What SmartRent’s $2.2B SPAC means for multifamily

Flush with cash, startup aims to make every apartment “smart”

As pandemic-challenged apartment landlords scrambled to cut costs, SmartRent CEO Lucas Haldeman's phone lit up.

The owners were eager to adopt the four-year-old firm's operating platform, which lets them automate building operations such as climate control and door locks.

To meet the demand and beef up its product offerings, SmartRent announced a deal Thursday to go public with a blank-check firm backed by proptech VC firm Fifth Wall.

The deal values SmartRent at $2.2 billion — or 41.5 times the startup's 2020 revenue — and will give it $513 million in cash. The deal also includes a $155 million investment from customers including Lennar, Invitation Homes and 's Starwood Capital.

SmartRent, based in Phoenix, was founded in 2017 by Haldeman and Mitch Karren. Haldeman had been chief technology and marketing officer at Colony Starwood Homes, which merged with Invitation Homes in 2017.

For more than a decade, smart-home technology has proliferated in the residential market, but has largely neglected rentals. At the same time, single-family rentals are surging thanks to institutional players such as Invitation Homes and Starwood.

SmartRent's hardware-agnostic platform is effectively an operating system for enterprise clients who want a single platform to manage an array of smart-home features.

“It's such a massive opportunity,” said Haldeman. “But we can't access it without capital. We have eight or 10 salespeople and you can't take down 43 million units in the U.S. with eight or 10 salespeople.”

Accelerate plans

Before the deal with Fifth Wall, Haldeman said SmartRent was eyeing a traditional . But he was drawn to Fifth Wall's SPAC in part because of its strategic investor base.

“These are not just customers, these are now in the company,” said Brendan Wallace, a co-founder of Fifth Wall, which has backed such unicorns as OpendoorDoma and Blend.

SmartRent has raised more than $101 million from investors since 2017, according to Crunchbase, including a $60 million Series C last May. That round was led by Spark Capital with participation from Fifth Wall, Energy Impact Partners, the Amazon Alexa Fund, Bain Capital Ventures and RET Ventures.

SmartRent's platform includes self-guided tours for tenants, WiFi, parking management and other services. It plans new products to facilitate lease signing, payments, video and security as well as metering for energy, water and air quality.

According to Wallace, if all U.S. apartments used SmartRent, the nation could save 4 percent on energy costs. “This is going to become, I would argue, almost a prerequisite for any multifamily owner to meet these new carbon neutrality laws,” he said. “This is really powerful technology to help these owners achieve those standards.”

In an investor presentation Thursday, SmartRent said the total addressable market for smart-home technology in the U.S. is $30 billion. By expanding into other verticals, such as student and military housing, the figure jumps to $80 billion. The international total is $200 billion.

“It's almost staggering,” Haldeman said of apartments' lack of automation and remote control of operations. “We have pilots going in the U.K. and Canada, and what we've seen and what we know is that this is a global problem.”

SmartRent is currently in 185,000 units, with 752,000 in the pipeline. Its customers own more than 3 million units.

In an investor presentation, SmartRent estimated that it generated $53 million in revenue last year. It projected $119 million in 2021 and as much as $1.3 billion by 2024. The company is not profitable and lost an estimated $27 million on an EBITDA basis in 2020. It forecast positive earnings in 2022 with $10 million in EBITDA.

Haldeman said the company is “on a path to be profitable” and will reach that goal by fulfilling orders to large institutional customers. “It's not sort of speculative, ‘How are we going to get there?'” he said. “We just have to execute. We have to go physically install and get it done.”

SPAC impact

The SmartRent deal is the first for a Fifth Wall SPAC.

The Los Angeles-based VC firm, which has $2.5 billion under management, raised $345 million for its first SPAC in a February IPO. It has launched two additional — one looking to raise $150 million and the other, $250 million.

The first one, Fifth Wall Acquisition Corp. I, does not have warrants, which are additional shares that investors can purchase if the stock hits a certain price. (The downside of warrants is they can dilute the stake of existing shareholders.)

SPACs' popularity exploded last year. And this year, 308 blank-check firms have gone public, raising more than $100 billion. By comparison, 59 went public in 2019, raising $13.6 billion.

In recent weeks, federal regulators have started to probe the role of banks in these deals and urged investors to be cautious. Since then, the deals have nearly dried up: After a record 109 SPAC deals in March, there have been just 10 this month, CNBC reported.

Wallace declined to comment on the broader SPAC environment. But he said Fifth Wall's SPAC is unique, given the firm's role “at the epicenter” of many proptech transactions. In the SmartRent deal, many of the company's customers invested in the private investment in public equity, or PIPE.

“I don't think I‘ve seen anything like that in the SPAC landscape previously,” he said. “I don't think I've ever seen so many strategic investors, the biggest names in real estate, get behind [a] company the way they have with SmartRent.”

Source: TheRealDeal – What SmartRent's $2.2B SPAC means for multifamily