NAR bets on Upstream with additional $9M in funding

Data management company expected to repay funds upon hitting profitability

WASHINGTON — The board of directors of the National Association of Realtors (NAR) last week approved an additional $9 million in funding for broker data management platform Upstream.

The company behind the platform, UpstreamRE, is expected to repay the funds when it achieves profitability.

The funds — $500,000 this year and $1 million in 2018 for administrative costs — will be in the form of loans and taken out of NAR’s operating reserves, which currently stand at about $75 million, John Pierpoint, NAR’s chief financial officer, said at the Realtors Legislative Meetings and Trade Expo this week.

The increased funding signals NAR leaders’ willingness hedge its bets on a venture that promises to put real estate data in the control of the trade group’s 1.2 million members, rather than companies the association views as well-funded outsiders, particularly Zillow Group.

Upstream announced a pivot this week, dramatically shrinking its scope. Just two years ago it promised to be a “single source of truth” for broker information and sought to insert itself as a middleman between brokers and recipients of their data, including multiple listing services.

Now, Upstream has shifted its strategy and brokers will be able to enter their listings into their MLSs instead of Upstream first. The company will build a dashboard to manage distribution of listings if and when brokers choose to push their listings to Upstream from the MLS.

‘Behind it 100 percent’

The NAR board also agreed to provide Upstream with a $7.5 million backstop. According to a business plan Upstream submitted to NAR, Upstream expects its 2018 expenses to be $7.5 million and it anticipates to bring in that same amount in revenue, Pierpoint said. But if that turns out not to be the case, NAR will provide Upstream with up to $7.5 million in loans to cover its expenses.

This is in addition to the $6 million in funding allotted to the project in 2015, of which about half was used through the end of 2016 with the remainder to be funded this year. NAR subsidiary Realtors Property Resource is creating the Upstream platform.

“Users will pay Upstream for access and use of the system, and beginning in 2018, Upstream will pay RPR a licensing fee intended to cover RPR’s operational expenses related to Upstream plus a 10 percent markup,” according to today’s NAR Finance Committee report.

“It’s a great program that’s going to help our members. We’re behind it 100 percent,” Riley said.NAR is confident in Upstream’s business plan and therefore believes the $7.5 million backstop won’t be necessary, NAR Treasurer Tom Riley told Inman.

What NAR is getting for its money far exceeds what it is loaning, Riley said at the board meeting.

This includes intellectual property rights.

“NAR, through RPR, owns 100 percent of the intellectual property and always will,” NAR CEO Dale Stinton told the board.

“It will be used for a variety of purposes, [Upstream] being only one.”

Conditions for receiving the additional funds

Stinton stressed that the additional funding is composed of advances to be repaid after an anticipated ramp-up to 250,000 users.

“As a utility, [Upstream] cannot make more than 10 percent profit. It puts a number out there that is designed as a worst case scenario. We would rather be far more conservative in our estimates than to try to put one over on you,” Stinton told directors.

Receipt of the additional funds is subject to certain conditions including:

  • UpstreamRE will obtain written letters of intent from MLSs confirming their commitment to configure their systems to work with the “post-MLS API” and they will each deliver broker data via the API all at no charge to Upstream, the requesting broker, or RPR.
  • UpstreamRE will aim to maintain a user base that will be charged a sufficient amount to generate annualized revenue in an amount that at least offsets the cost of providing the Upstream technology from RPR.
  • UpstreamRE LLC Board and Executive Committee will continue to set and maintain policy and strategic direction, including the strategic plan, an annual business plan, and all legal and insurance requirements of Upstream operations.
  • Upstream LLC will provide a 3-5 year business plan to NAR/RPR by June 30, 2018.
  • Both NAR Managers will serve on the Upstream Executive Committee.
  • The Upstream CEO will work directly with the NAR CEO (or his/her designee).

Politics and ‘something of a cartel’

“It’s going slower. It’s pretty disappointing to explain why. Politics, and that’s my polite word,” Stinton said.At the board meeting, Stinton said “politics” had held Upstream back and that the change is an effort to “ramp up” the project faster.

“There were those that were pretty unhappy with the Upstream concept and the broker, the agent the member … having complete control of their listing. There are a lot of competitors, frankly, there are a lot of vendors and some MLSs who don’t like that.”

