On this episode of the Multifamily Innovation® Show, Sal Buscemi, Managing Partner & Co-Founder of Brahmin Partners and author of "Investing Legacy: How the 0.001% Invest," joins us for an eye-opening discussion on high-stakes investment strategies. Find out how the 0.001% manage their portfolios and the principle-led strategies that underpin successful investments in companies like SpaceX and Stripe. We also discuss Sal's intriguing transition from a pre-med student to a leading figure in the investment world, providing listeners with a unique perspective on building a resilient and diversified portfolio.
Are you making the most of data in your investing decisions? We dive deep into the intersection of life science and technological investments, highlighting the transformative potential of AI for multifamily owners and operators. Sal sheds light on the perpetual need for capital raising in real estate and the pitfalls of traditional fund structures. Discover why data ownership is akin to having a Bloomberg terminal at your disposal and how innovative fee models can offer fairer investment opportunities for all.
Finally, we tackle what makes a great investor and the importance of a proven track record, especially through economic downturns. Sal emphasizes the need for meaningful co-investments from sponsors and the critical role of trust and reputation in high-profile deals. Explore the intricacies of navigating wealth creation, the contrasting investment interests between men and women, and the long-term vision required for sustaining family wealth over generations. This episode is a treasure trove of strategic insights and practical advice for anyone serious about optimizing their investment approach.
About the Multifamily Innovation® Council:
The Multifamily Innovation® Council is the executive level membership organization that makes a difference in your bottom line, drives a better experience for your employees, and allows you an experience that keeps demand strong for your company. The council is uniquely positioned to focus on the intersection of Leadership, Technology, AI, and Innovation.
The Multifamily Innovation® Council is for Multifamily Business leaders who want to unlock value inside their organization so they can create better experiences and drive profitability inside their company.
To learn more or to join, visit https://multifamilyinnovation.com.
For more information and to engage with leaders shaping the future of multifamily innovation, visit https://multifamilyinnovation.com/.
Connect:
Multifamily Innovation® Council: https://multifamilyinnovation.com/
Patrick Antrim: https://www.linkedin.com/in/patrickantrim/
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
So welcome back.
I have a great show for youtoday Incredible Investor
Mindset a conversation with SalBuscemi.
He is the co-founder andmanaging partner of Bremen
Partners and he's also theauthor of Investing Legacy how
the 0.001% invest.
This is an episode you're goingto want to pause and go back
(00:22):
and listen a few times.
He has a principle-led focusmultifamily office that makes
direct investments in somereally interesting companies and
backing some world-classentrepreneurs.
He's been invited to invest inSpaceX twice and also is invited
(00:43):
to invest in Stripe.
So you can see that he's donesome really incredible things
with his portfolio.
He's making a strategicapproach to investments.
We talked about the relationshipand how multifamily owners and
operators should be raisingcapital.
We talked about cap table stuff.
We went through what he looksfor in founders.
He's not investing in earlystage founders.
(01:06):
He's investing in provenfounders, interesting stuff
around how he looks at the boardof directors as sort of the
consciousness of an organization.
He looks at some of thechallenges with PropTechs.
We talked about that.
Talk about that.
(01:27):
He talked about some of theindications of where Amazon is
going with things in terms ofautomation and robotics and how
that may play out in multifamily.
He's looking at data as beingthe most valuable and most
increasing valuable thing to acompany, and even attention,
referencing the importance ofgetting attention in today's
world.
He talked about raising capital, what he looks through, how he
thinks through that IRRs cash oncash.
(01:48):
We're looking at issues thatmultifamily will have in the
coming months.
He looked at rates being sortof a function of availability of
capital and how you movethrough that as a sponsor, and
we looked at what makes a greatinvestor.
I mean he has a diverse mindsetaround this and he has a
(02:08):
diverse portfolio and he hasaccess to some really
interesting people.
What to look for in amultifamily sponsor, and I'll
tease the three things that hementioned.
It's in the episode about whathe looks for when he's looking
at a deal and evaluating thatpartner, that sponsor, that
founder, and it transcendsindustries and organizations
(02:31):
right and again, how leveragecan be used in optimizing a
portfolio, not just going in andplacing debt on it.
So incredible episode.
We shared the time.
If you're part of theMultifamily Innovation Council,
you will hear personally fromhim.
He will be at an upcomingmeeting as part of the council
(02:53):
as a guest speaker.
So with that, let's go rightinto the episode.
Have a listen, all right.
Well, welcome in Sal.
Great to have you on the show.
Speaker 2 (03:03):
Patrick, it's a privilege and a pleasure to be
here.
Thank you so much for having meon your show.
Speaker 1 (03:09):
Yeah, you know, you and I had an opportunity to meet
at a very exclusive andinteresting event.
Speaker 2 (03:14):
Yes.
Speaker 1 (03:14):
And I don't even know if we can talk about that event
actually.
Speaker 2 (03:18):
Well, I mean, I think you can say that it was a very
high-end event for very wealthyfamilies, geared towards AI, and
it was headed by the founder ofLinkedIn.
I think we can say that.
Speaker 1 (03:32):
Fair enough.
I think people know how tofigure that out.
Well, tell us a little bit Ouraudience.
We have multifamily owners andoperators.
These are not people gettingstarted.
These are people that arewinning already, that sort of
want to win even more.
Obviously, there's a lot goingon in the market around getting
to yield and I'm really curiousfrom your point of view because
(03:56):
you're an investor in many assetclasses and I know I've seen a
lot of your conversations thathave been on from CNBC to Fox
all over the place.
You're everywhere.
I want to get into the book, Iwant to get into your mindset
around how you see investmentsand all of that stuff.
So, with that, tell us a littlebit just who you are, what
(04:18):
you're working on and a littlebit of background for our
viewers and listeners about someof the things you're excited
about.
Speaker 2 (04:25):
That's a great question.
First of all, I did write aboutthis in my book extensively,
because it is a question that alot of wealthy families have
asked me over the past 20 years,and so all your listeners are
entitled to a copy of that,either autographed, shipped to
them free of charge, or I cangive them the audible version of
that.
However, I grew up in New Yorkand I went to college in New
York.
I was pre-med until the pointwhere I was in the cadaver room
(04:46):
working for a surgeon who Ilooked up to with high regard.
He went to Johns Hopkins.
He was championing me to go toJohns Hopkins.
I had good grades.
The problem is I passed outholding a femur in the cadaver
room and it really was sort oflike, you know, going into
senior year I had to take 20credits and then 22 credits to
graduate in four years on time.
That's back when kids went tocollege within four years, not
(05:08):
what it is today, like seven or,you know, like a life's mission
, and so learning is never done,right no?
it's never done, but it'sexpensive in institutions, of
course.
So fast forward to the summer,after I graduated, the doctors
kept calling me and he said look, you know and I had a hard time
, patrick, talking to him,because the reason is is that I
(05:30):
felt like I let him down bypassing out and using smelling
salt to revive me.
But he was talking to me abouthis brother and you know we'd
always talk about my brother butI didn't really was passionate
about it.
The reason is my father hadpaid for us to go through
college using zero coupon bonds,or rather I think it was a
tax-free municipal bonds fromPrudential Base, and he would
(05:50):
clip the coupons every quarterwhen they came in, sent them out
and you get a check.
And that was pretty interesting.
I also gave this doctor I wasinterning for the best work I
could, even better than myschoolwork and the reason is
because I knew that he waschampioning me.
I called him over the summerand he said look, I understand.
(06:12):
After a long conversation Ispoke to my brother.
He wants to talk to you.
He just made partner at GoldmanSachs.
I said, ok, I'll talk to him.
I had no idea what was going on, but it was a lesson in
anything as far as relationshipand sales, and that's really
what it is when you're aninvestment banker on the front
end.
That was a great experience atthe age of 24.
Unfortunately, I lost my fathersuddenly and when I was still
(06:33):
working at the firm, I made apromise to myself that I would
start my own institutional fundbefore the age of 30.
At 29, I raised $30 millionfrom a Park Avenue investment
manager and we basically becamethe kitchen sink for Bear
Stearns during the greatfinancial crisis.
Then I moved out west and wedid the same thing all over
again with hard money loans.
We had a first trust deedfractionalized fund where we
(06:58):
would buy 51% interest of thesenote holders and first trust
deeds hard money loans and thensell them off to REITs.
After we got out of that andhad a few exits, I started
investing on my own into someother things with some of the
families who are also foundersthemselves, and I was also
getting outbid on things too,around 2012, 2013.
(07:19):
So we pivoted hard in theventure.
There were all these doctorsand dentists who were outbidding
.
If you're a seller, that's fine.
If you're a bidder, it doesn'twork.
And for grocery anchored, youknow pharmacy type of product
like CVS Walgreens that havebeen trading at a 10 cap going
back to Moses.
These doctors and dentists werebidding like an eight and a
half cap and I said you knowwhat?
(07:40):
I wound up giving a lot ofmoney back and then finally one
of the founders said Sal, whydon't you just turn your guns on
us?
And so the rest is history.
My partner, albert Ewan atBroadman Partners here.
We've been working together forfive years.
We've amassed a great portfolioof not just real estate but
also high quality venturecompanies.
What do we mean by that?
No first time founders, noshark tank.
(08:01):
We like to see founders thathave had multiple exits founders
, no shark tank.
We like to see founders thathave had multiple exits.
He worked for the same, similarpedigree.
He was managing $6 billion forthe Rockefeller family.
I think you met him at theconference, if I recall
correctly, and we're able to seedeal flow that a lot of people
don't really see anywhere else.
And we're structured in a waywhere mice go where elephants
can't.
(08:21):
And we've had an illustriousportfolio where we've invested
into not just name brands thingslike SpaceX and we're going
through Stripe right now butalso other companies that fit
that bill, one of which isThrive Bioscience.
It's going to be the founder's18th exit and eighth unicorn and
we brought in some high-profileinvestors, well-respected Asian
families and New York Cityfamilies into that deal.
(08:44):
We have a lot of money intothat one and that's led by and
this is a number two criteriain-kind families.
So I don't want to see a balance.
I think the cap table Patrickis the soul of the asset.
I don't want to see a bunch ofmom and pop, nickel and dime
investments in there.
I want to see sustainability.
A lot of the families thatbacked this founder had also
just an example of backed othersuccessful exits as well, and
(09:07):
you have some very, very largename well-known families in
there, such as the Louders inPalm Beach and the Barton family
, which is known for ParkerBrothers, and they're very much
into intellectual property.
