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Real Estate Venture Capital Firm Fifth Wall Launching a New Real Estate SPAC

Jan 22, 2021 by Matt Frankel, CFP
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More companies are choosing to go public through SPACs, or special purpose acquisition companies, than ever before. In 2020 alone, more than 200 SPACs completed IPOs, which is more than there were in the 10 years before combined. And although it's early in the year, 2021 is shaping up to be even more active in the SPAC world.

Real estate companies are getting in on the action as well. We've already seen Opendoor (NASDAQ: OPEN) go public via SPAC, and there are several SPACs in the market now searching for a real estate technology company to acquire.

We recently learned that there will be one more. Real estate-focused venture capital firm Fifth Wall is launching a SPAC of its own, called Fifth Wall Acquisition I. Here's what we know so far and what investors should keep in mind before buying it.

What is Fifth Wall Acquisition I, and how does it work?

A SPAC is a company created for the sole purpose of raising capital and merging with a private company. It's an alternative way to take a company public. For example, a SPAC called Social Capital Hedosophia Holdings V (NYSE: IPOE) recently agreed to take financial technology startup SoFi public through a SPAC merger. Because investors don't initially know what company a SPAC is going to take public, they are often referred to as "blank check" companies.

Fifth Wall Acquisition Corp I (which I'll simply refer to as "Fifth Wall Acquisition" from here on) aims to do something similar, except with a real estate business. The company plans to sell up to 28.75 million units for a price of $10 each, thereby raising $287.5 million in the offering. With this, the company plans to: "capitalize on the ability of our management team to identify and acquire a technology business focusing on verticals of the real estate industry, as well as the adjacent industries that collectively make up the human-made environment that provides the setting for human activity, ranging in scale from buildings to cities and beyond, which we call the 'Built World.'"

As its name suggests, Fifth Wall Acquisition is being sponsored by Fifth Wall Asset Management, a large real estate venture capital firm. The company has focused on property technology (proptech) investments and other real estate technology plays and was an early investor in Opendoor and other high-profile real estate names.

The SPAC is being led by Fifth Wall co-founder Brendan Wallace, who has been a very successful angel investor, having made early investments in companies including Coinbase, Lyft (NYSE: LYFT), SpaceX, and more.

Important things to know

First off, when a SPAC initially goes public, it does so in the form of "units." Each unit of a SPAC consists of a common share of stock and a fraction of a warrant to buy more stock at a predetermined price in the future. In the case of Fifth Wall Acquisition, each unit will be sold for $10 and will include one-third of a warrant to buy another share for $11.50 later on.

Fifth Wall Acquisition's units will trade on the Nasdaq under the ticker symbol FWAA. On the 52nd day following the IPO, the common shares and warrants will begin trading separately.

The Millionacres bottom line

It can seem odd to invest in a company without knowing anything about the actual business you'll ultimately be investing in. But that's the nature of the SPAC game.

At the end of the day, investing in a SPAC that hasn't identified its acquisition target yet is a bet on a management team, plain and simple. Fifth Wall Ventures certainly has a strong track record, so if you have a relatively high risk tolerance and want to try to get in on a real estate IPO before everyone else does, this SPAC could be worth a look.

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Matt Frankel owns shares of Social Capital Hedosophia Holdings. V. The Motley Fool owns shares of Opendoor Technologies Inc. and Social Capital Hedosophia Holdings. V. The Motley Fool has a disclosure policy.