Audio Transcript: Episode 37
[00:000.0] Paying it forward in business is really important.
[00:004.0] Communication is key.
[00:005.5] It's easy to get rich as long as you do it slowly.
[00:008.0] What differentiates you as a group?
[00:010.5] Our whole business is relationships.
[00:012.5] Be somebody who is easy to work with,
[00:014.5] be somebody who's honest, but also know your stuff.
[00:017.5] People ask me all the time, like, what are the red flags?
[00:020.0] If you can make it through the next, you know, this period,
[00:023.5] however long this lasts,
[00:025.5] you're just going to be viewed differently
[00:028.0] than people who didn't.
[00:049.0] The way we get to asymmetric returns is just by being patient.
[00:053.0] And, you know, the Buffett quote that I was about to refer to was,
[00:056.0] you know, it's easy to get rich as long as you do it slowly.
[01:001.0] And, you know, his quote goes on to say, like,
[01:004.0] no one wants to get rich slowly.
[01:006.0] Everyone wants to get rich quickly.
[01:008.0] Especially, like, the Gen Z generation, right?
[01:011.0] Oh, yeah.
[01:012.0] It's like it's amplified now.
[01:014.0] Absolutely. Oh, yeah.
[01:015.0] There's no patience, right,
[01:017.0] especially in the age of social media
[01:019.0] where you're just constant stimulation
[01:021.0] and you want, you know, everything fast.
[01:023.0] Right.
[01:024.0] You want your food fast.
[01:025.0] Instant gratification.
[01:026.0] Right.
[01:027.0] You want your media fast.
[01:028.0] You want to get money fast.
[01:030.0] Your returns fast.
[01:031.0] Your returns fast.
[01:032.0] So, yeah, we get to asymmetric returns or alpha mainly through patience.
[01:037.0] Making sure that we're disciplined, you know,
[01:040.0] we're recognizing where we are in the marketplace.
[01:044.0] Going back to a Buffett philosophy,
[01:046.0] are we getting value?
[01:048.0] Are we getting real value?
[01:049.0] Are we getting deep value?
[01:052.0] Or are we overpaying?
[01:055.0] And real estate investors historically have lacked patience.
[02:000.0] We're not a patient group as a whole.
[02:004.0] Even though real estate is slow.
[02:006.0] It's slow.
[02:007.0] And most real estate strategies require time, right?
[02:014.0] Especially when you're in development, right?
[02:016.0] You're talking now three years.
[02:018.0] Oh, yeah.
[02:019.0] You don't see a dollar until you get CFO.
[02:022.0] Three to seven year strategy.
[02:024.0] But even on your side, the multifamily value add, right?
[02:027.0] Those are three to five year strategies at best.
[02:031.0] And we're the quicker ones, right?
[02:032.0] I think there's longer hold periods out there.
[02:035.0] Oh, yeah, for sure.
[02:036.0] What differentiates you as a group?
[02:039.0] If you have a partner that's giving you,
[02:042.0] that brings to your desk a really quality industrial opportunity
[02:047.0] that you wouldn't have otherwise seen,
[02:050.0] I don't know that I really care what your management capabilities are.
[02:055.0] Because at that point, you're effectively an intermediary.
[02:058.0] You're a sourcing mechanism, not to dehumanize it,
[03:001.0] but you're bringing a deal to us that we wouldn't have otherwise seen.
[03:004.0] You should get compensated for that.
[03:005.0] But we don't really need you to be an expert at managing it.
[03:009.0] It's pretty straightforward to manage.
[03:011.0] And we have a very capable in-house management team
[03:013.0] on top of getting a property manager.
[03:015.0] And so from that perspective, your differentiation,
[03:018.0] it means nothing to me.
[03:019.0] What matters is what is the opportunity
[03:021.0] and does the opportunity make sense?
[03:024.0] And that's specific to certain product types.
[03:026.0] And the multifamily space is highly, as you know,
[03:029.0] highly operationally intensive and highly management reliant.