That's where you want to seelead.
The cap table is that kind ofintellectual capital rather than
just someone out theregroveling all the time to money,
and we see that a lot whereinvestors come in and especially
(09:30):
after the Silicon Valley bankdebacle, a lot of these founders
have gone into the night wherethey came from and unfortunately
it's taken a lot of greatcompanies out, but when we
follow these rules, we've had atremendous amount of success
doing that.
We've had one exit in SingaporeLife earlier this quarter.
We're still paying investorsout to that, believe it or not,
and that was purchased.
We did that with the Shimanofamily office in 2019.
(09:53):
And their largest holder, sumoTomo Life, came in and bought
them out for cash.
So that was great, and a lot ofthose proceeds are recycled
into real estate, which we'llget into in a moment.
Yeah, no, sounds great, and alot of those proceeds are
recycled into the real estate,which we'll get into in a moment
.
Speaker 1 (10:06):
Yeah, no, sounds great, and you know I heard
early on in your conversationabout championing somebody
championed you.
And then I go to what you saidabout backing founders that are
not first time founders and then, like the 18th exit founder
that you're talking about, canwe lean in more to that?
(10:26):
What's special?
About what's going on here?
Speaker 2 (10:29):
Yeah, so Thomas Forrest Bar-Porsche and I can
send you anyone who sends me anemail if they want a copy of the
book.
I'll send them a copy.
I'll onboard them into a waywhere they can see the video.
He's a descendant of the Audifamily but he's also had a
tremendous amount of successcoming out of you know.
Since you know, he graduatedHarvard in 75.
So maybe, I think, 79.
So he's had a lot of successesby being able to put together
(10:52):
companies in many differentindustries.
But what he's looking for is tosolve the biggest problem.
There isn't, and ThriveBioscience solves that by
changing a very antiquatedtechnology known as cell culture
.
Right?
So if you have, you know you doanything in a laboratory.
You have to understand thatthat cell culture is a
70-year-old technology.
You pull it out of therefrigerator, you pull it back
(11:13):
it's stressed in an environment.
Tom, using his high-pressure orhighly sensitive tools and
microscopes are able to recordterabytes of data per cell so
that you can see real-time drugdiscovery, and that's really the
whole purpose behind it is toreplace the microscope.
(11:34):
Now there's been some otherthings in the past where you've
heard like maybe disgruntledemployees, there'd be a year, 10
years worth of research in alab and he's not getting paid
enough, so he pulls the plug onthe fridge and ruins 10 years
worth of work.
That'll never happen again, butyou'll see actually faster drug
discovery going forward andthere's a lot of AI component to
it as well.
The investors he brought intothat speaks to one thing, but
(11:57):
actually the management teamthat he has too, which is
amazing, because I think theboard of directors, when you
think about it, of any companyis really the conscience of the
company, steering the way andmaking sure everything moves
well and is fluid.
We like that company onlybecause we believe in it.
We've done a lot of lifescience stuff, but more so I
think it's going to have thelargest impact for our families
(12:19):
as it relates to how theirlegacies are going to be
detailed by being investedalongside something like this.
That's going to have a bigimpact.
We've done this before in thepast with something where we're
expecting something similar withanother device company called
Avive Solutions.
It's a portable artificialdefibrillation device, and they
were also the youngest team everto receive FDA approval for an
(12:42):
artificial or an AED as theycall it and that has a
tremendous amount of impact sofar.
It's not about necessarilymaking money that is the driver,
don't get me wrong but it'salso bragging rights, knowing
that the investment you made tosave 10,000 lives through
cardiac arrest, which,unfortunately, as you know, has
become the norm rather than theexception.
Speaker 1 (13:04):
Literally saving lives.
I mean making an investmentthat makes an impact, but
literally saving lives.
Speaker 2 (13:09):
It's the size of a Coke can and it sits in any
mother's purse or any coach'sbackpack, and fleet accounts
have it and it's just continuingto grow.
That's going to be something, Ithink that's.
We're looking forward to seeinghow that works in the next year
.
Speaker 1 (13:22):
In these life science investments and these
technological investments you'redoing, even with AI?
What are you learning about theway that they're tackling
problems, even with data thatmultifamily owners and operators
can learn from?
How does that make you a betterinvestor, too?
Having this diverse mindset,too, is like having this diverse
mindset.
Speaker 2 (13:43):
You know, coming from the real estate background
distressed real estate atGoldman I you know I've not
really have gone into prop techbecause it's hard to adapt.
You have all these disparateowners and some of them are old
school.
You have class A, class B,class C, class D.
You know you have differentamenities and different things
for it.
But I will tell you one thingthat is happening and this is
something I think allmultifamily owners need to
(14:05):
understand is that Amazon ishiring or using more robots than
they are humans, and I thinkTesla is going to become a robot
company soon and if you canfind out a way to adapt that
into your business, it's goingto cut down, I think, the
expense ratios, becausemultifamily has materially
higher expense ratios than mostof the other sub asset classes
(14:27):
right, as compared to industrial.
But I also think that you'regoing to be able to find a way
where, if you can add that tothe amenitization, it's going to
add a tremendous value to you.
Yeah, I know anytime that youcould add.
Speaker 1 (14:38):
Yeah, go ahead yeah, so what we're working on in with
nectar flow is a lot ofbringing the ai, the automation,
the data together, but thereare challenges, uh, currently
with how data is shared and andwho owns it and things like that
.
I'm curious to you, like in thehealth care or even in the life
sciences, getting access tothat data.
(14:58):
Um, I'm curious how people areare moving through that in an
innovative way.
Is that slowing growth in somecapacities?
Speaker 2 (15:06):
I don't think so, and the point of Thrive is that
what they'll probably do isbecause everybody will be using
their machine.
There's always going to be theeyes of God somewhere at the top
of the pyramid, and so they'llbe able to own that data and
it'll become sort of like theBloomberg, if you will, terminal
for research very closed endand you have to pay a premium in
order to access that data.
Data has only gotten moreexpensive and more valuable over
(15:28):
time, just like attention.
Right, think about it.
Attention is the new oil today.
If you have a lot of attention,you have a podcast, you have
millions of followers, you'reKim Kardashian, you can drop a
new brand and make a few millionbucks overnight.
So I mean, this is the world welive in today bucks overnight.
So I mean, this is the world welive in today.
The traditional methodologies ofgoing to school and getting a
(15:50):
PhD and hoping that's going tocreate some sort of a wealth
creation mechanism isn't theretoday.
The other thing, too, it's alot of people don't want to,
they don't think about is thatfor all the multifamily
operators out there, I mean thesecond rule of real estate not
everybody knows the first one'slocation out there.
I mean the second rule of realestate.
Not everybody knows the firstone's location.
The second rule of real estateis to always be raising capital,
(16:11):
and I think if you startlooking at it from the
standpoint of you're buildingyour business and you're able to
use this data in order to findprospective LPs for you, that's
really where I think you'regoing to get the biggest bang
for your buck.
Speaker 1 (16:20):
Yeah, great leverage.
You mentioned attention and asthat attention unlocks for
others, you see more and moreearly stage founders, or I
should say sponsors, on themultifamily side that are into
some trouble right now.
There's some challenges andothers will see that as
opportunity to work through.
How do you see funds today,because I know you have some
(16:42):
opinions about this.
How do you, when I ask you whatdoes a fund mean, tell me about
that?
Speaker 2 (16:49):
You know I actually wrote my second book on this,
called Raising Real Money, andit's a foundation handbook for
aspiring fund managers.
In real estate, funds are afour-letter word in the upper
echelons of the 0.001%.
The reason is is because whatwe've seen happen with a lot of
the larger Sandhill Road fundsmaybe some big name brand hedge
(17:11):
funds, ken Griffin is thatthey're great asset gatherers
right, patrick.
But if you're sitting on abillion dollars and you're
making 2%, that's $20 million ayear.
That buys a lot of expensiveart.
Why do you need to take so muchrisk and risk having investors
pull out because you might havemade a mistake?
The real value that people seeas far as equity recognition is
(17:35):
on what we call direct privateinvestments into these
syndications which everybodyknows.
I would advise people not doinga fund.
A fund is great if you'rebuying a pool of assets, for
example, and you need to raise alot of money around that.
I think what's happened todaywith funds is that they're no
longer functional because we'vegone through a lot of issues
(17:56):
recently since the pandemic, andthat's regulatory inflation and
also service provider inflation.
So the 2% today if you're onlyworking with, I mean it doesn't
work for people with $50,000,you can't afford to keep the
lights on.
We use a different prolific feestructure for these, where it's
more of an all you can eat.
And the reason why is because,with these direct investments
and I wrote we use a differentprolific fee structure for these
, where it's more of anall-you-can-eat.
And the reason why is because,with these direct investments
(18:26):
and I wrote about this in mybook Investing Legacy, which I'm
going to give to your listenersis that Wall Street never met a
fee structure it didn't like.
But you have to make itasymmetric to the investors.
And what I did was and this issomething that you know, this is
a million-dollar tip for yourmultifamily guys who are raising
money is that I created anall-you-can-eat buffet.
What does that mean?
For one fee, you can invest asmuch as you like.
If you're investing a little bitof money, well, not good for
you Investing a lot of money.
Well, as far as the cash oncash return, it looks like an
(18:46):
extra 85 basis points, right?
The difference between $100,000and a million.
And we put that togetherpurposely, the difference
between $100,000 and a million.
And we put that togetherpurposely and we explained it to
people to say look, we're notgiving you discount rates on
anything, we're not chargingfree investors, we're not taking
friends and family for like$10,000.
That's how you destroy theculture, because if anyone were
(19:07):
to audit our cap table, I wantthem to see everybody's paying
the same amount regardless, andthat's what we've paid.
But I think if a lot of peoplethey'll go and set up a fund and
they'll do a 2 in 20, butthey're not making any money
with it as it relates tomultifamily itself, I think a
lot of the issues are going tobe worked out.
I don't think that you're goingto see so much distress.
I don't see the banks or theFDIC forcing foreclosures on
(19:28):
assets.
If things are going to turnaround in a year, I think you'll
have a lot of these thingsfloated out.
But a lot of these new sponsorsthat got into this, I mean,
during the great financialcrisis, patrick, they were still
in high school, right, so theydidn't know what was going on,
and what they didn't understandis that rates are a function of
availability of capital.
