On-Demand: Strategic Real Estate Investments | Trends, Opportunities & Considerations

Before that, I started my career actually as a server at Ruby Tuesday restaurants, ultimately becoming the president and COO, where I served the publicly traded company for about 21 years. During my tenure, we were fortunate enough to grow the company from about 150 restaurants to a little over 800, achieving a high revenue mark of about 1.8 billion. Mike, thanks for inviting me to join today.

Michael Morris:So glad you're here. Phil, let's hear from you.

Phil Colicchio:Good morning and good afternoon, everyone. My name is Phil Colicchio. I am the Executive Managing Director of the Colicchio Consulting Group, which was acquired by Cushman & Wakefield in late 2018. We are an elevated and, I guess, the best way to say it would be a bespoke food, beverage and entertainment consulting group, consulting on behalf of real estate developers and owners who are strategically positioning their food and beverage amenities.

I have been a practicing attorney since 1984 and licensed to practice in New York, New Jersey and Pennsylvania, had the opportunity to represent more than 50 James Beard award winners in my career. I'm also a faculty member at the Culinary Institute of America where I teach real estate and capitalization strategy in the Masters of Professional Studies program. Thanks.

Michael Morris: Excellent. Excellent. Our old friend, Garrick Brown from Newmark. Garrick?

Garrick Brown:Hey, everyone. Thanks, Michael. I'm Garrick Brown and I am with Newmark, which is really great. It's a homecoming of sorts. Those of you who might have seen me on past webinars, I used to work with Phil over at Cushman, but this is a homecoming in that. You may know me as the retail guy, which was a focus of mine for the last few years, but I've been in the business of being a commercial real estate analyst for 25 years.

 I actually started with Grubb & Ellis, which is one of the roots of the current Newmark group. I used to be our Bay Area guy in a past life with a big focus on tech. I'm back out in California and this topic I think, kind of merged both worlds pretty well for me to be part of, and that's that if you're in commercial real estate, one of the things that you're always looking at is funding.

We have this immense wave of activity going on with the SPACs but I think, I'd rather back up for a second, again, I'm a real estate guy but one of the things that you have to keep an eye on as far as your funding for startups, for growth of businesses, it always translates directly into demand depending on the product type, is the dry powder out there. What we are seeing is an unprecedented amount of money that over the course of 2020, in the pandemic, was on the sidelines that is now coming back to market.

Something I think I should point out, venture capital funds is a great example. VC, IPOs, all these things impact real estate demand but VC demand for the last 20 years, you can see a direct correlation in funding to usually immediately but almost always within two quarters, office R&D tech going up when it's when it's about funding for tech startups and certainly there's impacts for other categories.

Now SPACs, wow, if you guys have been reading the headlines, it's all over the place. To say it's the hottest thing would be an understatement. Literally, last night a friend sent me a rap song by a hip-hop artist out of Oakland named Cassius Cuvee. His song, SPAC Dream, which somehow names drop Bill Ackman, Goldman Sachs and the phrase, the critical phrase of due diligence, which, it's actually pretty, pretty intelligent, classy, good song. I mean, but the analysts part of me when something becomes so widespread and mainstream, I always get a little bit worried.

We're at a point where, yesterday the SEC issued a warning saying, don't buy-in the SPACs just because of celebrity endorsements and certainly there's been plenty of those but it's not just Shaq, A-Rod, Jay-Z that have gotten into the SPAC game. Of course, Bill Ackman, the activist investor; Terry Lundgren, the former Macy's CEO; Paul Ryan, former Speaker of the House; Billy Beane; Richard Branson; Francois Pinault, the CEO of Kering, the luxury brand just got in. There's something immense happening. SPACs are running the gamut.

Now, Kimberly's here to talk about her hospitality stock but we're seeing them active in gaming, healthcare, biotech, driverless cars, electric vehicles, entertainment, the music industry, cannabis, a lot of cannabis. You name it, enough so that the interesting thing is SPACs aren't a new financial instrument. They've been around since the '80s but the sheer numbers are pretty mind boggling.

The big question for the real estate investor is that we already see a number of private equity players getting into the SPAC game, but how much would this, especially with early stage companies, potentially fuel real estate demand? I think in a lot of categories it will, but I think we should go back to what exactly is the SPAC. Ultimately, it's a reverse IPO. It's a company, blank check company, that's formed with capital and investment with the purpose of purchasing an existing private company taking them public. It's an alternative route to the market. I don't want to get too much into detail. Keep that for our conversation.

One thing that I think is critical and it dovetails in with the SEC statement, which by the way, I would not for a second say that Shaquille O'Neal isn't an amazing businessman. The guy is. He owns a huge chunk of Papa John's. He's got 150 plus Five Guys. He's got holdings everywhere. He's done very well. Same thing with A-Rod but when it really comes down to due diligence and the strength sponsoring the team I think is going to be the differentiating factor in these.

Why the SPAC surge? Something, I think, past webinars we've talked about the K-shaped nature of the recovery. Part of that is that at the low point and sadly today is a sad anniversary, one year ago today, COVID was announced as a global pandemic and that's when we started seeing the shutdowns. Immediately after the shutdowns, we saw the market tank. Over six trillion of wealth was lost within the first three to four weeks. The Fed pumped three trillion into bonds in addition to, we're now going on five trillion of US stimulus but the market resurged. In fact, by the time we got to October, November was surpassing past levels.

