It sounds like it should be the mother of all COVID economic disaster stories: a bunch of young, enthusiastic tech veterans with high-profile names like Uber, Dropbox and Doordash on their resumes launch a start-up in late 2019, promise to revolutionize the (fill in the blank of your favorite industry) industry, raise $3 million in funding, hire up, start collecting fawning news articles and then, barely six months later, run headlong into The Worst Apocalypse Ever. Seven months later, this one has to end with an empty office, a bunch of cobwebbed laptops and 50 unemployed people with a company on their resumes whose name will be forgotten to history probably before the next time any of us is allowed to do even one rep on the pull-down lat machine at Crunch Fitness.
That the industry in question was property management made the company in question, Doorstead, seem even more doomed. But a funny thing happened on the way to the scrap heap: Doorstead not only survived, it thrived, and in fact announced last week that it had added six new members to its management team, luring talent away from big names Uber Eats, WeWork, Expedia and OpenDoor to handle a workload that, per Yahoo Finance, has “increased by 10x in the past nine months.”
Doorstead is one of a growing number of “real estate technology” firms, which means that trying to decipher its success (or even business model), media coverage or even its own press releases or website “about us” header requires a tech Rosetta Stone. But as far as I can tell, the pitch is actually pretty simple. The company has created an algorithm that can predict exactly how much rent a property will command given its amenities and the prevailing market conditions.
The pitch, then, is: “Sign with us and you’ll get X amount of rent, rain or shine, beginning in X amount of days, whether or not we’ve got your property rented by then. We’ll fix up the place, find the tenants, evict the tenants if necessary (as if — this is San Francisco) and find new tenants when necessary.” You get paid the entire time.
Doorstead’s cut turns out to run something in the neighborhood of 8 percent, which is a better deal than the 10-15 percent charged by traditional property management companies. Per Doorstead, clients make anywhere from 3 to 9 percent more than those using traditional property managers, but even if they didn’t, it might turn out to be a better deal to go with them if you value your piece of mind. Signing with Doorstead removes the most taxing variable from landlording.
Still, it seems odd that a real estate company — a property management company, even — has thrived during the COVID-fueled local rental market collapse. It takes only about 30 seconds, though, of mulling, to figure out why: despite the slick copy on its website suggesting so, Doorstead’s brand isn’t streamlining processes or removing the headaches of landlording; its brand is guaranteed money. Given that fact, especially during these dark real estate times for landlords, it’s no wonder Doorstead has found success in 2020.
This year, San Francisco’s landlords have been stressed like never before. Even before The City’s well- (perhaps over-) documented rental market meltdown, local landlords were dealing with tenants who were unable to pay rent, and with the unavoidable consequences of The City’s extended COVID tenant protection law which, unfortunately, removed any leverage they might have over non-paying renters. In this game, everybody loses… except landlords who’ve enlisted Doorstead to manage their properties.
So it’s easy to see why Doorstead is thriving; landlords are desperate for a “sure thing.” But I’ve got to wonder how many landlords with non-paying tenants Doorstead can afford to absorb? And what about those who signed up in 2019 and are getting paid according to the 2019 market?
Can Doorstead renegotiate its rates to reflect a 2020 market performing at a 31 percent deficit?
I’d hope that Doorstead is ahead of this game and has already figured out how to address these new realities along with its rapid growth, because the business model offers a simple proposition that helps small landlords way more than it benefits big investment firms who dabble in landlording. Otherwise, they’re just partying like it’s tech world 1999 — grow now, ask questions later — which could someday put them in a unique position where they’re pining for the glory days of COVID.
Larry Rosen is a San Francisco-based writer, editor, podcaster and recovering former Realtor. He is a guest columnist and his viewpoint is not necessarily that of the Examiner. The Market Musings real estate column appears every other week.