He emphasized that this did not not include all vendors or MLSs. But he went on to say something he thought Frank Underwood of Netflix’s House of Cards, might say.

“‘While I would never say that myself, others might refer to them as something of a cartel.’ [NAR General Counsel Katie Johnson] said I could say that once,” he said, prompting some chuckles from the directors.

In a presentation to state association executives Friday, Upstream CEO Alex Lange said some MLSs were resistant to Upstream’s original configuration.

“People are afraid of change. There was also potentially economics changing hands,” he said, referring to MLSs that take in revenue from listing syndication feeds to third parties.

“When we put syndication back in the brokers’ hands that sort of dishevels the whole thing.”

“The distribution features were really what [brokers] want,” he added.

Upstream “will spend next two to three months doing the extra work of handling these feeds” and going across the country getting MLSs onboard, Lange said.

What about the competition?

When asked how Upstream plans to compete with CoreLogic and Zillow Group given their comparatively large war chests, Lange said Upstream would compete by getting more brokers to participate — in particular those affiliated with Upstream’s board of managers, which Lange said represent about 250,000 agents.

“As data is getting more rich, more personal … we have a bigger than responsibility than ever,” Lange said.

“We want a system by the industry, for the industry,” not from a company that can change its business model at any time, he added.

“Am I competing with a war chest? Absolutely. If we get the message out that we’re competing for the industry, I think we’re much better off.”

‘Buying more time’

Upstream will still implement its original idea over time, giving brokers a choice of how to input listings, Stinton told the NAR board today.

“Both options are alive and well. It is the intent to move very fast on the second solution, but never, ever giving up on the first solution. We’re just buying more time for it to be implemented,” he said.

“Because we have some competition this needs to be rolled out as fast as possible,” Else told the directors.Dan Elsea of Upstream’s board of managers noted that “the cost of getting Upstream up and running is less than one-tenth of one percent” of the revenue of Zillow Group.

“What we’re doing here is faster and cheaper than the competition is doing. We think broker choice will speed things up [and] allow us to fund it quickly. It will allow us to get revenue faster. The cost per practitioner will be probably closer to a cup of coffee than a house payment.

“It’s not [whether] there will be a database that all of our data will be under, but who will create it,” he added.

Project confidence: ‘We’re going to win’ vs. ‘wispy’ details

Stinton said there was a “subtext” to the DANGER report NAR commissioned and released two years ago.

“The subtext was you’re not in charge anymore, you don’t have a seat at the table, and, what bothers me the most, you are incidental to the transaction,” he said.

He referenced a popular quote: “First they ignore you, then they laugh at you, then they fight you, then you win.”

“They have dismissed and ignored Upstream as a crazy idea by uppity brokers,” Stinton said.

“Now they’re laughing. From Southern California, to San Francisco to Seattle, they’re laughing. So we have to send a signal that you’re hardly obsolete. That you’re not going to go away. This proposal does that. We’re going to win.”

During discussion of the funding proposal, some directors expressed concern about allocating more funding to Upstream without a clearer picture of how the money will be paid back, with one director noting the details were “rather wispy.”

But there were more comments in favor of the proposal. “We must continue to innovate for our members,” another director said.

“We must be leaders and not followers. I would much rather be in control of our data than let outsiders, aka the cartel, be in control of our data.”

‘This is real’

The ultimate vote count was 641 in favor and 93 opposed.

NAR’s RPR showed off a live version of Upstream’s integration with RMLS (Regional Multiple Listing Service) in Portland, Oregon, in several conference sessions this past week.

Both Stinton and Lange seemed intent on proving the platform existed, noting that there had been rumors that it didn’t.

“This is real. It’s happening. We ain’t giving up. We don’t give up on anything,” Stinton said.

“We’re moving forward on behalf of agent and broker communities. They pay the bills for everyone in the room.”

Moreover, NAR wants to keep brokers as part of the Realtor community and show them that when they have a good idea, the trade group stands by them, according to Stinton.

“The last thing we want is for brokers to think we’re not being responsive to them,” he said.

Editor’s note: This story has been updated with information from today’s NAR Finance Committee report.

Email Andrea V. Brambila.