There was a whole different ballgame going on for the investor class versus the K-shaped recovery for workers. If you were lucky enough to be able to work from home, chances are you weren't as hurt, although, even in office using employment, we initially saw three million people laid off in the US more than half of those people are back at work but the service industries were hurt pretty badly but we had a ton of capital sitting on the sidelines. That's one factor.

I think we also saw the rise increasingly of the retail investor, for better or worse, which we'll talk about briefly. One of the things about tracking for example, IPOs and VC and their impact on real estate demand, those things attract together consistently until about 2019, which is when we saw some weak unicorn IPO performances.

Now, my big question is, is SPACs is going to play a role and resurgent real estate demand? I believe so. It's going to be industry by industry, situational type of scenario but at the end of the day, we're already seeing some really strong green shoots throughout our markets in the west. I think that by the time we get to summer, it'll be clear that for most office markets, for example, that Q1 will prove to be the low watermark as far as sublease space but virtually every office I deal with has seen a significant uptake in touring, in activity, in inquiries and space users.

SPACs largely since last year, had taken over the IPO market, though. By the way, these numbers are just from a few days ago and they're already out of date. SPACs, so far this year, have accounted for more than three quarters of IPO activity. As of this morning, if we looked at SPAC volume, this has actually gone up by nearly $8 billion in the last few days.

So far, March 11th, we're almost on pace to match the amount of money that was raised for SPACs last year and if you combine the two, it's almost quadruple what we saw the previous 10 years. Amazing amounts of capital, could it be the next growth vehicle? Could it be a bubble? I think all those things are on the table we're going to get into discussion with but one of the things we're seeing is the past history of SPACs. Right now, the target industry is at least as of 2020, so much of it again are those startups and increasingly, like Kimberly's space, we're seeing players getting into the hospitality world.

Again, I've mentioned briefly some of the things that keep me up at night that when something becomes this popular, you have to worry about bubbles. Certainly, one thing that I'm seeing is this increasingly negative media sentiment, rightly or wrongly, about that bubble potential. I think a lot of people are theorizing there's going to be a higher chance of increased regulations and regulations part of why SPACs are so attractive that we want to discuss in a moment.

One of the big questions is, are we going to have too many SPACs chasing too few opportunities? That said, I think I would rather get into discussing this with our fellow experts here and see where we go on that.

Michael Morris:Garrick, thank you for jumping right in. I love it. We're going to go to the panel portion of this and I'd like to start out, Phil was nice enough to send everybody a report from McKinsey and Company in September 2020. In there, I thought was very interesting. They talk about one of the key successes or the magic sauce in any investment strategy is everybody's looking for that secret sauce.

Here, it just says, "Operator-led SPACs behave differently from other SPACs in two ways. They specialize more effectively and they take greater responsibility for the combination success." As I read that, I thought that makes total sense and I'm going to go right to Kimberly, who I think has that secret sauce, and ask you Kimberly, would you mind giving us a brief overview of your business thesis for your SPAC?

Kimberly Grant:Sure, well, I believe, that report actually came out about in the middle of our fundraising. That was quite helpful, as you can imagine, but I think we believe that an operator with SPAC was going to be able to, we would be able to identify targets through our proprietary deal flow, through people we knew, companies we'd followed, businesses that we believe strongly in and just general networking.

 When we were developing our thesis, a lot of people thought that despite the pandemic, we were raising a SPAC but in reality, it was because of the pandemic that we were raising the SPAC. We viewed it as a catalyst that was creating three incredible opportunities. As difficult and challenging as it was, the three opportunities we thought could really create tremendous value in the long run for a publicly-traded company.

The first was, the industry has so much competition. Garrick knows that. The last decade, there's so much over supply and fighting for share of wallet was just a day-in, day-out war. There's always these companies that kind of are bumping along the bottom that barely are surviving in the restaurant industry and this challenge really corrected that, I think, in a lot of ways in the various different sectors. We thought that that was one opportunity.

The second was the real estate market, which, Phil is an expert in. We had gotten to a point where the rental rates were at an all-time high, the competition for spaces was extraordinary, and it was really a landlord friendly environment for many, many years. We felt like the pandemic was going to open up real estate. It was going to make it more affordable and also allow the winners out there those that have liquidity to be able to develop at a faster rate with A sites.

Then, the third was, for over, as long as I've been in the industry, we've always been understaffed and not enough workforce. Of course, with restaurants closing, unfortunately closing and just the natural situation, the scarcity of employees was really improved and that has an inverse impact on wage rate, inflation and all that. We really wanted to look for a company, not that was distressed, that was a critical test.

 We wanted to look for a company that did well during the pandemic, better than most, let's say, I don't know that anybody did really well other than maybe grocery and such but that was ready to take funding and invest it, to hit the ground running as the recovery came through, whether it was investing in growth or technology systems or developing new channels of revenue. That's what we our investment thesis was, was to take something that was doing good and help it operate at a great level post-pandemic.

Michael Morris: Phil, do you want to add anything in there? I know you've been working with Kimberly.

