Real estate-focused venture capital firm Fifth Wall has closed what it’s calling the largest real estate venture fund raised to date—having secured $503 million in commitments that it plans to invest in real estate technology, or “proptech,” companies.
The new fund is more than double the size of the three-year-old venture capital firm’s first fund, which closed at $212 million in 2017. But interest in the burgeoning proptech market has only grown since then, and Fifth Wall raised capital for “Fund II” from more than 50 limited partners (LPs) in 11 countries—most of whom are institutional commercial real estate owners, operators and investors seeking to increase their exposure to potentially game-changing technologies.
“I think you’re seeing it categorically in the real estate industry—more owners are looking to identify technology-enabled real estate concepts that could grow their business,” Fifth Wall co-founder and managing partner Brendan Wallace told Fortune. “The largest real estate landlords on earth are recognizing, ‘We need to be aware of the disruption in our business.’”
That realization lends itself to Fifth Wall’s admittedly “unique” model—in which the firm’s LPs, in many cases, end up becoming targeted customers and end-users of the companies they’re investing in. Approximately $100 million of the revenues generated by Fifth Wall’s existing portfolio of companies last year came from the firm’s own LPs, according to Wallace.
The venture firm’s “consortium” of real estate LPs is an advantage that “helps us de-risk,” Wallace noted, with Fifth Wall “typically investing with the benefit of information from corporations.” In turn, the venture firm guides the proptech forays of an industry that is notoriously reluctant to change and stuck in its ways of doing business.
“There are probably no two industries that are further apart, from a dynamic perspective, than real estate and technology,” Wallace said. “It’s hard for a real estate investor to make startup investments; it’s just foreign to them.”
While Fifth Wall’s first fund was raised from nine investors located exclusively in the U.S., the firm has branched out globally in procuring investors for Fund II. In addition to U.S. commercial real estate behemoths like CBRE, Cushman & Wakefield, Equity Residential, Macerich and Toll Brothers, the new fund’s LPs include French real estate investment trust Gecina, Spain’s Merlin Properties, Japan’s Mitsubishi Estate, and the U.K.-based firms British Land and Segro.
Gecina CEO Meka Brunel told Fortune that the Paris-based landlord’s $20 million investment in Fund II is designed to “scale up our capacity to innovate and modernize our business.”
“Globally speaking, the [real estate] industry is under huge transformation; when you look at WeWork, they’ve completely transformed the [commercial office space] business the way Uber transformed the taxi business,” Brunel said.
Rather than standing pat with an enviable portfolio of Parisian office assets, Brunel added that Gecinas investment in the Fifth Wall fund is about “being conscious” of the changes that are taking place in the industry and “taking the initiative” to ensure it isn’t left behind. “Otherwise, we’re going to be disrupted by other people,” she noted.
Los Angeles-based Hudson Pacific Properties, meanwhile, made a “substantial commitment in the millions [of dollars]” to Fund II in the belief that “proptech is part and parcel to our business, and you need to be at the forefront of it,” according to company president and CEO Victor Coleman.
Coleman pointed to the new 13-story, 328,000-square-foot Hollywood office building that his firm is currently building for Netflix as an example of how “the future of real estate is not your father’s offices anymore.” The project features a solar-paneled facade, delivery drone landing pads, and other tech-enabled features that are at the forefront of what real estate owners are looking for from the proptech sector.
“Whether it’s security-related, air quality-related, or management system-related, all of these are applications through which our tenants are going to be benefactors,” Coleman said.
Though the new fund will target an array of proptech services, Wallace said it will mostly focus on business-to-business enterprises such as Cobalt Robotics, one of four investments that Fifth Wall has already made through Fund II. The San Mateo, Calif.-based startup builds indoor autonomous robots that function as “robotic security guards,” and Wallace said Fifth Wall hopes its investment will see the technology deployed at its LPs’ buildings. Fifth Wall took part in Cobalt’s $35 million Series B round earlier this year alongside the likes of Coatue and Sequoia Capital.
Not only does the new fund brings Fifth Wall’s total assets under management to more than $1 billion, but the firm claims it’s now responsible for roughly 70% of all proptech venture capital raised to date. Additionally, it’s laying claim to Fund II as the largest active venture capital fund based in the Los Angeles area—just barely edging out Fertitta Capital’s first fund, which closed in 2017 at $500 million, according to PitchBook data.
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