So if you lower rates, you'regoing to make that easy for
(19:51):
lending.
It's going to become much morefluid.
Credit is not.
Risk is not going to be there,because if your Fed funds rate
is 0%, you got to get money outthe door.
You're going to lend it toanyone with a heartbeat, right?
And you saw that?
Because, no matter what anymortgage broker or realtor want
to tell you, the real estatemarket in America is explicitly
(20:11):
contingent upon the FederalReserve and the actions thereof,
for them to dictate rates.
So if you start to see ratescome down, that means values are
going to go up.
And that's sort of like thecatch-22 that I got caught in
when a lot of these doctors anddentists, as I told you at the
beginning of the show, wereoutbidding me on things because
they had a cheap cost of capitalthat they never had before and
(20:36):
they figured, hey, I'm going tooverpay for something.
And that's usually what happenswhen you have low interest
rates.
People overpay for stuff.
And then they also use flexibleterm financing, floating rate,
not thinking that interest ratescan go up, but they have to do
it because in order to get anysort of yield out of it, they
have to take that product.
Does that make sense?
Speaker 1 (20:49):
Yeah, and so you mentioned even in the cash on
cash analysis.
Tell me your feelings aroundIRR Sponsors use this to protect
their reputations, but this canbe a number that can be
manipulated.
When does the money come in Allthat?
So how do you that?
Speaker 2 (21:07):
and I'll tell you what it was when I was first
knocking doors for my first fund, I spoke to a few pension fund
managers and remember differentinvestors read things
differently.
I can tell you any retailinvestor, doctor and dentist,
anyone who wants to be rich,that's investing into
(21:28):
multifamily and they don't havea net worth of $100 million at
least they're looking to getrich and they're looking for the
highest number.
The IRR to them is the samething as the cash on cash return
.
They don't know the differenceand I can tell you what this
pension fund told me at the ripeage of 29 or 28 was that, sal,
irrs don't feed my beneficiaries.
(21:48):
You can't take an IRR to theMercedes dealership and buy
something, and anytime you seesomething from us, the IRR even
though we've had a great IRR onone of our industrial deals, it
is not really a reasonable proxyfor people to, I think, make an
investment decision off of it,anything more than say a pro
forma.
(22:08):
We put that at the end of ourpresentation because we don't
want people to pay much weightto it and we just say, well,
that's for the institutionalguys, because IRR is really a
function of the return undertime.
Speaker 1 (22:22):
Yeah, and I know you probably get into this in the
book, but what's the differencebetween the $300 million family
versus a $30 billion family or$3 billion family?
Speaker 2 (22:31):
That's interesting.
The $300 million family.
They are coming into their own.
They usually are still involvedin their operating businesses.
Whatever it is that created thewealth, they're the ones who
usually have come into it andthey're trying to find their
footing and grounds.
What they're looking for mostis legitimacy.
That's why they gravitatetowards Rolls Royces, ferraris,
(22:54):
but really on the upper echelon,professional sports teams in
class A, real estate andinvesting in companies with name
brands, such as what I wastalking to you about before,
with Thrive, bioscience, spacexand Stripe.
The $40 billion family is morelooking towards what's going to
happen for the next generation,for the next 100 years.
(23:15):
They have a much more of alonger-term outlook.
They're not involved in theiroperating businesses every day.
If they own an oil company,they're not managing the oil
company, if that makes sense,and they're more interested and
they can leverage their namemuch faster and much better than
anyone else.
And that's really how you knowthey're exerting influence that
way, through the legacy and thebranding of their name.
(23:39):
I sit on the board of a geniusbiotechnology with Steven
Rockefeller and I can tell youhim, making a few phone calls,
was able to raise a lot of moneyfor this.
You know very, you knowpedigreed company, but that's
the influence that these peoplehave and that's what the
difference between the NuvaReach$300 million is between a $30
(24:01):
billion family.
Speaker 1 (24:02):
Yeah, you mentioned Rockefeller I think of you
mentioned earlier on, likeattention being like data or
like very valuable right, moreand more valuable today and you
know you start to think about.
You don't really need to do alot of networking when you win
where you are and you create theresults for that investors.
(24:22):
And I want to back it up alittle bit and just ask you,
like you've been and correct meif I'm wrong but invited to
invest or participate in SpaceXtwice, also the Stripe
participation.
Those are exciting, excitingcompanies that are transforming
markets and have probably aninfinite role of what happens
(24:46):
next, that are probably beyondour own imaginations.
What makes a great investor tobe then chosen for something
like that?
What is it that makes a greatinvestor to be then chosen for
something like that?
What is it that makes a greatinvestor?
Speaker 2 (24:57):
You have to have a track record of doing what you
say you're going to do.
Spacex and Stripe are both veryprofitable right now, spacex
even more.
I mean, the way we look atSpaceX is you have to, and
you're seeing this with Elon anda bunch of other CEOs today,
especially in Stripe, is thatthey're guarding their cap table
and what's happening is thatthey're not allowing current
(25:18):
investors to be.
They're not allowing currentinvestors to change their hand,
change hands so much, eventhough there are ways to do that
in the secondary market butthey're not going to invite
anyone into their cap tablebecause, who knows, I might be a
nuisance right and start like ashareholder revolt and be like
Elon.
Every time you're launchingthese rockets up from Cape
Canaveral, you're killingseagulls or something.
(25:39):
It's that level of trust to beknown in the industry to do what
you say you're going to do.
If we weren't able to work withThrive, we would never have
been invited by this very, veryhigh-profile investor to come
into SpaceX and then also intoStripe.
It's a reputation, and todaythis sounds really weird,
patrick, but capital is acommodity.
(26:00):
Everybody's got it and the USis still a safe place for rich
people to invest and nothingepitomizes that more than Miami,
which I think is the Monaco ofAmerica.
There's a lot of capital hereswishing around, but that
doesn't necessarily mean it'sgoing to be trusted.
Speaker 1 (26:17):
I know that there's a lot more we can lean in.
This can be a whole series andI'd love to have you back.
I'm sure we'll have you back onsome other aspects and we're
going to have you in theMultifamily Innovation Council
meeting coming up, which isexciting for our members.
We'll get into the weeds ofsome stuff there.
Tell me how, if you werelooking at a multifamily deal,
(26:38):
what are you looking for from asponsor?
How do you think through that?
Speaker 2 (26:43):
I got three rules before we look into anything,
and it's agnostic to the assetclass and I can tell you that
these three rules have been veryhelpful, and they have.
I put them in, they're in mybook, but they've also saved a
lot of my readers their lifesavings, because a lot of people
(27:04):
go into these deals thinking,well, it's real estate, what can
go wrong?
All right.
Well, three rules.
Number one I want these peopleto have had experience through
two economic downturns.
All right, 2008 was one.
This one hasn't started yet.
I want them to start in thelate 90s.
You know when the last timethis happened.
So they're either bald or havegray hair, all right.
(27:25):
Two, I want an audited trackrecord.
If your track record is so good, why didn't you pay $6,000 to
have someone audited for you?
And number three I want ameaningful co-invest.
5% is cute.
That's usually the sponsortrying to wrap his fees into it,
which means nothing.
10% is thoughtful.
Anything more shows conviction.
In our Class A industrial dealout in Southwest, the family put
(27:48):
in 50%, we put in 50% and ourinvestors will be paid off
probably in the next 12 monthsin whole and still collecting
dividends.
Speaker 1 (27:59):
And that's across all investments, really right?
I mean not just multifamily.
Speaker 2 (28:03):
That's across all asset classes, all the four food
groups office, industrial,multifamily and retail.
Speaker 1 (28:13):
And that kind of leans into, as I think through
this, how you mentioned early onin our conversation around the
first-time founder thing, aroundthe first-time founder thing, I
mean that sort of is themechanism that flushes some of
those, it gets you to thosethree points in a lot of ways
because they would have had tohave been through some of those
(28:34):
founders or those markets and itworked through them, found
themselves, figured out how tobring their people together,
build a team, build a companyand do what they say.
I know.
Speaker 2 (28:46):
but you have to understand multifamily is a
wealth creation tool becauseyou're partnering with the
government, right?
They have GSEs and so they wantpeople to go out there and they
know they're going to screw up.
The government does not want tobe in that business and that's
why it allows a lot of people alittle barrier to entry to get
in for wealth creation.
It's like monopoly.
(29:09):
You flip a few homes in yourapartment building and then you
have a hotel in South Beach,right?
Speaker 1 (29:12):
Do you see overconfidence in this aspect a
lot?
Speaker 2 (29:14):
I mean I do yeah especially with the younger
people, and I can tell you thisthis is why we don't do first
time founders or GPs, becausesometimes their egos are just
too big.
Sometimes they think that theyhave a skill set that
transitions into other things.
And I can tell you that being agood equity analyst or good
with spreadsheets does not meanthat you're going to be a good
real estate owner operator.
Just because you're the headsurgeon of your hospital does
(29:37):
not necessarily mean you'regoing to be a good multifamily
operator.
There's a level of gravitas,negotiation, salesmanship and
persuasion that you need to havein order to keep things moving,
and a lot of people treat it asif oh, it's just, I just got to
get the loan and then I just amgoing to call my sister-in-law,
who's a realtor, although shehasn't really sold anything ever
, but I'm going to do her afavor and she can't lease it out
(29:58):
.
So now you have all thisincompetence on top of
incompetence.
A real operator, owner-operatorwill have the best teams in
place, not so much as a merchantbuilder, but to be able to move
things quicker, and that's whatwe like working with, to be
honest with you, the people whohave an established
infrastructure, not the peoplewho are doing it.
Low interest rates spear theGreek lands of all of us and
(30:19):
we've seen some interestingthings where we've had a guy.
He would fly two time zones anda layover.
He was in Salt Lake City, goingto Cincinnati, with a class C
building that he bought forcheap, but he wound up probably
destroying his marriage in themeantime or harming it, because
he was always around, thetenants weren't there.
He overpaid for it, which meantthat he had to manage it
himself.
(30:39):
He couldn't pay a 7% clip inorder to have it managed.
So yeah, you see a lot ofoverconfidence, but when you ask
them the hard questions abouthow they're going to achieve
value or what they're going todo, it's usually a deer in
headlights.
People don't manage.
You should never be managingyour own multifamily.
