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Welcome to the West Side Investors Network, WIN, your community of investing knowledge for growth. This is the Real Estate Professionals Investing Podcast. For Real Estate Professionals by Real Estate Professionals. This show is focused on the next step in your career....... investing.
Welcome to the Westside Investors Network. WIN, your community of investing knowledge for growth. This is the real estate professionals investing podcast for real estate professionals by real estate professionals. This show is focused on the next step in your career, investing. Thank you for listening.
Intro speaker:And please, if you like our content, rate us on your podcast provider. Just a quick disclaimer. The views and opinions expressed in this podcast are for educational purposes only and should not be construed as an offer to buy or sell any shares or securities to make or consider any investments or take any other action.
Trent Werner:Welcome back to another episode of the deal deep dive segment on the Westside Investors Network podcast. I'm your host, Trent Werner. In this segment, our future guests will share their unique stories on a specific deal they've invested in. We will dive deep into finding the deal, financing the deal, writing an offer, and the due diligence. Do us a solid and smash that subscribe button, leave us a rating, and share this episode.
Trent Werner:And now let's dive deep. Welcome back to the Westside Investors Network podcast. I'm your host, Trent Warner. On today's episode, we are joined by Brad Johnson, founder and CIO of Evergreen Capital. Brad's gonna share how his journey and his early career in investment banking and private equity has transitioned him and Evergreen Capital into a key player in the real estate investment world.
Trent Werner:Brad's gonna share Evergreen Capital's three main investment vehicles and asset classes, as well as what you should be looking for as a limited partner investor in your operators. Now let's welcome Brad Johnson. Brad Johnson joining the Win podcast today. Brad, thank you so much for joining us.
Brad Johnson:Well, thanks for having me, Trent. It's good to be here.
Trent Werner:And Brad, for people that don't know who Brad Johnson is, obviously, you're a founder and CEO of Evergreen. But I wanna let you take a minute and tell me who and our listeners who Brad Johnson is.
Brad Johnson:Yeah. So I am a former real estate operator who is morphed really into more of an allocator in real estate and also a private equity. But I I got my background, got my start working in institutional real estate, mostly in large buildings, apartments in San Francisco, New York. Kind of twenty four hour cities working in investment banking, real estate investment banking, then swapped over to private equity, the buy side. I worked for in acquisitions for a couple of groups that were out there buying real estate deals on behalf of pensions, endowments.
Brad Johnson:And so I've seen the institutional world. And then when I was about, I don't know, three or so, I decided, hey, I want to make this jump into being a an owner myself and be the principal and raise capital. And a lot of guys in real estate, as you know, have that itch even if they work as a W2 employee in this space. A lot of guys or girls decide that they want to go off on their own, and I had that itch after I had my first son. I remember, you know, showing pictures to friends and family of my son and he was always asleep in them because dad was off to work early.
Brad Johnson:Dad was home late working on deals. In an investment banking environment, which was, you know, intense. So I wanted to go make my own hours and go hunt what I kill. So I left off around 2013 and partnered up with a guy that had a lot of experience in manufactured housing, so mobile home parks. And I identified that niche because I would see constantly in a lot of the loan portfolios that that we were participating in or helping to to sell as investment banker, that there would be manufactured housing pools in these these mortgages.
Brad Johnson:And these these loans had high yields and low default rates. And so obviously those two things shouldn't go together, right? It should be the opposite. So that was kind of the catalyst to go on. Hey, I like this niche.
Brad Johnson:It's a little under the radar. I can probably raise money as a having zero experience in this space versus trying to go do a $500,000,000 office building wasn't going to happen without any principal experience. So that's what I did. We went out, we we built a portfolio of, 2,300 pads and then sold that in, 2020 around COVID when the pricing didn't make much sense for buying.
Trent Werner:And manufactured home parks were, I mean, the cat's meow in 2020 to, I mean, even still today, you're seeing a lot of them that in self storage and those kinds of things. And I know you said, you mentioned that you saw this loan product and that's what kind of turned you onto it. But when you actually started diving into it, aside from high yields, low default rates, what were some of the other benefits attractions that made you start in the manufactured home space?
