really excited, I feel excited about...
Companies like Abodu or not just positioned
to add just a little bit of more housing on the margins.
They're actually positioned to add a lot more,
if you consider like the legislative changes
that are on the horizon, and then,
I couldn't imagine- - And thousands of units
is a thousand families that can stay in the Bay Area or L.A.
- Yeah, or, or more healthcare workers.
Like, they're partnering with healthcare organizations
and hospitals, and starting to, starting in the Bay Area,
but eventually across the entire country, like,
I couldn't imagine a more meaningful thing, other than,
you know, having, helping nurses
with down payment assistance, so they can afford
to stay in the markets that they serve.
That they've liked so valiantly served this year.
And then, on top of that, like Culdesac is,
they're actually doing it, they're building car-free cities,
and car-free neighborhoods in the United States,
in places that have historically been
incredibly car dependent.
I honestly don't think
these things are- - And Opendoor alum, too,
Ryan Johnson. - Yeah, exactly.
There's definitely a pathway towards
making some really profound change
in all, in all of these spaces, so I'm pretty excited.
I guess I'm just deep-down sensitive to tech,
because, I'm from tech, you know It gave me everything I had.
I'm also extremely aware of the unintended consequences
of tech, you know, in society, and I think
we do have a responsibility to other people.
- I totally agree with that, and yet, at the same time,
like, I've also really thoughtfully
picked companies that I can feel,
in terms of the client base that Landed has,
it is much more representative,
Black, Latino, and a non-White buyers than,
than many other housing companies.
In part, because, public sector work is,
is much more representative.
I've been very picky about what I do, and so, I don't,
I don't feel like apologetic or sensitive about it,
because, I know that I, I've picked teams
that think about these things from the core.
- Well, I'm glad that we can have,
I mean, that actually be a part of our conversation,
about how we decide what companies to fund.
One thing I've always really appreciated about you, Kim,
is that, as companies come into Initialized,
I can always count on that perspective, which keeps us real,
and sort of grounded in a way that I would like
to see all of tech really spend more time,
and be thoughtful about, what is our impact on society, and
does this investment put us more towards the world
that we want to live in, or not?
Well, thanks for hanging out. - Yeah, cool.
(person laughs)
Thank you!
Lucky to be here.
- Yeah, psyched to be working on this,
and many other companies with you.