[03:033.0] And so your abilities and your capabilities
[03:037.0] and to the extent that you can drive return alpha
[03:041.0] by way of your management expertise, it makes all the difference.
[03:046.0] On top of just having there being less risk
[03:049.0] of there being something catastrophic that happens,
[03:051.0] which is its own consideration.
[03:053.0] And so when I'm spending time with a new operator,
[03:056.0] us an operator with whom we don't have experience,
[03:059.0] I'm trying to ascertain what is the thing
[04:002.0] that differentiates them from other groups?
[04:005.0] How can they return, you know, generate a return alpha?
[04:008.0] Like what is it about that group
[04:010.0] that is either different or exceptional?
[04:013.0] And that's a hard thing to do at times
[04:015.0] when there are a lot of operators out there.
[04:017.0] But I can tell you that not every operator
[04:019.0] has an answer to that question.
[04:020.0] And I'm not like putting them on the hot seat,
[04:022.0] but you can kind of gather through your discussions
[04:026.0] if groups are kind of out there
[04:028.0] just trying to allocate capital for the sake of generating fees
[04:031.0] or if they really feel like they have a predetermined,
[04:036.0] well thought through approach to managing real estate.
[04:039.0] And that goes a really, really long way
[04:042.0] because it is always easier to go with the thing that you know
[04:045.0] in order to go to a new product,
[04:047.0] and this applies beyond real estate,
[04:049.0] you have to feel like that new thing
[04:051.0] is so much better than the old thing
[04:052.0] such that you're willing to take the risks
[04:054.0] of taking, you know, on the relationship
[04:056.0] that has more unknowns
[04:057.0] than the thing with which you have experience.
[05:000.0] And so that goes a long way.
[05:002.0] That isn't the entire picture, obviously,
[05:004.0] but the opportunity has a ton to do with it as well.
[05:007.0] So if you don't bring interesting deals,
[05:009.0] then you're not going to do those deals.
[05:011.0] And so from a sourcing perspective,
[05:014.0] the capital markets folks out there
[05:016.0] do such a good job canvassing the market,
[05:018.0] and these days there are more off-market deals
[05:020.0] than in prior years.
[05:022.0] You know, we'll absolutely look at broadly marketed deals
[05:024.0] with partners,
[05:026.0] but we have a pretty good investment scene
[05:030.0] from a coverage perspective,
[05:031.0] so more than likely if it's marketed, we've seen it.
[05:033.0] We've at least screened it at a high level.
[05:036.0] So we should absolutely have those conversations,
[05:039.0] but I think the groups that can uncover deals
[05:042.0] that are not broadly marketed, A,
[05:044.0] and competitively bid, B,
[05:046.0] I think the likelihood of us doing those deals,
[05:048.0] to the extent they're interesting,
[05:050.0] excuse me,
[05:052.0] is just higher for those reasons.
[05:054.0] And so the more such deals that these groups can bring,
[05:057.0] I think the higher likelihood of us transacting.
[06:001.0] And then that's my universal answer,
[06:003.0] and then my personal answer is, like,
[06:005.0] just relationships and having a level of comfort and trust,
[06:010.0] and just, like, are you people that I like
[06:012.0] and want to spend time with and that I trust,
[06:014.0] and, you know, you want to, as I say,
[06:017.0] like, get in bed with.
[06:018.0] It's just I place a high emphasis on that personally,
[06:021.0] and others obviously do as well.
[06:023.0] So having those relationships,
[06:025.0] having that connectivity with the team and the people,
[06:028.0] matters a lot to me.
[06:030.0] For sure.
[06:031.0] I mean, I think out of all the podcasts that I've done,
[06:034.0] at one point everyone just mentions how
[06:036.0] this is a relationship business,
[06:038.0] and it's just so important,
[06:040.0] and life's too short to do deals with people
[06:044.0] that you don't want to do business with.
[06:046.0] So there's so many deals and opportunities out there,
[06:048.0] but you want to do it with the people that you trust
[06:051.0] and you connect with.