I mean you only do that if youoverpay or if you hate your
(31:00):
family.
Speaker 1 (31:02):
Yeah, or or you have to uh, get in there and turn
something around.
Speaker 2 (31:08):
Yeah, exactly, yeah exactly.
Speaker 1 (31:10):
Um, well, this has been interesting.
Um, what are the what?
What are some of the thingsyou're excited about?
I know you wrote the book.
Uh, I want to give everybodyaccess to that and we'll put in
the show notes, cause you'vewritten several, right as my
understanding.
Speaker 2 (31:22):
Three and we'll put in the show notes because you've
written several right as myunderstanding.
Speaker 1 (31:26):
Three books, yeah, so we could link to those in the
notes, but and I know we'll befor our council members we'll be
giving those out as well.
But Investing Legacy, that'show the 0.001% invest and that's
the newest book, is that right?
Speaker 2 (31:39):
That is correct.
Yes, that is the book which hassort of exposed to a lot of
people what very wealthy peopleare looking for, how they
transact.
And it's interesting because Iwrote this during the pandemic.
My mom had just passed away andI was bored.
I was out in the Hamptons and Icalled my publisher and I said
look, this is what I want it tolook like, this is how I want it
(32:01):
to put come together.
He did some research.
He found out that 70% of bookbuyers were women and that they
were more interested in thelegacy and the impact, whereas
the men are interested in memestocks, nfts and trying to get
rich quick.
And it's interesting, with alot of families today in America
, the women actually hold thepurse strings, depending on
(32:22):
where the wealth comes from.
If it comes from their line,then they're the ones holding
the purse strings.
And, of course, succession is agreat example of this and that
actually happens in real life.
But what people aren't lookingfor is there's a legacy here.
It's called investing legacy,because people are investing for
the next 50, 100 years.
I talked to a family today.
They're looking for 121 yearsbecause their company has been
(32:44):
around for 120 years, so they'reusing that.
I also know a very prominentdistributor company, a very
prominent beer family.
They're looking for the next 50years.
They won't get into aninvestment if it doesn't allow
for the next 50 years.
For the most part are notlong-term focused.
(33:04):
We're consumers and that haschanged, especially with the
middle class.
People think nothing aboutgetting levered and buying a
Tesla.
That's the last thing thatthese people are looking for.
They're looking to invest inthe things that enhance their
status first and foremost, andthat's through professional
sports ownership.
We profile one of the foundingfamilies of sports ownership,
richard Walken.
I also say some very awkwardthings.
(33:25):
That's corroborated byex-Goldman Sachs colleagues, you
know, as it relates to thepublic versus private markets.
We talk about the psychology.
We talk about the differencesbetween a $300 million family
and a $30 billion family, whichwe talked about.
We compare the Rockefellerswith another Chicago family
office and we also talk abouthow to put together your legacy
(33:46):
and also the five differentinvesting avatars.
Not everybody's the same.
Most real estate guys arewearing khakis.
They drink their light beer,eat their chicken breast trying
to bring their cholesterol down.
They're the providers.
They only know real estate.
They're not going to be goinginto anything else.
Then you got the moguls andthey're like the first-time
sponsors of the founders they'renot going to be going into
anything else.
Then you got the moguls andthey're like the first-time
sponsors of the founders they'regoing to go out there, they
have something to prove, they'regoing to start their own
(34:06):
business.
You have the documentarians,which are like Trump or Soros.
Then you have the what do theycall it?
The curator which are more intothe arts, more liberal, more
focused on that.
In the Northeast they probablydrive a Range Rover.
There are five differentliberal arts schools on the back
of it.
And then you have thenonconformists and that would be
(34:28):
like Bill Gates, for example,getting pulled over in his
Porsche, but he was a legacy.
His father started one of thelargest firms called K&L Gates
and he was able to leverage allthat to be able to start
Microsoft, but he didn't go intolaw.
He was a nonconformist and wediscussed that in the different
types and for anyone raisingmoney, you need to understand
that, because you go to a guywho's a provider and his sole
(34:48):
job is to make sure that he'staken care of the next 20 years,
50 years, and he doesn't looklike he's had much excitement
and he's very steady.
He's not going to be goingafter your crypto fund NFTs or
anything very wild, because hedoesn't want to look foolish.
He only knows what he knows,whereas the mogul is a little
younger.
Speaker 1 (35:08):
He's got something to prove he's going to be more
interested in taking risk likethat.
Does that make sense?
Yeah, it's interesting.
It's just like any customer orany kind of relationship.
That's what you keyed intoearly on.
Is this relationship in thisprocess of moving capital you
mentioned multifamily always beraising capital in the way that
we grow the business and I'veheard you say this before too,
and maybe you can correct me ifI'm wrong which is like leverage
(35:30):
can be used for optimization,not just the acquisition too.
How can multifamily owners belooking through that?
Does that even apply?
Speaker 2 (35:39):
Leverage is meant to enhance the returns, not to
justify the investment, and toomany times in multifamily you've
had too many people, becauseinterest rates are too low,
justify the investment becausethey were able to get a 2.5%
mortgage on something floatingrate that's now probably closer
to 7% or 8% right now and that'sruined everything.
Remember, you got to keep inmind to the capital markets All
these guys that got into this,these guys and girls into
(36:01):
multifamily.
They always thought thatinterest rates were going to
remain zero and after thepandemic, that was not going to
happen.
Otherwise, we would have hadfar difficult problems than what
we have right now, and I thinkit's important for people to
understand that.
Just on a value-added deal, Ijust remember and this is
something your audience canappreciate I have a rule that
(36:22):
the delta, the cap rate deltabetween going in and stabilized
or exit, has to be at least 200basis points.
I was looking at stuff Patrick2020, 2021, at around like they
had like a 27 basis point delta,which doesn't give you any room
for error whatsoever, and thosedeals, of course, have blown up
(36:42):
.
Speaker 1 (36:42):
So yeah, Interesting, and I know we can spend a lot
of time on a lot of differenttopics.
This has been really useful.
Healthy and.
I really enjoyed it.
Uh well, we'll definitely have.
Speaker 2 (36:53):
My allergies have gotten in the way here, you know
.
Speaker 1 (36:56):
No, no.
Uh well, let me ask you thiswhat are the questions I should
be asking that I haven't asked?
Is there anything you can thinkof?
Speaker 2 (37:08):
You know one of the questions.
I mean, if you want toprognosticate, you know, I mean,
how far out do you want to get?
As far as I think, you know,I'll just I'll just end with
this.
I think, regardless of what'sgoing on in the markets today
and I'm going to just reiteratethis because people now are
starting to sell deals to methat we would never get into
only because they're overseasStay in the USA.
(37:29):
The US is a safe place forpeople to invest.
It's got the best property lawsand remember, anytime you're an
oligarch or maybe a dictator inNorth Africa, where do they all
put their money?
In America, right.
So if you can always sort ofgrapple with that being able to
raise money but also not justselling the deal but
(37:51):
understanding that, look, thisis a safe place for you to
invest.
That's where you're gonna startto see a lot of traction, I
think, from overseas investorsif you have access to them,
because everybody here is inMiami to do that, in Palm Beach,
I think.
(38:11):
As far as other questions thatyou're looking at, I would say
what are the other asset classesthat the 0.001% are investing
into that people in multifamilyaren't Right now?
That is, industrial People likeindustrial, large family
offices.
Even the Mormon Church hasbought a lot of industrial in
Florida.
I don't know if you're familiarwith Zara, the clothing brand,
but also it's a lot easier tosell the status of owning a
(38:48):
class A building than rathersomething that they're going to
show their friend which is aclass C dilapidated building.
It's just a lot of people don'twant to see that.
But I would be open to othersub-asset classes too, and if
anybody ever needs any help withthat, they can always reach out
to me.
Speaker 1 (39:02):
Well, in that case, your tenant, as you would say, I
think, is wealthier than you,right.
Speaker 2 (39:07):
I mean all my investors want tenants who are
wealthier than they are.
Right, and that's really whatit comes down to.
And that's why a lot of themthey don't go into multifamily
unless it's class A in a citylike New York or another maybe
Los Angeles, even with thepolitical problems they're
facing right now is because theywanna have the certainty of
(39:27):
knowing that they have tenantswho are not poorer than they are
and that's why they gravitatetowards industrial.
One of our tenants is MilwaukeeTool.
They've been around for 150years, carrier air conditioning.
Everybody in the Southwestneeds air conditioning.
They're not going out ofbusiness, so be careful about
(39:55):
that.
But also remember when you'reselling an investment or when
you're looking at an investmentat was new and he said he had to
underwrite the credit.
I'm like what?
There's no credit.
They're all multifamily.
They all have bad credit Likeothers, or they don't own a home
, you know, and it was likeeverybody started laughing.
He felt kind of embarrassed,but he got down to the point
where it's like yeah, you'reright.
Speaker 1 (40:16):
Oh, you went on mute.
Speaker 2 (40:18):
And I said, why do you want to have tenants poorer
than you if you have all accessto all this high profile money?
And you know, he sort of had tothink and retool about you know
, thinking about why he wasgetting into the sub asset class
because he knew it best.
And at that point you knowwe've been talking about going
into other things too.
Speaker 1 (40:36):
It's interesting mindset around that, With the
American dream owning a home andthe customer, the renter of
today and tomorrow, notnecessarily moving to
Albuquerque and working at Intelfor 25 years and saving and
owning a home and staying inplace.
I mean, it's almost.
You know.
Access is the new ownership.
People are traveling, they'reseeing the world, they're
(40:58):
working remotely in many casesand I look at two of the
wealthiest people in the worldwhich would let's just call it
like Elon or Bezos, right, andthey're improving the life of
the customer and making theproduct more valuable instead of
more expensive.
So it's interesting like theaggregate purchasing power of a
(41:19):
renter customer is up for grabsin so many ways If we can unlock
innovation, technology, bringbetter capital, all these things
to the properties and and makeit more of a valuable
relationship.
So that I think we're in theearly stages of working through
that.
And I love what you said aboutindustrial.
(41:39):
I mean we did some multi-tenantindustrial which is feels more
like multifamily in theindustrial capacity.
But amazing experience workingwith those portfolios.
But look, let's put a bow tieon this.
I'd love to have you back, dosome more stuff.
I know that our audience hasfound this valuable and if
you're listening or watching andyou found this valuable, share
(42:00):
the episode.