Brad Johnson:Yeah, it's really my whole thing is trying to mitigate the downside. And I know, you know, people say that, of course, with most investments. But truly because real estate, you're not going to get a 10x on deals. I mean, occasionally, right? There are those opportunities that come up.
Brad Johnson:But for the most part, it's about minimizing your losses and trying to hit doubles over and over again consistently. And so with manufactured housing, the nice thing is that you, generally speaking, don't have to worry about demand, right? This is the the last stop on the affordable housing train. And so you have overwhelming demand for affordable housing in this country, right? It's a bit of a crisis, and yet they're not building any more parks, right?
Brad Johnson:It's very difficult to get permitting and entitlements to build a new mobile home park. It's not impossible in in some places like Texas, but it's very challenging. And so you have this weird dynamic where, you know, demand is going up and and supply is going down, right? Okay, I remember economics one on one. That's a pretty good place to be from a pricing power standpoint.
Brad Johnson:And so that's just an overarching, you know, nice benefit, structural benefits of the space. The other one is the fact that you own the land and the tenant owns the home. And so land doesn't have too many surprises from a capital standpoint, right? Whereas a large office building has a facade, it has a boiler room, it has giant lobbies, it has tenant improvements, has leasing commissions. It has all these expenses that can destroy a year of years worth of cash flow just with one negative surprise.
Brad Johnson:Whereas a mobile home parks like a parking lot, right? You you maybe you repave the roads, you fix some of the pipe pipes, but there's not giant capital expenses. So that gives you more confidence in the cash flow stream. So that's another reason why I liked it.
Trent Werner:Yeah. And that's I mean, a lot of people that I've talked to that have focused on that space say the same thing. You're you're dealing with tenants, but you're not dealing with the toilets. And so typically it's less of a headache. But I was curious to get your thoughts on it because
Brad Johnson:Yeah.
Trent Werner:It's a I mean, it's
Brad Johnson:still it's still operationally challenging, right? It's like people kind of fall in love with the thesis and try to do it from 2,000 miles away. And that is very difficult to do, right? Unless you're doing it, you're buying in Phoenix, And it's fully occupied. Maybe you could hire a third party manager just to babysit, collect the rent and keep the wheels on.
Brad Johnson:But if it's in a softer market, it's a long way away. It's not full. It's a value add. Maybe 10% of the homes you actually own as the park owner. And maybe incomes aren't as high in that market.
Brad Johnson:Oh, wow. In some small market in Ohio, when they kind of get excited about it, thinking that, oh, this piece full, I'm just parking lot. But those are way harder to run and you you need to. Handle things out.
Trent Werner:Right. And then so, obviously, that's where you got started when you became or or started focusing on the operations side. Now you you mentioned something about being an allocator, and it's still on the operation side. So when you are allocating funds, are you still focused in that manufactured housing space? Or are you opening up to different asset classes now?
Brad Johnson:So we focus on a few different verticals with Evergreen Capital. The idea with Evergreen is that it's, you know, it's my family's money was kind of the starting component of it. I wanted to put my capital into things that I thought we could hold for a very long term, hence the word Evergreen, because that's how you compound wealth, Do it in the after tax, you know, tax friendly manner where we can get some depreciation benefits and we can compound and not have to like sell after three years, pay recapture tax, pay the IRS, then go out and find a new investment after six months, right, and have that cash drag. You actually don't need as high of a return to compound. You know, pretty substantially with an open ended type of investment versus more shorter term.
Brad Johnson:And so, yeah, we have three verticals that we tend to focus on. One is GP stakes. Those that's buying into the general partnerships of private equity firms, both in real estate and traditional private equity, where you're you're buying companies. That's a great business because you need asset management stream. You get to participate in the promote, but other people are doing the hard work.
