Overview
We are an early stage blank check company incorporated as a Delaware corporation and recently formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses, which we refer to throughout this Report as our initial business combination.
While we may pursue an initial business combination target in any stage of its corporate evolution or in any industry or sector, we are currently concentrating our efforts in identifying businesses that provide technological innovation to the real estate industry, or PropTech. As the largest asset class in the United States, the real estate industry is vast and includes, but is not limited to: (i) commercial real estate such as office buildings, multi-family buildings, retail centers, industrial warehouses, hotels, self-storage facilities, medical office buildings, student housing, senior housing and data centers; and (ii) residential real estate such as single family homes and condominiums. Within the real estate industry, we are focused on businesses that provide technology solutions to make the real estate industry more accessible, affordable, autonomous, connected, data-driven, digital, dynamic, efficient, experiential, flexible, productive, profitable, smart, transparent, and virtual.
New demand drivers are emerging across all sectors of the real estate industry—traditionally one of the most illiquid, opaque, fragmented, and low-tech asset classes in the U.S. economy. These trends are prompting entrepreneurs to create technologies and companies that digitally transform and disrupt the outdated technology and operating models of real estate. For example, the sharing economy catalyzed space-as-a-service operating models such as collaborative workspace and co-living, which are disrupting the office and residential sectors; modular technology and internet of things, or IoT, are reshaping property design, construction, and operations; crowdfunding platforms are expanding real estate ownership to a broader and distributed pool of participants; and the proliferation of data is allowing for the application of financial technology, or FinTech, solutions to real estate and data-driven property management, investment, and asset management tools.
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We are seeking to acquire businesses that offer innovative software, hardware, products, operations, or services that are technologically equipped to improve property ownership; property financing; property valuation; property operations; property management; leasing; property insurance; real estate asset management and investment management; design, construction, and development. These businesses, therefore, have a large market audience and many different customers, including landlords, tenants, developers, operators, managers, brokers, investors, lenders, architects, engineers, and general contractors.
We are seeking to acquire established businesses of scale that we believe are poised for continued growth with capable management teams and proven unit economics, but potentially in need of financial, operational, strategic or managerial enhancement to maximize value. We do not intend to acquire startup companies, companies with speculative business plans, or companies that are excessively leveraged.
Business Opportunity Overview
Real estate investment represents a significant segment of the U.S. economy. In 2018, the National Association of Real Estate Trusts estimated the total value of commercial real estate in the U.S. to be $16 trillion, and Zillow estimated the total value of residential real estate in the U.S. to be $33 trillion. According to the Bureau of Labor Statistics, real estate investment comprised the largest non-government share of U.S. GDP, with $3.3 trillion of total spending in 2018, representing 17.4% of U.S. GDP. Yet, nearly every industry other than real estate has been disrupted by new, innovative technologies, funded by a significant larger relative share of venture capital investment. Real estate, however, has received a relatively small share of venture capital investment. This disparity is particularly pronounced given the significant size of the real estate sector as a percentage of the U.S. economy. We believe this dynamic can be characterized as the real estate “innovation funding gap.”
Source: Bureau of Economic Analysis, Pitchbook, CRETech, Metaprop and Unissu.
Note: Data only represents US VC Funding. Industry share of US GDP represents value added to the US economy.
The way that buildings are constructed, managed, leased, and traded has not changed materially for decades and information technology spending for commercial real estate firms represents just 1.0% of revenues, as compared to 3.0% of revenues across all other industry sectors. We believe traditional real estate owners and operators have not meaningfully invested in innovation, which has led to the innovation funding gap. The next generation of PropTech companies have identified this lack of innovation as an immediate opportunity. This metamorphosis is already underway. According to Unissu, over 7,000 PropTech companies have emerged, and according to CRETech, global investment in PropTech has increased from $33 million in 2010 to over $9.6 billion in 2018. We expect venture capital investment into PropTech to accelerate.
Despite the relative dearth of venture capital funding in PropTech, private investors have recognized the opportunity, as evidenced by the accelerating pace of PropTech funding relative to other sectors. The public markets have also supported PropTech companies including AppFolio (NASDAQ:APPF), which has pioneered building automation through software-as-a-service platforms, Zillow (NASDAQ: ZG) has changed the way people think about buying or renting their next home and CoStar (NASDAQ: CSGP) has changed the way that data is aggregated and analyzed (e.g. LoopNet, Apartments.com, ForRent.com).
We believe that the combination of these trends has created a compelling growth proposition for well-managed, scalable PropTech companies with a proven product/market fit, for the following reasons: (i) the tremendous size (i.e. total addressable market) of the real estate economy; (ii) the stark innovation funding gap (i.e. the opportunity) that presently exists in the PropTech space; and (iii) the current robust private market appetite (i.e. investor recognition) for PropTech companies.
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As PropTech businesses grow, we believe that they will require access to the public markets to access capital for growth. Historically, companies have accessed public markets through initial public offerings, or IPOs. However, the number of IPOs in recent years has diminished. An average of 159 technology companies went public each year during the 1990s, according to the research firm Deal Logic. However, since 2010, the average number of IPOs has plummeted to only 35 per year, a 78% decrease. Generally, IPO slots are relatively available to companies that are larger and older and relatively unavailable to smaller companies (less than $1 billion in valuation). Further, the current IPO market has predominantly backed unicorns, which are companies that have a valuation in excess of $1.0 billion. For example, the median market capitalization of a venture-backed IPO soared from about $660 million in 2012 to over $1.5 billion in 2018. Today, the few available IPO slots are limited to companies that are larger.
