SPACs: Special Purpose Acquisition Companies and Multifamily Tech

SPACs: Special Purpose Acquisition Companies and Multifamily Tech

During the past few months, PropTech companies such as Opendoor (iBuyer of single-family homes) and Latch (smart-home ecosystem) have announced their intentions to go public via merger with an already-public shell corporation set up as a SPAC vehicle to find a company to buy. 

More recently, PropTech venture fund sponsors Fifth Wall has announced their intention to raise over $300 million in public markets to fund the purchase of a PropTech innovation company to take public. 

Ryan Gilbert, CEO at Zeus SPAC joined moderator Steve Lefkovits of Joshua Tree Media during this Multifamily Innovation Conference – Atlanta (MICA) session to discuss these trends. To think, 250 SPACs were created last year and an astounding 260 more just in Q1 2021. 

Global RXR Realty, ChargePoint, Vivent and Porch.com are others that have been supported by SPACs.

Comparatively, Gilbert said, there are fewer SPACs in the multifamily space than in other verticals.

So Much Easier

SPACs are a more efficient way to go public because their timelines to get there are shorter, Gilbert said. “SPACs ease the process to get funding,” he said. “There’s greater certainty in what you are investing in. You are able to partner with experienced management teams. SPAC investors hold minority stakes, and are not looking to replace management and take over. It’s not a road show.”

Gilbert said one advantage that multifamily PropTech companies involved in SPACs have is that they are run by those who know this industry well – not unlike venture capitalists who look for the “right” PropTech companies to invest in and are seeing them succeed. 

“To me, I’m looking for vertical market specialists,” Gilbert said. “If you know your space, then everything seems to work out: Origination work and good underwriting for your company follows.”

SPAC focus more on forward-looking statements rather than backwards (or what you did last year), as can be the case with IPOs.

“To be ready in the SPAC space, you have to be able to articulate the business proposition when meeting with investors for the first time,” Gilbert said. “Be good storytellers. Talk about future. You have to lay a path to profitability. Investors want to understand your company; know where your next dollar is coming from. How are you going to spend their money; they want to know that you are measuring every dollar that’s coming in. What do your general operations look like?”

Multifamily Value Metrics are Clearer

The company’s forward-looking strategy timeline depends on the company and in what vertical they belong, Gilbert said.

“You might have a new battery for an electric vehicle, for example; investors will be more interested in what you are doing in the next five years, than in the next 20. But if Tesla is your competition, all bets are off.”

He said another advantage for multifamily companies is that the metrics are clearer.

“You have hard assets, you’ll know how many doors you’ll have, the incoming rent, etc.,” Gilbert said. “It’s more predictable. Opaqueness is not a good thing for businesses to have.”

Gilbert discussed whether there’s greater value in publicly traded service providers.

“Having publicly traded companies as your vendors gives you far better insights and more confidence in your partner’s ability,” he said. “You just know where the business is going, what might be driving mergers and acquisitions. You want vendors with good access to capital, because innovation takes money.”

Companies need to assemble management teams and boards with people who want to be run like a public company, Gilbert said.

“Not everyone is cut out for this,” he said. “It might seem easy, but there’s a difference. You need to have a diversified board that is ready to provide wisdom. Too many boards are just ‘five guys.’ (We’re not looking at hamburger chains, he joked.) Put as much thought and effort into who will serve on your board as you would when hiring for any other position at your company.”

Understanding Growth

Gilbert pointed to a recent market shift toward value over growth.

“At the start of the pandemic, people loved the growth, but they didn’t understand the growth,” he said. “Value means you know where the growth is coming from and it’s more understandable; it’s not just shooting for the stars with valuations.”

He said the economy cannot expect another round of high stimulus, “but you can expect higher corporate tax rates.”

When asked what type of company today is most primed to do well in the minds of SPACs, Gilbert said he’d look to businesses that are technology platforms and data-centric because they are more capable of serving multiple vertical markets. 

“I’d worry about companies that don’t have enough invested in technology,” Gilbert said.

He was hesitant right now about travel-related companies, saying, “Airbnb margins are really slim and we have to worry about the next virus coming out of Europe when it comes to travel trends.”

Gilbert also acknowledged that “going public” is not always the smartest, ultimate goal for companies.

“Being a public company is a way to great way to access more capital to fund more growth,” he said. “But some companies never want to go public. Some private companies have great leadership. Going public means more than just raising capital, it should bring some marketing benefits, an opportunity to get liquidity, a means to an end.”

Lefkovits closed by saying that the multifamily industry “spends so much time fighting the difficulty of innovation and the implementation of innovation” and praised SPACs’ efficiency when it comes to enabling innovation.

Here is the replay: