Peter Lohmann's Newsletter - Issue #95

Renter’s Warehouse Sold to Japanese Company for $8M

GA technologies Co., Ltd (located in Tokyo, Japan) has paid $8M for Renter’s Warehouse.

With 13,800 doors (including franchises), this works out to just $580/door, which is insanely cheap. I instantly wanted to know more, so shared what I knew on Facebook and LinkedIn looking for more context. Several folks reached out to me with first-hand knowledge of the situation. Before we dive into the sales price, I’d like to give a little backstory on Renter’s Warehouse because I think it’s a fascinating case study about one of the largest and most well-established companies in our industry. What follows should not be taken as concrete facts or investing advice. I’m sharing my opinions based on what I’ve been able to learn from a variety of sources. If there are any mistakes below (probable), assume they are due to my error.

Renter’s Warehouse (RW) was founded in 2007 by Brenton Hayden. I’ll quote directly from his LinkedIn page here:

It’s also worth noting that RW started selling franchises in 2011, eventually selling 27 in total (they stopped franchising in 2015 and repurchased almost all the franchise locations over the next couple years).

It’s truly an insane run… 0 to something like 10,000 units in around ten years. Many in our industry hold up RW as one of the best property management sales & marketing operations to ever exist in 3rd party property management.

From here things start to go off the rails.

The owners and management of RW decided to engage in a SPAC process to take the company public. To do this, they completed a business combination with “Appreciate”, hired Chris Laurence as the Appreciate CEO, and became publicly traded around November of 2022 under the NASDAQ ticker “SFR” (cute). As part of this they released a now-infamous slide deck hyping up the company and it’s massive growth potential. If you take the time to read this (which I did after I was forwarded this document around a year ago), anyone with industry knowledge can see that it was laughable. Their claims were outlandish and the salesmanship was laid on so think you could hardly find a single contextually-useful fact about the company in the entire deck. Here’s one example:

This process was so contentious that the company was sued for violating securities laws and breaching fiduciary duties to shareholders.

Over the next year or so, the performance of the stock was dismal and the company fell behind on SEC-required filings. This got so bad that NASDAQ delisted the stock in October of 2023. I’m not a professional equities investor but I believe the performance of the stock reflected the extremely high debt load of the company and their failure to operate profitably.

That brings us to the present day. RW was burning cash, drowning in debt and needed a fast exit. They ran an auction process at the end of last year (I understand many of the large rollup groups in our industry participated in this auction) and the winner was this Japanese company GA Technologies. They put out a press release in January (which everyone somehow missed… I randomly stumbled upon it earlier this week). Even more interesting than the press release is the Youtube video that accompanies it, where CEO Ryo Higuchi goes into great detail about the company’s plans for RW and how it fits into their business plan.

Here are some facts from that video. Credit to Marshall Hatfield here, who I’m quoting directly:

• RentersWarehouse Revenue = $28m; Gross Profit = $13m; Net Income = (-$3.7m)

• In other words, they were bringing in $28m, and had a strong Gross Margin of ~46% 🚀... yet were operating at a net loss of $3.7m / yr

• This makes the deal a pretty distressed buyout, and the $8m purchase price potentially more reasonable in context (0.3x revenue multiple though, ouch).

• It's therefore possible RW was at nearly depleted cash reserves, and were potentially forced to sell (as an alternative to Ch 11 restructuring). Bleeding $308k / mo will do that to you.

The US-based management team will remain in place, including Kevin Ortner.

From what I’ve been told, the 8M sale price was barely enough to cover all the outstanding debt and the equity holders (including Appreciate shareholders) were completely wiped out. Yikes!

So that’s the story. I spoke to one source who knows Ryo Higuchi and he was very optimistic about GA’s ability to turn things around. I can’t help but root for them… honestly the poor property owners and residents (and employees) deserve some stability and reinvestment after all this turmoil!

Here are a few of my opinions on all this:

• If all the major rollup groups passed on this opportunity (at that price), things must be very bad at RW. From what I understand they are on a custom-built salesforce platform that is costing them enormous amounts of money just to maintain. My message to ALL these big groups… just use one of the major property accounting software platforms (eg AppFolio) and call it a day. Stop trying to build your own software.

• The idea that property management can be used as a “marketplace” platform for RE sales (see slide 18 of the Appreciate deck, and 5:54 in the Youtube video, hmm those look pretty similar) is far from proven. Doesn’t mean it can’t be done, in fact I’m working with a group doing some very interesting things in this space. But I would not bet my entire company (or my retirement account) on this idea alone.

• When you put this news in the context of the recent Mynd-Roofstock merger (sources tell me both companies were struggling), it’s yet another blow for the VC-backed PM model/thesis.

What did I miss or get wrong above? Let me know by replying to this email.

THIS ISSUE IS PRESENTED BY PROPERTY MELD

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Not only will you gain exceptional knowledge regarding maintenance best practices, but you'll leave inspired. This year's keynote speaker, David Meltzer, is one of the world's top entrepreneurs, investors, and business coaches. He will empower you to make the right calls in your business and your life.

I Broadcast a Weekly Leadership Meeting

In my continuing effort to be transparent in the interest of advancing our industry, I decided to see if anyone would be interested in observing one of our weekly “Level-10” (EOS/Traction term) leadership meetings.

We’ve been running on EOS at my property management company for many years now, and I do think our weekly L10 meetings are well-run and “by the book.” I’ve invited a few individuals over the years to observe, and they all seemed to get a lot of value… if you’re not willing to pay nearly five figures a day to work with an EOS implementer, it can be difficult to translate what’s written in Traction into the real world of running a meeting (or a company).

So I decided to open up one of our meetings to all members in Crane (the private community for PM business owners I run with Wolfgang Croskey).

This turned out to be a huge success; we had around 25 guests join for the 90-minute meeting (I’m also making the recording available to all members).

If you’re looking for best practices on running weekly leadership meetings, I can definitely recommend following the EOS model. And if you’re not a Crane member yet, consider asking a peer in the industry if you can swap with them (each watch the other’s meeting). Let’s encourage more sharing and transparency in our industry for the good of all!

New Property Management Companies For Sale This Week

• Here is a property management company for sale in San Jose, California (300 doors, asking $1.4M)

• Here is an HOA management company for sale in Southeast Michigan (asking $750k)

• Here’s a vacation rental management company for sale in Colorado (asking 900k).

• Here’s a vacation rental management company for sale in Kissimmee, FL (27 homes, asking 360k).

Industry News and Events

• LeadSimple has released a major update to their shared inbox product. Check out this nifty video interactive which walks you through it.

• Pranay Srinivasan is giving away 3 tickets to the Reconvene conference (outstanding event btw, and tix are expensive). He’s looking for folks under 27 years old who want to learn about real estate investing.

• Evernest is hosting a workshop entitled “Sales Mastery for Property Managers.” I always like their content; I recommend this.

Closing Thought

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Stats from last week’s issue:

Valid Recipients: 9,181

Open Rate: 58.4%

Clickthrough Rate: 8.6%

Most Popular Link (114 clicks): Mynd merging with Roofstock

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That’s all for this week! Have a great weekend. -Peter