Subscribe
Share
Share
Embed
Real estate investment expert and podcast host Bryan Hancock examines the interplay between limited partners and sponsors for private real estate offerings, empowering passive investors to invest wisely
Creating Unique Investment Opportunities with Dan Kryzanowski
Bryan Hancock (00:12):
Well, hey everyone. Welcome to the Wealth Investment Network podcast. I'm here with my good friend from Austin, Dan Kryzanowski. Thanks for joining us, Dan.
Dan Kryzanowski (00:33):
Awesome, Bryan. Great to be here today.
Bryan Hancock (00:35):
So Dan, the reason I wanted to have you on is you're out talking to investors all day long, professionally. So what do you see investors are looking for in the current environment?
Dan Kryzanowski (00:45):
Some of it's the same, some of it's new. So we had the benefit, I'd say both formally via survey and then informally what I naturally have been doing for probably the past decade, but a little more prescriptive over the last five or so years has been talking to fellow accredited investors, fellow passive investors, alts, all the names for us. I think we're all looking at the same. We feel that at least a certain percentage of our portfolio should be outside of the stock market and bonds. So with that theme, I think has expanded to a greater percentage of the accredited population. In addition, just for portfolio diversification, I think the net results of COVID is no, I'm just not going to sit blind and have a 60-40 stock bond. I think the inflation headline in some ways has helped that a little bit.
(01:35):
When your bonds or CDs are earning one or 2%, or even the best yield on stocks are six to 8%, but the stock went down 10%, people start to recognize that your purchasing power period is going down, which at least for us here in Austin, housing is an obvious component. And you see that a lot across a lot of parts of the country, I'd say parts where folks are net moving into, they're noticing that. So with all that, the most common asset continues to be real estate where folks are investing passively. Ever since Mark Twain said, "Buy land", but there's no more of it. That's still true. And what goes up on the land in certain parts, whether for zoning and other reasons, is also true. There's only so much housing even when you build high to go around at this point, or multifamily or industrial, etc, self storage, different asset classes. So with that, I think more folks, whether as part of their nine to five or what they do now consciously in the evening and the weekends, is becoming educated on what else is out there.
(02:35):
So that's just a high level, and I say this touches everywhere from somebody in their twenties to even your doctors, your six figure professionals that want to retire early. I know a lot of us here in town have friends that want to, whether it's Dell, Microsoft, are looking to retire early to be both a passive and to be an owner. So for me, as an alt guy, this I think is very positive momentum and for me as a real, real estate guy, I think it's a double win also, it's not as volatile as say something, crypto, NFTs, etc. So with that, I think blanket statement that we've heard and the sample size has grown tremendously. So with that, what do folks want to invest in? The first thing we heard is, I joke and call it the Boomer fund because it's the monthly check in the mail. No, we're not going to cut checks, etc, but we'll call it at least an ACA. But I think there's a certain level of comfort here, and for a few reasons.
(03:32):
One is, as you know the music slows down a little bit from everybody just making 20% plus on every deal, folks want to see, "Hey, is this an honest deal?" Obviously the diligence and when the check moves, that's when things get real between you and the operator of the property. But some folks say, "Listen, I want to invest a half million." Let me just come in at 50,000 to learn about the sponsor, to learn the process. And many times, this might be the first time that these folks have gone online to create an investor profile, maybe to have a second tax ID from a self-directed account, etc. This is very new for folks that are book smart educated, probably seven figures in the bank one way or another, etc. But this is just a little bit different. So I think the piece of mind, whether it's that monthly or quarterly distribution, seeing that come into you isn't warm and fuzzy. So I think especially now with once again, purchasing power parity, purchasing power getting higher, inflation still relatively high, folks want to see that imminent return to see, "Hey, does this work?"