Phil Colicchio:Well, Kimberly and I have known each other and worked sort of side-by-side and collaboratively for 10 years, almost. I've also worked with Garrick for quite some time. Look, I'm a fan of both but we'll focus on Kimberly for a moment. I would encourage all of the listeners just as a really good example of what a strong, special purpose acquisition company looks like by going to the website of Kimberly's Company, which is fastaq.com and just look at the biographies of the founders and the advisors and of the board. That's going to show you, I think, that's as good a template as I have seen for predictable success in this industry.

You heard Garrick speak before about a surge of potentially overcapitalized and undermanaged investment opportunities. Look, I'm a bit of a populist at heart and I think SPACs are incredible vehicles. I think about them the way I think, our real estate colleagues out there, I think about them the same way I think about REITs, right? It gives the average Joe an opportunity to invest in something that is usually out of reach. If that's the vehicle, REITs have stood the test of time and yes, Garrick is right, this is not a new vehicle. The idea of the SPAC actually came into existence in 1993. Proud that a lawyer, one of my brethren, invented it, proud that they spent so much time creating investor protections that don't exist in many other investment vehicles.

For instance, and I'm sure this has made Kimberly sweat, we never talked about it, but if you invest in a SPAC, you're allowed to withdraw that investment before the SPAC makes its acquisition and make no mistake about it, the only reason a SPAC exists, is to make an acquisition. It is an animal in search of food. I say think about it, while there will likely be some regulation. Anytime something that's good gets abused. There'll be regulation but we also talk about legalizing hallucinogenics and the idea of pouring cold water on an investment vehicle just because it's become popular and less expensive to get something to market isn't necessarily the best idea.

Michael Morris:Well, I guess if you can pull your cash out of the SPAC, you definitely want to know your investors because I would hate to go to the deal and have $100 million disappear.

Phil Colicchio: I think Kimberly will tell you they have to vote, right? They have the opportunity to vote.

Kimberly Grant:Well, listen, I think that that's the beauty of it is that you do have to get past the vote. Again, I think it comes to the discipline of the team. I think operator-led teams are less likely to sway out of their industry. They might get in the shoulders, whether it's in our sector fast casual to full service, to food tech or what have you but I think some of the failures, let's say or the ones that have not been able to get approval to move forward is when they deviated from their investment thesis and they've gone out of industry because of the constraints on the timeline.

Everybody talks about the 24 months, what have you. The real issue is you run out of money. You run out of your sponsor risk capital that's paying all the resources that you have. I mean, you obviously run out of time but I think that's where operator-led teams stay focused. They stay focused on their industry. They're not participating in, maybe some may, but they're not generally having to participate in auctions or SPAC-offs or processes because they're really being able to harvest and look through their own networks and their own industry. I think that helps them navigate that potential challenge.

Michael Morris: I love that, SPAC-offs.

Kimberly Grant:It's like a bake-off, like a SPAC-off.

Michael Morris:I'm getting off my little script of all my different wonderful questions here but I do have one in particular. You must want to, I would think it's in your best interest to kind of cherry pick your investors that are going to be strategic partners on this path, or am I wrong with that? Is that not accurate?

Kimberly Grant:To the extent you can, I mean, but I don't think it's really that granular. I think that it's a pretty, at least in my experience, it's a pretty small universe and maybe it's widening now because of the, I guess, the lifecycle of the instrument, but it's a pretty small universe of individuals. I mean, a lot of, at least a lot of the investors I saw are not just investing in one SPAC, they're going across 8, 9, 10 SPACs. There's large amounts of money out there that is available within institutional capital to be invested in SPAC companies. I don't know that you spend a ton of time on that because it's a pretty sophisticated universe.

Michael Morris:Yeah, but to that extent, though, Kimberly, SPACs, they're publicly traded. My Uncle Joe, if he calls up his broker at Merrill Lynch or somewhere and says, "I just saw that the people who founded Noodles & Company and Ruby Tuesday created this thing. I've always had been interested in the restaurant world and they're going to go out and acquire a company, I think I might like to buy a few shares of that, that Joe can do it, Uncle Joe can do it too?

Kimberly Grant:I think that's right. I think also, if you talk to, I've talked to friends and colleagues in business and industry and everyone has their hobby, exciting area that they like. It might be driverless cars. It might be technology in the healthcare space. It allows individual investors to be then venture-like. They can look at areas they're interested in.

Phil Colicchio:Right, if Alex Rodriguez, who has formed the SPAC, the baseball player, if the focus of his SPAC happens to be, let's say, acquiring minor league stadiums?

Kimberly Grant:Yes.

Phil Colicchio:I might be and I'm a baseball guy, I might be interested in that as long as he's not financing JLo's next record or something, right? Well, I mean, the idea of being disciplined, he does have some expertise in certain things. Again, I try to be more of a populist when I think about it, but I really do. To our real estate community that's listening to this and our hospitality community, I really do want you to think about how much alike publicly-traded REITs are to the SPAC vehicle because really, what you're doing is almost the same thing. You're investing in someone else's expertise when you invest in a publicly-traded REIT. I didn't read that one on the McKinsley report but I thought it, I thought about it.