Limited IPO slots creates a dilemma for management and shareholders of many established and scalable PropTech companies that have valuations below $1.0 billion. These companies also require access to public markets and capital to grow, but can currently only access private capital, which is typically complex and staged. The only viable exit route for these pre-unicorn PropTech companies is a strategic sale, which can be an unattractive option for current management who desire to maintain some level of control over their businesses. Ultimately, we believe this disparity creates a long-term opportunity to unlock shareholder value through a business combination with an established and growing PropTech business that has a valuation up to $1.0 billion. Additionally, it provides a persuasive argument for such companies to merge with us, as we believe we offer an attractive alternative to the limited private growth options available to these companies. Our strategy is to identify, evaluate, acquire and, after our initial business combination, continue to grow, a compelling PropTech business.
Competitive Strengths
Experienced Management Team with Deal Sourcing Network
Our team is led by co-CEOs Thomas D. Hennessy and M. Joseph Beck. With a combined 24 years of real estate experience, Messrs. Hennessy and Beck bring a unique track record, exclusive relationships, and deep expertise that is suited to take advantage of the growing set of acquisition opportunities in the U.S. PropTech space and to create shareholder value. Mr. Hennessy has served as the Managing Partner of Real Estate Strategies of Hennessy Capital LLC since July 2019. Mr. Hennessy served from 2014 to 2019 as a Portfolio Manager of ADIA, the world’s largest institutional real estate investor. While at ADIA, Mr. Hennessy was responsible for managing office, residential, and retail assets in the U.S. totaling over $2.1 billion of net asset value or $5.0 billion of gross asset value. Additionally, Mr. Hennessy executed over $900.0 million of equity commitments to U.S. real estate acquisitions, developments, and funds. Mr. Hennessy also conceived and led ADIA’s PropTech initiative and investment mandate, which included extensive due diligence on every major U.S. PropTech venture capital fund as well as meetings with numerous PropTech founders and companies. Mr. Hennessy’s PropTech efforts at ADIA resulted in assembling a global team of investment professionals, creating a network and relationships with the major global PropTech participants and ultimately making a significant investment into PropTech.
Mr. Beck served from 2012 to 2019 as a Senior Investment Manager of ADIA, working alongside Mr. Hennessy. While at ADIA, Mr. Beck was responsible for managing office, residential, industrial and retail assets in the U.S. totaling over $2.7 billion of net asset value or $3.6 billion of gross asset value. Additionally, Mr. Beck executed over $2.6 billion of equity commitments to U.S. real estate acquisitions, developments, and funds. Mr. Beck’s primary focus at ADIA was acquiring, executing, and managing a 10-asset portfolio of assets in Silicon Valley, where he established a superior network and access to major Silicon Valley real estate players, including technology tenants, landlords, brokers and developers.
Our management team’s contacts and relationships are extensive across both the real estate and the property technology landscape, providing superior access to PropTech. With regard to real estate, our network includes best-in-class owners, operators, developers, tenants, lenders, brokers, service providers and advisors. With regard to PropTech, our network includes partners at U.S. PropTech venture capital funds, founders of next generation space-as-a-service operators, and a significant number of real estate technology entrepreneurs. We are leveraging this network to gain exclusive access to and identify attractive target businesses in PropTech.
In addition, we anticipate that target business candidates may be brought to our attention from various unaffiliated sources, including real estate market participants, real estate private equity and generalist venture capital groups, investment banking firms, consultants, legal and accounting firms and large business enterprises. Members of our management team are communicating actively with our networks of relationships to articulate parameters for a potential business combination target.
Board of Directors
We have a group of highly accomplished and engaged independent directors who bring to us public company governance, executive leadership, operations oversight and capital markets expertise. Our board members have served as directors, officers, partners and other executive and advisory capacities for publicly-listed and privately-owned companies and private equity and venture capital firms. Our directors have extensive experience with acquisitions, divestitures and corporate strategy and possess relevant domain expertise in the sectors where we expect to source business combination targets. We believe their collective expertise, contacts and relationships make us a highly desirable merger partner. Finally, all of our directors are individual investors in our sponsor.
In addition to supporting us in the areas of, assessment of key risks and opportunities and due diligence, members of our board of directors may also advise us after the completion of our business combination in overseeing our strategy and value creation plan where relevant expertise exists.
In addition to our independent directors, we have recruited two highly accomplished senior advisors who bring to us significant special purpose acquisition company experience. Our senior advisors advise us on public company governance, executive leadership, and capital markets expertise. Our senior advisors have served as directors, officers, and partners for publicly-listed and privately-owned companies and private equity firms. In addition to advising us in the areas of, assessment of key risks and opportunities and due diligence, members our senior advisors may also advise us after the completion of our business combination in overseeing our strategy and value creation plan where relevant expertise exists.
Past performance of our management team or advisors is not a guarantee either (i) of success with respect to any business combination we may consummate or (ii) that we will be able to identify a suitable candidate for our initial business combination. You should not rely on the historical performance record of our management team or advisors as indicative of our future performance. Additionally, in the course of their respective careers, members of our management team have been involved in businesses and deals that were unsuccessful. Our officers and directors have no experience with special purpose acquisition companies. In addition, our officers and directors may have conflicts of interest with other entities to which they owe fiduciary or contractual obligations with respect to initial business combination opportunities.
We believe that we are unique among listed SPAC vehicles due to our management’s extensive research, analysis, credentials, and relationships with respect to U.S. PropTech. As PropTech is a relatively nascent technology sector, we believe that a key differentiator in the space will be combining real estate and PropTech investment expertise with real-time, superior access to the entrepreneurs that are driving the rapid growth of PropTech and venture capital investors that are funding this growth.