SPAC deal tests investors’ zeal for single-family rentals

A property management and acquisition platform for single-family landlords is going public through a blank-check merger in a bet that investor appetite for rental houses will outlast waning enthusiasm for real estate technology stocks.

PropTech Investment Corporation II, a special-purpose acquisition company led by chairman Tom Hennessy, is merging with Appreciate, which helps investors buy, manage and sell rental homes in more than 40 geographic markets across the U.S. The combined company will have an estimated enterprise value of $416 million and up to $159 million in net cash as well as a $100 million committed equity facility from an affiliate of Cantor Fitzgerald LP, according to a statement Tuesday.

“We recognize there’s a lot of uncertainty and volatility in the market today,” Hennessy, who took Porch Group Inc. public through an earlier blank-check merger, said in an interview. “Our attitude is, `Let’s get the company public in the right way, give it the tools to grow, and allow it to become a large company in the long term.’”

Appreciate, which operates as Renters Warehouse, reflects the trajectory of single-family rentals in the U.S. It was founded in 2007 to provide property management to the small investors who have traditionally dominated the asset. A decade ago, property funds began assembling massive portfolios of the houses, prompting Renters Warehouse to find ways to serve large investors. It raised money from private equity firm Northern Pacific Group and started helping clients find and acquire property.

Demand for those types of services exploded during the pandemic, as investors looked for types of commercial real estate that weren’t impacted by Covid lockdowns. In many cases, new institutional players created opportunities for firms like Appreciate and Roofstock and Mynd Property Management, which also help investors acquire and manage rentals.

Appreciate is the latest company to do a SPAC deal during a difficult time for blank-check companies. Investment banks such as Goldman Sachs Group Inc. and Bank of America Corp. have pulled back from the deals as the market reckons with new disclosure guidelines from the Securities and Exchange Commission. The De-SPAC Index, which tracks 25 companies that have gone public through a merger with a SPAC, is down more than 50% this year.

Moelis & Co. advised Appreciate, while Cantor Fitzgerald LP and Northland Securities Inc. worked for the SPAC.

Appreciate currently manages about 15,000 homes for about 12,000 clients, indicating that most of its clients are small investors. Now, it plans to use the proceeds from its blank-check transaction to ramp up marketing spending and expand into new geographies. The company expects to generate $113 million in revenue next year and $23 million in earnings before interest, taxes, depreciation, and amortization.

Appreciate expects to bolster its relationships with institutional clients, said company president Kevin Ortner. Even so, the company plans to continue serving small landlords, who own the vast majority of the US rental houses.

“It’s a segment of the market can’t be ignored,” Ortner said.