As a result of the transaction, the newly-created PropCo fund will acquire property assets worth $500 million, meaning that Saluda Grade will own the income-generating real estate [homes] and AvantStay will serve as the property manager. The move accelerates the institutionalisation of a rising asset class in the short-term rental segment, known as securitisation.
It marks Saluda Grade’s first foray into the short-term rental industry, having secured 12 securitisations worth over $2 billion in the last 12 months in the single and multifamily housing asset classes, although it did participate in AvantStay’s most recent Series B funding round in December which raised $160 million.
The raise jointly benefits Saluda Grade and AvantStay, with the former identifying alternative lending sectors needing institutional capital to fuel growth, while the latter will utilise the funding to expand into new markets and strengthen its short-term rental property portfolio. AvantStay currently operates more than 1,000 premier vacation rental homes in 100+ cities in the United States and Cabo San Lucas [Mexico].
Sean Breuner, founder and CEO of AvantStay, said: “AvantStay continues to break barriers for the short-term rental industry. With this new capital and partnership with Saluda Grade, we will pioneer and institutionalise a new asset class that will inevitably pave the path for travellers to have a better experience and for investors to generate attractive returns.
“I couldn’t be prouder of the entire team for what we’ve achieved over the last few months, as this news follows our Series B announcement in December. Our accelerated growth shows that there is a deep understanding of our offering.
“With Saluda Grade as an instrumental partner, we will continue to deliver our brand mission and provide groups with thoughtful and elevated experiences,” he added.
Ryan Craft, founder and CEO of Saluda Grade, said: “We believe AvantStay’s dynamic and fast-growing customer base makes them the perfect partner for our firm to finally enter the burgeoning short-term rental space. We were attracted to their higher yielding product and differentiated channels of supply, and we are confident they will continue to lead the industry with their robust offering of hospitality, tech, design, and real estate as an all-in-one package.”
Fiona Quinn, senior vice president of business affairs of AvantStay, said: “AvantStay’s focus on engagement with local communities and compliance with their regulations empowers the communities to extract maximum benefit from tax revenue, direct and indirect employment growth, as well as tourism dollars directed towards local small businesses.
“Our investment in our proprietary operating and experience-first platform protects community character. Our partnerships with local regulators and community groups keep us accountable to the highest standards of operations and ensure that AvantStay’s growth plans align with those of our communities,” she added.
Since being founded in 2017, AvantStay had raised approximately $186 million in funding, prior to the latest transaction.
The creation of the PropCo fund is part of a wider trend where more institutional investors are venturing into the frenzied short-term rental sector to buy up real estate [rental homes] as they search for alternative investments that will help them to capitalise on a post-pandemic travel boom.
One such company – Ohio-based real estate investing firm ReAlpha – announced last June that it was planning to spend up to $1.5 billion, including debt, to acquire a portfolio of 5000 short-term rental homes in US cities such as Austin, Dallas and Miami. ReAlpha has since raised up to $75 million in a public offering to expand its inventory of rental homes.
Institutional investment in the hotel space through real estate investment trusts [REITs] has already been a fairly long-standing phenomenon, but the rise of Airbnb and the increasing maturation of the short-term rental segment have driven more entrepreneurs towards the short-term rental space, where they believe they can earn better returns than in other more traditional asset classes.