Brad Johnson:We also do commercial real estate debt. That's more new to us, but we like that the return stream, the predictable income, just like that management fees for GP stakes, regardless of what's going on in the economy, that income stream is pretty reliable. And today it's quite high. It's you can get equity like returns for debt risk. So we like that.
Brad Johnson:And then we still invest heavily in manufactured housing through our platform called Vintage Funds. So Vintage Capital. Does only really, mean, primarily manufactured housing. And that I've been investing with operators for quite some time, I think we're up to 16 or 17 different operators in the space. I cut my teeth in the in, you know, as an operator so I I can kind of see, hey, do these guys have the team?
Brad Johnson:Do they know what they're doing? Are they investing in the right markets? And so it's been fun to be both an LP, just a straight investor writing checks to those guys or even, helping out and being a minority GP if they need more help, more expertise, more involvement from me has been has been a lot of fun.
Trent Werner:And you mentioned the debt side is newer for you guys. And I know you're not the only people that have kinda transitioned from maybe a more traditional syndication type investment into this debt space because of how the market has shifted. Two questions for you. One is what made you guys start seriously analyzing and underwriting that sort of investment and ultimately taking the leap into that side of investing? And how long ago did you do that and kind of what, I guess, led you to to really dive into this side of of the the real estate world?
Brad Johnson:Yeah. So I've only started doing it personally for our own capital, and we're now we're going to start later this year bringing in our clients and investors. And that's generally how we work, right? I kind of learn it, invest in it, fill it out, and then we will start offering it to our clients. And so I just would be looking at the the equity like returns right for something that 60% levered.
Brad Johnson:And my whole life, I've invested in equity rates, which is the top of the capital stack. Right. And you have all this debt and even sometimes you have a pref equity component in between. And so that's a lot of people ahead of you if things are going bad right with the property before you get your equity back. Thankfully, you know, it's never been an issue, like with all the properties that we invested in as more mobile home parks.
Brad Johnson:We never had a loss for an investor. We always paid the distributions. But now that it's a little things are a little bit pricier. And you can get it. You know, you can get debt returns at double digit right for that 60% loan.
Brad Johnson:I mean, that feels amazing from a risk adjusted return standpoint, which is an abstract idea. But to me, that is more valuable than a twelve thirteen IRR or even 15, some 15 IRRs in a not a great asset or maybe an Okay market. You know, it's got to be for equity. It's got to be 15, maybe 13. And it's amazing market.
Brad Johnson:It's amazing asset, right? Versus that lower risk, low double digit debt investment. Now we'll see like we could go back to Zurp. I don't think we're going to go back to zero interest rate environment anytime soon. But A.
Brad Johnson:I. Has all bets are off with A. I. I mean, who who the hell knows? We're twenty years from now.
Brad Johnson:We might have very challenging employment scenario where robots are taking care of everything. And so you have to go back to a zero interest rate world. And then maybe all of a sudden, debt isn't interesting anymore. But I like the fact that it is. You know, it's tied to a floating rate component, so it has inflation protection built into it, right?
Brad Johnson:So if they keep raising the rates, we get a raise. And I just like the like I said, the risk return. And now here's a word from our sponsor.
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Trent Werner:When you're invest or getting in on the debt side, what's that whole time or that investment timeline look like? Three years, five years?
Brad Johnson:Yeah, so that's the nice thing. Well, hopefully 02/1930, is the is the idea. Now there is because debt is a little more liquid than equity than but investing into a property. Debt paper, can actually sell in a fairly efficient way, right people? It's just easily it's fairly easy to trade paper versus, oh, my LLC shares in this one property and their pools of loans.
Brad Johnson:It's not like we go make one loan. We tend to invest with other operators that have giant portfolio of loans. And so we want 100 plus loans in our investment. And if we need to liquidate them, you know, you can raise or if our investors need to liquidate, they can raise their hand. And as long as we have ninety days, we can either use the liquidity that we have on hand or we can call some of those notes or sell some of those notes to return the capital.
