WSJ: ‘Retail Real Estate Isn’t Dying,’ Says Fifth Wall Ventures

Venice, Calif.-based firm aims to shake up the real-estate industry while shepherding its investors through a digital transformation

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By: Cat Zakrzewski, WSJ

August 18, 2018 — Uber Technologies Inc. and Alphabet Inc. were among the investors vying to back on-demand scooter company Lime as it raised funding at a billion-dollar valuation earlier this summer.

Joining the technology heavyweights in the round was Fifth Wall Ventures, a Venice, Calif., firm founded two years ago.

Lime Chief Executive Toby Sun said Fifth Wall’s investment was just as strategic as the checks written by the big tech companies. Uber could feature Lime scooters in its app, and Fifth Wall could use its deep real estate connections to help Lime find parking for its bikes and scooters in high-density areas. Lime struck a deal with one of Fifth Wall’s limited partners, Macerich Co., which will help the company stage and park scooters in Scottsdale, Ariz.

“We immediately see their vision and their priorities as very much aligned,” Mr. Sun said.

Fifth Wall Ventures Managing Partner Brendan Wallace said the firm believes it can determine which scooter company will win through real-estate partnerships.

By working with large, established real-estate players such as Macerich, Fifth Wall aims to identify the startups that could shake up the real-estate industry while shepherding legacy property-owner firms through the sector’s digital transformation.

Through partnerships like the one Fifth Wall brokered between Macerich and Lime, the firm expects to give startups a leg up against the competition while helping older real-estate firms keep up with the latest technology trends.

Real estate startups aren’t necessarily technically complicated, but it can be challenging for them to gain distribution, Mr. Wallace said. He said institutional real-estate companies often determine which companies succeed or fail.

“You have this massive dependency on what a very small number of real-estate corporates are doing,” Mr. Wallace said. “And at the same time you have that dependency, these corporates weren’t very good — like many corporates — at navigating and identifying the very best technologies.”

Fifth Wall has backed more than 30 companies, ranging from co-working startup Industrious to homeowner insurer Hippo. The firm has raised at least $100.8 million for a successor to its debut fund, according to a June regulatory filing.

Last year Fifth Wall’s first fund closed with $212 million. The firm is expanding its thesis with a new retail-focused fund that had raised at least $60 million as of May. Mr. Wallace declined to comment on the retail fund.

Fifth Wall’s retail investments to date include Cotopaxi, Foxtrot and Untuckit.

More direct-to-consumer startups that launched online are seeking out a street presence. Partners of Fifth Wall Ventures say these companies are countering the narrative that retail is dying.

“Well-located retail real estate is not dying, and I don’t think it will die in any way, shape or form,” Mr. Wallace said.

Foxtrot Chief Executive Mike LaVitola said he connected with Fifth Wall about a year ago to see if the firm could accelerate his company’s real-estate expansion.

“We see having a bricks-and-mortar presence as an important marketing channel, distribution center and a way to increase customer loyalty and repeat purchases,” Mr. LaVitola said.

Fifth Wall is raising new capital following a record year for deals in real-estate technology, as the industry braces for a digital transformation. In 2017, venture capitalists invested $5.33 billion in the sector, up from $1.6 billion in 2016, according to PitchBook Data Inc. The number of deals increased slightly, to 122 from 114.

“We wanted to build a fund,” said Managing Partner Brad Greiwe, “to capture and encourage that innovation, and figure out ways to build the connective tissue between this burgeoning tech ecosystem and the largest incumbents, who could ultimately help influence the outcome.”

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