We hope you are well and enjoying the summer season as it comes to a close.  The short-term rental industry is hotter than ever, with Airbnb recently posting record financial results.¹ We continue to have strong belief in short-term rental real estate as a sound investment given the evolving trends in travel and the fundamental characteristics of the asset class. We remain hard at work creating a streamlined platform that democratizes access to compelling short-term rental real estate investments that are professionally managed to maximize performance. In doing so, we are striving to build reAlpha Asset Management Inc. (now Doing Business As “reAlpha Homes”) into a differentiated portfolio with great growth potential given the $1.2 trillion² market opportunity in front of us. 

While 2022 has been an exciting year, our journey, as is the case with most startups, has not been without challenges. As this is our initial investor letter, we wanted to provide you with updates across our offering, financing strategy, investment strategy, technology, and our team. Importantly, we remain enthusiastic about where we are as a business today and are excited about the road ahead.

Summary of key events to be covered: 

1. Regulation A Offering: Re-Qualification
2. Financing Strategy: $200 Million Credit Facility 
3. Executive Hire: Jorge Aldecoa, President of reAlpha Homes
4. Investment Strategy
5. Technology Update
6. Shareholder Portal Update
   

Regulation A Offering

reAlpha Homes’ Regulation A+ (“Reg A+”) offering was qualified by the SEC in late September 2021. Reg A+ offerings are exempt from state Blue Sky registration requirements  for sales of up to $75 million. Despite the Blue Sky filing exemption, however, many states still require a Blue Sky “notice” filing to inform them about securities being offered and sold to their respective residents. 

Over the course of the year, reAlpha Homes faced some challenges with certain state securities agencies related to late Blue Sky notice filings made by our previous securities counsel. As a result, we paused our Reg A+ campaign in May and filed an amendment with the SEC, disclosing these issues and were successfully requalified as an active securities issuer³. 

Effective August 3, 2022, the SEC requalified our offering. Over this period, we conducted a full business review, the result of which is even more effective oversight of our operations and legal processes, including the onboarding of new securities counsel as well as a new broker dealer. 

Financing Strategy

$200 Million Credit Facility

We are thrilled to share that reAlpha Homes has secured a $200 million credit facility from Churchill Real Estate that will serve to fuel our acquisition growth. This facility unlocks our ability to pursue the robust pipeline of short-term rental properties and development opportunities we have identified.  This update was recently filed in our form 1-K and we plan to use it as a marketing announcement in the near future. 

Based on our initial understanding, this is one of the largest (maybe the largest) short-term rental credit facilities in the industry to date.

Reg A Capital

The process of requalification by the SEC requires issuers like reAlpha Homes to pause their campaign until notice of requalification is obtained. So, we are excited to have opened the raise after a nearly three month pause. Up until May 31, 2022, when we filed our amendment and initiated the requalification process, we had raised $4.87 million in funded investments with over $20 million in signed commitments. The average closed Regulation A Tier 2 offering in recent years was $25.7 MM.⁴ We are excited to be campaigning again and are committed to growing our global shareholder community.

Executive Team Expansion

reAlpha Homes has strengthened our executive team, with the addition of Jorge Aldecoa as President of reAlpha Homes. Jorge brings over 15 years of experience in residential and commercial real estate and is an expert in acquisition, disposition, and asset management. He was a previous COO of Firm Capital American Realty Partners, VP of Operations for Transcendent Electra and also led a $1 billion portfolio as one of the early team members and Regional VPs at Invitation Homes. 

We believe that Jorge’s impressive real estate experience, combined with the $200 million Churchill facility, will position reAlpha Homes to execute on its business model and to achieve scale. Stay tuned over the coming weeks for a further introduction to Jorge! 