Share it with somebody in Slack, in text, email, linkedin,
wherever that is for you, email,whatever that is Because I know
that what we intend to do isbring guests that are doing
interesting things, that arereshaping markets and they're
thinking big about the worldthat they're creating in more
than just the next five yearsinvestment cycle.
(42:22):
These are 50, 100 year, 200year relationships and how they
see the world of investing.
So if this has been helpful toyou, number one, I'll get you
the book.
We'll get a link to that in theepisode and then, if you're on
the Multifamily InnovationCouncil, obviously you'll have
access to Sal and some of hisfuture conversations.
So, sal, I appreciate youcoming on.
(42:42):
This has been really fun andrefreshing.
Speaker 2 (42:44):
Thank you so much.
Yeah, I'm an interesting tastefor most people, but I just tell
it how it is and I appreciatethe time and the relationship
and anything I can do to helpyou guys as part of my legacy,
to make sure you don't lose yourlife savings.
Speaker 1 (42:56):
I'm here for Awesome, I appreciate that.
All right.
Well, we'll see you in the.
So welcome back.
I have a great show for youtoday Incredible Investor
Mindset a conversation with SalBuscemi.
He is the co-founder andmanaging partner of Bremen
Partners and he's also theauthor of Investing Legacy how
the 0.001% invest.
This is an episode you're goingto want to pause and go back
(00:22):
and listen a few times.
He has a principle-led focusmultifamily office that makes
direct investments in somereally interesting companies and
backing some world-classentrepreneurs.
He's been invited to invest inSpaceX twice and also is invited
(00:43):
to invest in Stripe.
So you can see that he's donesome really incredible things
with his portfolio.
He's making a strategicapproach to investments.
We talked about the relationshipand how multifamily owners and
operators should be raisingcapital.
We talked about cap table stuff.
We went through what he looksfor in founders.
He's not investing in earlystage founders.
(01:06):
He's investing in provenfounders, interesting stuff
around how he looks at the boardof directors as sort of the
consciousness of an organization.
He looks at some of thechallenges with PropTechs.
We talked about that.
Talk about that.
(01:27):
He talked about some of theindications of where Amazon is
going with things in terms ofautomation and robotics and how
that may play out in multifamily.
He's looking at data as beingthe most valuable and most
increasing valuable thing to acompany, and even attention,
referencing the importance ofgetting attention in today's
world.
He talked about raising capital, what he looks through, how he
thinks through that IRRs cash oncash.
(01:48):
We're looking at issues thatmultifamily will have in the
coming months.
He looked at rates being sortof a function of availability of
capital and how you movethrough that as a sponsor, and
we looked at what makes a greatinvestor.
I mean he has a diverse mindsetaround this and he has a
(02:08):
diverse portfolio and he hasaccess to some really
interesting people.
What to look for in amultifamily sponsor, and I'll
tease the three things that hementioned.
It's in the episode about whathe looks for when he's looking
at a deal and evaluating thatpartner, that sponsor, that
founder, and it transcendsindustries and organizations
(02:31):
right and again, how leveragecan be used in optimizing a
portfolio, not just going in andplacing debt on it.
So incredible episode.
We shared the time.
If you're part of theMultifamily Innovation Council,
you will hear personally fromhim.
He will be at an upcomingmeeting as part of the council
(02:53):
as a guest speaker.
So with that, let's go rightinto the episode.
Have a listen, all right.
Well, welcome in Sal.
Great to have you on the show.
Speaker 2 (03:03):
Patrick, it's a privilege and a pleasure to be
here.
Thank you so much for having meon your show.
Speaker 1 (03:09):
Yeah, you know, you and I had an opportunity to meet
at a very exclusive andinteresting event.
Speaker 2 (03:14):
Yes.
Speaker 1 (03:14):
And I don't even know if we can talk about that event
actually.
Speaker 2 (03:18):
Well, I mean, I think you can say that it was a very
high-end event for very wealthyfamilies, geared towards AI, and
it was headed by the founder ofLinkedIn.
I think we can say that.
Speaker 1 (03:32):
Fair enough.
I think people know how tofigure that out.
Well, tell us a little bit Ouraudience.
We have multifamily owners andoperators.
These are not people gettingstarted.
These are people that arewinning already, that sort of
want to win even more.
Obviously, there's a lot goingon in the market around getting
to yield and I'm really curiousfrom your point of view because
(03:56):
you're an investor in many assetclasses and I know I've seen a
lot of your conversations thathave been on from CNBC to Fox
all over the place.
You're everywhere.
I want to get into the book, Iwant to get into your mindset
around how you see investmentsand all of that stuff.
So, with that, tell us a littlebit just who you are, what
(04:18):
you're working on and a littlebit of background for our
viewers and listeners about someof the things you're excited
about.
Speaker 2 (04:25):
That's a great question.
First of all, I did write aboutthis in my book extensively,
because it is a question that alot of wealthy families have
asked me over the past 20 years,and so all your listeners are
entitled to a copy of that,either autographed, shipped to
them free of charge, or I cangive them the audible version of
that.
However, I grew up in New Yorkand I went to college in New
York.
I was pre-med until the pointwhere I was in the cadaver room
(04:46):
working for a surgeon who Ilooked up to with high regard.
He went to Johns Hopkins.
He was championing me to go toJohns Hopkins.
I had good grades.
The problem is I passed outholding a femur in the cadaver
room and it really was sort oflike, you know, going into
senior year I had to take 20credits and then 22 credits to
graduate in four years on time.
That's back when kids went tocollege within four years, not
(05:08):
what it is today, like seven or,you know, like a life's mission
, and so learning is never done,right no?
it's never done, but it'sexpensive in institutions, of
course.
So fast forward to the summer,after I graduated, the doctors
kept calling me and he said look, you know and I had a hard time
, patrick, talking to him,because the reason is is that I
(05:30):
felt like I let him down bypassing out and using smelling
salt to revive me.
But he was talking to me abouthis brother and you know we'd
always talk about my brother butI didn't really was passionate
about it.
The reason is my father hadpaid for us to go through
college using zero coupon bonds,or rather I think it was a
tax-free municipal bonds fromPrudential Base, and he would
(05:50):
clip the coupons every quarterwhen they came in, sent them out
and you get a check.
And that was pretty interesting.
I also gave this doctor I wasinterning for the best work I
could, even better than myschoolwork and the reason is
because I knew that he waschampioning me.
I called him over the summerand he said look, I understand.
(06:12):
After a long conversation Ispoke to my brother.
He wants to talk to you.
He just made partner at GoldmanSachs.
I said, ok, I'll talk to him.
I had no idea what was going on, but it was a lesson in
anything as far as relationshipand sales, and that's really
what it is when you're aninvestment banker on the front
end.
That was a great experience atthe age of 24.
Unfortunately, I lost my fathersuddenly and when I was still
(06:33):
working at the firm, I made apromise to myself that I would
start my own institutional fundbefore the age of 30.
At 29, I raised $30 millionfrom a Park Avenue investment
manager and we basically becamethe kitchen sink for Bear
Stearns during the greatfinancial crisis.
Then I moved out west and wedid the same thing all over
again with hard money loans.
We had a first trust deedfractionalized fund where we
(06:58):
would buy 51% interest of thesenote holders and first trust
deeds hard money loans and thensell them off to REITs.
After we got out of that andhad a few exits, I started
investing on my own into someother things with some of the
families who are also foundersthemselves, and I was also
getting outbid on things too,around 2012, 2013.
(07:19):
So we pivoted hard in theventure.
There were all these doctorsand dentists who were outbidding
.
If you're a seller, that's fine.
If you're a bidder, it doesn'twork.
And for grocery anchored, youknow pharmacy type of product
like CVS Walgreens that havebeen trading at a 10 cap going
back to Moses.
These doctors and dentists werebidding like an eight and a
half cap and I said you knowwhat?
(07:40):
I wound up giving a lot ofmoney back and then finally one
of the founders said Sal, whydon't you just turn your guns on
us?
And so the rest is history.
My partner, albert Ewan atBroadman Partners here.
We've been working together forfive years.
We've amassed a great portfolioof not just real estate but
also high quality venturecompanies.
What do we mean by that?
No first time founders, noshark tank.
(08:01):
We like to see founders thathave had multiple exits founders
, no shark tank.
We like to see founders thathave had multiple exits.
He worked for the same, similarpedigree.
He was managing $6 billion forthe Rockefeller family.
I think you met him at theconference, if I recall
correctly, and we're able to seedeal flow that a lot of people
don't really see anywhere else.
And we're structured in a waywhere mice go where elephants
can't.
(08:21):
And we've had an illustriousportfolio where we've invested
into not just name brands thingslike SpaceX and we're going
through Stripe right now butalso other companies that fit
that bill, one of which isThrive Bioscience.
It's going to be the founder's18th exit and eighth unicorn and
we brought in some high-profileinvestors, well-respected Asian
families and New York Cityfamilies into that deal.
(08:44):
We have a lot of money intothat one and that's led by and
this is a number two criteriain-kind families.
So I don't want to see a balance.
I think the cap table Patrickis the soul of the asset.
I don't want to see a bunch ofmom and pop, nickel and dime
investments in there.
I want to see sustainability.
A lot of the families thatbacked this founder had also
just an example of backed othersuccessful exits as well, and
(09:07):
you have some very, very largename well-known families in
there, such as the Louders inPalm Beach and the Barton family
, which is known for ParkerBrothers, and they're very much
into intellectual property.
That's where you want to seelead.
The cap table is that kind ofintellectual capital rather than
just someone out theregroveling all the time to money,
and we see that a lot whereinvestors come in and especially
(09:30):
after the Silicon Valley bankdebacle, a lot of these founders
have gone into the night wherethey came from and unfortunately
it's taken a lot of greatcompanies out, but when we
follow these rules, we've had atremendous amount of success
doing that.
We've had one exit in SingaporeLife earlier this quarter.
We're still paying investorsout to that, believe it or not,
and that was purchased.
We did that with the Shimanofamily office in 2019.
(09:53):
And their largest holder, sumoTomo Life, came in and bought
them out for cash.
So that was great, and a lot ofthose proceeds are recycled
into real estate, which we'llget into in a moment.
Yeah, no, sounds great, and alot of those proceeds are
recycled into the real estate,which we'll get into in a moment
.
Speaker 1 (10:06):
Yeah, no, sounds great, and you know I heard
early on in your conversationabout championing somebody
championed you.
