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💼 The LP’s Playbook: Strategic Investing with Aleksey Chernobelskiy 💼
Curious how to become a smarter, more strategic real estate investor? 🎧
In our latest episode of the Commercial Real Estate Connection Podcast, we feature Aleksey Chernobelskiy, an entrepreneur and LP advisor who shares weekly insights to help Limited Partners level up their investment game. Prior to founding his own business, Aleksey ran STORE Capital’s $10 billion commercial real estate portfolio and led the firm’s underwriting team.
With a quadruple major in Finance, Mathematics, Economics, and Accounting from the University of Arizona, Aleksey now advises LPs on managing existing investments and assessing new opportunities.
In this episode, you’ll learn:
- Key Investment Strategies for LPs
Aleksey dives into the essentials of investment diligence, covering metrics like IRR and cap rate compression. Discover how to balance risk and reward in volatile markets and avoid common pitfalls in syndications.
- Networking and Mentorship
Aleksey highlights the pivotal role of mentorship and relationship-building in his career, sharing actionable advice for LPs on overcoming the fear of connecting with industry leaders.
- Balancing Professional and Personal Growth
Get insights into Aleksey’s unique approach to work-life balance, including routines like Torah study and bouldering, and how his personal life fuels his professional success.
▶️ If you're interested in learning more about Aleksey, check out the following links:
▶ LinkedIn: https://www.linkedin.com/in/chernobelskiy/
▶ Website: https://www.lplessons.co/
If you like the video, please SUBSCRIBE and don't forget to press the bell 🔔, 👍like, comment and share.
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▶️ Check out my Website: https://creconnection.transistor.fm/
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▶️ For business inquiries: creconnectionpod@gmail.com
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• Instagram: https://www.instagram.com/samy_souss/
• LinkedIn: https://www.linkedin.com/in/samy-soussan/
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Creators & Guests
What is The CRE Connection · Samy Soussan?
Welcome to the Commercial Real Estate Connection Podcast: Building Relationships for Commercial Success', the place where we connect with the brightest minds in commercial real estate, uncovering their secrets, strategies, and captivating stories.
We are dedicated to helping beginners learn from experts in the commercial real estate industry. Join us as each episode, we sit down with successful investors, brokers, developers, and other key players in the commercial real estate world to discuss their experiences, strategies, and secrets to success. Our goal is to provide you with valuable insights and perspectives to help you navigate the complex world of commercial real estate and build strong relationships that lead to commercial success.
So, whether you're just starting out or looking to take your career to the next level, join us as we connect you to the industry and share expert insights for aspiring professionals.
00:00 - Samy (Host)
Welcome to the Commercial Real Estate Connection Podcast, the place where we connect with the brightest minds in commercial real estate, uncovering their secrets, strategies and captivating stories. I'm your host, sami Sousan, here to serve as your guide and connector-in-chief on this exciting journey. Together, we'll dive deep into the world of commercial real estate, exploring the ins and outs of this dynamic industry. Our goal is to discover the true power of meaningful connections along the way, so get ready to plug in, engage and elevate your commercial real estate journey. Hey everyone, welcome back to the Commercial Real Estate Connection podcast. I'm very excited for today's guest. We have Alexei, and he gave me permission not to mention his last name and pronounce it in the difficulty of pronunciation, so thank you for that, alexei. Alexei is an extremely talented individual and we're going to get into a lot of what he's actually accomplished over the past few years. Currently, alexei advises limited partners, known as LPs, on either existing future investments. He writes an incredible column to thousands of investors and we'll show that information later. He also assists general partners with LP related matters, such as capital calls, feedbacks on investments, and early on in his career, alexei was managing store capitals a $10 billion commercial real estate portfolio and he oversaw the firm's underwriting team.
01:19
I'm very excited to get to know you a little bit more, alexei. I know you graduated from the University of Arizona with quadruple majors in finance, mathematics, economics, accounting and I don't think I know anyone actually who has four majors. You're probably the first person that I've met Extremely talented. We're very excited to have you on the show today. Thank you for joining us on the show, alexei, thank you so much for having me. It's a pleasure to be here. So, alexei, first thing, just walk me back a little bit. I know where you're currently at and what you're doing, but take us back a little bit. How you got started, where did you grow up and how did you get into commercial real estate?