Garrick Brown:One thing I'm curious about, Kimberly, I think you've got a much closer eye on this than we do and I know there's some things you can talk about, some things you can't regarding your own SPAC but obviously, I think there's some clear benefits for companies who want to go public the SPAC route, which I'm not sure if everyone on the call knows but if so, how does the company prepare themselves?

One of my concerns is whether or not, as the trend widens, there's going to be best-of-class operators, there's going to be a whole lot of people that jump on a bandwagon, and whether or not some of the private companies that are required are ready to function as a public company.

Kimberly Grant:Now, that's a great question. I mean, I think, one of the benefits our operator-led team had is that we had not only we opened over 2,000 restaurants collectively, but three of us had been executives of, actually four of us had been public company executives for decades. We knew the challenges that are associated with running a public company and what it takes to be able to do so.

I think it helps on two fronts. One is in the diligence aspect of it, really being able to evaluate whether the team in place is ready to be public and to take that on, but also whether the business strategy is conducive to the public markets because you do have to show consistent growth. You have to have discipline in earnings. You need to have a story that's very easily told and understood and compelling and not all privately-held companies are made to be a public company. That's going to be probably where the rubber meets the road on a lot of these things.

I personally have worries from a larger vantage point of too small of companies going public because if you look at some of the companies in our industry, there's some restaurant groups that trade publicly that have no analysts following them. They have very little volume. They basically are in the public markets without the public advantages whatsoever. I wouldn't personally want to be running a publicly-held company that was just kind of barely public, barely on the radar screen. I think that that's really important to make sure that it's not just public ready from a team business model, but then the discipline and what have you.

Michael Morris:We were speaking earlier about investors, is there a special benefit to retail investors to go into SPACs? What would be the downside on that, whoever wants to take that?

Phil Colicchio:Well, I mean, I'll throw out the, you've heard me speak of the upside. I mean, look, the downside is of course, sounds like I'm repeating, but it's worth repetition, the downside is if discipline gets lost and if the SPAC founders are not going to follow through and stay involved in their target from a board position, at least and staying really focused on maintaining the management.

Most of the time and I hope, Kimberly, I hope we'll all talk about what are good looking targets in the hospitality industry because I know we have people listening who are restaurateurs and own restaurant groups and gosh, what do I have to do? What workout regimen should I get into if I would like to be considered as an attractive target for a company like Kimberly's or another hospitality-focused company?

Another group that did do something recently that you should all look at was a competitor, friendly competitor of Fast Acquisition that brought BurgerFi. We don't know if that's going to work. We should follow it. It's a nice template to take a look at. The downsides that I think are at risk in any investment is that if you're doing it without research, without discipline and without knowing that your founders of the SPAC that you're invested in are going to stay involved.

Again, special purpose, right? The name of this thing is a special purpose. The idea of the acquisition should be a highly focused acquisition, one that the SPAC founders should be able to add value to, right? Not just go out and look around for whatever is the new vogue.

My impression, and I'm curious about what Garrick and Kimberly thinks about it, is that while there are a number of wonderful startup brands, that's what the hospitality industry is all about, starting up new brands, I would be very wary about if I were a SPAC founder, I probably want to be looking at groups that have track records rather than the new flavor that shows a short term pop.

Garrick Brown:I would say at the extreme, one of the concerns I have would be acquisitions of companies that have no track record, where it's purely speculative, right away so much of the focus on tech, biotech, et cetera, if we're talking about good ideas with a good smaller to medium-sized company with proven track records, that's one thing. It's another thing, if it's purely speculative.

I lived through the tech wreck and the tech wreck was about a lot of great ideas that didn't have track records, operational histories yet, and too much money going there and eventually, the market, correcting. That's the one thing about, and I think Kimberly touched on this, about the super small companies. One thing that I am a little concerned about is if SPACs end up competing with a VC, which usually is a little bit more on the risk side with higher risk, higher reward. Obviously, something gets as big as this, we're going to see best of class and we're going to see some not so best to class players as this evolves. That's my two cents.

Kimberly Grant:No, I think Garrick, that's a great point but I think one of the protections that Phil alluded to earlier that's important is that as a sponsor team, you can't sell your position from a quite a bit of time. There's very restrictive lockups and that's intended to make sure that you aren't being speculative and you have to ride along with the company for usually it's four to eight quarters of performance. If you've made a bet on a, and this is true on any, whether it's private or public capital, if you made a bet on a hockey stick projection, it will come out.

I mean, maybe you can get through one quarter of luck is art but eventually, discipline, over three, four, eight quarters, you have to have the DNA to be a performer and to produce results. I think the mechanisms to protect that are in there. It still could happen but I do believe that that helps avoid that, or at least discourage it a bit.

Michael Morris:Walk us through how you form a SPAC, Kimberly. How do you form one? How did it all come about?

Kimberly Grant:Sure, well, obviously, the co-CEOs for our SPAC were heavily involved in the early stages of it. From the point where the team has kind of formed and what have you, first is assembling the sponsor team, and however many individuals that's going to be and putting together who's going to be investing in the risk capital. It's approximately 3% of whatever you're raising and capital needs to be or as a guideline for the risk capital needs to be involved. It's really finding the founding team and then putting together the risk capital that's going to be associated with the, and then-

Michael Morris:Sorry to interrupt, but is that skin in the game on each operator in your organization?

Kimberly Grant:Yes.

