Real Estate

First American Bets Big On Next-Generation Proptech Investments 

Higher profit margins in the title insurance business and a surge in orders from homebuyers and commercial clients helped First American Financial Corp. weather a slowdown in mortgage refinancings in October.

The nation’s second-largest title insurer reported 144 percent annual growth in third quarter net income, to $445.3 million, with revenue up 34 percent, to $2.6 billion. Most of that revenue came from the company’s title insurance and services segment, which saw third quarter revenue grow by 21 percent, to $2.1 billion.

Flush with cash, First American executives detailed investments the company is making in next-generation, cloud-based technology that will help it grow and automate its business.

In addition, First American is building strategic partnerships through stakes in more than a dozen venture-funded proptech companies that are now valued at nearly $700 million.

Dennis Gilmore

“First American is laser-focused on innovation,” First American CEO Dennis Gilmore said on a conference call with investment analysts. “As real estate transactions become increasingly digital, we are leveraging our unique data assets and technology to enhance the customer experience and to make the settlement process more efficient for all parties.”

One of the biggest initiatives is First American’s Endpoint subsidiary, a digital title and settlement services provider launched in 2018 that uses artificial intelligence to streamline document submissions and expedite processes.

In the 12 markets currently serves Endpoint “is increasingly become the first choice of digital-forward companies, including those in the proptech ecosystem,” Gilmore said.

He said the company’s track record prompted First American to commit an additional $150 million in funding to help El Segundo, California-based Endpoint build out its tech team, expand its capabilities, and reach markets beyond California, Washington, Texas, and Arizona.

“A major factor in Endpoint’s success has been its ability to track world-class tech talent,” Gilmore said. “Endpoint has approximately 100 product managers, engineers and designers, and plans on doubling the team over the next 12 months.”

Investments valued at $669M

Separately, Gilmore noted that since 2019, First American has made $292 million in direct investments in 16 venture-funded proptech companies. Those companies include Lev, Offerpad, Orchard, Pacaso, Ribbon, Side Inc., and Sundae.

First American’s venture investments were valued at $669 million at the end of September, thanks largely to a $195 million gain First American recognized on its stake in Offerpad after the company went public in September, CFO Mark Seaton said.

First American’s original $85 million investment in Offerpad was valued at $280 million as of Sept. 30, and First American also realized a combined $79 million in gains on its investments in Orchard, Sundae and Pacaso, Seaton said.

While those gains are welcome, Gilmore said, “more importantly for us is a strategic fit. We want to continue to invest in the proptech ecosystem in our world. We want to get closer and closer to those customers — they become strategic partners in many cases, and customers for us, and we’ll continue with that activity.”

This year alone, Seaton said, First American has made $100 million in venture investments, and will continue to look for opportunities.

“The deals are getting more expensive,” Seaton said. “There’s more money chasing fewer deals … but we’re still finding opportunities, and we’ll see more of that in the fourth quarter.”

Seaton said First American has $714 million cash on hand, thanks in part to $650 million bond issue in August that pays yield-hungry investors just 2.4 percent.

“We did this bond deal really as kind of an opportunistic trade,” Seaton said. “We’re monitoring market conditions, and we felt like it was just too good to pass up.”

Seaton noted that because Offerpad is publicly traded, First American’s investment in the company “is subject to a high degree of market volatility.”

Although First American President Ken DeGiorgio sits on Offerpad’s board of directors, Gilmore said in the longer term, the company’s strategy “will likely be not holding concentrated positions in public companies. But, we’re in a lockout period right now on Offerpad. So, we’ll evaluate that in the future.”

Tripling title plants to 1,500

If investing in proptech startups has helped First American build its customer base, the company is also making a big investment in
automating the services it provides to them.

Earlier this year First American announced it planned to triple the number of title plants it operates from 500 to 1,500, using a patented data extraction process that will allow the company to automate title underwriting decisions in about 80 percent of U.S. markets.

Gilmore said First American now has 1,300 “go-forward” title plants — digital databases of property records maintained by county recording offices that are kept updated — and said the company will “hit our objective” of 1,500 by year-end.

“We’re not doing this as a cost savings play … what we’re really doing is to expand our data content and our coverage,” Gilmore said. “So, not only are we building plants, we’re capturing significantly more content that we think we can use to automate our titling processes in the years to come.”

First American and many of its competitors are already using full automation to fill “a very high percentage” of title orders on refinance transactions. The big effort in the years to come will be automating title orders for more complex purchase transactions, he said.

“We think that we have the content now, we have the coverage, we have the skills, we have the technology … that we think we can make significant headways on title automation on purchase,” Gilmore said.

He said First American is also continuing to automate “the more traditional approach to escrow,” but “the bottom line, over the long term, we think the closing will become highly digital in the future.”

Competitors making similar moves

First American is far from the only company to be preparing for digital closings.

Rival title insurer Stewart Information Services is striving to create “an end-to-end, customer-focused real estate services and technology platform.” It’s been on a buying spree, most recently announcing a $192 million deal to acquire Informative Research, a data and analytics provider that helps mortgage lenders and banks acquire customers and originate and process loans.

The nation’s largest title insurer, Fidelity National Financial, last year launched inHere, an end-to-end platform that provides transaction tracking, e-notarization and e-closing services for agents and consumers.

Doma, which went public in July offer instant title insurance underwriting on refinancings by employing a predictive algorithm to assess the risk that a home’s title has unresolved liens or ownership issues.

Email Matt Carter

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