Brad Johnson:So it's not like you have to lock up for thirty years. But you know, if you're getting a great yield that's coming monthly. And you don't see the values cratering where it would impact your 60% loan. You know, why would you want the capital back is kind of how I think about it.
Trent Werner:Right. And and I guess in my opinion, the I I guess one on one level of LP investing into real estate syndications. You're you're looking at, you know, your classic multifamily or commercial investments. Maybe it's value add, maybe it's development, whatever it may be, but those are kind of your typical. Now when you move to the debt side, it seems like it's a little bit more advanced higher level.
Trent Werner:For a limited partner investor that's wanting to invest in this side, but they've only heard about the value add or the development deals, how would you break it down for someone that wants to invest on that side as a limited partner? Know you've talked about the the lower risk potentially and and solid yields. But aside from that, why would someone want to go to the debt side instead of going on a development deal that's targeting a 30% IRR?
Brad Johnson:Well, yeah, I mean, 30. It's like apples and oranges, right? So that. I will always have a bunch of equity exposure, right? Mobile home park stocks, GP stakes like that's the riskier side of the portfolio where you can get, you know, the mid teens to high teens, maybe even 20% returns.
Brad Johnson:But we we also in our portfolios like to have an income component, like to have something that looks like bonds. I don't invest in treasuries. I don't understand why you would want to give the government your money for 5% for thirty years. That doesn't seem like that great of a trade to me, considering inflation is probably running at 3%. So I think more about debt as a bond replacement.
Brad Johnson:And so it's it's not even it's not even fair to compare it to an equity investment or a multifamily development Just because it fulfills a different goal in your portfolio, like it should be regular income that's extremely reliable, that only blows up if we have some extreme outlier events. Right. In which case, you know, we probably have bigger problems to worry about. But, yeah, I mean, the nice thing about equity, too, is that it's more tax efficient than, frankly, debt. You know, debt is is going to be taxed at ordinary income.
Brad Johnson:Those payments, a lot of real estate entrepreneurs or sorry, entrepreneurs, especially real estate entrepreneurs, have ways to mitigate that with the appreciation for their mother, for their from their other investments. But not everybody does. And so, you know, multifamily investment or a mobile home park equity investment, especially if 100% bonus depreciation comes back, is extremely tax efficient. Right. And especially if you're not selling it within three years, right?
Brad Johnson:If you're actually holding it for a while, you don't have to do the depreciation recapture And the after tax returns are extremely compelling on that standpoint.
Trent Werner:So Brad, would you say that there is a, I guess, an avatar or I guess an ideal person with a certain situation that would want to maybe have a higher percentage of their portfolio in the the debt side? Yeah. And so this is little bit more risk averse?
Brad Johnson:Yeah. So like I said, there's some people that view it as a bond replacement. It just kind of goes in the fixed income side of their portfolio. Like, hey, this is the safer side and and they have both, right? So we have a lot of real estate on investors and entrepreneurs that that use it for that.
Brad Johnson:And then there's just there's some people that are retirees that really just don't want to take any equity risk. They hate volatility. They don't want any drama and they prefer debt investments over equity. We have some of those that you know that invest with us. Early is looking at the new debt product that we're releasing, but like more income focused investments like debt that pay recurring immediately, versus a value add deal.
Brad Johnson:And like sometimes, you know, today you buy a new property, it takes a while to get up to a 5%. It could take a couple of years to get to five or 7% yield if it's a value add deal. So that that tends to be the mix of people. It's like either somebody that just wants to treat it as a bond replacement or a very conservative investor, where that is actually the riskier side of their total portfolio. They have no stocks.
Brad Johnson:They have some bonds, and then they want to get a little bit more of a spike, a little more yield than a Treasury at four and a half percent for a ten year. And so they look to something like debt, like commercial real estate debt.
Trent Werner:Yeah, that's what that's what I was hoping you would say, because it seems like there's, you know, your your investment career or path goes into, you know, different phases. You have your accumulation, your growth, and then your protection phase over your course of your investment journey. And it seems like the people that are in their protection or preservation phase would benefit from moving funds or moving capital or or allocating some capital to a more, I guess, safe side of of their investment in real estate, right?