(04:40):
So that's the first thing I think for folks coming in the door, folks that are getting to know a sponsor or a syndication meeting, the person that's raising the money for the real estate, they want to see that because once again, I call it on the private side or the retail side where you don't have that daily liquidity, you would in a REIT. So this is something for folks to get comfortable with. So this is one strategy that I think not just now but over time is going to be attractive to folks, but I think especially a bit more now. Next up, the other side of that is folks say, "Hey, whether it's inflation or self-directed IRA money, I don't need dividends. I understand how this game goes. Or I purchase houses, my buddy has put the concrete in the ground, built something", I'm okay with that.
(05:24):
Then you say, "I double my money." And if we'll throw on the inflation card and say, "Hey, if another zero goes on inflation, cool, then I 10x or 20x my money", probably won't exactly play out that way. But that's the mindset of some folks. Or "Hey, like Austin, it's a very hot market, maybe I get a 3x over so many years", just throwing some of these out there, relatively speaking. But with all that said, this is the other side where either folks just say, "Yeah, I feel good about this strategy, this sponsor, and I want to set it in, forget it for five years", for example, let me go into a development. So two sides of a coin that I think have been around will continue to be around, but also both very attractive. Now, in the middle, 2020 is the obvious year because of COVID, but over the last two or three years, there could have been periods in one's life where it's been a challenging to put it nicely.
(06:16):
And these folks say, "Wouldn't it be great if I just closed my eyes and woke up and I had 20% return?" That'd be great. And you know what? This is a strategy. It's been out there. Some people might call it hard money loans. I prefer to call it a bridge or pref. And as you look at the sponsor in the cap table, many times these are not, I'd say the risk as if you're thinking of Legos, you're not at the top of the pyramid here, you're down a little bit, which is healthier from an investment standpoint. So I share, and it's not because they need every last dollar, as you get to know sponsors and their mindset, a lot of them have built their millions in their portfolio by always keeping a few million on the side so they can get the debt to get the next deal.
(06:57):
It's the way this, the game works. Not a super surprise, but not common knowledge. So once again, if folks have played this as a sponsor, as a developer, they need the short term money. I'd say, "why a sponsor is going to thank his or her investor base." So with that, this is the short term money that it's not the monthly, but it's not a long term. It's kind of in the middle. And as we can see a blink of an eye here, we'll be at the end of the year and thereafter. So this moves pretty quickly. So from strictly a passive standpoint, that's, I'd say, the three primary pieces of feedback that we received.
Bryan Hancock (07:35):
So we talked about this a little bit. It is more of a sponsor. It's always been curious to me that people were as concerned about cash flows because you're really after that yield, but I can understand from an investor's point of view, this isn't generally a new asset class for a lot of folks. And so while they're developing a relationship with a sponsor, being able to have access to regular liquidity probably does provide that peace of mind that this isn't some person that's going to run off with my money or whatever the other concerns are. How would you say people are generally thinking about that? Is it primarily a peace of mind issue or are they really after, "Hey, we're going to do something with those cash flows because every sponsor's brochure says, 'Hey, don't expect to get access to the money until however many years from now, depending on what the business plan is.'" How are people thinking about that in general?
Dan Kryzanowski (08:33):
I think it depends on their stage in life and their mindset frankly. Across the board, whether they come out and site or not, I think principle protection is big. Nobody wants to lose a principle at any stage of life. That said, as you said, people, particularly if it's an existing asset, folks I think would get very hesitant if there was not payback. Obviously, development is a different story because you still have to build something for people to move in and pay rent for example. So what you see here is principle protection, but then also I know a fair number of folks that this is their supplements or social security. They may have a million dollars equity in their house, take a place like Austin or in the Bay Area, but they don't want to tap into that. They don't want to do a reverse mortgage. So they said, "No, here's a hundred or 250,000. I like getting that check for a few hundred or a thousand or so a month. I can live very comfortable off of this right now."
(09:29):
So that's one. I think the second one for folk in the hustle of bustle, middle age, a few kids, etc, just maybe it's every three months, frankly, you actually look at your checking account. It's just good peace of mind that this is here. And why is that? Because there might be a different part of Texas or for our friends in multifamily, maybe it's industrial or self-storage, a different asset class or somebody with expertise in residential that you really want to trust. And once you have that initial check with them and you receive those returns, that conversation around the dinner table when you know and your spouse are talking at 10 at night and you finally get a moment, but you are talking about six figures and maybe seven figures. It's an easier discussion what it could be like, "Hey, here's these folks, we went with them and here's what they said they were going to do and this is exactly what they did.
