Introducing Alpaca’s Next Gen Real Estate (“PropCo”) Blog Series
Authors: Daniel Fetner, Ryan Freedman & Adam Donahue
What to Expect:
This past January our team published “The Great PropCo Opportunity,” in which we detailed the current inflection point and go-forward opportunity with PropCo structures. As a result, we’ve received numerous inbounds from both founders and Real Asset allocators alike. Our fortunate position has allowed us to play “matchmaker,” and facilitate meaningful introductions, as well as strengthen industry connectivity. It’s been extremely rewarding to witness the level of critical thinking, adoption, and innovation being applied to the space.
While the overall interest far exceeded expectations, we also realized that there is a substantial education gap and thus an opportunity to bridge both sides. How does the capital structure work? Why is now the best time to invest in PropCo structures? How does OpCo benefit PropCo? What is the status of capital dislocation? How much “alpha” does this generate? Why should I consider PropCo as a founder?
Our goal in forming this blog series is to enhance the market’s understanding by providing best-in-class thought leadership, articulate real-life examples, as well as interview a subset of the most thoughtful founders and real estate allocators. Ultimately, we see an opportunity to serve as a platform for startups and investors to learn what each respective party is looking for to be successful.
Listen to our latest webinar featuring sophisticated real asset allocators such as Texas Teachers Retirement, GCM Grosvenor, Starwood Capital Group, Abu Dhabi Investment Authority, PSP Investments.
Step into the Next Generation of Real Estate:
When discussing “PropCo” within our Alpaca network, we often find ourselves referring to this opportunity set as “Next Gen Real Estate.” Real Estate as a whole is one of the most established and profitable asset classes in all of history, and while the traditional approach to CRE isn’t going anywhere, there is undoubtedly a next generation of investment opportunities emerging. We view PropCo as the most compelling way to gain exposure to this emergence, protect your downside, and generate outsized alpha through added technology efficiency.
Alpaca Next Gen Real Estate 101
Before we dive into future topics, let’s quickly build the initial framework as to what the next generation of Real Estate looks like in practical terms. Generally speaking, we bifurcate Next Gen Real Estate into three distinct categories:
#1 Real Estate that is Powered by Property Technology. Examples include:
> Multi Family property enables short-term rental & home-sharing to boost occupancy
> Single Family Rental portfolio managed and optimized by property management software
> Industrial asset layers in co-warehousing to increase utilization
#2 Real estate that is Re-Imagining Existing Asset Classes in a new and innovative construct, providing entry points for equity and debt, but in ways that have not been traditionally available
> Rural Hospitality provides wider entry cap-rates, and higher occupancy vs. traditional hotels
> Factoring Lease Revenue makes it possible for investors to buy rental revenue from landlords, simplifying the rental process and enabling liquidity for owners
> Home Equity Financial Instruments unlock equity for homeowners, while providing investors the ability to gain broad underlying exposure to the single family residence asset class
#3 And finally, Niche Asset Classes with capital dislocation and more attractive entry cap rates than traditional real estate investments
> Electric Fleet Infrastructure propels operational optimization for sustainability
> Ghost kitchens provide logistical efficiency and reduce capex spend on real estate
> Car Washes leverage enterprise software to increase retention and simplify transactions
Niche Asset Classes:
While many of these asset classes may be viewed as “niche” by today’s standards, historical data clearly shows how niche assets have a pattern of quickly becoming institutionalized and mainstream.
Verticals such as student housing, self-storage, and data centers all serve as examples as to what happens when an esoteric idea becomes fully institutionalized — cap rates compress, yields tighten, and markets become saturated.
What further excites us about tomorrow’s “Next Gen Real Estate Opportunity Set” is the capital dislocation dynamic, and the ability to capture alpha by operating these assets more efficiently through technology.
Conclusion:
Over the last several decades, one can easily observe how technology has transformed antiquated industries, increased efficiency and reshaped our daily lives in the form of social interaction, e-commerce, and business transactions. As we speak, this same dynamic is redefining how we invest and operate real estate. We look forward to playing a role in helping drive further innovation and unlock value for all parties involved.
Stay Tuned:
In the coming months, we will dive deeper into the most compelling and timely sub-topics within Next Gen Real Estate and PropCo structures.
Please Reach Out!
If you’re an entrepreneur considering a PropCo-OpCo structure or an institution exploring the PropCo space, please reach out as we’d love to speak with you! Daniel@alpaca.vc + Ryan@alpaca.vc
To keep up with the latest from Alpaca, we encourage you to connect with us on Twitter, Instagram and LinkedIn @alpacavc, subscribing to our bi-weekly newsletter The Rundown here or reaching out directly to hey@alpaca.vc
