Investor Sees Opportunity In Real Estate SPACs, Teams With Avison Young CEO, JLL Execs

Although special-purpose acquisition companies have been hot for the past couple of years, only between 1% and 6% of SPAC deals focus on real estate, and of those, most have focused on proptech.

Pointing to those figures from Goldman Sachs research, BH3 Management founder and co-CEO Gregory Freedman, who launched a SPAC called Crixus BH3 in October, says there's more opportunity in real estate-related SPACs that focus less on tech and more on traditional operations.

Real estate is the "largest asset class in the world, yet the most underrepresented in SPACs," Freedman said. That means a "blue ocean of opportunities of both established and new operating businesses serving and impacting the real estate, construction and infrastructure sectors where Crixus BH3 is focused."

Freedman and Daniel Lebensohn are founders and co-CEOs of BH3 Management, a development and investment firm with main offices in New York and Florida launched in 2009. Its portfolio includes stakes in properties from a Trump-branded condo in Hollywood, Florida, to the Ace Hotel in Brooklyn, New York.

Seeing that the SPAC market was crowded, but few were focused on real estate operations, they teamed up with Avison Young CEO Mark E. Rose and other executives from JLL, McKinsey & Co. and others as advisers and board members, and launched their SPAC in October, raising $230M in an IPO. It trades on the Nasdaq under the ticker symbol BHACU.

"We've been around for 13 years. The collective group oversees 100M SF of real estate, we've developed millions of square feet, we have a lot of relationships. That's why the IPO, in an otherwise choppy market, was well-received," Freedman said.

Freedman's SPAC is looking to partner with one or more businesses valued between $750M and $2.5B that manage, finance, operate, construct, control, own or support real estate or which derive a large component of revenue from real estate, or construction- or infrastructure-related activities. That could include specialty subcontractors, construction management firms, property management companies or a number of other focuses.

Freedman declined to specify which companies Crixus BH3 Acquisition Co. has met with — "too many to count" — but said his SPAC's management team and board of directors intend to be active investors, helping the target business develop its business model, round out its management teams and drive expansion.

Sometimes, Freedman said, "you think a company could be a great candidate for a business combination, but as you dig in and do due diligence, it may be too early or the revenues may not be what you hoped. The management team may not be right or they just may not want to be a public company." Or, in some cases, "you find their peers more compelling and you pivot." 

"Capital has become ubiquitous," he said. But a SPAC that has a well-matched management team and target company can see a great growth trajectory, with public currency accelerating that growth. He predicted there'd be more real estate-focused SPACs on the horizon, pointing to deals like a CBRE-sponsored SPAC having acquired solar company Altus Power.

Earlier this week, a new SPAC dubbed Southport Acquisition Corp. said it was looking to partner with a financial services software or fintech company with revenues of $50M to $100M and a valuation between $1B and $2B, “with particular focus on mortgage and real estate verticals in the United States."

SPACs typically have about two years to make a deal with a target company and get approval from shareholders; otherwise, investors get their money back.