[06:053.0] It's a really important point,
[06:056.0] and I would say, I guess,
[06:059.0] stepping back a bit, what your universal answer was,
[07:003.0] you need to have an edge, right?
[07:005.0] And you kind of put it into two buckets.
[07:008.0] You put it into an edge on the opportunity itself,
[07:012.0] like finding the deal,
[07:013.0] and how are you going to, you know, what's the story?
[07:015.0] But then you're also talking about
[07:017.0] who you are as an operator, what your edge is.
[07:020.0] And so, you know, in multifamily,
[07:022.0] it's a very management-intensive business,
[07:024.0] so we have in-house property management.
[07:027.0] That's one of our edges, right?
[07:030.0] But then from a deal perspective,
[07:032.0] how are you sourcing deals?
[07:034.0] What's your thesis in investing?
[07:036.0] Just bidding on an on-market deal and winning it at market,
[07:040.0] it's just not enough for the cost of capital that we have
[07:043.0] and what you guys deploy as well.
[07:046.0] You need alpha, you need an edge
[07:049.0] to what typical returns are in real estate.
[07:053.0] You want to generate excess returns,
[07:055.0] and that's what we do as well.
[07:056.0] So having that edge, whether it's you as an operator
[08:000.0] or the deal itself with the edges
[08:002.0] on that particular investment,
[08:004.0] I think that's the universal theme.
[08:006.0] And if you can generate both,
[08:008.0] I think that's how you really break into
[08:011.0] forming those relationships
[08:012.0] and attracting equity and investment.
[08:014.0] I really believe in networking.
[08:016.0] I think that, and I've always loved networking,
[08:019.0] mainly because I love people.
[08:021.0] I think people are really fascinating,
[08:023.0] and I like places,
[08:025.0] and so understanding people, where they come from,
[08:027.0] what makes them tick, I'm curious about that.
[08:030.0] Being a first-generation Australian,
[08:033.0] when my grandparents are from Europe,
[08:037.0] my parents survived the Holocaust
[08:040.0] and ended up in Australia randomly.
[08:042.0] So Australia is made up of immigrants just like America.
[08:045.0] So I'm always fascinated by people,
[08:047.0] but I think what I always try to do,
[08:051.0] no matter what the market's doing,
[08:053.0] is go out there and network.
[08:056.0] Coffees, events, lunches, dinners.
[08:059.0] And sometimes when the market's really strong,
[09:002.0] people are like,
[09:003.0] oh, I don't need to grow my network,
[09:004.0] I don't need to go to that event
[09:006.0] because I've got too many deals going on.
[09:008.0] But then that can change really quickly,
[09:009.0] and then all of a sudden you're like,
[09:011.0] oh, I've got to get out there again.
[09:013.0] Whereas if you consistently just have a mantra of,
[09:016.0] I'm going to go to that annual real estate dinner every year,
[09:020.0] or I'm going to go to those,
[09:022.0] name your event production company's event every year,
[09:025.0] or I'm going to get together with five of my real estate buddies
[09:028.0] and have a dinner.
[09:030.0] Our whole business is relationships.
[09:032.0] For sure.
[09:033.0] And people are always on the move.
[09:035.0] People always got new strategies.
[09:037.0] And so if you are keeping up with that,
[09:039.0] that can create opportunity as well.
[09:041.0] A lot of people who I meet with are like,
[09:044.0] oh, we didn't know you do self-storage.
[09:046.0] I'm like, yeah, well, we do.
[09:047.0] So they're like, oh, I think I have a deal.
[09:049.0] Well, great, send it to me.
[09:050.0] So if you don't network,
[09:053.0] no one's going to know what you're up to.
[09:056.0] And it's also just fun.
[09:058.0] And so I try to always make time for that
[10:002.0] no matter what the market cycle is doing.
[10:005.0] Exactly.
[10:006.0] I mean, part of the reason starting this pod
[10:008.0] was the networking aspect,
[10:010.0] excuse to sit down with you for an hour,
[10:012.0] excuse to hear what other people are up to, great mind.