Bryan Hancock (10:16):
So Dan, I know you said you have, at least we've had conversations about this, but can you tell our listeners about what licenses you have and then also what role does a license play for these alts? Because it seems to me outside looking in as a sponsor, we're shoehorned into the industry. And can you talk a little bit about that and your experience with that?
Dan Kryzanowski (10:40):
Sure. And I'll preface, I'm not a CPA, I'm not a lawyer, I don't work for any of the set entities, but like anything, receiving a license tends to give you benefits, opening certain doors, at the same time it may close certain doors, so this is a trade off, frankly. But generally speaking, at the highest level, when people hear Series Seven, which it is, sometimes it's more of a generic term, which means, "Hey, I'm licensed."
(11:03):
I know a lot of us when we came out of school, it was with Merrill Lynch, maybe one of these financial advisors, you were probably licensed. And also if you're frankly in a different career, you probably had some licenses going forward. In my opinion, licenses are much more common, if not, required when you're at this institutional level. So you work for a Fidelity, you work for a Vanguard, in turn, you manage institutional money for a family office. These are just some of the circles that the folks play in here from one broker dealer to another. Going from ABC Real Estate to a financial advisor that has Charles Schwab is their custodian. There's a certain reason, and I think for the investor, it's not beneficial the amount of diligence that goes into some of this. That said there is also, it could make it a little more challenging, I think, putting on my investor hat for the investor to find the best deal on their strategy.
(12:04):
For example, are you going to find the best self storage operator with one of their publicly traded REITs? I'm not sure. I don't know if that's going to get you the best net return, particularly when you consider distributions versus dividends, 1099 versus K1, the ability to speak to the actual person that is managing the property. You're probably not going to get that with the publicly traded shop with something institutional. So I share all this broadly, this is part of the ecosystem and you have to think whether you are an investor or as per your profession, do you want to have certain, I think regulations, certain timelines that go into this. Once again, it opens up certain doors and it doesn't. And I think if you have a large institutional fund, you're on fund 4, it's a billion dollar fund, you can talk to some pensions, you can talk to other institutions.
(12:56):
Definitely you're going to benefit from being licensed. You're up and coming here. Maybe you're on your sixth property, whether it's residential, small, multi-family, not a huge benefit to being licensed or say standing up your own broker dealer because you're competing with all the big guys. That's why I talk so much about the broad world. And then in addition, whether it's from marketing, I think flexibility of who one may want to represent anything, when you're the owner of your company or companies, you have flexibility within that. When you're licensed, you're effectively an employee at one aspect or another and you have to respect that. So that's another sort of trade off. If I could just go in full circle back to where it is beneficial sometimes certain product types, and this is a bit of the weeds, but it does go back to part of our initial survey that we had in the year is certain products which might be considered new to many of our listeners, such as a Delaware Statutory Trust, the DST.
(13:57):
So let me preface, what's a DST? If you, let's say you have a property you sell, you no longer want to own and operate, which means you cannot 1031 exchange, but at the same time you do not want to pay taxes, in the middle is a DST. I like to say it's the best of both worlds. Without going into much detail, certain entities have to have certain licenses and such to offer something such as the DST. So once again, I think broadly, if you're hyper niche in a strategy and it requires being licensed, then go after it. If you're not as much or it's tangential, probably not.
Bryan Hancock (14:33):
One of the things that I observe and we attend a lot of the same meetups, but sponsors at some point in their career have to choose, I think, are they really going to focus more on operating projects or on the operation side? Are they going to focus on helping to raise money for deals? And that kind of ties in a little bit with the licensing discussion, but can you talk a little bit about your experience having played in both worlds? How do people think about the world as a sponsor versus how did they think about the world if they're really more on the capital side and helping to raise and organize money for another sponsor's project?