And then I go to what you saidabout backing founders that are
not first time founders and then, like the 18th exit founder
that you're talking about, canwe lean in more to that?
(10:26):
What's special?
About what's going on here?
Speaker 2 (10:29):
Yeah, so Thomas Forrest Bar-Porsche and I can
send you anyone who sends me anemail if they want a copy of the
book.
I'll send them a copy.
I'll onboard them into a waywhere they can see the video.
He's a descendant of the Audifamily but he's also had a
tremendous amount of successcoming out of you know.
Since you know, he graduatedHarvard in 75.
So maybe, I think, 79.
So he's had a lot of successesby being able to put together
(10:52):
companies in many differentindustries.
But what he's looking for is tosolve the biggest problem.
There isn't, and ThriveBioscience solves that by
changing a very antiquatedtechnology known as cell culture
.
Right?
So if you have, you know you doanything in a laboratory.
You have to understand thatthat cell culture is a
70-year-old technology.
You pull it out of therefrigerator, you pull it back
(11:13):
it's stressed in an environment.
Tom, using his high-pressure orhighly sensitive tools and
microscopes are able to recordterabytes of data per cell so
that you can see real-time drugdiscovery, and that's really the
whole purpose behind it is toreplace the microscope.
(11:34):
Now there's been some otherthings in the past where you've
heard like maybe disgruntledemployees, there'd be a year, 10
years worth of research in alab and he's not getting paid
enough, so he pulls the plug onthe fridge and ruins 10 years
worth of work.
That'll never happen again, butyou'll see actually faster drug
discovery going forward andthere's a lot of AI component to
it as well.
The investors he brought intothat speaks to one thing, but
(11:57):
actually the management teamthat he has too, which is
amazing, because I think theboard of directors, when you
think about it, of any companyis really the conscience of the
company, steering the way andmaking sure everything moves
well and is fluid.
We like that company onlybecause we believe in it.
We've done a lot of lifescience stuff, but more so I
think it's going to have thelargest impact for our families
(12:19):
as it relates to how theirlegacies are going to be
detailed by being investedalongside something like this.
That's going to have a bigimpact.
We've done this before in thepast with something where we're
expecting something similar withanother device company called
Avive Solutions.
It's a portable artificialdefibrillation device, and they
were also the youngest team everto receive FDA approval for an
(12:42):
artificial or an AED as theycall it and that has a
tremendous amount of impact sofar.
It's not about necessarilymaking money that is the driver,
don't get me wrong but it'salso bragging rights, knowing
that the investment you made tosave 10,000 lives through
cardiac arrest, which,unfortunately, as you know, has
become the norm rather than theexception.
Speaker 1 (13:04):
Literally saving lives.
I mean making an investmentthat makes an impact, but
literally saving lives.
Speaker 2 (13:09):
It's the size of a Coke can and it sits in any
mother's purse or any coach'sbackpack, and fleet accounts
have it and it's just continuingto grow.
That's going to be something, Ithink that's.
We're looking forward to seeinghow that works in the next year
.
Speaker 1 (13:22):
In these life science investments and these
technological investments you'redoing, even with AI?
What are you learning about theway that they're tackling
problems, even with data thatmultifamily owners and operators
can learn from?
How does that make you a betterinvestor, too?
Having this diverse mindset,too, is like having this diverse
mindset.
Speaker 2 (13:43):
You know, coming from the real estate background
distressed real estate atGoldman I you know I've not
really have gone into prop techbecause it's hard to adapt.
You have all these disparateowners and some of them are old
school.
You have class A, class B,class C, class D.
You know you have differentamenities and different things
for it.
But I will tell you one thingthat is happening and this is
something I think allmultifamily owners need to
(14:05):
understand is that Amazon ishiring or using more robots than
they are humans, and I thinkTesla is going to become a robot
company soon and if you canfind out a way to adapt that
into your business, it's goingto cut down, I think, the
expense ratios, becausemultifamily has materially
higher expense ratios than mostof the other sub asset classes
(14:27):
right, as compared to industrial.
But I also think that you'regoing to be able to find a way
where, if you can add that tothe amenitization, it's going to
add a tremendous value to you.
Yeah, I know anytime that youcould add.
Speaker 1 (14:38):
Yeah, go ahead yeah, so what we're working on in with
nectar flow is a lot ofbringing the ai, the automation,
the data together, but thereare challenges, uh, currently
with how data is shared and andwho owns it and things like that
.
I'm curious to you, like in thehealth care or even in the life
sciences, getting access tothat data.
(14:58):
Um, I'm curious how people areare moving through that in an
innovative way.
Is that slowing growth in somecapacities?
Speaker 2 (15:06):
I don't think so, and the point of Thrive is that
what they'll probably do isbecause everybody will be using
their machine.
There's always going to be theeyes of God somewhere at the top
of the pyramid, and so they'llbe able to own that data and
it'll become sort of like theBloomberg, if you will, terminal
for research very closed endand you have to pay a premium in
order to access that data.
Data has only gotten moreexpensive and more valuable over
(15:28):
time, just like attention.
Right, think about it.
Attention is the new oil today.
If you have a lot of attention,you have a podcast, you have
millions of followers, you'reKim Kardashian, you can drop a
new brand and make a few millionbucks overnight.
So I mean, this is the world welive in today bucks overnight.
So I mean, this is the world welive in today.
The traditional methodologies ofgoing to school and getting a
(15:50):
PhD and hoping that's going tocreate some sort of a wealth
creation mechanism isn't theretoday.
The other thing, too, it's alot of people don't want to,
they don't think about is thatfor all the multifamily
operators out there, I mean thesecond rule of real estate not
everybody knows the first one'slocation out there.
I mean the second rule of realestate.
Not everybody knows the firstone's location.
The second rule of real estateis to always be raising capital,
(16:11):
and I think if you startlooking at it from the
standpoint of you're buildingyour business and you're able to
use this data in order to findprospective LPs for you, that's
really where I think you'regoing to get the biggest bang
for your buck.
Speaker 1 (16:20):
Yeah, great leverage.
You mentioned attention and asthat attention unlocks for
others, you see more and moreearly stage founders, or I
should say sponsors, on themultifamily side that are into
some trouble right now.
There's some challenges andothers will see that as
opportunity to work through.
How do you see funds today,because I know you have some
(16:42):
opinions about this.
How do you, when I ask you whatdoes a fund mean, tell me about
that?
Speaker 2 (16:49):
You know I actually wrote my second book on this,
called Raising Real Money, andit's a foundation handbook for
aspiring fund managers.
In real estate, funds are afour-letter word in the upper
echelons of the 0.001%.
The reason is is because whatwe've seen happen with a lot of
the larger Sandhill Road fundsmaybe some big name brand hedge
(17:11):
funds, ken Griffin is thatthey're great asset gatherers
right, patrick.
But if you're sitting on abillion dollars and you're
making 2%, that's $20 million ayear.
That buys a lot of expensiveart.
Why do you need to take so muchrisk and risk having investors
pull out because you might havemade a mistake?
The real value that people seeas far as equity recognition is
(17:35):
on what we call direct privateinvestments into these
syndications which everybodyknows.
I would advise people not doinga fund.
A fund is great if you'rebuying a pool of assets, for
example, and you need to raise alot of money around that.
I think what's happened todaywith funds is that they're no
longer functional because we'vegone through a lot of issues
(17:56):
recently since the pandemic, andthat's regulatory inflation and
also service provider inflation.
So the 2% today if you're onlyworking with, I mean it doesn't
work for people with $50,000,you can't afford to keep the
lights on.
We use a different prolific feestructure for these, where it's
more of an all you can eat.
And the reason why is because,with these direct investments
and I wrote we use a differentprolific fee structure for these
, where it's more of anall-you-can-eat.
And the reason why is because,with these direct investments
(18:26):
and I wrote about this in mybook Investing Legacy, which I'm
going to give to your listenersis that Wall Street never met a
fee structure it didn't like.
But you have to make itasymmetric to the investors.
And what I did was and this issomething that you know, this is
a million-dollar tip for yourmultifamily guys who are raising
money is that I created anall-you-can-eat buffet.
What does that mean?
For one fee, you can invest asmuch as you like.
If you're investing a little bitof money, well, not good for
you Investing a lot of money.
Well, as far as the cash oncash return, it looks like an
(18:46):
extra 85 basis points, right?
The difference between $100,000and a million.
And we put that togetherpurposely, the difference
between $100,000 and a million.
And we put that togetherpurposely and we explained it to
people to say look, we're notgiving you discount rates on
anything, we're not chargingfree investors, we're not taking
friends and family for like$10,000.
That's how you destroy theculture, because if anyone were
(19:07):
to audit our cap table, I wantthem to see everybody's paying
the same amount regardless, andthat's what we've paid.
But I think if a lot of peoplethey'll go and set up a fund and
they'll do a 2 in 20, butthey're not making any money
with it as it relates tomultifamily itself, I think a
lot of the issues are going tobe worked out.
I don't think that you're goingto see so much distress.
I don't see the banks or theFDIC forcing foreclosures on
(19:28):
assets.
If things are going to turnaround in a year, I think you'll
have a lot of these thingsfloated out.
But a lot of these new sponsorsthat got into this, I mean,
during the great financialcrisis, patrick, they were still
in high school, right, so theydidn't know what was going on,
and what they didn't understandis that rates are a function of
availability of capital.
So if you lower rates, you'regoing to make that easy for
(19:51):
lending.
It's going to become much morefluid.
Credit is not.
Risk is not going to be there,because if your Fed funds rate
is 0%, you got to get money outthe door.
You're going to lend it toanyone with a heartbeat, right?
And you saw that?
Because, no matter what anymortgage broker or realtor want
to tell you, the real estatemarket in America is explicitly
(20:11):
contingent upon the FederalReserve and the actions thereof,
for them to dictate rates.
So if you start to see ratescome down, that means values are
going to go up.
And that's sort of like thecatch-22 that I got caught in
when a lot of these doctors anddentists, as I told you at the
beginning of the show, wereoutbidding me on things because
they had a cheap cost of capitalthat they never had before and
(20:36):
they figured, hey, I'm going tooverpay for something.
And that's usually what happenswhen you have low interest
rates.
People overpay for stuff.
And then they also use flexibleterm financing, floating rate,
not thinking that interest ratescan go up, but they have to do
it because in order to get anysort of yield out of it, they
have to take that product.
