In January, Alpaca announced its PropCo Data Initiative with the Center for Real Estate Technology & Innovation (CRETI) to fill an information gap in the market for founders, investors, and stakeholders by providing data, analytics, and funding figures on the PropCo space. To kick off our partnership, we launched a survey to gauge the current state of affairs among founders who have raised or are interested in raising PropCo capital.

Our goal with the survey was to gain insights into the current industry players’ understanding of the PropCo landscape, as well as their fundraising efforts and PropCo strategies.

We collected over 110 unique responses from firms, and we’re excited to share our findings (disclaimer: responses from participants are their sole opinions and do not reflect the opinions of Alpaca VC).

Prior to this survey, were you familiar with the term PropCo?

• Yes: 78.4%
• No: 21.6%

We started our questionnaire with a simple, yet illuminating question: how familiar are founders in the PropTech and PropCo space with PropCo structures themselves? While the majority were familiar with the term, there was a sizable minority of respondents who had not yet been exposed to the idea of a PropCo strategy.

What does this mean? While PropCo strategies are not new, the term has not yet fully penetrated the real estate technology ecosystem, and there are founders seeking funds whose businesses may qualify for PropCo capital, but there is a lack of awareness of investor appetite and what an appropriate OpCo/PropCo capital strategy entails.

Have you ever raised PropCo funding?

• Yes: 37.1%
• No: 62.9%

Less than 40% of respondents had raised PropCo funding, illustrating the schism between capital allocators and companies that operate or own real assets as a part of their OpCo strategy. These companies could scale and grow using more efficient, traditional real estate investment dollars which could be financed separately from the PropTech OpCo side of the business (which typically utilizes venture capital).

What does this mean? There is sufficient awareness of PropCo strategies, but less than 50% of the respondents who had heard of the term actually received PropCo funding. This indicates that there is a gap in the market where founders have not been able to access capital to scale the asset-backed side of their business while simultaneously raising venture funding.

Approximately how much PropCo capital have you raised, historically?

• <$10M: 32.6%
• $10–50M: 25.6%
• $50–100M: 16.3%
• >$100M: 23.3%
• Other: 2.3%

There is ample appetite among capital allocators to provide significant funds to founders who have a PropCo strategy embedded in their business. Of the 37% of respondents who had raised PropCo capital, the majority had received under $10M in funding while over 25% had raised between $10M to $50M. Even more encouraging is that 23% received over $100M to scale their business.

What does this mean? Founders raising venture funds to grow their OpCo are tied to venture-level risk-adjusted returns and the typical venture round size is ill-matched to effectively finance real assets that are tied to the overall business (VC cost of capital is also significantly higher). The survey data suggests that tens of millions of dollars of financing can be unlocked for capital-intensive OpCo/PropCo strategies to recalibrate the capital stack to match bifurcated company structures with the appropriate investors, maintaining separate return profiles for the OpCo and PropCo.

Which types of firms have you raised PropCo capital from?

• HNW Investor: 58.1%
• Family Office: 55.8%
• Institutional Real Estate Investment Firm: 48.8%
• Pension Real Asset Teams: 18.6%
• Hedge Funds: 4.7%
• Other: 18.6%

The vast majority of PropCo capital thus far has been sourced from individual investors, smaller family offices, and institutional real estate investment firms. It is encouraging that traditional real estate investors have gravitated towards the PropCo space, indicating the value that these structures present to established industry players and the opportunity their capital can provide to PropCos to scale their operations in a meaningful way.

What does this mean? High net-worth individuals and family offices are often the more receptive forms of capital to more nascent ideas and smaller companies, as indicated in the response data which shows over 55% of respondents had raised PropCo capital from these sources. However, the large presence of institutional real estate investors is an encouraging trend that should help crowd-in capital. These firms’ formalized investment experience and acumen in real estate assets should help other institutional capital, like private equity and pension funds, become attuned to the attractiveness of PropCo structures.

Are you considering raising PropCo capital in the future?