Dan Kryzanowski (15:13):
Absolutely. And just to preface, if you're on the institutional side and you are raising money, there's a lot of benefits to being full-time W-2, selling the suite of products. I started my career at Merrill Lynch for example, albeit on the trading floor if I was on the private side. I would've been limited to this, but it would've opened a lot of doors because people are going to answer a call from Merrill Lynch, for example. That said, if you have a niche self-storage play, you're probably going to be considered in the eyes of the institutional world, a mom-and-pop, somebody smaller... Although it's not officially retail to call it retail because it's generally smaller dollars, in my opinion, more intimate relationships even if you are doing a 506C offering versus a 506C where you need the one-on-one.
(16:00):
I still think you have that warmth much like for anybody that's invested in early stage startup, you do have that one-on-one relationship with the team that is operating. So with that, I think it's partially a personal preference. Secondly, some folks, they enjoy representing a particular sponsor or a particular strategy. It's a fair conversation to look to be one of the general partners, one of the GPs. Like anything, when you are the CEO, when you are the lead of your company, you can raise money. You have that GP, general partner exception here. So many folks that particularly tie in with a particular sponsor or strategy or frankly, start as a capital raiser, go on their own, become a GP to have this GP exception so you can fully represent your brand and raise from there.
(16:52):
In the middle of these worlds, I think our folks that don't want to work for say the big box company, but definitely see the benefits just because the amount of product that comes through, we talked before maybe about the peace of mind to certain investors in here. You may stand up your own investment advisor, you become your own RAA, which gives you more liberty, I don't want to say to be a free agent, but ideally to do your diligence and say, "Okay, whether I have somebody in operator, in storage, in residential, in industrial and multi-family..." And I can then much like your investment advisor would to say, "Hey, here's a strategy in your stock and bond portfolio", you're going to have the liberty to do that with halts with private real estate.
(17:37):
So if that's where your comfort level in calling is, you can go down that route. And then it's more of a question if you're doing it for fees and commission or for asset under management. And that's a deeper sort of discussion. But I really think it's wherever your comfort level and ultimately where you are going to resonate the most with your audience. I think there's three very different avatars from a career perspective. I started off big box, which I got some good corporate muscle and mindsets. I've done a lot of mentoring where I've unofficially have been a middle person, but that's just been in-kind connecting. But ultimately, I feel there's true benefit of having the one-on-one relationships.
Bryan Hancock (18:17):
Okay. All right. Well thanks for the discussion, Dan. How do people find you if they want to learn more about your services or some of the private opportunities that you have access to?
Dan Kryzanowski (18:28):
Absolutely. So LinkedIn is great, you heard Bryan and Dan chatting today, send me an invite. I love the one-on-ones. That would be great. Some of the, I'd say, broad strategies that I reference are similar to what BV Capital is offering at the moment. So that's bvcapitaltx.com. We have an indication of interest form, whether it's BV or another sponsor, I think it's just fair for both sides to fill that out to share that you're accredited, what you're looking at, maybe it's a strategy you're looking at that deals in the pipeline. It's just not known yet. So I think it's a good mutual win-win to do that. And Bryan, one thing we didn't talk about a lot of folks know me for is I've been around the self-directed IRA and solo 401K world. And without going into deep detail, a blanket statement I've shared probably a hundred times over on podcast is that, did you know you can use your retirement dollars to invest in private real estate, in startups, personal loans, invest in female founders, etc?
(19:24):
You can do all this with your old 401k, your rollover IRA. So with that, I had an association with Rocket Dollar. I think they have a great knowledge base, rocketdollar.com/learn that I would suggest. And then happy to dive in detail whether you are on the strict LP investor site or if you're raising capital to share how so many capital raises have been so successful, just from frankly, knowing how to share that one sentence, did you know you can use your retirement dollars to invest in my next deal?
Bryan Hancock (19:56):
Dan, we'll have to have you back on to talk about self-directed RAs. That's on my roadmap of things to talk about. All right, well thanks again for taking the time, Dan.
Dan Kryzanowski (20:05):
Thanks, Bryan.