Does that make sense?
Speaker 1 (20:49):
Yeah, and so you mentioned even in the cash on
cash analysis.
Tell me your feelings aroundIRR Sponsors use this to protect
their reputations, but this canbe a number that can be
manipulated.
When does the money come in Allthat?
So how do you that?
Speaker 2 (21:07):
and I'll tell you what it was when I was first
knocking doors for my first fund, I spoke to a few pension fund
managers and remember differentinvestors read things
differently.
I can tell you any retailinvestor, doctor and dentist,
anyone who wants to be rich,that's investing into
(21:28):
multifamily and they don't havea net worth of $100 million at
least they're looking to getrich and they're looking for the
highest number.
The IRR to them is the samething as the cash on cash return
.
They don't know the differenceand I can tell you what this
pension fund told me at the ripeage of 29 or 28 was that, sal,
irrs don't feed my beneficiaries.
(21:48):
You can't take an IRR to theMercedes dealership and buy
something, and anytime you seesomething from us, the IRR even
though we've had a great IRR onone of our industrial deals, it
is not really a reasonable proxyfor people to, I think, make an
investment decision off of it,anything more than say a pro
forma.
(22:08):
We put that at the end of ourpresentation because we don't
want people to pay much weightto it and we just say, well,
that's for the institutionalguys, because IRR is really a
function of the return undertime.
Speaker 1 (22:22):
Yeah, and I know you probably get into this in the
book, but what's the differencebetween the $300 million family
versus a $30 billion family or$3 billion family?
Speaker 2 (22:31):
That's interesting.
The $300 million family.
They are coming into their own.
They usually are still involvedin their operating businesses.
Whatever it is that created thewealth, they're the ones who
usually have come into it andthey're trying to find their
footing and grounds.
What they're looking for mostis legitimacy.
That's why they gravitatetowards Rolls Royces, ferraris,
(22:54):
but really on the upper echelon,professional sports teams in
class A, real estate andinvesting in companies with name
brands, such as what I wastalking to you about before,
with Thrive, bioscience, spacexand Stripe.
The $40 billion family is morelooking towards what's going to
happen for the next generation,for the next 100 years.
(23:15):
They have a much more of alonger-term outlook.
They're not involved in theiroperating businesses every day.
If they own an oil company,they're not managing the oil
company, if that makes sense,and they're more interested and
they can leverage their namemuch faster and much better than
anyone else.
And that's really how you knowthey're exerting influence that
way, through the legacy and thebranding of their name.
(23:39):
I sit on the board of a geniusbiotechnology with Steven
Rockefeller and I can tell youhim, making a few phone calls,
was able to raise a lot of moneyfor this.
You know very, you knowpedigreed company, but that's
the influence that these peoplehave and that's what the
difference between the NuvaReach$300 million is between a $30
(24:01):
billion family.
Speaker 1 (24:02):
Yeah, you mentioned Rockefeller I think of you
mentioned earlier on, likeattention being like data or
like very valuable right, moreand more valuable today and you
know you start to think about.
You don't really need to do alot of networking when you win
where you are and you create theresults for that investors.
(24:22):
And I want to back it up alittle bit and just ask you,
like you've been and correct meif I'm wrong but invited to
invest or participate in SpaceXtwice, also the Stripe
participation.
Those are exciting, excitingcompanies that are transforming
markets and have probably aninfinite role of what happens
(24:46):
next, that are probably beyondour own imaginations.
What makes a great investor tobe then chosen for something
like that?
What is it that makes a greatinvestor to be then chosen for
something like that?
What is it that makes a greatinvestor?
Speaker 2 (24:57):
You have to have a track record of doing what you
say you're going to do.
Spacex and Stripe are both veryprofitable right now, spacex
even more.
I mean, the way we look atSpaceX is you have to, and
you're seeing this with Elon anda bunch of other CEOs today,
especially in Stripe, is thatthey're guarding their cap table
and what's happening is thatthey're not allowing current
(25:18):
investors to be.
They're not allowing currentinvestors to change their hand,
change hands so much, eventhough there are ways to do that
in the secondary market butthey're not going to invite
anyone into their cap tablebecause, who knows, I might be a
nuisance right and start like ashareholder revolt and be like
Elon.
Every time you're launchingthese rockets up from Cape
Canaveral, you're killingseagulls or something.
(25:39):
It's that level of trust to beknown in the industry to do what
you say you're going to do.
If we weren't able to work withThrive, we would never have
been invited by this very, veryhigh-profile investor to come
into SpaceX and then also intoStripe.
It's a reputation, and todaythis sounds really weird,
patrick, but capital is acommodity.
(26:00):
Everybody's got it and the USis still a safe place for rich
people to invest and nothingepitomizes that more than Miami,
which I think is the Monaco ofAmerica.
There's a lot of capital hereswishing around, but that
doesn't necessarily mean it'sgoing to be trusted.
Speaker 1 (26:17):
I know that there's a lot more we can lean in.
This can be a whole series andI'd love to have you back.
I'm sure we'll have you back onsome other aspects and we're
going to have you in theMultifamily Innovation Council
meeting coming up, which isexciting for our members.
We'll get into the weeds ofsome stuff there.
Tell me how, if you werelooking at a multifamily deal,
(26:38):
what are you looking for from asponsor?
How do you think through that?
Speaker 2 (26:43):
I got three rules before we look into anything,
and it's agnostic to the assetclass and I can tell you that
these three rules have been veryhelpful, and they have.
I put them in, they're in mybook, but they've also saved a
lot of my readers their lifesavings, because a lot of people
(27:04):
go into these deals thinking,well, it's real estate, what can
go wrong?
All right.
Well, three rules.
Number one I want these peopleto have had experience through
two economic downturns.
All right, 2008 was one.
This one hasn't started yet.
I want them to start in thelate 90s.
You know when the last timethis happened.
So they're either bald or havegray hair, all right.
(27:25):
Two, I want an audited trackrecord.
If your track record is so good, why didn't you pay $6,000 to
have someone audited for you?
And number three I want ameaningful co-invest.
5% is cute.
That's usually the sponsortrying to wrap his fees into it,
which means nothing.
10% is thoughtful.
Anything more shows conviction.
In our Class A industrial dealout in Southwest, the family put
(27:48):
in 50%, we put in 50% and ourinvestors will be paid off
probably in the next 12 monthsin whole and still collecting
dividends.
Speaker 1 (27:59):
And that's across all investments, really right?
I mean not just multifamily.
Speaker 2 (28:03):
That's across all asset classes, all the four food
groups office, industrial,multifamily and retail.
Speaker 1 (28:13):
And that kind of leans into, as I think through
this, how you mentioned early onin our conversation around the
first-time founder thing, aroundthe first-time founder thing, I
mean that sort of is themechanism that flushes some of
those, it gets you to thosethree points in a lot of ways
because they would have had tohave been through some of those
(28:34):
founders or those markets and itworked through them, found
themselves, figured out how tobring their people together,
build a team, build a companyand do what they say.
I know.
Speaker 2 (28:46):
but you have to understand multifamily is a
wealth creation tool becauseyou're partnering with the
government, right?
They have GSEs and so they wantpeople to go out there and they
know they're going to screw up.
The government does not want tobe in that business and that's
why it allows a lot of people alittle barrier to entry to get
in for wealth creation.
It's like monopoly.
(29:09):
You flip a few homes in yourapartment building and then you
have a hotel in South Beach,right?
Speaker 1 (29:12):
Do you see overconfidence in this aspect a
lot?
Speaker 2 (29:14):
I mean I do yeah especially with the younger
people, and I can tell you thisthis is why we don't do first
time founders or GPs, becausesometimes their egos are just
too big.
Sometimes they think that theyhave a skill set that
transitions into other things.
And I can tell you that being agood equity analyst or good
with spreadsheets does not meanthat you're going to be a good
real estate owner operator.
Just because you're the headsurgeon of your hospital does
(29:37):
not necessarily mean you'regoing to be a good multifamily
operator.
There's a level of gravitas,negotiation, salesmanship and
persuasion that you need to havein order to keep things moving,
and a lot of people treat it asif oh, it's just, I just got to
get the loan and then I just amgoing to call my sister-in-law,
who's a realtor, although shehasn't really sold anything ever
, but I'm going to do her afavor and she can't lease it out
(29:58):
.
So now you have all thisincompetence on top of
incompetence.
A real operator, owner-operatorwill have the best teams in
place, not so much as a merchantbuilder, but to be able to move
things quicker, and that's whatwe like working with, to be
honest with you, the people whohave an established
infrastructure, not the peoplewho are doing it.
Low interest rates spear theGreek lands of all of us and
(30:19):
we've seen some interestingthings where we've had a guy.
He would fly two time zones anda layover.
He was in Salt Lake City, goingto Cincinnati, with a class C
building that he bought forcheap, but he wound up probably
destroying his marriage in themeantime or harming it, because
he was always around, thetenants weren't there.
He overpaid for it, which meantthat he had to manage it
himself.
(30:39):
He couldn't pay a 7% clip inorder to have it managed.
So yeah, you see a lot ofoverconfidence, but when you ask
them the hard questions abouthow they're going to achieve
value or what they're going todo, it's usually a deer in
headlights.
People don't manage.
You should never be managingyour own multifamily.
I mean you only do that if youoverpay or if you hate your
(31:00):
family.
Speaker 1 (31:02):
Yeah, or or you have to uh, get in there and turn
something around.
Speaker 2 (31:08):
Yeah, exactly, yeah exactly.
Speaker 1 (31:10):
Um, well, this has been interesting.
Um, what are the what?
What are some of the thingsyou're excited about?
I know you wrote the book.
Uh, I want to give everybodyaccess to that and we'll put in
the show notes, cause you'vewritten several, right as my
understanding.
Speaker 2 (31:22):
Three and we'll put in the show notes because you've
written several right as myunderstanding.
Speaker 1 (31:26):
Three books, yeah, so we could link to those in the
notes, but and I know we'll befor our council members we'll be
giving those out as well.
But Investing Legacy, that'show the 0.001% invest and that's
the newest book, is that right?
Speaker 2 (31:39):
That is correct.
Yes, that is the book which hassort of exposed to a lot of
people what very wealthy peopleare looking for, how they
transact.
And it's interesting because Iwrote this during the pandemic.