[10:015.0] I didn't know you were doing self-storage until right now.
[10:018.0] Now the world knows.
[10:019.0] Exactly.
[10:020.0] So it's just a great way to connect.
[10:022.0] And as you said, this is a relationship-driven industry.
[10:026.0] The numbers, the yields,
[10:028.0] everything we've been talking about for the past hour,
[10:031.0] it's nothing compared to who your partners are,
[10:034.0] what you're trying to do,
[10:035.0] what are the relationships,
[10:036.0] who you're going in the trenches with.
[10:038.0] And networking is a huge aspect of that.
[10:040.0] It's also a great way to pick market knowledge,
[10:043.0] see this is an industry where insider trading is legal.
[10:048.0] So getting that tidbits from other people
[10:051.0] on where things are trading,
[10:054.0] that's all through social and networking.
[10:057.0] Right.
[10:058.0] And it also comes down to trust.
[11:000.0] If you're out there and you've got a good reputation
[11:005.0] and people trust you,
[11:006.0] they're going to be more forthcoming with information,
[11:009.0] with ideas, with what's going on.
[11:011.0] And that just helps everybody.
[11:013.0] Because at the end of the day, we all want to transact.
[11:015.0] Our whole business is driven by transactions.
[11:017.0] Right.
[11:018.0] That's how our industry turns.
[11:021.0] And so in a down cycle, when transactions are harder,
[11:026.0] your network can be so powerful.
[11:029.0] You decide that you want to get into a new market,
[11:033.0] Savannah, Georgia.
[11:034.0] It's like, okay, I went there once.
[11:036.0] But it's like, who do I know that knows someone in Savannah
[11:039.0] that I can get a real answer?
[11:041.0] Hey, David, you guys have done something.
[11:043.0] This cross street, what's this area like?
[11:045.0] You're like, oh my God, stay away from that.
[11:046.0] Yeah.
[11:047.0] Whereas sitting behind a desk in LA,
[11:049.0] you're looking at a Google map, right,
[11:051.0] which is how you kind of start looking at deals.
[11:056.0] But ultimately, you always get a gap from behind the desk
[11:058.0] and go see the real estate.
[11:059.0] But being able to tap your network to understand
[12:002.0] something more local where you're not from, hugely powerful.
[12:006.0] You don't do that by not attending events
[12:009.0] and going for dinners and going to broker things
[12:012.0] and going to conferences and stuff like that.
[12:015.0] Paying it forward in business is really important.
[12:019.0] And when you can help somebody
[12:022.0] or do something for somebody unconditionally,
[12:026.0] sometimes you don't realize the ripple effect
[12:029.0] that that could happen, can have.
[12:031.0] Because when people, when you give something to somebody
[12:035.0] and they are able to grow and succeed and benefit from it,
[12:042.0] most people want to do the same thing for others.
[12:044.0] So paying it forward is a very important concept in business.
[12:049.0] And I've seen that in action where you help people
[12:054.0] be successful and they help others
[12:056.0] and there's a huge ripple effect.
[12:058.0] I believe strongly in the entrepreneurial spirit.
[13:002.0] And real estate people are creative.
[13:005.0] They're entrepreneurs.
[13:007.0] And I think believing in yourself and going for it
[13:011.0] is really an important element of diving in the water
[13:017.0] and taking a chance.
[13:019.0] But also, don't be afraid to ask for mentors.
[13:023.0] I think mentorship is so important.
[13:026.0] Getting advice from people that have been through
[13:030.0] different situations or call it the elders
[13:033.0] or people that, you know, in your industry
[13:037.0] or someone that you want to learn from.
[13:040.0] A lot of times, if you just feel comfortable
[13:043.0] and asking somebody, they'd love to impart that wisdom on you.
[13:049.0] And I think being able to surround yourself
[13:052.0] by great people and great mentors
[13:055.0] and then treating people with respect,
[13:059.0] you know, having a commitment to people,
[14:001.0] being honest, being full of integrity,
[14:004.0] builds that trust and relationships.
