• reAlpha to capitalize on booming short-term rental market driven by Airbnb, Inc.

• Any investor can invest via Reg A share offering of up to $75 million through Dec. 8

• Short-term rental market has gigantic $1.2 trillion total addressable market (TAM)

• Short-term rental revenue is 70%+ higher than long-term rentals

• AI algorithm analyzes properties on 25+ factors to determine Airbnb viability

• Founder/CEO Giri Devanur, led SAP consultant AMERI Holdings to IPO on Nasdaq

• reAlpha already secured $200 million credit facility to support property acquisitions

• reAlpha separately will offer IPOs of individual properties to further fuel growth

• Deal priced at very reasonable valuation of 0.3x EV to expected AUM

By Jarrett Banks and John Jannarone

Investing in real estate, let alone startups, was once seen as a rich man’s game. But the playing field has been leveled, in a sense, with the rise of retail investors using technology through apps like Robinhood, Coinbase and Masterworks.

Enter reAlpha, a real estate technology company that removes roadblocks to investing in rent-ready and experiential vacations homes. It uses artificial intelligence to give users of its digital platform a leg up on the $1.2 trillion short-term rental industry.

Airbnb hosts earned a record $34 billion in 2021, and it says millions more hosts are needed to meet demand. But the costs of buying, renovating and maintaining investment properties are far too high for most investors.

reAlpha is making it easier for them. Its proprietary algorithm, called reAlphaBRAIN, can analyze thousands of properties to determine which ones may be the most viable for Airbnb revenue generation. It looks at dozens of factors including crime rates, Airbnb occupancy rates, road conditions, rent readiness, restaurant proximity, walkability and many more.

The Dublin, Ohio-based company is raising up to $75 million through a Reg A offering to acquire thousands of short-term rental properties across 220 global Airbnb markets within five years. The company will use a fractional ownership model, retaining up to 51% ownership in each of its properties. The remaining 49% will be available to public investors through separate offerings (more about this later).

Partnerships are also a key component to look at. reAlpha is teaming up with RARE Treehouse Resorts, a Vancouver-based company specializing in unique and eco-friendly suspended treehouses, to jointly develop a treehouse resort in California.

reAlpha is spreading its wings globally. It recently acquired new properties in Orlando, and received an investment of $1.3 billion from real estate holding company Crawford Hoying, and opened new global offices in India, Nepal and Brazil.

reAlpha has a promising financial trajectory. Short-term rentals can garner 70% or more income than typical long-term rentals, according to data from Zillow and AirDNA. To boost revenue further, reAlpha can also offer ancillary services such as beach rentals or convenient food delivery to customers through third-party partnerships.

reAlpha is also poised to expand its property portfolio dramatically. At the end of next year, it expects to have 275 units and assets under management (AUM) of $137 million. By year four, reAlpha targets over 3,000 units and $1.5 billion in AUM.

The company has priced its deal reasonably, leaving plenty of upside for investors who buy shares in the Reg A offering. The company expects to have 47.5 million shares outstanding after the offering, implying an equity value of $475 million. Adjusted for the $75 million in cash raised if it reaches the maximum, reAlpha will have an enterprise value of about $400 million.

That puts the company on a multiple of just 0.3 times year-four AUM. By comparison, Invitation Homes Inc. (NYSE: INVH) trades on a multiple of 1.6 times its most recent assets and American Homes 4 Rent (NYSE: AMH) commands a multiple of 1.5 times, according to Sentieo, an AI-enabled research platform.

Importantly, reAlpha has powerful financial levers at its disposal to drive growth. Earlier this month, it secured a $200 million funding facility from Churchill Real Estate. The facility, one of the largest ever given to a short-term rental company, should streamline the company’s first round of acquisitions through a single funding source.

The deal with Churchill is also an institutional validation of reAlpha’s expansion plans. Indeed, reAlpha already has a significant and growing pipeline of short-term rental properties that meet its criteria and should allow it to put money to work right away.

What’s more, reAlpha has a vision to expand by raising more money on a property-by-property basis, effectively introducing IPOs for individual units. Those deals, expected to be offered after the Reg A offering closes, will again allow individual investors to participate (likely at a slightly higher minimum of $2,500 through the reAlpha syndicate portal).

The syndication system will allow reAlpha to refinance and reinvest in properties over time. It can also make outright sales of properties that appreciate and put the proceeds back into new real estate opportunities.

The individual property investments may look much like traditional REITs, paying shareholders a distribution derived from unit rental income. That means investors can choose either a growth investment with the core reAlpha business or a yield-focused alternative for those seeking income investments in individual properties.

Investors in the reAlpha Reg A offering, which has drawn interest from people in over 80 countries as far-flung as Mongolia, can look forward to some unusual perks. Starting with just a $1,000 investment, shareholders will get free nights at reAlpha properties. The so-called R&R rewards program will let investors experience their real estate investments first hand.

The company has also begun to use a unique marketing style with deepfakes of well-known celebrities like Elon Musk. One recent video had Mr. Musk explaining Reg A investing and went viral with more than a million views.

The Reg A offering, while not itself designed to take the company public, should prepare it for an IPO down the road. And it’s worth noting that Founder and CEO Giri Devanur has experience taking a Nasdaq company public. With more than 25 years of experience in the information technology industry, Mr. Devanur in 2017 took AMERI Holdings, Inc. public, now called Enveric Biosciences, Inc. (Nasdaq: ENVB).

Last but not least, reAlpha’s timing looks superb. The housing market has softened and may sink further in coming months while rates are elevated and the economy slows. That presents a great opportunity to find deals in the most attractive rental markets.

That kind of experience, plus attractive unit economics and cutting edge AI powering its technology platform, puts reAlpha at the top of a tree ripe for disruption. This is one stay investors won’t want to miss.

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IPO Edge

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