01:58 - Aleksey (Guest)
I know everyone has their own little journey, but if you could just walk, give us the short version of how you got to where you're currently at Sure. So the short version is I was born in Russia. I came to the US when I was 11. After that I went to college. After college, I realized that I did a really good job of collecting majors. I did a decent job on my GPA, but did a pretty terrible job on the connections, and so I sort of learned the hard way that a lot of the jobs in the US go to people with connections rather than the number of their degrees or the GPA.
02:28
After college, I had what I would call a non-linear journey across several countries trying to find my place. A lot of those roles were on the buy side not all of them, but most of them. Actually, none of them were real estate related, until my latest one at Storr, which you mentioned. As I always like to say, I think careers in general aren't linear. We have really good times and then we have some challenging times that you'll later understand A hundred percent.
02:57 - Samy (Host)
So walk me through. So you started your career in commercial real estate. What was the first thing you were doing after you got your four degrees? What was the first place that you headed to, and why specifically there?
03:08 - Aleksey (Guest)
So the real estate career didn't really start until I got the store, which was like my latest experience. Before that I did all types of buy side investing, some distressed work, turnarounds, strategy consulting. I had a lot of different roles but none of them were real estate heavy. There was some real estate involved, but not full-time real estate and store. As you mentioned, I ran the $10 billion portfolio that we had outstanding and also ran the firm's underwriting. Any deal the firm considered went through my team.
03:43 - Samy (Host)
So you start at Store Capital. What does your role look like over there, and how do you go from not doing anything in real estate to, all of a sudden, managing a massive portfolio? What does that look like?
03:54 - Aleksey (Guest)
I started as a portfolio analyst. A combination of being pretty hardworking and also just having the right skill sets helps me move up in the company Eventually. As you said, I was an SVP that oversaw two departments. One was the portfolio roughly 10 billion a little bit more when I left and the underwriting team as well.
04:19 - Samy (Host)
Awesome, I know you spoke a little bit about your academic journey and we can touch on that a little bit later, but how do you find your studies influenced your career path? Do you think that you would have done something differently had you chosen a different academic career?
04:29 - Aleksey (Guest)
When people ask me about advice in terms of majors, I usually say you should prioritize connections, internships and work experience over majors. I think in hindsight I don't want to call it a mistake, right, like it has certainly helped me, but I think in some sense it might have hardened me more than helped me, because I just focused so much on school that I didn't understand the value of speaking to people, internships, the interpersonal stuff that actually, in my opinion at least, is the majority of how you get jobs, not applying online with four degrees.
05:09 - Samy (Host)
Did you have any mentors growing up talking on that route?
05:14 - Aleksey (Guest)
I mean, obviously I had great parents. They didn't necessarily have, you know, investing background and you know there was some people that were pretty influential early on. You know there was a high school teacher, for example, that told me about what a major in finance is Like. I never thought about it. I started in engineering, actually, and so I think that sort of got me on the path and you know, I can't really say that I had, like, I guess, consistent mentors throughout college. I sort of stumbled a little bit. I tried to talk to counselors. I didn't necessarily have anyone in my life that was in investments, that I knew, but eventually I started meeting people speaking to alumni, but it was all very disorganized. If I look back at it, you can imagine someone trying to drown and like trying to, you know. You know trying to hold on to other people and understand what you need to do. It was kind of like that.
06:19 - Samy (Host)
I often feel that, especially in real estate, it's such a vast industry, feel that especially in real estate it's such a vast industry A lot of times. When I got started, I remember thinking you know, it was really. Real estate is just. You know, you buy and sell buildings Like that's just what it is. It's so binary. Every time I have a conversation with someone who has a nice amount of experience in real estate, I realize that it really is so non-binary. There are many facets of real estate you can be involved in, whether it's construction, whether it's advising LPs, whether it's capital stocks, whether it's lending, and it really is a multidimensional. And it sounds like you had to leverage more your personal connections than your knowledge to get to where you are currently. I want to dig a little bit into that. So you're at Store Capital. How many years do you spend there managing the portfolio?