My mom had just passed away andI was bored.
I was out in the Hamptons and Icalled my publisher and I said
look, this is what I want it tolook like, this is how I want it
(32:01):
to put come together.
He did some research.
He found out that 70% of bookbuyers were women and that they
were more interested in thelegacy and the impact, whereas
the men are interested in memestocks, nfts and trying to get
rich quick.
And it's interesting, with alot of families today in America
, the women actually hold thepurse strings, depending on
(32:22):
where the wealth comes from.
If it comes from their line,then they're the ones holding
the purse strings.
And, of course, succession is agreat example of this and that
actually happens in real life.
But what people aren't lookingfor is there's a legacy here.
It's called investing legacy,because people are investing for
the next 50, 100 years.
I talked to a family today.
They're looking for 121 yearsbecause their company has been
(32:44):
around for 120 years, so they'reusing that.
I also know a very prominentdistributor company, a very
prominent beer family.
They're looking for the next 50years.
They won't get into aninvestment if it doesn't allow
for the next 50 years.
For the most part are notlong-term focused.
(33:04):
We're consumers and that haschanged, especially with the
middle class.
People think nothing aboutgetting levered and buying a
Tesla.
That's the last thing thatthese people are looking for.
They're looking to invest inthe things that enhance their
status first and foremost, andthat's through professional
sports ownership.
We profile one of the foundingfamilies of sports ownership,
richard Walken.
I also say some very awkwardthings.
(33:25):
That's corroborated byex-Goldman Sachs colleagues, you
know, as it relates to thepublic versus private markets.
We talk about the psychology.
We talk about the differencesbetween a $300 million family
and a $30 billion family, whichwe talked about.
We compare the Rockefellerswith another Chicago family
office and we also talk abouthow to put together your legacy
(33:46):
and also the five differentinvesting avatars.
Not everybody's the same.
Most real estate guys arewearing khakis.
They drink their light beer,eat their chicken breast trying
to bring their cholesterol down.
They're the providers.
They only know real estate.
They're not going to be goinginto anything else.
Then you got the moguls andthey're like the first-time
sponsors of the founders they'renot going to be going into
anything else.
Then you got the moguls andthey're like the first-time
sponsors of the founders they'regoing to go out there, they
have something to prove, they'regoing to start their own
(34:06):
business.
You have the documentarians,which are like Trump or Soros.
Then you have the what do theycall it?
The curator which are more intothe arts, more liberal, more
focused on that.
In the Northeast they probablydrive a Range Rover.
There are five differentliberal arts schools on the back
of it.
And then you have thenonconformists and that would be
(34:28):
like Bill Gates, for example,getting pulled over in his
Porsche, but he was a legacy.
His father started one of thelargest firms called K&L Gates
and he was able to leverage allthat to be able to start
Microsoft, but he didn't go intolaw.
He was a nonconformist and wediscussed that in the different
types and for anyone raisingmoney, you need to understand
that, because you go to a guywho's a provider and his sole
(34:48):
job is to make sure that he'staken care of the next 20 years,
50 years, and he doesn't looklike he's had much excitement
and he's very steady.
He's not going to be goingafter your crypto fund NFTs or
anything very wild, because hedoesn't want to look foolish.
He only knows what he knows,whereas the mogul is a little
younger.
Speaker 1 (35:08):
He's got something to prove he's going to be more
interested in taking risk likethat.
Does that make sense?
Yeah, it's interesting.
It's just like any customer orany kind of relationship.
That's what you keyed intoearly on.
Is this relationship in thisprocess of moving capital you
mentioned multifamily always beraising capital in the way that
we grow the business and I'veheard you say this before too,
and maybe you can correct me ifI'm wrong which is like leverage
(35:30):
can be used for optimization,not just the acquisition too.
How can multifamily owners belooking through that?
Does that even apply?
Speaker 2 (35:39):
Leverage is meant to enhance the returns, not to
justify the investment, and toomany times in multifamily you've
had too many people, becauseinterest rates are too low,
justify the investment becausethey were able to get a 2.5%
mortgage on something floatingrate that's now probably closer
to 7% or 8% right now and that'sruined everything.
Remember, you got to keep inmind to the capital markets All
these guys that got into this,these guys and girls into
(36:01):
multifamily.
They always thought thatinterest rates were going to
remain zero and after thepandemic, that was not going to
happen.
Otherwise, we would have hadfar difficult problems than what
we have right now, and I thinkit's important for people to
understand that.
Just on a value-added deal, Ijust remember and this is
something your audience canappreciate I have a rule that
(36:22):
the delta, the cap rate deltabetween going in and stabilized
or exit, has to be at least 200basis points.
I was looking at stuff Patrick2020, 2021, at around like they
had like a 27 basis point delta,which doesn't give you any room
for error whatsoever, and thosedeals, of course, have blown up
(36:42):
.
Speaker 1 (36:42):
So yeah, Interesting, and I know we can spend a lot
of time on a lot of differenttopics.
This has been really useful.
Healthy and.
I really enjoyed it.
Uh well, we'll definitely have.
Speaker 2 (36:53):
My allergies have gotten in the way here, you know
.
Speaker 1 (36:56):
No, no.
Uh well, let me ask you thiswhat are the questions I should
be asking that I haven't asked?
Is there anything you can thinkof?
Speaker 2 (37:08):
You know one of the questions.
I mean, if you want toprognosticate, you know, I mean,
how far out do you want to get?
As far as I think, you know,I'll just I'll just end with
this.
I think, regardless of what'sgoing on in the markets today
and I'm going to just reiteratethis because people now are
starting to sell deals to methat we would never get into
only because they're overseasStay in the USA.
(37:29):
The US is a safe place forpeople to invest.
It's got the best property lawsand remember, anytime you're an
oligarch or maybe a dictator inNorth Africa, where do they all
put their money?
In America, right.
So if you can always sort ofgrapple with that being able to
raise money but also not justselling the deal but
(37:51):
understanding that, look, thisis a safe place for you to
invest.
That's where you're gonna startto see a lot of traction, I
think, from overseas investorsif you have access to them,
because everybody here is inMiami to do that, in Palm Beach,
I think.
(38:11):
As far as other questions thatyou're looking at, I would say
what are the other asset classesthat the 0.001% are investing
into that people in multifamilyaren't Right now?
That is, industrial People likeindustrial, large family
offices.
Even the Mormon Church hasbought a lot of industrial in
Florida.
I don't know if you're familiarwith Zara, the clothing brand,
but also it's a lot easier tosell the status of owning a
(38:48):
class A building than rathersomething that they're going to
show their friend which is aclass C dilapidated building.
It's just a lot of people don'twant to see that.
But I would be open to othersub-asset classes too, and if
anybody ever needs any help withthat, they can always reach out
to me.
Speaker 1 (39:02):
Well, in that case, your tenant, as you would say, I
think, is wealthier than you,right.
Speaker 2 (39:07):
I mean all my investors want tenants who are
wealthier than they are.
Right, and that's really whatit comes down to.
And that's why a lot of themthey don't go into multifamily
unless it's class A in a citylike New York or another maybe
Los Angeles, even with thepolitical problems they're
facing right now is because theywanna have the certainty of
(39:27):
knowing that they have tenantswho are not poorer than they are
and that's why they gravitatetowards industrial.
One of our tenants is MilwaukeeTool.
They've been around for 150years, carrier air conditioning.
Everybody in the Southwestneeds air conditioning.
They're not going out ofbusiness, so be careful about
(39:55):
that.
But also remember when you'reselling an investment or when
you're looking at an investmentat was new and he said he had to
underwrite the credit.
I'm like what?
There's no credit.
They're all multifamily.
They all have bad credit Likeothers, or they don't own a home
, you know, and it was likeeverybody started laughing.
He felt kind of embarrassed,but he got down to the point
where it's like yeah, you'reright.
Speaker 1 (40:16):
Oh, you went on mute.
Speaker 2 (40:18):
And I said, why do you want to have tenants poorer
than you if you have all accessto all this high profile money?
And you know, he sort of had tothink and retool about you know
, thinking about why he wasgetting into the sub asset class
because he knew it best.
And at that point you knowwe've been talking about going
into other things too.
Speaker 1 (40:36):
It's interesting mindset around that, With the
American dream owning a home andthe customer, the renter of
today and tomorrow, notnecessarily moving to
Albuquerque and working at Intelfor 25 years and saving and
owning a home and staying inplace.
I mean, it's almost.
You know.
Access is the new ownership.
People are traveling, they'reseeing the world, they're
(40:58):
working remotely in many casesand I look at two of the
wealthiest people in the worldwhich would let's just call it
like Elon or Bezos, right, andthey're improving the life of
the customer and making theproduct more valuable instead of
more expensive.
So it's interesting like theaggregate purchasing power of a
(41:19):
renter customer is up for grabsin so many ways If we can unlock
innovation, technology, bringbetter capital, all these things
to the properties and and makeit more of a valuable
relationship.
So that I think we're in theearly stages of working through
that.
And I love what you said aboutindustrial.
(41:39):
I mean we did some multi-tenantindustrial which is feels more
like multifamily in theindustrial capacity.
But amazing experience workingwith those portfolios.
But look, let's put a bow tieon this.
I'd love to have you back, dosome more stuff.
I know that our audience hasfound this valuable and if
you're listening or watching andyou found this valuable, share
(42:00):
the episode.
Share it with somebody in Slack, in text, email, linkedin,
wherever that is for you, email,whatever that is Because I know
that what we intend to do isbring guests that are doing
interesting things, that arereshaping markets and they're
thinking big about the worldthat they're creating in more
than just the next five yearsinvestment cycle.
(42:22):
These are 50, 100 year, 200year relationships and how they
see the world of investing.
So if this has been helpful toyou, number one, I'll get you
the book.
We'll get a link to that in theepisode and then, if you're on
the Multifamily InnovationCouncil, obviously you'll have
access to Sal and some of hisfuture conversations.
So, sal, I appreciate youcoming on.
(42:42):
This has been really fun andrefreshing.
Speaker 2 (42:44):
Thank you so much.
Yeah, I'm an interesting tastefor most people, but I just tell
it how it is and I appreciatethe time and the relationship
and anything I can do to helpyou guys as part of my legacy,
to make sure you don't lose yourlife savings.
Speaker 1 (42:56):
I'm here for Awesome, I appreciate that.
All right.
Well, we'll see you in the.
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