Kimberly Grant:Exactly. Exactly.

Michael Morris:That makes it very real.

Kimberly Grant:That makes it very real. Yeah. Again, as we discussed earlier, it's not that you lose your money, it's that you spend all your money. There's no money to get back if you're not successful, right?

Michael Morris:Right.

Kimberly Grant:I think that's the first parts of it and then assembling the right resources around you. One of the biggest questions I get asked every day today is, who are the underwriters, who are the bankers, who are the lawyers, who are the accountants, the insurers because you quickly have to assemble your Special Forces, so to speak, to take you through the process. That is, you formed the team, you put together the risk capital, you put together the external team that's going to take you through building your investment thesis, going through all the regulatory filings that you need to be able to do and getting ready for the roadshow and the fundraise process.

Obviously, a lot of the banks out there are getting more experienced at it but there's certainly a subset of bankers, a subset of lawyers, a subset of accounting firms that have deeper experience in the SPAC instrument overall but getting more experienced, as we speak.

Michael Morris:Yes, we are. Phil, Garrick, do you want to add anything to forming a SPAC?

Phil Colicchio: Garrick, you go ahead and jump in. I mean, I haven't done one yet but Garrick tells me that every time you hear a bell ring, a new SPAC is formed.

Kimberly Grant:Yes.

Phil Colicchio:Hold on, maybe, yup, I don't have anything close by but what I can tell you is, look, there's a reason for the popularity and part of it, as an attorney, who has worked on public offerings, I can tell you that they are incredibly expensive and they are incredibly regulated. One of the nice things about the SPAC formation is yes, while you certainly have to make some investment in professionals to do it, it is significantly less expensive to create a SPAC and bring it on to an exchange and it could be on the New York Stock Exchange, it could be on any exchange that the public can trade on, but it's a significant, less expensive and less rigorous process than trying to bring a company with a lot of arms and legs public.

Kimberly Grant:You know-

Phil Colicchio:That's another approach. Look, when you're an experienced operator and investor and you've got a thesis, you should look to bring it to market in a way that is, of course, very legal but of course, why do you want to spend millions just on the formation process? Kimberly?

Kimberly Grant:No, I think that's great. I think one of the questions that, I've fielded as well from potential target companies, not even companies that we were looking at, but just in industry, as companies in the industry that we're looking to either go public on their own or to look for a liquidity event and one of the things that became clear that a SPAC offers that, maybe a traditional IPO doesn't offer is, it's a little bit easier for founders and for sponsors at the private equity level, the original investors in a privately-held company to get liquidity from a merger in a SPAC because the risk is really with the SPAC sponsors.

They decide whether or not they are going to give liquidity or I mean, through the negotiation, of course, to the founders of the target company and their financial sponsors. If you direct list an IPO, essentially, what is taken off the table is highly scrutinized, right?

Phil Colicchio:Exactly.

Kimberly Grant:Yeah. I think that if they say, "Well, why would a company consider a SPAC exit versus a traditional IPO?" If they're looking for liquidity, it may be a way to get it a little bit easier depending on who they're negotiating with.

Phil Colicchio:And there’s surety on top of it, right? Look, I'm following, I just happened to be following a company that is going to get listed tomorrow on the New York Stock Exchange. I'm following it because I know people who work in it and they're very excited. It's a company with a long track record and they're going public tomorrow. They had to wait until today to find out what the investment bankers were going to price their shares at, right? That doesn't happen.

When Kimberly's company acquires a group, it's a negotiated price. There's certainty. The investment that is being made is in Kimberly's judgment and expertise, right? That's why they call it a blank check company, which anytime you see that phrase, which is a terrible, terrible way to introduce a company, but I mean, am I the only one who's on this call who maybe has been to Las Vegas or to a casino who's not the best gambler in the room, but their buddy is a terrific gambler. You give them 100 bucks and say, "Go ahead and run it for me," right? "You're better at blackjack than I am. Go ahead." Well, that's a really dumbed down version but what I'm doing, ideally, is I'm giving my investment money to experts.

When did that become a bad thing? I don't think it did. I think it can become a stupid thing but I don't think it's a bad idea in any way, shape, or form. Find out, research about, research the industries that you're interested in. Again, we've got real estate people on this call. We've got F&B people on this call, hospitality people on this call, you're going to see more groups, more special purpose acquisition companies formed in 2021 and in all likelihood, the businesses that you are in, are going to be targets.

Garrick, when you mentioned earlier today, that there may be more money chasing fewer deals, that's probably a very good thing for the people who are on this call because the people who are on this call, are the ones who may be in position to be courted by groups like this.

Garrick Brown: I think one of the real tests for the greater economy and the market, in general, is going to be about 18 months down the road, which is going to be when some of the initial SPACs from last year and because most of this has been in the last 10 months, but where players haven't found acquisition targets, if they've been holding and being disciplined as to what their initial targets were and what they were going to spend, are going to be facing that choice of, do I risk overpaying for something to complete the deal or do we basically have to return those funds and SPAC.

That is a bit of a concern, because, again, I think that there's going to be vast divides between best of class players and the not so much simply because anytime there's a craze, you're going to get all types, right?

Kimberly Grant:You know what?

