Oakland-based Mynd made its first acquisition, buying San Diego-based Pacific Shore Management as it seeks to bring more technology and innovation into the highly fragmented residential property management industry.
Mynd plans to embark on something of a roll-up strategy, looking to buy residential property managers with certain characteristics, such as strong tenant and vendor relationships in their local markets, Mynd co-founder and CEO Doug Brien told the San Francisco Business Times.
But Mynd is also assessing less common criteria such as seeking acquisition candidates that have a high proportion of tenants making their monthly rent payments electronically, signaling that the property manager embraces technology and has convinced tenants to make digital payments.
Mynd’s co-founders, Brien and Colin Wiel, have a lot of credibility in Bay Area real estate tech circles. The two were among the three co-founders of Oakland-based Waypoint Homes, a pioneer in institutional ownership of single-family homes. Waypoint was founded in 2009 amid the historic housing crisis with a vision of turning the mom-and-pop single-family rental business into an institutional asset class. At its peak, Waypoint owned and managed more than 17,000 single-family rentals in 13 markets around the country. Waypoint went public in 2014 and is now called Starwood Waypoint Homes (NYSE: SFR). Starwood Waypoint is in the process of combining with Invitation Homes Inc. (NYSE: INVH).
Waypoint’s other co-founder, Gary Beasley, last year founded Oakland-based Roofstock, which wants to make it as easy for individuals to invest in rental homes as it is to buy stocks. Roofstock also helps with one of the biggest challenges that often comes with investing in a portfolio of rental homes: finding strong property managers.
At Waypoint, Wiel and Brien found that technology can go a long way in managing a huge rental portfolio. But Brien said the Waypoint founders also realized the important role of people in successful property management.
That’s why Mynd is eager to acquire property management firms with strong relationships in their local markets, handling 500 to 1,000 rental units. He said it’s preferable to find property managers who manage properties located close together vs. a manager with rentals 30 miles apart, citing as an example how much the housing market in the East Bay’s 680 Corridor differs from that of the Peninsula.
Brien said the Pacific Shore deal will be the first of many as the startup seeks to become a national company over the next five to seven years.
Mynd declined to disclose terms of its Pacific Shore purchase, which was disclosed on Aug. 30.
But asked whether Mynd’s acquisitions are only for cash, Brien said sellers may want to take part of the purchase price in the startup company’s stock.
“Our sellers aren’t looking to cash out,” Brien said. “They’re realizing that when it comes to technology changing property management, it’s a case of when, not if.”
Mynd has raised $10.6 million in venture capital, which includes a $5.5 million first round in March that was led by Canaan Partners. Other investors in the company include Jackson Square Ventures and Lightspeed Venture Partners.
“Acquiring property management firms around the country provides a compelling way for Mynd to seed new markets so they can leverage their 21st century approach to management,” Rich Boyle, general partner at Canaan Partners, said in a statement.
Brien says Mynd may raise its second round of capital by mid-2018, possibly pulling in $20 million to finance additional acquisitions.
Brien said he’s seen a shift in investor appetite for opportunities in real estate tech startups since the company’s founding last year.
“When we first started, we had to tell our story and explain why we see an opportunity to disrupt residential property management,” Brien said. “In the last six to eight months, investors began calling us to say they see opportunities in property management and want to know what we’re doing.”
By Mark Calvey
Senior Reporter, San Francisco Business Times
September 5, 2017