Deidre Woollard: Hello, real estate investing Fools. I am back with Austin Allison, who I talked to earlier this year. He is the CEO of Pacaso, which is a marketplace that makes buying and owning a luxury second home easy. It offers integrated financing and sales on beautiful, turnkey homes from as little as a quarter to half ownership, along with professional property management. This idea has really caught fire. I interviewed Austin earlier this year when he had his $75 million Series B. Now they are announcing another big round. So welcome.
Austin Allison: Thank you. It's great to be here.
Deidre Woollard: Well, you've just have this massive growth trajectory with Pacaso. What's the engine behind all of that?
Austin Allison: I think that really what's driving it is there's a lot of families out there that are interested in owning second homes. This has been a desire that many families have had for a long time. But the thing that prevents people from owning the second home is the cost and the hassle. By cost, I mean many people can't afford to realize a second home dream because second homes tend to be in very expensive markets and they are highly underutilized. On average, second homes are only utilized five weeks per year. What Pacaso has done is build a service and a platform that empowers people to co-own homes together. The benefit of this for consumers is that it enables you to right-size your ownership. Instead of buying 100 percent of something that you're only going to use 10 percent of the time, with Pacaso, you can buy just 12.5 percent or 25 percent, whatever fits the needs of your lifestyle, and it's a more responsible, both financially and socially, way to own real estate. I think that's why it's really taken off. It solves a meaningful problem for a lot of people.
Deidre Woollard: You've expanded into markets really quickly. How many markets are you in now?
Austin Allison: Last time we spoke, I think we were at about a dozen markets or so earlier this year. Now we're in more than 25 top second home destinations around the US. We've added a number of really amazing markets recently, including places like Aspen, Colorado, Vail Colorado, Miami, and Fort Lauderdale in south Florida, as well as the number of places in Southern California, Utah. These are destinations that you would typically associate with second-home markets, meaning there's a large number of second homes already in these destinations and they're very desirable. In addition to these markets, one of the other things that we're really excited to announce is that we're expanding into Spain. Spain is going to be our first European market, and by the end of the year, you will be able to go to pacaso.com and find a beautiful home in Spain. We have several other markets that will follow shortly thereafter throughout Europe as well as places like Mexico and the Caribbean.
Deidre Woollard: What are some of the complications of expanding into those markets? Traditionally, owning a home in another country can be pretty complicated. What steps have you taken as you evolve Pacaso into other markets?
Austin Allison: The answer to this question really applies across all markets, both domestically as well as globally, which is that real estate ownership is non-trivial, meaning there's a lot of pieces to it. Everything from financing to furnishing the home, to managing the home and repairing the home when things break. Then in the co-ownership use case, you also have this dynamic around the owner relationships: how do they share the calendar, how do bills get paid, and all that good stuff. Pacaso handles every detail from start to finish. As an owner that is co-owning a home leveraging Pacaso, you just get to show up and enjoy your home without any of the hassle. I would add though, that there's definitely an added complexity when you're buying real estate across borders, because oftentimes, the way that the transactions get done and the legal entities that are used in the process is different, and if you're not from that country, you may not be familiar with or have the access to the attorneys or real estate professionals to get that deal done. Absolutely, Pacaso addresses that complexity as well and is making it really easy to buy real estate abroad.
Deidre Woollard: You're announcing this $125 million Series C, with participation from Softbank's Vision Fund 2 and also Fifth Wall, which is a rapidly evolving real state venture capital fund. What did those companies see in Pacaso that made them want to participate?
Austin Allison: Just to give you some of the details on the round, we're announcing a $125 million Series C, which is in a 1.5 billion valuation that's led by Softbank and Fifth Wall, as you mentioned. That brings our total funding today to $215 million dollars in equity, and we've secured a lot more debt than that as well. I think one of the things that's really interesting about this round is that the series C comes less than a year after we launched the company on October 1st of last year. So it's moving really quickly.
To answer your question around what the investors are looking for, I think what all investors are looking for is caliber of the team. Is this a team that has experience in the space and is really passionate about the mission, and does the investor believe that this is the right team for this opportunity at this time? I think the second thing that investors are looking for is product market fit. Is this problem solving a big problem or addressing a big opportunity in the marketplace, and is that evidenced by the growth and the attraction of the business? Then I would say that the final thing is just the total size of the opportunity. With the second home category in particular, this is a multi-trillion dollar market opportunity. There is 120 million second homes around the world. Most of those second home sit vacant for 10-11 months per year. There's a lot of empty homes out there, and there's hundreds of millions of families who aspire to own second homes, but are unable to realize that dream. This is a solution that's really addressing that gap in the market and connecting more people with these empty homes. I think on the product market [inaudible 00:06:41] , what the investors are really attracted to about Pacaso is the business' growth. We've gone from zero, last quarter, we had almost two million people visit our website, which is up about 200 percent over the quarter prior. Again, we had zero back in October 1st of last year. Revenues have gone from 0-330 million as our annualized revenue run rate at the end of Q2. There's just an incredible amount of growth and traction with the business model, largely because there's a lot of people out there who want to own second homes and this is smarter and better and more responsible way to do it.