Kimberly Grant:I was just going to add a comment to you because I do think that there is going to be increased competition like you just mentioned, but one piece of advice I would give to, at least in our industry, but I think it applies to all industries that if you have a company that you're looking for an exit and you're considering a SPAC or multiple SPACs, you attract the investors you deserve and I think that you really need to not focus on the highest price, that may not be the best partner. The best partner is who's going to help you be successful stewarding you through the public company process and the post-public company life. That may come not at the highest price but you have a better outcome.

As a target company, really digging deep in not just what price you're going to get for your company, but really what's my likelihood of success post-transaction with the team that's around me, the investors that I'm going to have, the support that I'm going to have as a public company from the resources around me, all that matters, probably more so than the price you receive for your actual company.

Phil Colicchio:Really good point.  

Kimberly Grant:Yeah, so while you might get a lot of attention in the dating phase, you really have to evaluate your long-term partner.

Michael Morris:I would think, first off getting back to the Vegas comment, I don't gamble. I just invest in real estate but I was thinking when everybody was dialoguing about PE groups must eyeball some of these SPACs understand their thesis so they can almost customize their acquisition and roll up plan and then partner with a SPAC to take it public, is that pretty common out there in that space?

Phil Colicchio:Yes. As a matter of fact, you see a lot of PE alumni forming the SPACs for a good reason, again, for a very good reason. To know both the industry in which you invest and the money which invests in the industry, I think that's a good marriage. I don't think, again, I think that that's, it's a great, to me, it's a great opportunity to spread your opportunities and effectively, I guess, it's a white collar opportunity zone, when you do that.

Yeah, I think if you look carefully, I think Garrick's research that we spoke about yesterday, bears it out, that a number of the founders, not every SPAC that gets founded is founded by operators even though we see at least more than anecdotally that you have a better chance of succeeding if it is an operations group that forms the SPAC and acquires the company.

However, don't give short shrift to brilliant investors because they know how to find operators as well. I think maybe up to now SPACs, maybe up to at least 2008 to maybe 2015, SPACs were shady. I think we've passed all that and I think SPACs now are attracting really, really great people as well as not so great people who can form easy vehicles.

Michael Morris:Kimberly, are you interacting with a lot of PE groups out there?

Kimberly Grant: I am, in our industry within the hospitality industry for sure. Phil's right, a lot of them are forming their own SPACs.

Michael Morris:Are they utilizing that leverage I spoke about knowing that the SPAC option and the roll up to kind of marry up to your business model?

Kimberly Grant:No, actually, I found that most of the private equity firms that I speak with and the principles there are really disciplined in evaluating all sorts of exits. They just look at it as another option. It comes with its own pros and cons. I mean, I think it is attractive to a private equity firm depending on how much they own on the asset to have some liquidity at the merger or the transaction because that can be difficult sometimes in a normal IPO. That's a check mark in the pro column, right?

At the same time, it may not be the way they get the highest price. They may not be able to attract the strategic investor that's going to pay a higher premium for their asset. I just think the individuals that I've been speaking to are using it as one option then they just evaluated across and look for what's going to be best for their limited partners and their investors.

Michael Morris:Garrick, do you have anything on that?

Garrick Brown:No, actually, I don't. I couldn't say it better or add any value there. For me, one of the interesting things, especially with the hospitality side of SPACs, is it's one of the places, I don't see it as higher risk as far as being overpopulated. That's a little bit encouraging. It's very hard, though, because, again, SPACs are going to be about the quality of the operator more than anything else, more than the sector, what they're able to execute it because I have no doubt.

For example, one of the questions that came in, one of the most successful SPACs so far has been DraftKings, which I believe it was Diamond Eagle Acquisition Corp last April. That one's actually, for obvious reasons, a growth industry providing immense results. They might be outsized. I think what I'm always more comfortable in and you guys have heard me talk about this before, is I'm always wary of that kind of disruptive gold rush mentality, where something might have a seat at the table, maybe a couple of seats at the table but the investment community and the rush to get in on something good, thinks it's going to take over the entire table.

That worries me a little bit with everything but I think when it comes to SPACs, if I look at value in driverless cars, electric vehicles, biotech, even cannabis, which I would argue maybe there's too many SPACs there, although by the way, Mexico yesterday, their legislature, legalized recreational cannabis or at least they signed a bill.

If you're on waves of the future or if you're in, for example, what I like about hospitality or travel-related SPACs is the idea that you have some industries here where winners and losers have been shooken out by COVID and the opportunity to grow is now. The real estate side of things is real. We lost something close to and then the numbers are still hazy, between 15 and 20% of the restaurants United States. The competitive landscape favors growth for those who won. The question is, are they ready for it and investment vehicles like SPACs could help pave the way for that but again, it's going to be one of those things where to quote Cassius Cuvee, "Due diligence is everything."

Garrick Brown:I think that's the critical part.

Kimberly Grant:No, Garrick, I think what you're describing too, is I've heard it termed the new economy. I think SPACs that are focused on the new economy, so whether it's the fitness revolution with the subscription fitness in-home or the driverless cars or FinTech or online gaming, this is all kind of the new economy. It's becoming more mainstream quicker. Because of the pandemic, people have adopted whether it's the delivery platforms or QR codes or all these different technology advancements, a decade faster than they would have normally, just going on the normal adoption rate. I do think that that is exciting places to put capital and to be an investor in.

