- REEF Technology announced $1 billion in investment last week: $700 million in investments from Abu Dhabi’s sovereign wealth fund, SoftBank and others, and a $300 million property acquisition fund with Oaktree Capital.
- The investment comes as signs of distress in the parking sector mount as coronavirus continues to change how we work and shop.
- REEF Technology’s plan is to convert parking lots into logistics hubs that offer food delivery from ghost kitchens, and light warehouses for last-mile logistics.
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REEF Technology, the parking lot operator that’s reimagining parking space as hubs for light logistics and ghost kitchens, announced last week that it has raised funds to double the size of its operations to 10,000 lots and garages.
The money comes in two tranches: a $700 million growth equity round led by the Abu Dhabi’s sovereign wealth fund, Mubadala Capital, with participation from previous investor SoftBank Vision Fund, UBS Asset Management, German venture firm Target Global, and funds managed by Oaktree Capital Management. And a separate $300 million joint infrastructure investment platform called Neighborhood Property Group that REEF formed in partnership with Oaktree Capital Management.
REEF already operates more than 4,500 parking lots and garages and is the largest operator in North America.
“We are excited for this next stage of growth and are committed to continue learning, listening, and working with our communities to reimagine urban real estate into localized and networked infrastructure that entrepreneurs and cities can use to deliver goods and services sustainably and directly to our neighborhoods,” Ari Ojalvo, CEO of REEF, said in a press release accompanying the news.
While REEF usually leases space, Neighborhood Property Group will actually acquire lots. According to Bloomberg News, the company will be focusing its acquisitions on areas that are seeing population booms in the midst of the pandemic.
Trouble in parking garages
REEF is planning to double its size as the rest of the parking industry shows signs of distress with more Americans working remotely. Commuter parking is down more than 60% year over year, while overall visitors to parking lots and garages are down just slightly less than 60% year over year, according to the most recent data from parking business analytics company Smarking.
REEF’s fundraise is a major bet in the transformation of parking lots into mixed-use developments that take advantage of booming e-commerce demand, at a moment when parking operators, used to mostly stable revenue flows, are being clobbered.
In May, Parking Management Inc, one of the DC area’s largest parking operators, filed for bankruptcy. Icon Parking, one of New York’s largest parking operators, had 16 suits filed against it since the start of the pandemic, with landlords alleging the company owes them more than $7.5 million in unpaid rent, The Real Deal reported in September. Even Icon’s office landlord got in on the action, suing the company for $7 million in unpaid rent at its Midtown East headquarters.
Distress in the parking operator world signals that the supply will be there for REEF to massively expand, and the partnership with Oaktree suggests that the capital is also looking to invest into distress.
Earlier this year, Bloomberg News reported that Oaktree, largely owned by Brookfield Asset Management, a landlord that owns some parking garage assets, is looking to raise the largest ever distressed debt fund at $15 billion. Oaktree was founded by Howard Marks, a famously successful distressed debt investor.
“As long-term investors who specialize in value-add transportation infrastructure, REEF fits our thesis that core parking facilities should be augmented with technology to transform these core assets into mobility infrastructure hubs,” Josh Connor, co-portfolio manager of Oaktree’s infrastructure investing strategy and chairman of Neighborhood Property Group, said in a news release.
In the past, REEF has received debt financing from Owl Rock, another credit firm focused on distressed debt investing, to close some acquisitions of other parking lot operators.
In 2018, SoftBank invested an estimated $500 million in REEF, under its old name ParkJockey. SoftBank’s continued investment in REEF signals a commitment to the company’s business model of lease arbitrage. This rings bells for SoftBank-watchers, as the model is reminiscent of SoftBank-backed WeWork, which had to be bailed out by the company after a failed IPO last year.
REEF’s business model involves transforming parking lots to serve different purposes, including as logistics hubs, marketplaces, and “ghost kitchens” that prepare food and coordinate delivery for restaurants.
REEF recently formed a partnership with Aloha Poke, a fast-casual poke chain with 19 locations, to create ghost kitchens in one of the chain’s markets, saying that Dallas, Miami, and Atlanta are under consideration. REEF also lists Saladworks, a salad chain with 104 locations, as well as the New York City-based restaurant chain Jack’s Wife Freda among its restaurant partners.
Ghost kitchens, which centralize food preparation for restaurants’ pickup and delivery operations, are a growing trend in the sector.
The company has partnered with logistics companies like “nano-warehouse” company Bond, which turns empty retail storefronts into last-mile distribution hubs. Earlier this year, REEF announced a partnership with DHL for the delivery giant to use electric tricycles to do last-mile deliveries from the company’s lots.
Many retailers and malls have turned to alternative uses for their parking lots as shopper visits have fallen due to the pandemic. Walmart, for example, partnered with Tribeca Enterprises to bring drive-in movie theaters to 160 of the big-box store’s parking lots beginning in August. Brookfield Properties, which is the majority owner of REEF funder Oaktree, partnered with Kilburn Live on a similar initiative.
Brookfield additionally leased space in 75 of its mall parking lots to serve as coronavirus testing sites. Drive-through Community Testing Sites were similarly created in the parking lots of some Walmart locations, though an information page for that initiative said that the retailer would be “donating” the use of that space.
Some retailers have additionally used their parking lots to facilitate curbside pickup services during the pandemic.
REEF, formerly ParkJockey, was founded in 2013 and began as a technology-enabled parking provider, before pivoting to its broader business plan, providing both light logistics and parking in its garages.
It became the largest parking operator in North America largely through acquisitions, funded with the help of SoftBank and Mubadala. In 2018, as it announced the funding round that valued it over $1 billion, the company also announced that it had acquired two of the largest parking operators in North America: Impark and Citizens Parking Inc.