Redfin Eyes Rental Market with $608m Acquisition of RentPath

US real estate brokerage Redfin recently announced that it has agreed to purchase Atlanta-based rental platform RentPath for $608m, in an all-cash deal. This is only Redfin’s second acquisition since inception and will significantly bolster its rental traffic, in a move that will bring together a leading site for purchasing a home with a leading site for renting a home. Shareholders celebrated the news, with shares surging 12% upon announcement.

Who?

Redfin

Founded in 2004, Redfin is a technology-powered real estate company, redefining real estate in the consumer's favour in a commission-driven industry. Redfin's business model is based on sellers paying Redfin a small fee to list the seller’s home, either 1 or 1.5%. Redfin represent people buying and selling homes in over 90 markets in the US and Canada and since its launch in 2006, it has saved its customers over $800m.

RentPath

RentPath is a digital marketing a renting platform for landlords. Through its sites Rent.com, Rentals.com and ApartmentGuide.com (as shown below), RentPath simplifies the rental search experience and helps users navigate the rental journey to find apartments and houses to rent, while driving advertiser leads that result in occupancies and high return on investment.

The Deal

Announced: 19 February 2021

Value: $608m (all cash transaction)

The transaction arrived just months after RentPath’s deal to be acquired by CoStar Group fell through due to antitrust objections that cited potential harm to consumers as a result of consolidation in the residential rental market. The deal also came right after Redfin’s cross-town rival Zillow Group announced it was purchasing home touring company ShowingTime for $500m. Redfin is playing catch-up with Zillow, which in addition to showcasing properties for sale, also operates a rental marketplace. Redfin CEO stated that "If we are going to take on Realtor.com, Zillow.com and other big real estate websites, we need to offer rentals and for-sale listings.”

Why?

Strategic Rationale:

Despite RentPath’s baggage, namely its $650m bankruptcy and corporate restructuring, Redfin sees lead generation potential and further traffic growth with the pending acquisition. Within the press release, Redfin stated that “Over time, RentPath can bolster Redfin’s traffic, by drawing a younger audience of renters to Redfin.com, but also by increasing our stature among homebuyers and renters as one of North America’s premier real estate sites,”. As such, this deal is seemingly a long-term strategic play for Redfin. One that focuses on rentals and young people, since it is a typical entry point for consumers and serves as a steppingstone to eventually purchasing a property using Redfin’s platform.

Furthermore, the acquisition represents Redfin’s major push into the residential home rental market. Together with RentPath, Redfin has the potential to become a one-stop shop for anyone looking to find a new home, regardless of whether it is to buy or rent. Analysts at investment firm Wedbush Securities mentioned that this move into rental listings is “very complimentary” to Redfin’s core business of home-buying and selling, and that the deal represents “strong value” that will simultaneously boost Redfin’s and RentPath’s traffic.

RentPath’s rental listings are expected to be integrated on Redfin in late 2022. This will be mutually beneficial as Redfin CEO Glenn Kelman highlights that "RentPath has more than 20,000 apartment buildings on its rental websites, and grew its traffic more than 25% last year,". "We can almost double that audience, as 1 in 5 of Redfin’s 40+ million monthly visitors also want to see homes for rent”. Therefore, through integrating platforms, Redfin would be in a strong position to direct potential customers to RentPath’s services.

Uncertainties:

While the deal is subject to certain customary closing conditions, which include antitrust approval and approval from a bankruptcy court, Redfin CEO Glenn Kelman said in a conference call that he did not anticipate the same regulatory scrutiny that CoStar encountered since Redfin is relatively new to the rental listing space.