[14:006.0] You talked about relationships and I will tell you,
[14:011.0] business to me is about relationships.
[14:014.0] And I love talking to everyone.
[14:017.0] I love meeting new people.
[14:019.0] I love the power of connection.
[14:021.0] And I think it's a gift to be able to meet people
[14:026.0] and learn from people.
[14:029.0] You know, I believe in hugging everyone.
[14:032.0] I believe that, you know, you always want to look
[14:035.0] at the good in people and find the good in people.
[14:038.0] And so, you know, just and, you know,
[14:044.0] things aren't always going to work out on day one.
[14:047.0] So hard work and perseverance
[14:050.0] and having a never ever give up attitude
[14:053.0] is also extremely important.
[14:056.0] You know, we all have an opportunity.
[00:000.0] opportunity to put our mark in this world
[00:003.7] and make our world a better place.
[00:005.3] And I would also recommend that giving back to community
[00:011.0] and getting involved in charity.
[00:014.6] There's so many amazing charities
[00:016.4] and there's so many great causes
[00:018.7] and you can't forget to give back.
[00:023.8] We have the Last Charitable Foundation
[00:027.6] and we have a day of giving on our anniversary on June 15th
[00:033.6] and we're now making that a week of giving
[00:036.2] and we have so many last people
[00:038.8] that are not only giving money,
[00:041.8] but more importantly giving of their time and effort
[00:044.5] to volunteer and make a difference in people's lives.
[00:051.0] Our charitable foundation besides the United States
[00:054.4] also has helped people in seven different countries
[00:058.9] and thousands of people.
[01:001.0] We've been able to touch lives not just in this country,
[01:007.7] but outside of our country.
[01:009.9] Yeah, that's amazing.
[01:012.1] And people, by the way, wanna work with companies
[01:016.9] and with people that have a higher purpose.
[01:020.4] And I think it's really important
[01:023.2] for people to understand what your higher purpose is
[01:027.1] and what's your why.
[01:028.7] And our higher purpose is about creating opportunities
[01:032.4] to help people.
[01:033.7] And you have to live that vision
[01:036.4] and when you do, great things happen for you.
[01:040.0] Yeah, I think there's a misconception a bit
[01:042.9] when you can only be involved in philanthropy
[01:048.1] and giving back if you have the money to do so
[01:051.2] and in order to have the money to do so,
[01:053.9] you need to focus on your career first
[01:055.5] and then maybe you do philanthropy later in your life
[01:058.1] when you have the means to.
[02:000.6] I think that's a completely wrong understanding
[02:003.7] of philanthropy.
[02:005.0] It comes from a mindset from day one,
[02:006.8] which I've seen in you.
[02:008.9] And when you have that mindset and you have that purpose,
[02:013.2] it attracts others to work with you
[02:016.5] because they know that they're working with someone
[02:019.1] with a higher purpose and it breeds success innately.
[02:025.0] Philanthropy doesn't come from, is not a result,
[02:028.0] but it's part of the journey
[02:030.0] and it's part of also connecting
[02:032.4] and it breeds success through that higher purpose.
[02:034.7] So I think it's something that you just gotta have
[02:037.1] the mindset day one.
[02:038.7] And sure, over time as you make more money,
[02:040.8] you can maybe donate more than you were in the beginning,
[02:044.1] but it's a mindset from day one.
[02:046.2] If you can't give money, you give time.
[02:049.8] And you spread the word.
[02:050.6] And so there's so many ways to help
[02:052.8] and give yourself a purpose
[02:055.4] rather than just stroking a check.
[02:057.8] Communication is key, right?
[02:059.8] Just gotta communicate with everybody,
[03:002.0] be it your investors, be it your lenders,
[03:004.5] be it your brokers.
[03:005.4] When things are bad, the guys that fail
[03:007.5] are those that bury their head in the sand.
[03:009.3] The guys that go into the fetal position in the corner
[03:011.7] don't wanna deal with the problems.
[03:013.3] You can't be like that.
[03:014.3] You've gotta have courage, you gotta be brave.