07:09 - Aleksey (Guest)
So I think it depends on how you define, manage their portfolio. It's a little intricate. I started as an analyst when I joined and immediately oversaw a smaller book, but not the entire one. That's why I just want to be clear Eventually, eventually, I got promoted to the point where I oversaw the whole portfolio and had a team right and then eventually I was an SVP. Total tenure at the firm, I think, was a little over four years, maybe four and a half, yeah but I left and decided to sort of go off on my own and that led me to a bunch of different experiences, one of which, sort of, was the inspiration behind starting this LP venture, which is 11 months ago.
07:55 - Samy (Host)
What was that unique moment that kind of led you into saying well, you know what I want to get into advising LPs but what was it that shifted you into thinking I want to open my own business, and in particular, in this area?
08:08 - Aleksey (Guest)
So, in terms of opening my own business, I think it was just pure stupidity. It's super hard and I don't think I understood how difficult it would be, but I think that level of stupidity is your greatness, sometimes as well, don't you believe? In terms of what got me onto the whole concept and the business idea, I had friends, acquaintances, that would reach out to me as a real estate person asking for feedback before they invested in a deal. They would be like yeah, I want to invest a few hundred grand. This deal seems great and I would look at it. And I'm like I have way more questions than answers. How can you just put in half a million dollars a year? And their response would be well, what do you mean? It's real estate, it's safe. And I'm like whoa, you're about to put in a decent chunk of your savings and this is how you think. Then I tell them about cap rate compression and they're like what's the cap rate? Again, can you remind me? And I'm like whoa, you're about to invest half a million dollars and you don't even know what a cap rate is.
09:05
I had a few of those moments and I was like man, I wonder if this is how LPs are, in general, right. They're sort of what I would call like institutional limited partners right now, or allocators sometimes, and those folks are very sophisticated. But when you sort of go down to retail checks in the ranges of like 50 grand to, let's say, even a few million in some cases, many times those people don't have a real estate background or an investing background. They made their money through some business, perhaps had a sale, or just have cash lying around and they want some passive income and so that they invest, but they don't really understand what they're doing.
09:47
That was a big realization that retail generally doesn't understand this well enough. And the second realization was just how big the space is. The reality is that it's massive. There's billions being deployed all from retail checks being deployed all from retail checks. By and large, I think the majority of people deploying this cash aren't investors, right. So that becomes very interesting, right? That really is what got me into the space. I decided to start the venture to help OPs make what I would call more aware, like decisions that were more calculated.
10:30
Educated, educated, yeah yeah, just make sure they understand what they're getting into. I don't see my job as being super complex. I just want to make sure you know what you're getting into before you get into it, which is pretty simple in a sense.
10:41 - Samy (Host)
You would hope that most people would want that Absolutely. First of all, I love that you're balancing skepticism and optimism is what it sounds like. I want to dig into that a little more. So now you have this new role where you advise and educate LPs on whether or not a potential investment is something. That is, I guess, understanding what the risk reward ratio is in those deals. What are some critical questions that you could share to understand what the risk reward ratio is in a deal?
11:14 - Aleksey (Guest)
I think a very big misconception about the risk reward in a syndication is looking at the property too much. They look at the property and they're like what are the comps? What's the pro forma? Where is it located? What's the rent growth? All the regular stuff.
11:33
I very strongly believe that actually comes third in terms of priority from the perspective of an LP. The two things that come before that is understanding whether the GP, the general partner that you would be investing with, is capable of executing on whatever plan is there. Do you have experience in it? Have they been successful? Track record, can you trust them? All a bunch of different factors like that. And the second thing is alignment of interests, which is a bunch of things but mainly waterfall what the co-investment structure is like, right, what are the aligned incentives between you as an LP and the GP? And third is sort of like what most people I think, spend the most amount of time on, which is let me look at the property.
