Startup that buys property from small and medium-sized business owners and then leases it back to them, has secured $70 million in debt financing on the heels of a $15 million equity raise.
Founded in September 2020, the New York-based company – which was previously named Unlock said it uses data science to “identify, underwrite and close transactions 10x faster than incumbents. It describes itself as a managed marketplace.
Keyway’s first product is a sale-leaseback offering for business owners. The company buys an owner’s building and then signs a long-term contract with him/her. CEO and co-founder Matias Recchia said this allows the business owners to free up capital to expand their business while staying in the same location.
“We close transactions with 100% cash payments in four weeks or less with no fees,” he said. “Generally, sale-leasebacks on the long tail of commercial real estate take 13 months to close, with 10-15% of the transactions go towards fees. And 20% of transactions fall through because the buyer didn’t have guaranteed financing.”
So far, Keyway has entered into contracts to acquire over $50 million in properties in several states, including Georgia and Texas. Recchia estimates the company will transact “at least $200 million” by year’s end.
“We transacted more in February of this year than in all of last year combined,” he said. Keyway currently has 15 customers with closed transactions and an additional 100 customers in its short-term pipeline. Recchia said the company is initially focused on the medical sector, with plans to expand to dental and veterinarian businesses.
The $70 million in debt financing – which was led by Cross River, i80 Group and several community banks – will go toward securing more property across the U.S. Canvas Ventures led the company’s seed round in late 2021, with participation from Montage Ventures, FJ Labs and Crosscut.
We plan to scale up the acquisition of portfolios dramatically over the next months,” Recchia said. “In addition, we are launching an expansion product to help business owners expand to a new location. We will acquire a new location for them and finance buildout costs and sign a long-term lease for them.”
Keyway says it is focusing on the “under $20 million in assets” segment, which it feels is underserved. The company said the majority of real estate investment trusts (REITS) focus on deals above $10 million, but properties valued at less than that price account for one-third of the U.S. commercial real estate value.
“There is a large opportunity within the CRE industry for a tech-enabled capital solution to streamline underwriting processes and to shorten transaction timelines,” Peter Frank at i80 Group said in a statement. Keyway claims that by using data and machine learning, it can reduce closing time by 90% and fees by 50%.
There is some concern whether the sales-leaseback model is ultimately fair to the business owner in that the property is no longer considered an asset, which may impact his or her ability to obtain future credit lines or loans. A leaseback also means that a seller can’t deduct property depreciation, real estate taxes and mortgage interest from his or her tax liability. Still, the model does seem to be growing in popularity.
TechCrunch recently reported on withco raising $32 million for a similar offering, with the biggest difference being that it buys properties on behalf of a business owner – rather than from them – and then rents it back to them, giving them the option to buy it back from them in the future. EasyKnock, a startup that buys homes and rents them back to sellers, recently raised $57.2 million in Series C funding.
Recchia said that Keyway is “able to include buy-back provisions” in its sale-leaseback contracts.