Investment Strategy

reAlpha Homes’ investment strategy is grounded in discipline, technology and teamwork. We are constantly challenging our team to identify short-term rental investments in our focus markets that offer higher returns while mitigating risks. Having a strong investment framework allows us to evaluate new strategies and emerging opportunities as they arise and to nimbly pursue them should they exceed our investment thresholds. This adaptability is what drove reAlpha Homes’ initial shift from focusing on homes that required some rehabbing to pursuing “rent-ready” homes. This agility and ability to effectively evolve the platform is especially important in the context of a rapidly-changing economy and investment climate including rising interest rates.

Interestingly, Airbnb recently launched its biggest change in over a decade. They actually overhauled their entire travel search function into “Airbnb Categories” after nights booked in unique homes grew 80% compared to 2019. Tiny houses (+173%), barns (+160%), domes (+134%) and treehouses (+116%) have seen particularly strong growth of interest.⁵ After this pivot, Airbnb experienced record breaking results in Q2 of 2022 financial results¹:

• 58% growth: In Q2 2022, Airbnb generated $2.1 billion in revenue, growing 58% year-over-year
• 103 million Nights and Experiences Booked, their largest quarterly number ever
  

Because of this explosion in popularity of unique stays and extensive research on the potential cash flow of such properties, we expanded the property types that reAlpha may target in our amendment filing. While our main target is rent ready, we are now exploring an additional and new investment strategy around experiential homes. We have observed that these categories of homes are in high demand and offer guests a differentiated experience for which they are willing to pay a premium. These homes require specialized asset management, which makes them ideal for a professional investor, such as reAlpha Homes, that can execute this strategy at scale. These homes also present an opportunity for grouping or communities, allowing us to drive more efficiencies in our operations. Furthermore, we are finding that the capitalization required for experiential home investments call for less debt, and thus, less interest rate exposure.

We have signed a partnership with RARE Treehouse Resorts and are in active talks with other experiential home manufacturers to ramp up on all facets of the process: acquiring the land, obtaining permits, navigating zoning, running feasibility studies, development and construction, amongst many others. You can view an existing treehouse resort here: https://freespiritspheres.com/. 

Technology Update

We have been hard at work behind the scenes preparing the reAlpha Homes App/Syndication Platform for the ultimate launch of our initial property offerings. We plan to syndicate the first group of reAlpha Florida properties after the completion of the Regulation A+ offering. We continue to develop and enhance the reAlpha group’s technologies to expand and optimize business processes.

Investor Portal

We are also pleased to share that our shareholder portal is now live! Through the portal, you can see the amount and the number of shares you have invested in reAlpha’s Reg A+ campaign. You will also see the reAlpha rewards and perks that you are eligible for as a Reg A+ shareholder. Please follow the following steps to start using the shareholder portal:

1. Go to the portal by clicking on this link
2. To create an account in the portal, you will need to use the same email that you used while investing in our Reg A+ campaign through the Dealmaker platform. This is to restrict the portal’s access to investors in reAlpha. Also, note that you will be allowed into the portal only after you’ve funded your first investment through Dealmaker.
3. After a successful signup, you can login with the credentials you set. The same credentials can also be used to then login to the reAlpha app

There are multiple ways to engage with us through the platform and we encourage you to do so! This is also where you will be receiving company updates going forward.

reAlpha Homes has been quite busy, and we are energized by all the activity unfolding across these different facets of the business. We will continue to keep you up-to-date with reAlpha Homes’ news and intend to send these letters on a quarterly basis going forward.

All the best,

Giri Devanur

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Sources:

1. https://news.airbnb.com/airbnb-second-quarter-2022-financial-results (need more detail as to headings and date visited)
2. https://www.sec.gov/Archives/edgar/data/1559720/000119312520294801/d81668ds1.htm
3. The SEC does not pass upon the merits of or give its approval to any securities offered or the terms of any offering, nor does the SEC pass upon the accuracy or completeness of any offering circular or solicitation materials.  This investor letter does not constitute an offer to sell any securities in any jurisdiction that it would not be allowed.
4. https://www.manhattanstreetcapital.com/news/41-growth-reg-a-51-companies-raised-1-b-2019-see-numbers-here
5. https://news.airbnb.com/airbnb-2022-summer-release-highlights/