12:24
But I think many LPs tend to forget that risk in a deal. It's really tied to the property, right, don't get me wrong, it's super important. But I think before you get to the property you need to understand you are essentially a silent investor trusting another party. First you have to do the diligence in that party being able to execute on the mission. Then you need to make sure that, if things go south or not according to plan, the alignment between you and the AGP are such that they would still be incentivized to continue working hard and then, only then, you get to that full property.
12:58 - Samy (Host)
Meaning they have to really be on board. It's not just the actual investment, but what you seem to be saying is understand number one who are you investing with, right? Who's the person you're investing with and I think I may have heard you speak about this other times Investment is not gambling right, you have to really think through what you're doing. If you want to gamble, go to Vegas. Is that a sentiment you feel?
13:21 - Aleksey (Guest)
Yes, very much. I think many people don't realize it, but when they're investing as NLP, I think they're actually gambling. The big differences are when you go to a casino, you are aware that you're at a casino, right? And because of that you think about risk and you're like, well, I know, in terms of sizing, you size your position to be something that's not painful to lose, right, meaning you know that you could gain, but you know there's a chance that you can lose and therefore you say, well, I can only afford to lose a hundred dollars or a thousand dollars or whatever, and that's what you take out. Maybe you go back for another thousand or whatever, but still, I think you still have this mindset of like, hey, I really need to be aware this is a gamble, whereas with investments, people just assume it's almost like the opposite. You're just like, oh, this is an investment, I'm here to grow my wealth, it's okay if I don't know everything, it's just going to grow my wealth. It's okay if it's not 15% a year, maybe it'll be eight, but that's still better than putting my cash under the pillow.
14:32
And therefore people end up investing somewhat blindly with much larger amounts, investing somewhat blindly with much larger amounts, which I think is sort of glorified gambling, right, because, just like in a casino, you're at the blackjack machine or whatever and you're like okay, next round, let's see what comes up. This time it's the same thing. Someone sent you a deal and you're just like, yeah, I think this is it. Here's 500 grand. It's like okay, but how do you know? This is the one? Did you spend enough time looking at them? Did you compare it to 10 others?
15:10
And many people respond by saying, well, I don't have the time. How could I sit there and look at 10 deals to find one? I don't have the time for that. I have a job and some general partners don't like me saying this, but my response to that is okay. So don't invest. Put your money in an index fund, don't invest in syndications and have at it at your job. No one told you that you have to invest, but if you do invest, make sure you know what you're investing in, which takes time and effort 100%.
15:43 - Samy (Host)
It almost sounds, alexei, that you're re-educating LPs. Of course there's the aspect that you're advising them on, but you have to first educate them on. When you're coming into an investment as a limited partner, you have to really truly understand what you're doing. Don't just throw your money at the wall and if you wanted to do that, then there are other opportunities for you to do that.
16:06 - Aleksey (Guest)
Yes, and I'll say a little bit more. If you're going to invest blindly, at least invest it into something that can make you a lot more money. Again, you sized it as a gamble, so to speak. But, for example, I think most people would agree that venture capital is more risky, right. Most people would agree that cryptocurrency is more risky, et cetera right. So if you're going into an investment and you know like, hey, I might lose all of this and I don't have time for diligence, I'm just going to part some money in here and see what happens. Hopefully that can 100x over time, as opposed to real estate, where your downside is still losing everything. But generally, a good deal on real estate syndications does 2X, so it just doesn't make sense. In other asset classes, you can make 10X, 20x, 50X. Your downside is really right, but your upside is really high too. That makes more sense. If you want to gamble, go ahead, but at least your upside is really high. Here. It's like you might make 2x but you also might lose it all. That's not a healthy gamble.
17:11 - Samy (Host)
When people see a pitch deck they're like this is what the returns are going to be. They don't really ask the questions. Can you maybe share a little bit and elaborate on when you're evaluating and doing due diligence on these deals? What are some of the metrics that you take into consideration? I know there's IRR, there's exit cap rates. What are some of those metrics that you take into consideration and why those in particular?
17:34 - Aleksey (Guest)
Sure, so there's actually a lot, as you can imagine. I think for anyone listening, I would recommend looking at I think you can Google it at this point it should come up If you look up top 15 syndication mistakes. Lp Lessons is the blog's name. It's a free article that goes through the top 15 syndication mistakes that I've seen.
