STRATEGY | PORTARA

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Real Estate Investment Strategy

Short Term Rentals represent an incredibly compelling investment opportunity

Our focus is on luxury stand-alone villas in high demand destinations. Larger properties specifically in beach and mountain destinations tend to perform better, hold their value, and offer the highest profit margins. Our data-driven approach uncovers the best opportunities to achieve outsized returns.

Value-Add Property Acquisition Illustration

Profit potential of hospitality: Offers high income potential and strong profit margins usually reserved for hospitality real estate, but without the many risks of hospitality.

Value stability of residential: Offers wealth protection, stability, and attractive financing of residential real estate but with high profit potential.

Avoids pitfalls of both hospitality and residential: unbelievably, STRs sit in a perfect sweet spot of the two that allows for unique risk mitigation and positive investment dynamics.

All the benefits of real estate ownership: including depreciation tax benefits, asset appreciation.

Provides a direct use value that no other real estate can through vacation rentals for our investors.

Return Based Investors

How Are Short-Term Rentals Superior

The real estate is the exact same, but STRs often cash flow 2-3x what an annual residential lease would produce. In the right locations, which are often the most desirable with international demand and strong downside protection, owners who are not renting short term are simply not maximizing their asset performance. There are no significant modifications to a property to rent short term and the downside is essentially nonexistent – it’s a competency differentiator

Short term rentals do not have the tail risk of residential tenant laws, so no risk of non-payments, evictions, and associated lost opportunity and legal costs.

Especially regarding multifamily residential, enticed by the stability of residential real estate and due to the lower income potential, investors flock to multifamily to create operational efficiency and eek out a profit, but fierce competition for this asset class has driven down cap rates beyond a reasonable valuation and overlevering has become all but a necessity, making a risky investment on a relatively safe asset. STRs generate high profit and do not need the same scalability to present a highly attractive investment return profile.

Especially regarding multifamily residential, enticed by the stability of residential real estate and due to the lower income potential, investors flock to multifamily to create operational efficiency and eek out a profit, but fierce competition for this asset class has driven down cap rates beyond a reasonable valuation and overlevering has become all but a necessity, making a risky investment on a relatively safe asset. STRs generate high profit and do not need the same scalability to present a highly attractive investment return profile.

Competing with a better business model. We’re purchasing residential properties at residential valuations and layering on an operational hospitality model. The real estate is the same, but the potential is maximized over the traditional a residential use without forgoing the ability to revert in a worst case scenario.

Our investors can actually use the assets in our portfolio: Some of the only funds focusing on STRs are actually vacation clubs offering ZERO return with the promise to allow a specific number of vacation nights a year based on the amount invested. This is not institutional, return driven investing, but it does present an exciting additional use case that other commercial real estate funds cannot match.

In fact, while we are not a vacation club, we do incorporate vacation night stays into our model as additional value to investors, allowing for material owner discounts if they choose to take vacations with us. This essentially doubles up on the value of the distribution to the investor without locking people in like vacation club investments do. This also has a virtuous effect of creating internal demand thus allowing us to yield manage to higher profits for the rest of the fund while delivering superior value to our globetrotter investors.

This benefits us at every angle. Professional ownership and management capabilities such as proper positioning, branding, yield management, guest experience, etc will all contribute to our value add proposition in an industry with ample and apparent opportunity. Value add opportunities are still regularly occurring in the institutional real estate landscape but every bidder typically shares a very similar strategy thereby reducing any actual uniqueness that would justify being the highest bidder.

In the past, a recession with depressed real estate valuations would lead to plentiful buying opportunities at large discounts, but in the past few decades, consolidation and sophistication in real estate private equity has led to depressed valuations and yet significantly fewer assets come to market at a large discount. Large institutional real estate investors tend to hold through downturns. STRs do not have such well heeled ownership. In fact, 90% of STRs are single asset owners.

We believe we’ll benefit even on the acquisition with significant leverage in negotiations due to having the ability to structure creatively, close decisively, and with a broad mandate in a massive market negotiate aggressively and patiently. Our strategies do not rely on auctions and bidding processes that occur commonly in commercial real estate. We’ll be many times discussing one on one with property owners.

Financing a home is infinitely easier and significantly more attractive on cost and terms than hotel financing. Hotels historically are quoted higher rates for financing both because of perceived risk with specialty real estate as well as due to regulatory hurdles and capital ratio constraints, leaving a greatly reduced pool of hotel lenders compared with residential.