[03:017.0] This life is full of ups and downs.
[03:019.6] It's peaks and valleys.
[03:020.4] Sometimes it's great and everyone's at the top of the world
[03:021.8] and sometimes you're at the bottom
[03:023.0] and you're like, how the hell did this happen to me?
[03:025.4] Keep lines of communication over.
[03:027.8] And that's, even on the acquisition side,
[03:029.2] let's say you're chasing a deal and things don't work out,
[03:031.9] don't put in an offer and then disappear, right?
[03:033.9] I can't stand guys that just disappear on you.
[03:036.9] Just keep communication open.
[03:039.0] Talk to your lenders, talk to your brokers,
[03:040.6] talk to your sellers, talk to your investors.
[03:042.3] If you do that, everything will be fine.
[03:044.2] Yeah, it's true.
[03:045.0] It goes back to what you're saying
[03:046.0] of like relationship business, right?
[03:047.6] It's not just about putting offers, disappearing.
[03:050.1] It's about keeping the open line,
[03:052.3] having the relationship, staying in front of everyone.
[03:054.9] You do, I think you do great at that.
[03:056.5] You're very communicative.
[03:058.0] Like we've chased deals from Hampton Avery
[04:000.4] and then the swing has happened,
[04:001.7] things have happened, your insurance has happened
[04:003.0] and you've never hidden from that.
[04:004.3] You've been always straight up and honest and I love that.
[04:006.4] That's the way to be.
[04:007.5] Say, hey, I love the deal.
[04:009.2] I want it to be here.
[04:010.1] My insurance came in at $2,400 a unit.
[04:012.0] That kills my cash flow.
[04:013.2] I can't do the deal right now.
[04:014.7] Can you help me with another insurance broker?
[04:016.3] Which we did.
[04:017.3] Talk to this guy or talk to this guy.
[04:018.9] So that is a critical factor.
[04:021.2] And I think a lot of younger people
[04:023.7] don't understand that.
[04:024.6] They just disappear.
[04:025.6] They go into the fetal position
[04:027.6] and that kills them for the future
[04:029.3] because then the brokers and the lenders,
[04:030.7] they don't wanna waste their time.
[04:031.5] Exactly.
[04:032.4] It's actually almost like everyone's working together
[04:035.4] in this environment to get a deal done.
[04:037.4] It's not even about competing.
[04:038.7] It's about like, hey, can we all work together
[04:041.2] to make a deal happen and get it done?
[04:044.0] And just what we were saying before,
[04:046.3] being honest, saying like,
[04:048.1] this is how I'm underwriting the deal.
[04:050.0] This is what we have going on.
[04:051.3] This is our fund.
[04:052.4] These are the returns we need to hit.
[04:054.7] And like, it is what it is.
[04:056.5] Let's get a deal done.
[04:057.6] Let's get a deal done.
[04:058.5] If you did some deals in 21, 22, we all did.
[05:005.0] If you can point to performance around that,
[05:009.2] working with a lender, if it got to that point on a deal
[05:014.0] and say to whomever the point of contact is
[05:017.6] at the fund you're trying to raise from,
[05:020.8] look at the asset management we've done,
[05:023.0] we've been able to do through the hard times,
[05:025.0] then you've survived and you've proven yourself.
[05:028.0] You're now a battle-tested veteran.
[05:030.2] It should be easier for you to raise money.
[05:032.2] I know it probably doesn't feel that way,
[05:034.4] but here in the investment committee room,
[05:037.5] we're saying, who are the people that made it through,
[05:042.2] who know how to buckle down
[05:044.6] and survive that OPEX increase,
[05:047.6] that rate increase, and got through it?
[05:050.8] You know, if you can make it through the next,
[05:053.6] you know, this period, however long this lasts,
[05:057.0] you're just gonna be viewed differently
[05:059.1] than people who didn't.
[06:001.0] You, yeah, you could show your battle scars, right?
[06:003.7] Exactly.
[06:004.8] I think-
[06:005.7] Investment committees dig scars.