17:56
If you just to mention, I think there's an over-focus, an IRR, generally from LPs, as you said. They look at an IRR and they're like, oh, this is only 12%, pass. Then they see another one. It's like, oh, 20? I can get behind 20. This is interesting. And then they glance at two things and invest. The problem with that is you could be self-selecting more riskier GPs and selecting out the GPs that might say well, you know, like I hope this thing is a 20, but I'm going to be really conservative with my underwriting and I'm going to only show a 12. That way people understand that the 12 was like the base case, not necessarily the worst case, but a conservative case, right and everything else is gravy, so to speak. And so what you're doing by looking for IRR is filtering in the GPs that are generally more aggressive and filtering out the GPs that are generally more conservative At a retail level. That's a pretty dangerous road to go on.
18:59
Another big one, sammy, is just cap rate compression. Right, this was particularly popular during the COVID days. You bought something at a seven and you're going to do value add and then in the deck you assume that you're going to sell it at a five. There's some different opinions on this. Some GPs will disagree with me, but I think there's a big difference between something that a GP can't control and something that a GP can't control. Where cap rates are when you sell a property that you own, I would argue, is something that the GPs can't control, meaning it's a macroeconomic event and you as an LP in a property and the GP of that property has very little to no say as to what happens to cap rates.
19:45
Therefore, if you're making an investment with a deal that has some sort of cap rate compression, you should ask yourself am I okay with that? You should know and realize that you're making a macro bet as opposed to a property bet. Those are two very different things. To those people or GPs that are comfortable making those assumptions, I would say if you're so confident that cap rates will compress, maybe you should play that market more directly. You'll make way more money If you're so confident that you know where interest rates are going. Why play that through cap rates? Right, which is not a direct correlation? Right, they're connected, but it's not the same. If you're so confident, buy an instrument on rates, you'll profit way more as opposed to making an indirect bet on cap rates. Fascinating.
20:36 - Samy (Host)
You mentioned that when you're making a bet on the tap rate versus the property, can you share what would an ideal deal look like that? Someone is saying specifically that the property is what's making you money versus the cap rate compression. Can you just elaborate on?
20:52 - Aleksey (Guest)
that a little bit. I think that should be most cases, right. When you're selling an investment to an LP as a GP, you're saying, hey, I found a really interesting property. Here's how I plan to get to 2X over a five to 10 year period, you need to be clear about what you're assuming. Maybe you can get rents to market. Maybe there's some sort of repositioning, play value act, play whatever and all of that is great. That's part of real estate. Perhaps you see something that the seller did not, which is wonderful. That's the whole point in the arbitrage of real estate.
21:28
What I'm trying to say is, while you're making all the assumptions, be very clear about whether those assumptions are in your control or not in your control. For example, if there's a neighboring property that's remodeled and it's like basically the exact same as ours right, like you know, same rough floor plan, same amenities but they have all renovated apartments, and those renovated apartments are charging $500 more than ours. So I think it's reasonable to say it is in your control to renovate your apartments and compete. You might not get exactly 500 more. Maybe you'll get 400, 450. Now there's competition, whatever, but you'll get close and it'll be certainly much more than what you're making now. So that is something that's in your control. All you have to do is raise the money, renovate and manage that process and lease the new apartment up. That's in your control as long as the people come, so to speak.
22:32
If people leave the city, you have issues. But I think there's things that you, I think, can reasonably assume. But then, assuming that there's going to be massive interest rate changes or cap rate changes during the course of your investment, I think, look, it's natural in the sense that you need to assume something right. If you need to refinance, you need to assume long-term value, you need to assume interest rates, et cetera, and when you sell, you sort of need to pegance, you need to assume loan-to-value, you need to assume interest rates, etc. And when you sell, you sort of need to peg the value. But my point is, the value needs to be very carefully thought through.
23:07 - Samy (Host)
I want to shift a little bit from this to understanding fees. As an LP, what's your opinion on the typical range for acquisition fees and maybe when is it acceptable to see higher fees? You know, as an LP you're coming in and you have to assess the deal on an individual basis. What's your opinion in general on the range of acquisition fees?
