A SPAC and why is it a big trend in real estate? Pick up any financial publication lately, and they are all writing about SPACs. What is a SPAC? SPAC stands for special purpose acquisition company and created for the sole purpose of acquiring a private company and taking it public.
As a simplified example, a SPAC might complete an IPO and raise $300 million. It could then “acquire” a private company, which would get the $300 million as growth capital. The combined company would then assume the name of the acquisition target and change its ticker symbol to reflect the change.
SPACs are often discussed as an alternative to the traditional IPO process and a new way to democratize IPOs for more investors. And there can be tremendous upside potential for investors when a SPAC IPO is well received by the market, which has happened in several high-profile cases in the past couple of years. Many analysts, like Jeff Brown of Brownstone Research, complain that technology companies are over-priced when they IPO. The venture capital investors or insiders make all the money, and the general public buying after the IPO have limited upside. In practice, there are some pretty significant advantages to using SPACs to take companies public, both for the company acquired and the SPAC’s sponsor.
The short answer is that some big growth trends and innovations happen in the real estate industry, and some companies are doing a great job of leading the charge. SPAC IPOs give them the capital they need to take their growth to the next level.
To name a few recent examples of real estate-related SPACs, Opendoor Technologies (NASDAQ: OPEN) recently completed its SPAC merger with Chamath Palihapitiya-led SPAC Social Capital Hedosophia Holdings II. Property technology, or proptech, company Latch is set to go public through a merger with a SPAC sponsored by real estate firm Tishman Speyer.
There are also some on the market that plan to target real estate companies. Boston Omaha’s SPAC Yellowstone Acquisition Corp has real estate companies listed among its target business types. Real estate firm CBRE Group (NYSE: CBRE) has a SPAC that’s still looking for a deal, and Tishman Speyer has launched a second SPAC.
The SPAC trend isn’t showing any signs of slowing down, so real estate investors need to know what they are. The fact is that the IPO-alternative investment vehicles are almost certain to take several exciting, innovative property technology and other real estate-focused companies public over the next year or two at a minimum.
Leave it to small, individual real estate investors and entrepreneurs to come up with a way to use SPACs as a way to 100% fund their real estate acquisitions.
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