[06:007.2] Yeah, 100%, exactly.
[06:010.4] Chick-stick scars, so does investment committee.
[06:013.3] I think what you're gonna see coming out of this
[06:016.6] is a lot of sponsors who have scars to show,
[06:021.2] but it's all gonna be a little bit relative, right?
[06:024.3] Some are getting wiped, some are going out of business,
[06:028.4] some have personal guarantees getting triggered,
[06:031.5] while others did not only good work, but honorable work.
[06:036.6] They saw that, hey, this might have been a loss,
[06:039.0] but we moved the NOI this much.
[06:041.1] We moved operations this much.
[06:043.0] We have this to show.
[06:044.5] We learned from our mistakes.
[06:046.2] We made some new hires.
[06:047.4] We have a strong asset management team.
[06:049.6] And I think a lot of allocators, I hope,
[06:053.4] can at least see through that and see,
[06:055.4] hey, this is a group that has gone through multiple cycles,
[06:059.0] including this recent one.
[07:001.2] We can work with them.
[07:003.4] That's right.
[07:005.1] The best thing you can say,
[07:006.9] maybe the best thing you can say
[07:008.7] on an investment committee call today,
[07:012.4] at least to my group, is we're gonna go see the deal.
[07:016.5] Me personally, the sponsor,
[07:017.8] I'm gonna be at the deal constantly, whatever that is,
[07:021.8] every week, every two weeks,
[07:023.9] where I'm gonna go live in one of the units.
[07:028.4] That's a little extreme, but some people do it.
[07:031.2] Some people do it.
[07:032.2] I don't know how they have a family and do that, but-
[07:034.4] Married to the game.
[07:035.6] Married to the game, yes.
[07:039.3] Because investment committee, before that call,
[07:043.6] just stepped out of an asset management meeting
[07:045.8] where they're probably upset at some sponsor
[07:048.5] who they bought 70s and 80s vintage stuff with in 21,
[07:052.8] who isn't, they feel like, paying enough attention.
[07:055.6] And so if you can massage that for them,
[08:000.2] I'd say it helps a ton getting a deal done.
[08:003.8] And I hope you'll also do it when the deal does get done.
[08:008.4] Right.
[08:009.2] People ask me all the time, like, what are the red flags?
[08:011.8] And I just don't think about investments that way.
[08:015.2] I think the only two red flags that I've published
[08:018.4] are the word guaranteed, because like,
[08:022.1] I mean, I have a whole article on this,
[08:023.9] but even if you're personally guaranteeing something,
[08:027.0] that does not mean it's guaranteed.
[08:030.9] And some other ones are like, no return of capital,
[08:035.6] clause, believe it or not, that exists.
[08:038.2] Like, I mean, it's like very basic stuff
[08:039.8] for any syndication, but I've seen deals that don't have it.
[08:044.2] Those two are like really like the only red flags, right?
[08:048.0] Meaning those are basically reasons
[08:050.1] to just like put down a deck
[08:051.3] and never speak to the GP again, in my humble opinion.
[08:057.3] Now, just like some simple feedback,
[08:059.3] like you would not believe how many decks I see
[09:001.7] that either don't have an address
[09:004.2] for the property at all in the deck,
[09:006.4] or it's just like extremely hard to find.
[09:008.8] You know, like sometimes I look for it for like three minutes
[09:011.4] and I'm like, come on, guys.
[09:012.5] Like, there's LPs literally passing on this deal
[09:015.3] because they can't Google the place.
[09:017.2] You know, just like basic stuff.
[09:020.3] Yeah, going through your GP LP match,
[09:023.4] it was interesting with some of like the check boxes
[09:028.6] that you had and said like, does your deck list all the fees
[09:033.6] that a GP is charging?
[09:035.4] I'm like, wow, how can you have a deck
[09:038.1] that doesn't have that?
[09:039.2] You know, of like what your fees are as a GP,
[09:043.7] like something simple like that.