Deidre Woollard: You mentioned there are 120 million second homes, and them sitting empty. Are you actively targeting people who may already own a home and trying to get them into the Pacaso system, or when you're purchasing homes, are they mostly homes that people are getting ready to sell the whole thing versus a section of it?
Austin Allison: We do both. We have a lot of sellers that come to us. We call this a sell-down, where if you own a second home, 100 percent of the second home, but you're like most people in the sense that you only use it five or six weeks a year, you can now call Pacaso and sell part of your home. You can take advantage of this great market where home prices are strong, take some chips off the table and still retain 25 or 50 percent of the home that you know and love. That is definitely a common scenario. But we also buy luxury homes that come to market through the traditional process as well. But I'm saying the main thing to emphasize about the types of homes that we're serving, we really focus on luxury homes, arguably ultra-luxury homes in many of these markets. We're typically four times the median price in the markets where we operate. These are homes that would have typically sat empty. If you just look at the numbers in the market data, most second homes sit vacant for 10 plus months per year, and all the homes that we're buying are homes that would typically be bought by a second homeowner in these locations.
Deidre Woollard: Let's talk about price a little bit because we've seen record luxury sales, record home prices, especially in these vacation markets over the last year has been really big for that. Starting to see just a little bit of a cooling off coming. Is that an opportunity that Pacaso is looking at that maybe prices might stabilize a bit?
Austin Allison: Yeah, we are seeing a bit of a cooling off, you're right, which is good news because things got just absolutely crazy there at the height of the pandemic. Back in April, we were seeing price increases that were almost 30 percent year-over-year on average. Now, second home markets are seeing price increases that are 14-15 percent year-over-year on average, which by the way, is still higher than what we see in primary home markets. Primary home markets are increasing about 12 percent now year-over-year.
Second home markets are still much hotter than primary home markets, but it is cooling off a bit. In terms of the impact that it has on us, it doesn't really impact our model in a meaningful way. Like the people who are buying these second homes through Pacaso, this is a luxury purchase, this is a luxury home, it's a discretionary purchase. Whether you're spending $500,000 on a 12.5 percent interest or $525,000 on a 12.5 percent interest, is not that material of difference to the consumer, so I think our model really ebbs and flows with the dynamics of the market, it's not really impacted by pricing in the same way that like a primary home would be at the medium tier. But one thing that this price cooling off does do that's really great for communities is it's making homes more affordable. It's hard to say affordable, the prices are still insane and affordability is an issue in almost all of these markets.
But I do think that as prices cool off a bit and co-ownership in particular becomes more well-known and more adopted is a better way to own second homes, the benefit for the local workforce is that this model redirect demand away from the medium tier into the luxury price tier. A family who's buying $500,000 or $600,000 interest in a Pacaso home is somebody who would have otherwise been buying a median price home, taking inventory away from the local work force. As our model becomes more adopted and we're able to move more people enter the luxury price tier, I do think that this cooling off that we're seeing in the market will help to create some more opportunities for the local workforce.
Deidre Woollard: Let's talk a little bit about community because your company has seen some protests in Napa Market. How have you been handling that and what does it mean for your business?
Austin Allison: It's a great question. Any new idea takes time to be understood. What's interesting about this is that co-ownership is actually not a new idea. It's been around for decades and decades and it's very common in all the markets where we operate. In Napa and Sonoma County, for example, the market we mentioned, we faced some resistance, there's over 30,000 homes that are non-owner occupied as a primary residence and own in an LLC or a Trust, which are multi-member entities just like Pacaso. This ownership structure of LLC ownership with multiple members is very common in all the markets where we operate. But Pacaso for the first time, is a company that's providing a service around this type of ownership. I think people are now just becoming aware of it and it feels like a new concept if you weren't up to speed on those facts about how common it really is. It may seem like a new concept. New concepts take time and real estate is a sensitive topic, it really is.
Whether you're talking about accessory dwelling units or affordable housing projects, real estate is a sensitive topic right now. Rightfully so because affordability is a problem. I think we as a society and we as business people within the real estate industry, I think we all have a responsibility to be part of the housing solution, not part of the housing problem. The housing problem, this affordability problem, is really being fueled by two things: a shortage of supply and the abundance of demand. On the supply side, there's just not enough homes available for sale, and we can't build homes fast enough to keep up with the demand. On the demand side, there's an influx of new people, largely second homeowners and investors and some primary homeowners who are now going into the second home markets buying up all the inventory. The combination of that new demand plus the shortage of supply is driving up prices, making it impossible for locals to afford homes.