• Yes: 62.9%
• No: 37.1%

While only 37% of survey respondents had previously raised PropCo capital, nearly 63% of respondents are considering this type of funding in the future. This suggests that there is a growing, and potentially unmet, demand for investor capital that can scale PropCo operations more efficiently and effectively than typical venture funding.

What does this mean? There are significant opportunities for PropCo capital allocators to increase deployment in the near future as more companies look to diversify their capital stack to scale their OpCos. As venture-level businesses seek to disrupt the real estate market’s traditional operating models, it will be imperative for seasoned real estate investors to support these initiatives to properly capitalize on these trends within a multi-trillion-dollar global real estate TAM.

Is your company already set up with an OpCo/PropCo structure?

• Yes: 29.3%
• No: 70.7%

Less than 30% of respondents have an OpCo/PropCo structure at the moment despite over 37% responding that they have already raised PropCo capital. This delta suggests companies are gearing up to introduce PropCo structures alongside their OpCos, underscoring the importance of connecting the appropriate capital allocators with PropCos to get these businesses off the ground and ready to scale.

What does this mean? The data is clear, demand for OpCo/PropCo structures is outpacing their current implementation in the marketplace. In order to ensure investors source the proper opportunities and businesses connect with the appropriate investment partners, it is important to create a network to facilitate these interactions. Our partnership with CRETI is aimed at doing just that, pioneering the PropCo space into the future.

Please select one (or more) of the following categories that apply to your company.

• Multifamily Residential: 47.4%
• Single Family Residential: 33.6%
• Office: 32.8%
• Industrial: 21.6%
• Retail: 20.7%
• Hospitality: 16.4%
• Vacation Rentals: 11.2%
• Coworking: 9.5%
• Home Equity Financial Products: 7.8%
• EV Infrastructure: 6.0%
• Rural Hospitality: 6.0%
• Down Payment Assistance Products: 4.3%
• Ghost Kitchens: 0.9%
• Other: 35.3%

The vast majority of respondents operate within the typical food groups (i.e. Multi Family, Single Family, Office, Industrial, Retail), however, there is a clear rise of new niche asset classes (i.e. EV Infrastructure, Rural Hospitality) as well as reimagined existing asset classes (i.e. Home Equity Financial Products, Down Payment Assistance Products). Early-stage entrepreneurs continue to innovate and we believe that there will be more new ideas and categories formed. The residential sector has received significant attention from PropTech companies devising solutions for inefficient and outdated operations, indicating that residential-oriented services are in need of PropCo structures to scale to their serviceable addressable market potential. However, while residential real estate is often the focal point of investors, other asset types like industrial, retail, and hospitality are in need of innovation and should not be overlooked by capital allocators seeking to find solutions that will help generate alpha for their real asset investments.

What does this mean? Companies are pursuing solutions that touch a wide array of asset classes and financial service products, indicating the potential for PropCo capital to become ubiquitous across various PropTech models. The World Economic Forum noted that there has been a convergence in asset classes across real estate, with various product types becoming more interlinked, like residential and office. This indicates that PropTech technology initially intended for one asset type could feasibly be supported across various real estate sectors. It will be important for OpCos with associated PropCo verticals to be cognizant of which capital allocators can best support their thematic real estate investment goals given pricing, competitive landscape, and market trends.

Wrapping Up

The PropCo landscape is evolving and our survey data shows that asset-lite operating companies working within PropTech could benefit from scaling their technologies through more discretionary PropCo vehicles. The traditional venture model attracts capital with risk-return profiles that do not provide the funding size, patience nor return expectations associated with real estate investing. By bifurcating a business into an OpCo/PropCo structure, companies can realize their true value and real asset investors can tap into the growth benefits of early-stage businesses.

The demand is ripe for embedding PropCo models into the burgeoning PropTech sector, the next step will be to connect those looking to raise capital with investors seeking to deploy their funds into PropCos that align with their mandates. At Alpaca, we’re here to make those connections happen.

Please Reach Out

If you’re an entrepreneur considering a PropCo-OpCo structure or an institution exploring the PropCo space, please reach out to [email protected] and [email protected]. We’d love to speak with you.

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