23:29 - Aleksey (Guest)
Okay so, a few things. First of all, I would recommend LPs to understand what fees mean. What does it mean to be feeed? When there is a fee, your $100 is not going to be invested in full into the property because part of the proceeds are being channeled to fees. In other words, you might invest $100, but only $90 of that $100 actually got invested into the property at closing because the 10, as an example, went to closing costs and acquisition fees.
24:03
Now, with that said, a GP runs on fees to some extent. The fees are normal. The question is do you understand what's happening In terms of what's market? I would say 1% to 3% is probably market of purchase price. The higher percentages are more relevant to much smaller deals. Sometimes I see higher percentages on bigger deals. You have to be mindful that syndications, investments and fees in general. This is just a marketplace between a GP and an LP and if an LP finds the investment attractive enough, they might be okay paying higher fees, right? So I think your third question was in what circumstances would higher fees be okay? I think part of that is if I've been doing this for 30 years and I've been super successful at it, at some point I can dictate my terms right. If this is my first syndication and I have above market fees, you might still have friends and family that just say I love you and I'm going to invest anyway.
25:09 - Samy (Host)
But any sophisticated investor would be pretty confused by that I want to dig in a little bit more on that idea you mentioned about how if you're investing, say, $100,000, your entire $100,000 post-closing is actually not going to be fully invested once there are fees. Can you elaborate a little bit more on that and how LPs can understand what that actually looks like typically? What?
25:32 - Aleksey (Guest)
does that mean? Yeah, sure. So I would recommend anyone that's listening I would recommend looking at an article called why Fees Matter, or why Acquisition Fees in a Syndication Matter. I'll just read you off a few examples. There's a table in there that walks you through the math and everything. But let's take a simple example.
25:52
Let's say I tell you that there's no debt on the property. In other words, you buy something for $100 and that entire $100 goes to the property and there's no leverage. And I tell you that there's a 6% acquisition fee. Now, remember, the acquisition fee is a percentage of purchase price, right? So if there's 0% leverage, how many dollars actually went to buy the property? 94, right, because $6 went to pay the acquisition fee and there's no leverage, right? $94, you're left.
26:32
So you bought $94 of property but you invested $100. You're sort of starting with a negative investment. You're already behind, right? So now the investment has to perform in a way that would get the 6% back and then sell. You need to get the 6% back just to get your money back. So to go from 94 to 100. Now, what about leverage? Usually there is leverage, right? Let's say we do the same thing, but you invested $100 with 75% leverage, $100 was the equity. At that point, 24% of your $100 was lost. In other words, you invested $100, but only $76 actually got invested in the property. You can understand how that's like whoa, that's a big hit. I need to now make that 24% back in order for me to get back to my original 100. That's not easy. You're starting with an immediate loss, so that's what I mean by. I think it's really important for LPs to understand how fees work. They're part of the game and necessary, but they can be pretty painful.
27:43 - Samy (Host)
Absolutely. I don't want to dig too deep into that. We could have another podcast on all the details about that. It's fascinating. As someone who advises LPs and clearly you've seen your fair share of LP investors make some mistakes your objective is to help them avoid these pitfalls. Given the current economic climate, I know it's very, very volatile currently what strategies would you personally recommend for LPs to mitigate risks and maximize returns on their investments?
28:16 - Aleksey (Guest)
I think the biggest thing I would say is make sure you understand the downside of your investment. What two or three things could go wrong for you to lose all of your money. I find that that's something people don't think about. As you said, they look at a deal and they're like this is 50%, that looks interesting and it's real estate, so we can't lose money. 50%, that looks interesting and it's real estate, so we can't lose money invest. I think that's the most common challenge. It's like every single investment that's leveraged could lose all of equity.
28:44
The question is what needs to happen that would have the highest impact? Is it cap rates moving? Is it interest rates? Is it perhaps the performance is wrong and we can't reach the rents? There's like a million different things that can happen, but you need to isolate two to three that are high impact Catalyst is what I call them.