Really the only two things that we can do to solve this problem and mitigate some of that pain is to build houses more quickly and leverage innovative, new construction, modular, sustainable housing technologies to build homes faster. That's one way that we can help solve the problem. The other way that we can help to solve the problem is by making better use of the existing supply. Given that we have thousands of empty second homes sitting in these markets, there's an opportunity there. There's an opportunity to redistribute the demand and consolidate it into these empty second homes, because every second home that's sitting there empty is another home that has to be built to absorb demand. It's pulling supply off of the market because with our model, you can take up to eight families and put them in a single home. Whereas without co-ownership, those same eight families would've been buying up median price homes and taking them off the market, thus furthering the housing crisis problem. The last thing the Beta utilization does is it helps the environment. Every time we have to build another house, it's sitting there empty, consuming energy and expanding the carbon footprint of homes in a community, that's bad for society. We think co-ownership is really part of the housing solution here, but again, it takes time for those facts to be understood and I think they will be understood in time in Napa and Sonoma.
Deidre Woollard: Thank you for answering that one. Rapid growth, your staff seems to be growing by leaps and bounds, you're doing that 100 percent remote. What has that experience been like?
Austin Allison: That experience has been pretty amazing actually. My co-founder and I, long before the pandemic when we were working on and planning for this company, we actually decided to be fully distributed before the pandemic ever happen. To be honest, we were a little bit nervous about it first. We have never done a fully distributed company, we both came from an environment where we loved the energy that builds in an office, but I'm going to tell you it's been amazing. Maybe the pandemic helped to solidify this model for us a little bit, but we now have over 120 people on our team, which is up 400 percent since the start of the year, we're growing very quickly. Our team is spread across 20 markets in three countries now. Until recently, until we all met for our annual retreat where everybody in the company comes together and meets in-person, until we did that a couple of weeks ago, most of us had never met in person. When we all met for the first time, it felt like we had been working together for 10 years. It's really been amazing. I'm a huge proponent of distributed work. I think it's the future. It may not be for every company, but I think for a lot of companies, this is the future of work. It really opens up a great deal of potential when you can recruit amazing people from anywhere and when you can provide your team with the flexibility and empower them to work from where they want to live. Because our primary homes and our secondary homes, in our communities that we're part of, these things really define who we are, and when you empower somebody to be in the home, in a community that they really love, they end up doing better work as well. It's good for the employee, goods for the company, and therefore good for the mission of the company.
Deidre Woollard: Definitely it seems like something a lot of other companies are looking at too. Last question for you and it seems crazy to ask this given that in one year you've had this huge growth. What does Pacaso look like five years from now?
Austin Allison: I think five years from now, Pacaso will be in well over 100 destinations around the world. Hopefully, by that time, it's not just limited to the US, Europe, Mexico, and the Caribbean. I think there will be other parts of the world that will be included in that footprint. I think we'll have probably 3,000 people on our team at that point and I think it will be in a lot more markets that have more approachable home prices. Right now, we're in the most expensive markets in the world. Places like Aspen, Miami, Napa, and Malibu; these are places where homes are just very expensive, and therefore, the entry price to get into a Pacaso is very expensive today. But once we get to a point where we can enter some of these secondary second home markets that are very regionally relevant to people in various areas, I think the home prices will come down a little bit, making second home ownership more accessible to a broader audience. I think that's really what excites me the most because the mission of our company is about accessibility. It's about enriching peoples lives by making second home ownership more accessible for more people. Right now, on a relative basis, our model is definitely making second home ownership more accessible, but we're still operating in a very luxury markets. I think as time goes on, it will be [inaudible 00:19:15] even more people with new market expansion.
One last thing that I'll add on that front that I think is really important is, a primary benefits or byproduct of accessibility is diversification. Because when you make something that is like second home-ownership that has historically just been available to the very wealthy elite and you make that privilege available to a broader audience, you're going to end up getting a more diverse group of owners that are able to realize this dream, and I think that's pretty inspiring. I think every business leaders should be thinking about diversity on all levels. Diversity within your employee base, diversity within your investor base, diversity within your board, and diversity within how your product offering facilitates diversity in society. We're really proud of the fact that 30 percent of Pacaso owners are non-white or identify as LGBTQ, and 30 percent may not sound like a huge number on the surface, but when you contrast 30 percent against the typical composition of a second homeowners, like in Napa and Sonoma for example, if you were to look at second homeowners in Napa and Sonoma and compare that to our 30 percent non-white and LGBTQ stat, I think you'd be pretty blown away at just how meaningful co-ownership is in the context of creating more opportunities for more people. Five years from now, I think we will have created a lot more opportunities for a lot more people and empower more people to live in rich lives through this second home ownership dream.
Deidre Woollard: All right. Well, thank you so much for your time today, Austin.
Austin Allison: Thanks, Deidre.