Apr 10, 2024

Now, the firm is launching a debt product and plans to close a deal imminently. CEO Ryan Stroker spoke to Business Insider about the company's layoffs and its future vision. It's been a bleak time for real estate. Rising interest rates have slammed the brakes on deals , and many real-estate companies have cut staff as revenues slowed. Until recently, Avenue One, a startup that uses technology to help large investors like KKR and Global Atlantic buy and sell homes to rent, appeared immune to to the slowdown. Founded in 2020 by real-estate executives Ryan Stroker and William Martiner, Avenue One was profitable by early 2021, company officials told Business Insider. By May 2023, during the heart of the real-estate slowdown, the company had attained unicorn status after raising $100 million in funding from investors like WestCap and insurance giant MetLife. This story is available exclusively to Business Insider subscribers. Become an Insider and start reading now.Have an account? Log in . It seemed a fitting cap to three years of rapid growth spurred on by Wall Street's insatiable appetite for buying and managing rental homes. The investment space referred to as single-family rentals had become such a big business for Wall Street that by 2022, private-equity firms and other big investors had earmarked an estimated $110 billion to spend on rental homes . The good time didn't last, however. Last October, five months after announcing the funding round, Avenue One began a round of sweeping layoffs  — the company's first since an industry-wide decline in single-family rental purchases and renovations began in mid-2022. It's the latest reminder that even well-capitalized companies are susceptible to soaring interest rates. Avenue One's transition also speaks to the dangers of intense growth demands sometimes placed on successful startups. Avenue One cofounder and CEO Ryan Stroker told BI in an interview how the company is navigating the difficult business environment. A key element of Avenue One's strategy is a new lending product. BI also spoke to six current and former employees who described a workplace that was rapidly hiring and otherwise spending on growth leading up to the layoffs, which they said gutted several divisions, including one that focused on renovating investors' homes and one responsible for centralizing the startup's business processes. The layoffs, which were carried out in multiple rounds, resulted in cuts of roughly 100 of the company's more than 250 employees across all divisions, according to a lengthy email statement from Avenue One following BI's interview with the CEO. Stroker said the layoffs were a tough decision that took place after the company realized that the lull in demand for single-family rentals would drag on longer than expected. As for the hiring, he said the company was under pressure to ramp up to meet what was expected to be a return in demand in 2023. "I was told that I wasn't spending enough money six months before the layoffs," Stroker said. New Product Stroker said he got the idea for Avenue One while working as head of acquisitions at real-estate investment and development company Amherst , now one of the largest owners of single-family homes in the country. He worked with Martiner, current CTO and co-founder, to build the business, which is dedicated to streamlining the process of investing in single-family rentals for big investors. Avenue One makes money by charging a fee for the homes it manages, buys, and renovates for clients. Avenue One executives say they remain committed to the core business despite the slowdown, which saw institutional investor purchase 90% fewer homes at the start of 2023, compared to the year prior, according to research from John Burns Real Estate Consulting. Avenue One has continued buying homes on behalf of investors during the slowdown using insurance capital, Stroker said. The firm also announced late last year that it had sold a 43-property portfolio owned by online crowdfunding platform Yieldstreet. The company has also been working on a new lending product to help it adapt to a much different market, Stroker said. The product seeks to help institutional investors lend to owners of single-family rental units by taking on the underwriting and management of the loans. The focus is on owners of non-institutional portfolios of less than one hundred homes. The product is another way for institutional investors to gain exposure to the American housing market at a time when many landlords are looking for money to keep their investments going until demand for these homes resumes. As with the vast majority of real-estate lending, if the borrower isn't able to pay back the lender, the lender can eventually foreclose on the house and take possession of it. Related stories Avenue One is entering a market that already has minted some successful companies, like lender Corevest, as well as scores of smaller private lenders. But Stroker sees its lending product as one of the many ways it will work with institutional capital and the next step to become "a solution provider" in both boom and bust times. "For this thing to happen in scale, there needs to be more of an infrastructure to housing equity, and we're working on how to facilitate that concept," Stroker said. The company will close its first loan in the coming weeks, Stroker said. Layoffs and Big Spending Both Stroker and Avenue One's followup statement said the company is financially secure and described the layoffs as prudent rather than necessary. "Frankly, did we need to cut people? We didn't need to, it wasn't going to fall apart, but it fucking sucked," Stroker said. "I hired best friends and had to let them go." The company said Stroker's comments refer to the friendships he built while running the company and reflect "the difficult and painful decisions that Ryan and others on the leadership team had to make" regardless of personal relationships. "The company wasn't going to become insolvent imminently if the layoffs didn't happen," the statement said. Rather, they were done to ensure a "sustainable future and an extended runway for the business." Many of the employees who spoke to BI said they received two weeks of severance from Avenue One. Leading up to the May 2023 funding round, Avenue One had been hiring at a rapid pace and offering large pay bumps to lure talent, according to the current and former employees, who asked to remain anonymous to protect their future employment prospects and their severance. One employee who was laid off late last year said her pay jumped 20% when she went to Avenue One in late 2022. Another laid-off employee who joined the company around the same time said she received a base pay increase of more than $50,000 and a 15% bonus. Money was loose in other ways, employees said. They told BI about lavish dinners, team trips that gathered remote employees from across the country to party together, and how the company would pay remote employees to fly into Manhattan to work out of the corporate headquarters once a month, with all employees, regardless of role, given a Brex card to pay for expenses. They only needed to show receipts for purchases over $100, said two laid-off employees. The company said that it did not have a policy that receipts were not necessary under $100. Additionally, it characterized this spending and travel as an integral way to build the company's culture and bring remote employees together. "These weren't instances of reckless spending on frivolous parties or events solely for fun or entertainment, but rather intentional investments into the company's people and culture," the company's statement said. But as venture funding became tighter, the growth-at-all-costs mindset flipped in an almost "binary" way, Stroker said. "It was like you go from an environment where resources are free to a finite-resource environment," he said. Disclosure: KKR is a large shareholder in Axel Springer, which owns Business Insider. Read next