Brad Johnson:Yeah, it's just lower risk. You know, a lot of people thought that they were doing that investing in real estate in 2019, 2020, 2021. And they got into some deals that were highly leveraged, maybe with floating debt and realized that, oh, wait a minute, real estate is cyclical, right? It is not. It is not a bond.
Brad Johnson:And when you're investing in equity into real estate, so you got to know what you're doing, you got to invest with great sponsors with great track records. And so the first for the people that realize, oh, wait a minute, this thing you know can can go down. Debt could be a better solution for him. But you know, I I always say it's like you should have both, right? They fulfill completely different things in a portfolio.
Trent Werner:Well, it sounds like you and Evergreen and and Vintage Capital have different options for your investors. Right? You have something that may be a little bit more aggressive, and then you have the safety blankets or or something that's a little bit more stable that you offer to your clients?
Brad Johnson:Yeah, the common thread is we we try really hard to figure out and find opportunities that we think are disproportionate upside to downside risk, right? It's hard for me to imagine it, say, portfolio of mobile home parks conservatively leveraged, which most of them are like 50% LTV today. It's hard for me to imagine how a 10 plus properties disappears and blows up everybody's money just because I've, you know, I've been in the space for so long and all the benefits that we talked about commercial real estate debt, same concept, right? It's hard for me to imagine how a pool of 100 conservative conservatively leveraged loans. How does that blow up unless we have a 2008 crisis that really takes down the financial system or real estate as a whole.
Brad Johnson:And then the GP stake side, once again, it's nice recurring revenue from just the asset management fees that are contractual from endowments, pension funds, Yeah, insurance companies, right? So these are contractual payments that they've made with the general partner that happened regardless of the markets tanking. So those are like bond payments that come in once again difficult to kill. That's kind of the overarching threat is like, I want to invest in things for us that are hard to kill. Yes, you can always come up with negatives.
Brad Johnson:There are no guarantees in any in any investing. But when you look at that list of like what can go horribly wrong here, you want that list to be small relative to write your upside options. And that's how we think about the skew there.
Trent Werner:Yeah. And you and you mentioned something about, I guess, the operator. Right? Making sure that you're investing with good operators that have experience. If I was a limited partner investor looking to invest with an operator, and I came across Brad Johnson at Evergreen Capital, what would our phone call look like?
Trent Werner:And and how would you instill confidence in your investors to let them know, hey, I am a seasoned vet. I know what I'm doing. This is why you want to invest with us.
Brad Johnson:Yeah, well, I'm not a great salesman, so we have other people that are pretty good investor relations. But you know, like I said, I I try to. Just focus on reality, which is Okay. Well, we've been doing this for twelve years and we got a track record, a flawless track record of making distributions and not missing one. And we have great returns that we've posted full cycle.
Brad Johnson:So we show them our track record. We say, hey, look, you know, we have a fair amount of invested clients that are happy and those are the facts and we're not going anywhere. And so if that is a good fit for you, great. That's kind of how I think about it. I don't I don't want to put it, you know, I don't want to try to like, Oh, this is some sexy product that you need to get into and force it down somebody's throat.
Brad Johnson:It's like, Here, here's the reality. Here's what we're doing. Here's how we think about risk and returns. And we hopefully can hold these things for twenty to thirty years and really compound our capital together because we have skin in the game along alongside you. If that sounds great, let's do it.
Brad Johnson:If not, there's 1,000,000 other options out there. It's kind of how I approach these things.
Trent Werner:Absolutely. And then just kind of a random question. It sounds like you guys have been pretty adaptable with the market changes and and the shifts that have occurred over the last twelve years. What are you seeing in today's world in 2025? I know you said that that investment side is new for you guys, but are there any other niches or or vehicles that you're looking at in in the current market or in the current investment world?
Brad Johnson:Those are the three components that we're really focused on. The three strategies. There are some that I'm looking at that I like that have that rhyme with those strategies, right? I've I've made it in personal investment. In a couple NFL teams, not as like I'm some big baller.
