As Zillow tries to swiftly disentangle itself from iBuying, a one-time competitor may borrow over $600 million more to radically increase its instant home-buying purchases.
Offerpad, a Chandler, Arizona-based iBuyer, snared $500 million in a revolving credit facility from an unnamed lender, according to a Dec. 20 Securities and Exchange Commission filing. A revolving credit facility gives borrowers the choice to take out the full, announced amount and Offerpad has already committed to borrow at least $300 million of that, per the filing.
In addition, Offerpad took out $112.5 million in a mezzanine secured credit facility and it has already committed to spend $67.5 million of that amount, according to the filing.
Offerpad is not permitted to say who the lender is “per the terms of the agreement,” said a company spokesperson.
Offerpad now has $1.7 billion of revolving borrowing capacity, per the filing, with $1.3 billion committed.
This is significant borrowing given that Offerpad’s total third-quarter revenue was $540 million, and net income was reported at a $15.3 million loss. Still, the company asserted the loans are not a risk but a “positive outcome that positions us well for the coming year.”
“The new facilities are revolving, and we borrow only what we use to add inventory, where we continue to apply our disciplined approach to underwriting homes,” a spokesperson said. “In fact, these credit facilities expand our borrowing capacity, lower our overall borrowing costs, and further expand and diversify our lender relationships.”
Offerpad is a six-year-old company founded by its current CEO Brian Bair, a longtime real estate investor. The business started buying homes in a few southern markets such as Orlando, Florida, and Birmingham, Alabama, and recently moved into Midwest markets including Indianapolis.
In September, Offerpad went public through a special purpose acquisition company. Its stock initially shot up to $20 per share, but the price has tumbled to less than $7 a share, translating into a $1.65 billion market value.
Though many companies, including Redfin, have dipped their toes into iBuying, whereby consumers sell their homes for cash and pay about a 5% convenience fee, Offerpad and Opendoor are the only U.S. publicly traded companies that generate the majority of their revenue from iBuying.
In public statements, both companies said they would stick with iBuying amid Zillow junking the program due to what that company deemed an unreliable price forecasting model.
Bair has maintained that Offerpad possesses the operational logistics to accurately value homes as well as provide renovation services that prompt a house to resell for a profit. The company plans to expand into additional markets in 2022.
Zillow’s entire business model to draw eyeballs to get Zestimates was apparently built around their “unreliable price forecasting model”. ‘It doesn’t work for us but it still should work for you’ is their implied new business model. Someone needs to write about how they can stay in business based on that?