Michael Morris:Is there a heavy emphasis in hospitality in the SPAC scene, or is Kimberly one of a few?  

Kimberly Grant:Not really. I don't know the exact numbers right now. Garrick, is there about six of us now? Six or eight out there? It's not many but anyone can buy in the sector. The SPAC that bought BurgerFi wasn't necessarily focused on the restaurant industry, by any means.

Phil Colicchio:Yeah, six is enough to create a conference.

Kimberly Grant:Yeah. What's exciting about the hospitality SPACs that are out there and this is just incredible respect for the ones that have been formed, it's by the greats of our industry. It really is. The other SPACs in our industry are with founder or founder-like leaders that have built public entities successfully over and over again. Maybe it's just the nature of the hospitality business, but we're all friendly. We all help each other.

I mean, we have a friendly competitive nature to ourselves, but we want everyone to succeed. I mean, our fellow SPACs, when we announced our transaction, we're just as happy as we were. I think that that's probably unique to the hospitality business, but it's very collegial and we all want the best for everyone. We want the best for our industry.

Phil Colicchio:Kimberly, just to layer onto that, again, I just think it's important for people who are listening to reflect on what you mentioned earlier, that the pandemic gave you an opportunity not to go out and be a vulture to try to pick off a struggling food and beverage group, but rather to be a really good real estate evaluator and to show that, "Hey, we're not out there trying to pick off wounded ducks here. What we want to do is look at companies that are performing, who we can help take advantage of a modified real estate market."

I just thought that was a really good premise. I think that too often, people are thinking that, wow, okay, there's a pandemic or there's a recession, where there's something that will allow me to pick off a weakling and that wasn't the premise of what you will do.

Kimberly Grant:No, and not only that, I think it was the Intel CEO who, I'm paraphrasing, but crises happen every so many years. This happens to be the crises of the moment, but it could have been '08, '09 or it could have been 911 or could whatever but what happens in these crises is that struggling companies typically go out of business. They just can't survive.

Good companies will be injured but they'll get through the crisis. They'll be on the other side of it but really great companies come back stronger and they take advantage of the openings and the opportunities that are found on the other side of the crises, because they were great to begin with and they can hit the ground running and that's where we were. We really wanted to focus on great companies.

Phil Colicchio:Yeah, to that end, I mean, if I was going to make a prediction about it, I would say keep your eye out for more special purpose acquisition company being formed who have hotel expertise.

Kimberly Grant:That's good.

Phil Colicchio:That's going to require a lot of a lot of recovery.

Michael Morris:Well, I know we have some hotel operators on here, a lot of restaurant and winery folks. One of my final questions before we go into the Q&A process, if there is one, I think I saw a couple in there, if you are on here and would like to send in a question, please do so. I think this was addressed earlier but I'd like to have a little more specific, if that's okay, what should a food and beverage group consider to position itself for acquisition target in the hospitality SPAC?

Phil Colicchio: I think I have to defer to my colleague on that one, Kimberly Grant.

Kimberly Grant:I'm going to, this is my point of view only but I think being able to demonstrate the growth path forward, the playbook that they're going to execute with the capital and as a public company, one of the concerns I have, and I'm going to give it back to Phil here on the other side of it is, one of the, I think the things to watch out for is what they're calling the second generation real estate market, where spaces have become empty, landlords are in a frenzy to fill the spaces, companies are looking at these very screaming deals and saying, "Oh, gosh, we can pick up 10 sites, 15 sites at a low rate" and what have you, and the rubber won't meet the road on those until 5 or 10 years from now to know if they really pick the right site.

I always encourage people, no matter how good the deal is, make sure it's a site you would have done anyway and it fit your playbook and your strategy because if the company had a strategy and it's okay to modify it a bit, but you have to stay true to what's right for your brand. Don't let the circumstances of the moment dictate too much because I think that will not make you as attractive. If I were looking at a target and they were focused on gateway cities before, but now they're going to completely abandon that strategy and go towards a different growth path or type, I’d pause. I would really pause and make sure that that's really right and I believed in their hypothesis but I think adjusting your strategy is one thing, but doing a whole 180 on it, I'd be really careful about that but Phil, I don't know what you think about the second generation real estate market and these brands that are racing to them. I think they got to do it with a little bit of caution.

Phil Colicchio:Well, I mean, I'd take a deep breath on that and say, "It depends on who you are and what you're trying to accomplish." There's a lot of second generation restaurant space, that frankly, doesn't work for every concept. Look, if you're a restaurateur right now or a food and beverage provider at any level, my strong suggestion is to make yourself present to developers because developers are highly focused right now on differentiation of their project. If you can show that what you do is a differentiator, you've got a better chance of getting that landlord, that developer to provide you with space that can be bespoke or assist you in modifying second generation space.

If you're the kind of person that just goes out and buys a pair of sneakers just because it's Friday rather than needing a new pair, go out and get a bunch of space but my advice right now is the market is, the real estate market is really, really good if you are a food and beverage amenity that has something to say, that has something to differentiate yourself. That can be a chain or that can be a small independent group but right now, just remember who the workforce is even though the workforce has been damaged and Garrick, correct me if I'm wrong, but 75% of that workforce is millennial and generation Z and that workforce cares about food and beverage. They care about its quality. They care about its provenance. They care about its distinctive approach.

