New York-based Alpaca VC, which is ranked 18th on PERE’s second Proptech20 ranking, is expanding its purview, launching a direct real estate investment arm to supplement its established venture capital business focused on property and construction technology.
The new platform, called Alpaca Real Estate, will be led by its two co-founders: Daniel Carr, formerly a principal at Ares Management, and Peter Weiss, who comes from Prospect Ridge, a private equity real estate firm spun out of Nashville-based investment manager AllianceBerstein in 2019. Both executives joined over the summer.
Alpaca Real Estate will raise capital in a similar fund model to its VC arm, Ryan Freedman, general partner, told PERE. The firm is currently in the market with its third VC fund, with a target of $75 million, according to SEC filings. As of May 5, the firm had raised just over $78 million for the third fund, above target but beneath the fund’s hard cap of $100 million.
Alpaca declined to comment on fundraising for the direct real estate strategy as the fund is not in the market yet. PERE understands the fund will launch later this year and will be anchored by GCM Grosvenor.
Alpaca has chosen now to launch a new real estate investment arm because the market repricing triggered by the high interest rate environment allows Alpaca to take value-add risk for opportunistic returns, Freedman said.
Alpaca Real Estate will target residential and industrial properties for the platform’s initial investments, Carr told PERE. In the residential sector, a big focus is on single-family rental, particularly build-to-rent. On the industrial side, infill logistics buildings and industrial outdoor storage are key areas of focus.
Layering technology
Alpaca believes it can differentiate itself in the market by using its technology expertise to add alpha to returns, both in terms of increasing revenues and decreasing expenses.
For revenue growth, the firm can employ solar and other renewable energy technologies to drive rent increases. For SFR and BTR properties, Alpaca Real Estate can also utilize technology developed by some of its portfolio companies to manage short-term rentals to generate additional revenue from a portion of its portfolio.
On the expense side, Alpaca Real Estate can use technology to cut down on staffing costs, such as replacing in-person building tours with virtual tours, as well as making maintenance and property management more efficient, Carr said. The firm has invested in more than 100 technology companies since inception, providing insights on which firms have technologies to best drive alpha.
Sourcing opportunities will also come from Alpaca’s portfolio companies. Specific examples to date include electric vehicle charging businesses buying industrial outdoor storage and infill industrial properties to convert to charging locations; co-warehousing companies targeting both single and multi-tenant infill industrial warehouses; and short-term rental aggregators acquiring single family rental homes.
With its new real estate business, Alpaca will be able to invest up and down the capital stack, including equity, preferred equity and mezzanine debt positions. The firm would look to work with real estate developers and operators seeking joint venture equity, preferred equity and mezzanine debt in an investor/manager or lender/borrower relationship, depending on the structure of the deal.
“In the past, these real estate sponsors had many capital markets options from larger institutional funds such as the ones Dan and I worked at for 10 years,” Weiss said. “However, in today’s illiquid capital markets, there are less options for those sponsors, with many larger institutional funds out of the market, which presents an opportunity for new capital providers such as Alpaca to transact.”
However, Alpaca will focus only on asset-level investments with its new real estate business, and continue to invest in any operating companies through its VC strategy. Alpaca Real Estate may get warrant exposure to operating companies in exchange for utilizing its technologies to manage the real estate assets. This would allow the firm to generate additional upside from the platforms’ growth via those participations.
“That’s really just upside we would get in return for helping to grow the business,” Carr said.
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