Amid a boom in real estate-focused venture funds, one investment outfit is going against the grain.
Upper90, founded earlier this year by Seamless co-founder Jason Finger, Goldman Sachs veteran William Libby and Alex Urdea, formerly of Solus Alternative Asset Management, offers an alternative to venture capital. Rather than provide cash in exchange for big stakes in startups, it seeks to fund startups’ more capital-intensive real estate projects, for example by extending loans.
The model is meant to appeal to real estate startups of the cash-guzzling sort, which may need a lot of money to lease buildings or build out spaces but are reluctant to give VCs big stakes in their companies.
“You have these fast-growing companies that have traditionally leaned to grow with equity, which is super expensive and dilutive and actually most VCs can’t even provide the amount of capital they need,” said Libby, the former head of U.S. quantitative execution at Goldman Sachs.
Earlier this year, the company announced a partnership with Domio. Founded by Jay Roberts and Adrian Lam, Domio master-leases apartment buildings and turns them into short-term rentals. Under the terms of the partnership, Upper90 will pay for 90 percent of the cost of leasing, developing and launching new locations and invest up to $50 million, in exchange for a share of the profits, Bloomberg reported. The first joint project is set to open in New Orleans.
Upper90 claims to accept a wider range of collateral than banks for its loans. For example, it invested in Clearbanc, a lender that offers cash advances to Airbnb hosts. “If you want to borrow money and you’re an Airbnb host and you go to a traditional lender and they say ‘show me your assets,’ imagine what would happen if you pulled out 50 leases,” Finger said. “There is a gap now in the financing landscape and that’s a part of our thesis.” Aside from real estate, Upper90 also plans to invest in startups with unusual collateral in other capital-intensive industries.
Upper90 traces its roots to an informal investment club of entrepreneurs and executives who shared deals with each other before Libby, Finger and Urdea decided to launch a formal fund.
The fund claims to have raised $65 million to-date, entirely from individual investors who also get the chance to co-invest up to another $150 million in specific deals they like. The fund’s so-called limited partners are entrepreneurs and real estate executives, including PBC USA’s CEO Eli Elefant, WeWork executive Ariel Tiger, GLG co-founder Mark Gerson, former Instinet co-CEO Alex Goor and Atrium co-founder Bebe Chueh.
The idea, according to Libby, is that these entrepreneurs are more likely to find good investment opportunities and can advise the companies the fund invests in. “You can’t offer an alternative unless you understand the business,” he said.
Upper90’s launch comes amid record levels of real estate venture investment. In 2017, real estate startups raised a combined $5.7 billion, according to research firm Pitchbook, up from just $44.7 million in 2012. Some observers, including MetaProp NYC co-founder Zach Aarons, have long argued that startups with capital-intensive business models need a cheaper alternative to VC firms, as The Real Deal reported in its August magazine cover story.