Why are Investors Flocking to the HOA Management and Condo Management Industry?

There has been a significant shift in investor interest in the HOA and condo management industry in the last decade. Previously only a handful of investors and large institutions backed platforms in the space to buy and consolidate management companies.  That shift started in the mid to late 2010s and then kicked into higher gear in the last 4 years. Why?

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One explanation is quite simple - that several institutions had discovered in the industry as an attractive investment (the specific reasons we will get into later) and word travels quickly in the investor community. Investors require financing, legal advice, accounting support and other assistance that results in multiple parties understanding the underlying business model of the acquired company. Additionally, press releases are picked up by news aggregators, and other investors perhaps began investigating the industry as a possible, and relatively untapped, industry. A similar dynamic happened in the HVAC and pest control industries. In both examples, private equity firms flocked to a specific industry en masse, bidding up asset prices, as each investment firm sought to create a consolidated "platform" of HVAC and pest control services.

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The second reason is the economics of a standard HOA management company changed significantly as interest rates increased and therefore profitability, through earnings credit programs, began to increase. Banks became increasingly competitive with one another in winning new HOA and condo management company business. Despite the perceived offset with lower housing volumes that resulted from increased interest rates, the tick up in profitability of a 100% margin revenue stream such as earnings credits piqued investor interest.

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In subsequent blog posts we'll go through other qualities that have attracted investors, such as (i) long term structural tailwinds in housing, (ii) industry fragmentation, (iii), standard service offerings and recurring revenue, and (iv) partial mitigation from housing downturns.