[09:045.0] So I'm sure like those small items are probably turnoffs
[09:050.6] and it's interesting to hear from you
[09:052.1] as someone who's seen so many of those decks
[09:055.6] of what people are doing or leaving out.
[10:001.4] Yep.
[10:002.4] Yeah, it happens a lot.
[10:004.0] And I very intentionally like put the questions in that way
[10:009.0] because as I said, like many investment decks
[10:013.2] don't have fees.
[10:014.0] Many investment decks don't have an address.
[10:016.5] They don't have a sources and uses.
[10:017.9] You know, there's just like very basic things
[10:019.8] that I think decks should have.
[10:021.7] And you'd be surprised how many don't.
[10:023.8] When it comes to sponsor advice,
[10:025.7] I think transparency is key.
[10:027.9] Be somebody who is easy to work with,
[10:030.9] be somebody who's honest,
[10:032.8] but also know your stuff, right?
[10:035.7] Don't send somebody like, it's common sense,
[10:038.9] but I see so much business.
[10:041.0] And so when I say things that seem like common sense,
[10:045.4] I'm speaking because I see so much crazy,
[10:048.4] crazy things from sponsors.
[10:050.3] Know your stuff.
[10:051.6] Don't speculate in your underwriting.
[10:053.4] If you're showing somebody a business plan
[10:057.3] where you're like, I did,
[10:058.8] there's one thing that I'm comfortable
[11:001.0] saying this example out loud
[11:002.3] because I did directly tell the sponsor
[11:004.6] my opinion a few days ago.
[11:006.0] But if your business plan is literally based
[11:009.4] on interest rate movement, cap rate movement,
[11:013.2] like that's bullshit, right?
[11:014.4] You need to be able to find deals with good fundamentals.
[11:016.9] Focus on opportunities
[11:018.4] where you have healthy immediate yield.
[11:020.4] You wanna buy assets with a 6% year one cash on cash
[11:023.8] if you're going old pre-2000s maybe.
[11:026.2] If you're buying newer properties, core markets,
[11:029.0] great locations, a real class A lot, five's fine, right?
[11:033.4] But if your business plan,
[11:034.8] this is a really good piece of advice,
[11:036.4] honestly, for all sponsors watching
[11:038.1] who are smaller at least.
[11:040.1] If you're trying to buy an asset
[11:043.0] where you're a year one cash on cash
[11:045.5] is well below like a 5%
[11:048.1] and it's like a 1980s, 1990s property
[11:051.0] and your asset that you're under contract to buy
[11:054.2] is like 90, it's stabilized.
[11:056.4] And your business plan is to just push rents.
[12:000.0] That is a very tough story right now.
[12:002.9] It is extremely contrarian to equity.
[12:005.7] And that is, if I would as a sponsor wanna align
[12:009.5] with where there's the largest box of interest
[12:011.6] of investors to have the highest probability
[12:013.8] of getting a deal over the finish line.
[12:015.5] I have done deals gratefully that are contrarian.
[12:018.2] 1920s vintage, population of 50,000,
[12:022.2] the boondocks, right?
[12:024.5] There was a deal where the median household income
[12:026.9] within like a small radius of this asset was $21,000.
[12:032.9] We were just joking back and forth.
[12:034.5] I mean, they couldn't breathe laughing.
[12:036.5] So this is the first time I think in my career
[12:039.7] I underwrote a deal with this type
[12:042.0] of median household income, it's crazy, right?
[12:046.1] But so like people don't wanna do these type of deals.
[12:050.1] That is an illiquid transaction profile.
[12:054.4] I'm not telling you don't pursue
[12:056.0] if you think there's a good opportunity.
[12:057.6] I have contrarian investors, I've done it.
[12:059.9] But that's just, you're not aligning
[13:001.2] with the theme of the market.
[13:003.4] So your probability of just closing transactions go down
[13:007.5] if you don't know who those anomalies are, right?
[13:010.2] We only take an anomaly transaction
[13:012.0] because we know exactly who's doing that contrarian play.
[13:016.5] And it's fairly black and white for those folks.