We were made painfully aware in COVID that hotels are specialty assets with no real other use. While hotels around the world were forced to shut down, short term rentals proved their resiliency with longer stays. In fact, higher end properties greater than 2 bedrooms significantly outperformed hotels and other STRs. Versus hotels, STRs always have the fall back option of renting through a traditional longer term residential lease, providing considerable downside protection relative to hotels.

There are only so many hotels, and finding a property in a top location can command fierce competition from other buyers, driving up the price. STRs are by nature more granular and residential real estate is many multiples larger by number of assets than hospitality. As a multi-trillion market opportunity, the ability to acquire a top located asset presents much favorable dynamics for STR acquisition.

Institutions are primed to enter the space -

we’re ahead of the game at the exactly right time.

Institutions need a good owner/operator partner: This is also true in hospitality and to date there are extremely few institutional quality operators. Even amongst institutional hospitality property managers, we’ve averaged almost a 20% premium to our competitive set over dozens of hospitality deals.

Data availability is finally above a minimum threshold level: Industry level data required to properly assess investment opportunities is only accessible since roughly 2018, and even still more granular metrics have even less available historical data. With COVID muddying the waters, good baseline data with enough history is only now at an acceptable place.

Fintech has flourished in recent years: Between 2015 and 2020, tools to centrally monitor and manage assets have made operation possible. Management systems that rival hotel sophistication, smart locks, noise sensors, automated analysis tools, etc make everything primed for institutional adoption.

Property service providers have matured: Similarly, with the strong growth of STRs around the world, established destinations have seen a rise in service providers including maintenance and cleaning are reasonably procured at competitive prices. This reduces the risk and complexity associated with traditional employment and allows for efficient operation without the need for clustering.

Legalities have been largely established: For many years the legality of operating short term rentals in residential communities was murky at best, but today most municipalities around the world have well defined STR regulations and laws with explicit guidance on operating legally. This has been critical to STRs becoming an investable asset class.

Return Based Investors

Full Cycle Investment Strategy

Our institutionally structured fund is primed to outperform in good times through easily executable and apparent value add opportunities as well as in downtimes through dollar cost averaging our acquisition basis with distressed asset purchases while others are forced to sell. This is why an open ended structure is so valuable and why diversification of time is a critical ingredient to vintage year risk mitigation that naturally leads to outperformance over time.

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Return Based Investors

Unsportsmanlike Structural Advantage

Asset: the granular nature of STRs allows the fund to feel limited impact from any individual asset issue that may arise

Geography: diversified geographies mitigate not only location risks, but also grants diversified currency exposure with a lower correlation play to many other real estate investments

Time: the benefits of dollar cost averaging through the economic cycle goes a long way to ensure an attractive average investment basis while smoothing out economic spikes and affords us the ability to patiently grow, leading to stronger negotiating leverage and better deal terms.

Seasonality: A mix of summer beach villas, winter ski chalets, and urban shoulder locations will help balance distributions.

Financing: financing cost and availability can vary greatly from country to country and asset by asset. Approaching leverage on a portfolio basis allows us to improve our yield through maximizing leverage in jurisdictions with easy cheap financing while making cash acquisitions in locations where financing is unavailable.

Tax and legal compliance: our fund offers international exposure through an SEC compliant Delaware investment limited partnership. No hassle with complicated international taxes and compliance. US investors will receive a single K1 they would expect from a fund investment. Non-US investors can possibly see a complete tax savings depending on their individual tax situation.

Operations: the fund operations will operate out of a predominantly tax neutral structure with a high degree of automation through our blockchain technology. This combination leads to a material annual savings though elimination of manual processes and reducing or eliminating the need for local counsel and professional services in every jurisdiction.

Composability: our platform will allow investors composability options to access liquidity from the value of their investment in new ways that have never been available before. Investors can then participate in our ecosystem and receive further additional yield, or interact with the greater defi network of protocols and even extract capital back into cash if desired. This functionality will continue to grow over time and become increasingly valuable.

Fractionalization: research has shown a vacation home can sell typically for roughly 20% higher price when fractionalized due to the value of shared cost ownership. Our platform can tokenize fractional interests, directly producing higher returns at exit where demand exists in ways otherwise not possible but for the technology.

Trading: our platform will allow investors to trade their ownership on platform, giving easier and simpler liquidity options compared with a traditional fund

Automation: the high degree of automation built into our platform will lead to cost savings, reduce or eliminate the risk of human error, and lead to an overall better experience for and dialogue with our investors.

Money transfers: transferring money internationally can be complicated, but our blockchain enabled platform will allow immediate transfers, fully transparent and auditable, in seconds anywhere in the world, allowing for significantly enhanced cash management.