Brad Johnson:I'm like I own an NFL team, but you can now via a private equity groups own make a reasonable size check size and actually own a piece of an NFL team, which is a lot. You know, it's pretty cool. I have a hard time seeing NFL lose money long term as long as you don't have to sell, right? Pretty much anything that you don't over leverage in a good asset. If you as long as you have to fire, sell it, you're probably going to do pretty well.
Brad Johnson:And so I think that will be, you know, I think more credit investors will have that opportunity in the next five years to own professional sports teams. That's interesting to me. I don't know if we'll end up offering that to our clients, but you know, I'm I'm learning that space right now because I do like the idea of. You know, this is this is live TV that they can still sell advertising for, whereas what other TV are you watching ads on, right? It's like everybody's cutting their cords.
Brad Johnson:Everybody's moving to Netflix. So this is one of the few opportunities that where you actually get millions of people watching one specific thing at one time. So I like that trend. I also like infrastructure, so it kind of rhymes with real estate infrastructure. You know they're kind of throwing data centers into that category, which I don't know.
Brad Johnson:I I tend to like more of the ports, airports. You know, toll toll roads, that kind of infrastructure historically has had extremely good returns relative to the risk. Once again, very few default or very few negative losses for any infrastructure firms. But good cash flow. And so once again, it rhymes with that, you know, pretty stable cash flow and great upside opportunity.
Brad Johnson:Very few defaults. So the downside feels pretty mitigated.
Trent Werner:Absolutely. The other I don't know if it would be classified as infrastructure, but I know kind of a trend right now is solar farms where people are leasing land for long periods of time to solar
Brad Johnson:Yeah, so Brookfield's kind of one of the biggest bigger players in the space. We actually in our GP fund made an investment into Stone Peaks, a general partnership. They're one of the largest infrastructure. Private equity firms, they they invest in that as well. So yeah, renewables and energy infrastructure at large are a big component of infrastructure investments.
Trent Werner:It's always a fun one, especially with how the world is changing right now. I've always kind of kept the pulse on that and seeing some of the upsides to investing in that side.
Brad Johnson:I and it's almost like a bat. It's almost like a backdoor play on AI, right? You don't have to pick the winner. You don't have to pick. Okay, which one of these six models is going to ultimately stand out and get all the market share because they all need energy, right?
Brad Johnson:They all need energy. They all need power. They need water. They need ways to clean that energy. So data centers and infrastructure, energy infrastructure grid, I think that's going be a powerful trend, where a lot of money is flowing to that part of the world.
Brad Johnson:And so people that are interested in that space can look at infrastructure funds as well.
Trent Werner:Absolutely. Well, Brad, did I miss getting you to talk about anything that you wanted to talk about today?
Brad Johnson:No, no, I was just happy to to come on and chat with you. Think it's great what you guys are doing, and it's always fun to to talk to other operators in the space. You know, we really like to be a resource for for operators that that we've invested with. In either a GP, you know, capacity or just as a straight limited partner. And so it's exciting what you guys are doing in the Pacific Northwest, and I'm glad we had a chance to chat.
Trent Werner:And where can people hear more from you or connect with you if they're interested in getting in touch?
Brad Johnson:Yeah, they can, go to evergreencap.com to to see about our longer term investments or open ended evergreen investments. And they if they're interested in mobile home parks, they can check out vintage-funds.com.
Trent Werner:Perfect. Well, thank you so much, Brad.
Brad Johnson:Well, thanks, Trent. Nice chatting with you.
Intro speaker:Thank you for listening to this episode of the Real Estate Professionals Investing Podcast on WIN, your community of investing knowledge for growth. We hope that this episode has increased your knowledge and added value to your path to freedom. If you would, please take a second to rate us so that we can get more great investors to interview. If you or someone that you know wants to be on, please visit westsideinvestors.com and fill out our form to be on the show. Thank you again, and enjoy your day.