29:04
From there, you need to assess okay, I understand the upside and perhaps I believe the 15% IR if things go according to plan. I also now understand the downside. If cap rates move to here, interest rates move to here, maybe rent growth doesn't pan out at 5% of the year, well then my investment gets lost. And then you have to weigh the two together. How do you think the upside will play out? How do you think the downside will play out? How would you assign probabilities to both? And then you have to go into the investment understanding that there's a possibility of both. There's a non-zero probability that you're going to make 15%, and there's also non-zero probability that you're going to lose it all. And so that's the mentality that you have to go into the investment with.
29:49 - Samy (Host)
Can you maybe share an example of a time when a thorough approach that you use helped someone avoid a poor investment decision? So if you have an example of a time when your thorough work of due diligence helped someone avoid a poor investment decision.
30:05 - Aleksey (Guest)
Yeah, there's a lot of examples, many cases where I've seen track records being made up. The GPs claim something is theirs when it's not really theirs. Some track records include the person's LP positions but they make it seem like they own that building and they're the GP and therefore have experience. There's plenty of cases of mistakes that are made in the model and those modeling mistakes end up on the deck and you know, through the diligence I caught those and the investment is just not nearly as good once you realize that there's a mistake that was made. Maybe one last one I'll mention is there's a funky connection between the co-invest and acquisition fee.
30:52
We've talked about acquisition fees so far, but the co-invest. You need a co-invest from the GP to see that they're invested as well. What I like to look at is sort of the relationship between the co-invest in dollars and the acquisition fee in dollars, and so many times you'll see a GP that says, hey, I'm like, I'm really invested in this deal with you. Here's my co-invest. Then you compare the co-invest to the acquisition fee and you realize that they're actually pulling more money out that they're putting in because the acquisition fee is bigger than the co-invest, right, which is another I think thing that I see quite often.
31:27 - Samy (Host)
Interesting Meaning they may be putting in of equity, but they're requiring a 4.5% acquisition fee Right they're requiring a 4.5% acquisition fee.
31:37 - Aleksey (Guest)
Right, you have to remember that the 4.5% is a purchase price, whereas the 3% would be of equity, so the denominator is different. But that's exactly my point. It gets tricky. At some point you'll start to do the math and you're like wait, you're investing a million, but the acquisition fee that comes from my pocket as an LP is 3 million. So are you investing anything, or are you just taking my 3 million, keeping 1 million of it in the deal and taking two of it yourself?
32:06 - Samy (Host)
That's interesting. I'm going to ask this question and I'm very curious just to hear your thought how do you balance that need for skepticism with the potential for optimism in your investment advice to LPs, because that's clearly something that you have to factor in.
32:22 - Aleksey (Guest)
Yeah, it's actually super important because I think if I was too optimistic, everyone would invest in anything, everything, and then like I mean, why pay me, right, if I was super pessimistic? Then everyone just keeps their cash under the pillow and doesn't invest, which I think is bad for everyone. Partially it's just experience, right? I worked at a really big company. We looked at billions of deals every year and there was an understanding of like you need to take on risk in order to invest period. But there's a difference between risk that is mitigated and understood versus risk that is not understood or not mitigated, right. So that's where I focus a lot of my attention. I want to make sure that the LP understands what risk they're getting into and whether there are mitigants or not. Sometimes there aren't right, but at least they're getting into something understanding like hello, overall the deal looks pretty good, something understanding like hello, overall the deal looks pretty good.
33:19
But this is the GP's first time doing a deal and that's not a reason to say no on its own, but that's something that might come up and might reasonably cause some challenges along the way. And if the LP is okay with that, they're okay with it. And I think the second thing is just being careful with bias of any sort right. I don't get paid by GPs to raise money, for example. I get asked to do it every day but I feel like I can't do it because if a GP pays me, I'm biased on that specific deal to send it to an LP. But perhaps in future deals on that GP I'll be biased because that GP paid me and I better be careful about what I have to say and I can't really be honest right, which is the opposite of what I'm trying to accomplish.
34:01 - Samy (Host)
Absolutely. I love that. That's definitely very honorable and I can definitely see that. I imagine, even as a GP, if you want it to be your own GP, to bring in LPs and try to advise them to invest into your deals would also have some sort of conflict.
