Unless you’ve been living under a rock for the past several months, you’ve heard the hype about dockless scooters. In case you actually have missed the news, dockless electric scooters let you “rent” a scooter using an app, and they have proven wildly popular in the cities that allow them, places like San Francisco, Los Angeles, Washington, Baltimore, Kansas City and Columbus.
Unlike Citibikes which must be parked and retrieved at predetermined locations, dockless scooters are, quite literally, everywhere. You locate one by finding one nearby on the app’s map, pay a few dollars to unlock it, and then ride off into the sunset. When you’re finished using the scooter, you can leave it anywhere you want. The scooter company’s army of “chargers” pick them up and charge them, and then redeposit them in popular pick-up spots around the city.This all sounds idyllic--reduced carbon footprint, point-to-point transportation for the masses--until you envision a future of widespread adoption where sidewalks (and dumpsters, beaches, and streets) are littered with scooters, which is exactly what’s happening in cities like San Francisco and Los Angeles where the scooter craze has taken hold. As a result, the scooter industry has its vocal detractors--comprised primarily of people who don’t like to trip over scooters as they walk around.
Whether you love them or loathe them, it appears that scooters are here to stay. Startups Bird, Lime, Skip are popping scooters into cities across America fueled by hundreds of millions of dollars from the biggest venture capital firms. Y Combinator’s latest class featured Grin, a scooter-sharing company with plans to expand throughout Mexico. And you know a sector has officially arrived when it spawns its own marketplace, which is the case with Transit, an app that aggregates scooter availability from all the scooter providers.
As real estate industry veterans, the team at Compound watched Citibike fundamentally alter transportation patterns in major urban cities. Proximity to public transit has always boosted property values, so the more diffuse it becomes, so should an increase in real estate values too. We witnessed neighborhoods far from transportation hubs (like the far Lower East Side near the FDR or Bed-Stuy) benefit from this increased connectivity thanks to Citibike.
So, with all the hype and excitement around dockless scooters, what does this mean for the real estate industry?
Well, for one, we know that real estate investors love anything with the potential to increase their property values. That’s why giant real estate companies (like Related) quietly backed the Citibike craze when it launched in 2013. The trend continues today.
Digging into the cap tables of the scooter startups reveals some real estate industry heavyweights. For example, Bird counts mall owner Simon as a major investor. Lime, the most well-capitalized of the scooter companies, received an early equity infusion from, Fifth Wall, a real estate-focused venture capital firm that counts Lennar, Macerich and ProLogis among its LPs. (It’s worth nothing that Lime is also backed by Google and Uber.)
Independent research shows that motorized scooters are more popular among lower-income groups, which makes sense since they cannot as easily afford Uber or taxis and are more likely to live in less expensive areas far from transportation hubs. It’s precisely these neighborhoods that we’re watching most closely--where there may be opportunities to capture some alpha. (It’s also worth noting that many of these neighborhoods happen to be in opportunity zones, another trend we’re following like hawks. At Compound, we think that scooters (and dockless bikes) create a new set of problems, the likes of which municipalities have not yet figured out how to handle. Ignoring scooters today could be the equivalent of dismissing Airbnb and Uber during their early days. What were once young startups that could be largely ignored as passing fads have grown into enormous industries that have fundamentally changed urban landscapes, economics and politics.
We can easily imagine a slew of business that shake out of this new, “dockless” economy, ranging from vertical warehouses filled with charging stations to roving (perhaps unmanned and robotic?) collection vehicles designed to retrieve scooters from around the city. Some of these second-wave shifts hold the promise of an entirely new real estate category--think self-storage meets logistics facilities. (And don’t even get us started on the footwear possibilities, but now we digress…)
The point is that we’re watching this trend unfold very carefully. Certain cities--especially those plagued by transportation and traffic struggles--stand to benefit logarithmically. It’s fascinating to consider the long-term implications. We believe that transportation will have a transformative impact on the real estate industry within a very short period of time--and create wealth in unexpected ways and in unexpected places. At Compound, we believe in a future where investors have the ability to take city-specific directional positions through a liquid security, whether they want to bet on the next Amazon HQ city or the city most likely to become the Mecca of scooters.
About Compound Asset Management:
Compound is a venture capital-backed asset management firm that creates residential real estate funds designed for the next generation of investors.
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