Garrick Brown:I will not correct you. You're right. Look, I think across the board, and again, you know me, you guys have done enough webinars with me that I'm a guy who's really good at finding dark clouds out of the silver lining sometimes, but ultimately, do I think that SPACs, certainly SPACs in hospitality and I would echo Phil's statement about the hotel industry will be a stabilizing and force for the commercial real estate and will drive growth, absolutely.

I think that because so much of the focus is still on other food groups that are high growth industries, that SPACs are going to take on a role very similar to venture capital. By the way, venture capital, I think I need to remind people that direct impact on real estate demand was the case really until about 2019, where it was put on pause. If you look at VC money in 2019 to 2020, 2020, 123 billion was raised. We haven't seen the real estate spiked yet. It's going to happen. It's going to happen this year starting up and already we've got 50 billion in VC money raised through March.

If this continues and there's so much dry powder out there that I'm pretty convinced that well, this will be a record year for VC, you combine that with SPACs, if you're a real estate investor, will we see rapid improvement heading into the final part of this year? Yeah, in fact, I think most markets are going to start to see uptakes after this quarter. We're seeing the early green shoots, but heading into next year, hopefully that will continue and intensify. These are all positive forces for the real estate investor, pretty much across the board.

Michael Morris:One question came through, two questions came through and I think this got addressed earlier, but very briefly, and I'll just say it out loud and maybe it's moot but a DraftKings was taken public, was that through a SPAC?

Phil Colicchio:Yes.

Kimberly Grant:Yeah.

Michael Morris:Does anybody know anything about that, for this individual that asked?

Phil Colicchio:It is one of the most successful SPACs ever created.

Garrick Brown:Yeah.

Michael Morris:Other than that, no big deal?

Phil Colicchio:Well, there's another one that actually has to do with agriculture, that I think is the best performing SPAC of all times, AppHarvest. Look, it's just, the mystery, of course, is the vehicle. I heard someone just recently, who formed the SPAC in the cosmetics industry, sort of shrugged and say, "Well, a SPAC is just a round of funding." Why think about, why decide to make it so complicated? I think the beauty of the form is that it's not complicated or it's less complicated, put it that way. Then, that approach we talked about of trying to bring yourself public, if you are a private entity.

I'm not waving the flag, like everybody should do this but there are a lot of private companies, as Kimberly pointed out, that do not have the wherewithal or the desire to take themselves public but if a really good part, I guess a SPAC, Kimberly, I think a SPAC on its best day, should be a really good partner.

Kimberly Grant:Yeah, totally. I mean, I think what a SPAC, at least when we formed our SPAC, we really tried to put a team that had varied disciplines because we didn't know what the target would be. We had people from different sectors of the industry, real estate, finance, legal, people, recruiting. One of our board members is one of the premier executive search firms in our industry.

We try to cover the basis with expertise so that we could kind of gel around the target as needed or not, right? I think that a good SPAC sponsor is able to add value where value needs to be added but then also able to leave the management team alone to do what they do. I think that that's probably one successful potential way to think of it.

Michael Morris:We've got one more question that just came in and then we're going to end this wonderful panel but what are the advantages of forming a SPAC versus other types of entities to fundraising?

Kimberly Grant:Well, I think one thing that, if you kind of relate it to venture capital, depending on what fund process they're in, private equity and VCs when they raise a fund, it could take them a year to two years to raise $100 million dollars or 200, depending on their track record and all that. In a SPAC situation, it could be as little as six months to raise the same or more money. If you're just looking at it by speed of fundraising, depending on who your team is, it could be faster and what have you.

Phil Colicchio:Yeah, I'll echo it by saying it just in a slightly different way, the sole purpose of the existence of the SPAC is to spend the money that was invested in it. If you are a company looking to raise capital, the idea is, well, I've got a one stop opportunity here to get the capital that I need and have a significant partner, going forward. Again, the lawyer in me knows the expense. Frankly, the human capital that is required to bring a company public, it's a lot. It's a lot. Frankly, it takes years. You don't wake up one day and say, "Let's take our grocery store public." It takes years.

Kimberly Grant:I think Garrick probably can comment on this, it's also can be unfortunate on the timing. On a traditional IPO, you can't control the macro environment and the time you're going public. I mean, you have some influence, but it can be influenced by things beyond your control.

Garrick Brown:It's a lot like real estate development where you're looking at two years typically to go do an IPO. It could be longer. When you start out in the pipeline, only the best crystal balls only tell you a few months in advance and if there's something like a black swan event, like COVID-19, there's no way to predict that at all. Even the best forecasters when it came to the housing crisis in the meltdown in 2008, the best guy I know was pointing it out two years before. Most people didn't see it until six months before.

Michael Morris:  Well, this, I have to say, and I don't mean to interrupt but what a great panel, wonderful interaction, great dialogue. We'll have blogs. There's other things to put out there, a write up on all this as well, and you're welcome to get a hold of us if you've got any questions.

I'd like to thank Kimberly, great job. Phil, Garrick, excellent job. Thank you so much for participating in this. Thank you to our clients and our friends.

Transcribed by Rev.com