34:14 - Aleksey (Guest)
It's also conflict and I get asked that all the time, like why are you going to do your own deal? And the answer is I'm not sure. It's pretty problematic.
34:21 - Samy (Host)
It is a conflict. Absolutely Awesome. Just one last question before we get into our rapid fire questions. The big focus of the podcast is about connection, the commercial real estate connection and relationships and the value that it plays in real estate, and I know you kind of honed into that a little bit in the beginning. But what's one piece of advice that you would give to people trying to build relationships in the industry? How?
34:46 - Aleksey (Guest)
do you go about doing that? Just do it. It sounds so silly, but I think back in the day I was here like why should I reach out to someone? I don't have any value to add. I'm just a 23-year-old out of college. Then I realized who cares? Maybe I do have some value to add that the person doesn't realize. Maybe we'll talk and my value add is in 20 years I'll reach out to them and tell them their 20 minutes changed my life and I'm so thankful for it. You just don't know where things will go. So I think the best advice I would have is to don't be scared to reach out to people, to cold email, cold calls. You really never know where these things go. I've had crazy stories personally. It took me a while to understand this one thing. It's like you know, put yourself out there in the worst case scenario and someone doesn't respond. But if they don't respond, check in after a few days.
35:39 - Samy (Host)
Circling back.
35:41 - Aleksey (Guest)
Don't be annoying and don't be rude. At some point, obviously, you should probably give up. I think folks that try to get in front of others generally get rewarded over a long period of time.
35:52 - Samy (Host)
Awesome, I appreciate that. And now just rapid fire questions, something I like to ask everyone that's on the podcast what's one thing that you do every day to start your morning off right, alexei?
36:02 - Aleksey (Guest)
I learn Torah if I'm starting in the morning, that's probably the biggest thing.
36:08 - Samy (Host)
I love that and any hobbies or interests that you have outside of work that people don't know about, other than being incredibly talented at analyzing deals.
36:17 - Aleksey (Guest)
I used to play table tennis pretty seriously. I don't do much of that anymore, but recently I picked up bouldering, rock climbing Really.
36:26 - Samy (Host)
That's what I enjoy, quite a bit.
36:27 - Aleksey (Guest)
I'm about a year into it. It's pretty fun. Highly recommend it.
36:31 - Samy (Host)
Is that with?
36:31 - Aleksey (Guest)
no ropes. Yeah, no ropes. But there's a mat and the ceiling isn't that high, maybe 20 feet. Your maximum fall is maybe 10 to 12 feet, but you're falling on a mat. Obviously, you try not to fall, it's really fun.
36:45 - Samy (Host)
I really recommend it. I like that All right. What's any book or podcast that you've been enjoying lately?
36:50 - Aleksey (Guest)
I think the one that I've been listening to the most has been founders. It's a guy by the name of David Senra and he basically reads a bunch of books and tells you about them. The books are generally about super successful people and their lives and struggles. I just find it to be super fascinating to understand people's lives. It went before they got famous.
37:15 - Samy (Host)
Love that. And Alexei, last question what's one piece of advice that you would give to your younger self?
37:22 - Aleksey (Guest)
I don't think I've been asked this before, I guess. Just be patient. I have a tendency to go fast, so be patient. Yeah, patience always helps with everything.
37:34 - Samy (Host)
I love that. Alexei, thank you so much for joining on the podcast today, really appreciate you sharing your thoughts, your insights, your advice. I feel like we could do another four episodes of just the value. There's a lot to talk about. They just scratched the surface a little bit, but I'm so grateful for you joining us. I really hope that we could do another episode and kind of digging a little bit deeper and sharing some real insights on how people can be successful in their investments. So thank you again for joining us. Any last words you want to share?
38:04 - Aleksey (Guest)
No, I mean if you enjoyed it. I write twice a week at lplesonsco and then also most days on Twitter and LinkedIn, if anyone else might be there.
38:13 - Samy (Host)
Amazing. We'll share that information below. Thank you for joining us again for another episode of the Commercial Real Estate Connection podcast and we look forward to catching you in the next episode.