Single-family rental platform Appreciate to go public in SPAC deal

Investors behind Porch’s public debut betting SFR biz will win over investors even as regulators target SPACs

From left: PropTech's Thomas Hennessy and Joseph Beck; Appreciate's Chris Laurence (Appreciate, LinkedIn/Tom Hennessy, LinkedIn/Joseph Beck, iStock)
From left: PropTech's Thomas Hennessy and Joseph Beck; Appreciate's Chris Laurence (Appreciate, LinkedIn/Tom Hennessy, LinkedIn/Joseph Beck, iStock)

Defying investors’ waning interest in risky proptech stocks, the sponsor pair behind Porch’s 2020 rocky SPAC merger are taking another firm public — this time are targeting the hot single-family rental sector.

PropTech Investment Corporation II, the second special-purpose acquisition company launched in 2020 by Abu Dhabi Investment Authority veterans Joseph Beck and Thomas Hennessy, will merge with Appreciate, the parent company of single-family rental marketplace and management platform Renters Warehouse, the companies said Tuesday.

After the merger, Minnesota-based Appreciate will have an enterprise value of more than $400 million, no debt and up to $159 million of net cash, assuming PropTech II’s backers do not redeem their shares, according to the deal announcement. It will also have a $100 million committed equity facility from a Cantor Fitzgerald affiliate.

The proposed deal comes at a pivotal juncture for SPACs, which have come under regulatory scrutiny after a spectacular pandemic-era boom-and-bust cycle that saw the share prices of many newly public proptech firms — including Porch’s — decline steeply in value and major investment banks pull back on deals.

The SEC in late March proposed new rules to rein in the market by, among other things, making sponsors and their advisors liable for the often lofty performance projections they use to lure investors.

Beck and Hennessy raised $200 million in PropTech II’s IPO in late 2020, promising investors a “category winner” while vowing not to invest in startups, “excessively leveraged” companies or others with “speculative business plans.” Sponsors typically have two years to identify and woo a target after they’ve raised funds.

Founded in 2007, Renters Warehouse, which operates in 40 markets, helps retail and institutional investors source homes and tenants as well as analyze their properties’ performance. Most of its 12,000 clients are retail investors, with only one or a few homes.

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Appreciate will use the funds from the deal to expand geographically, according to an investor deck published alongside the deal announcement. It expects to generate $45 million in revenue in 2022 for a gross profit of $24 million, and $113 million in revenue in 2023 for a gross profit of $64 million.

On a pre-recorded deal call Tuesday, Hennessy described the growth prospects of the single-family rental sector — among the real estate niches that benefited from increased demand during the pandemic — as “massive.” Rising interest rates are putting homeownership further out of reach to consumers already disenfranchised by high home prices and stagnant wages, he said.

“We believe the U.S. housing industry is rapidly changing from fragmented, non-institutionally owned to scaled, institutionally-owned SFR,” he said.

The merger is expected to close in the second half of 2022, pending shareholder approval. Appreciate will trade on the Nasdaq with a ticker “SFR.”

Moelis & Co. advised Appreciate, while Cantor Fitzgerald and Northland Securities advised PropTech II.

As of mid-May, a record 600-plus SPACs are still in the market seeking a target.

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