Everyone needs more strategies for raising money, right? Well, very successful fundless sponsor Brian Adams drops by this week to take us through his wealth of experience in raising capital and growing a real estate business. We take a deep dive into the process of acquiring investors who are the right fit for your business style and how to keep them happy and informed in real time with modern tech. We also discuss the key strategies needed in order to grow a business by hiring the right people and which areas to invest in. If you are growing a business or looking for ways to get more investors onboard then this episode is a must. Brian is the President and founder of Excelsior Capital, where he spearheads the investor relations and capital markets arms of the firm. He has 10 years of experience in real estate private equity. In addition, he frequently participates in speaking engagements focused on providing the real estate investment community with a real and honest outlook of the commercial real estate market so intelligent investment decisions can be made. Join the community by subscribing and drop a comment below to get involved in the conversation… we would love to hear from you!
Everyone needs more strategies for raising money, right? Well, very successful fundless sponsor Brian Adams drops by this week to take us through his wealth of experience in raising capital and growing a real estate business. We take a deep dive into the process of acquiring investors who are the right fit for your business style and how to keep them happy and informed in real time with modern tech. We also discuss the key strategies needed in order to grow a business by hiring the right people and which areas to invest in. If you are growing a business or looking for ways to get more investors onboard then this episode is a must.
Brian is the President and founder of Excelsior Capital, where he spearheads the investor relations and capital markets arms of the firm. He has 10 years of experience in real estate private equity. In addition, he frequently participates in speaking engagements focused on providing the real estate investment community with a real and honest outlook of the commercial real estate market so intelligent investment decisions can be made.
Join the community by subscribing and drop a comment below to get involved in the conversation… we would love to hear from you!
KEY TAKEAWAYS
1. It's not just about the deals and investments. If you don't have a solid team and infrastructure in place then your business will never grow into what it could be.
2. Stay in touch with your investors. There are technology platforms that can provide information to your investors in real time and... it's 100% worth the investment.
3. Be upfront and set expectations for your investors.
4. Have a strict "no jerk" policy so you know who the right type of investors for you are.
5. Don’t push unrealistic goals to investors. It's better to under promise and over deliver!
6. Focus on three things: capital preservation, cash on cash yield and the tax benefits of real estate ownership.
7. Provide transparent communication and build a solid honest partnership.
8. The average attention span of a person is 12 minutes... so don't waste it with spiel!
9. Know what YOU are best at and then bring in people that will compliment your skills and fill the holes that are in your skillset.
LINKS
https://www.linkedin.com/in/brian-c-adams/
Steven: [00:01] Running a syndication business is tough work. And one of the biggest mistakes that people make is they forget that it's a small business. And so in today's episode, we dive in with Brian Adams, into the importance of setting up a proper back office to have the right people in the right seats, and how you can avoid some of the big mistakes that he made growing a $350 million portfolio, you're not going to want to miss it. So let's get right into it.
INTRO: This is The Investor Mindset podcasts, and I'm Steven Pesavento. For as long as I can remember, I've been obsessed with understanding how we can think better, how we can be better, and how we can do better. And each episode we explore lessons on motivation and mindset from the most successful real estate investors and entrepreneurs in the nation.
Steven: [00:54] Welcome back, guys to The Investor Mindset podcast, Steven Pesavento here and I am very excited. I have Brian Adams in the studio. How are you doing today, Brian?
Brian: [01:03]: Hey, Steven, how are you? I'm doing well.
Steven: [01:05]: I'm doing phenomenal. And I'm excited because Brian is the president and founder of Excelsior Capital, where he serves as the Investor Relations and Capital Markets arm of the firm. He has over 10 years’ experience in real estate private equity, he has advanced knowledge in both the practices and the strategies that go into successful real estate investing, especially in the office space. So definitely excited. You've been through some trials and tribulations you've learned along the way. And we're going to talk about that. We're going to dive into some of the strategies that he uses on raising money and what people really need to know before they invest with an operator about some of the risks and how those operators can mitigate some of those so they can run a successful business. So you're ready to get into things, Brian?
Brian [00:01:52]: Yeah, let's do it.
Steven [00:01:53]: All right. So tell me before we dive into all the investing fun, when we start out by looking back at earlier in your life, what events or influences from your childhood shaped who you are today?
Brian: [02:05]: Gosh, that's a pretty big question. Obviously the most formative one for me in terms of where I am today was meeting my wife in college. Her family is from Nashville. So that's how I ended up down to this part of the world and her family, they have a single-family office based here that has invested in commercial real estate private equity for the last 25/30 years. So that changed the whole trajectory of me being a New York guy to kind of the Northeast thing. And being an attorney by trade, got me to move to Nashville and got me into the private equity real estate business.
Steven: [02:38]: Yeah, that makes sense. And so before we dive into some of the lessons you learned, what is it that you're focused on and what part of the market do you serve?
Brian: [02:47]: Yeah. So we are a Fundless, Sponsor Syndicator, based in Nashville, and we focus on commercial property, for the most part that's been suburban office historically, although we do own some retail, medical, forex and industrial, but the vast majority of it, of the two and a half million square feet or some odd is suburban office in secondary markets southeast Midwest.
Steven: [03:12]: And so for the listeners that don't know, what is a Fundless Sponsor.
Brian: [03:16]: Right, so it's somebody that I do not have a blind pool of capital that I have discretion over, I raise capital on a deal by deal basis. So I find an opportunity where typically x percentage of that equity, and then I have a network of individuals, family offices, independent RA, multifamily offices that participate on just that one deal, on just the deal level. So it's not a portfolio or a fund. It's just that specific opportunity that I invest in on that particular deal.
Steven: [03:47]: That makes sense. And to clarify, are you investing that money and your money in an LP position, but you're raising it and getting paid out your percentage out of that chunk of the funds?
Brian: [03:59]: Correct. So we're the operator sponsor, we find the deal, we source the deal, we run the deal, and then we also raise our own capital for our own investments.
Steven: [04:06]: Definitely. Thanks for the clarification. I think a lot of listeners will appreciate that. So after raising and putting together $375 million of assets, what were some of these big mistakes, these things that you learnt that others can avoid making those same mistakes themselves by looking at your track record?
Brian: [04:26]: Yeah. I don't know if we have enough time to go through all the mistakes I've made. We have about 20 more minutes here, but I'm happy to give you the highlights and in an effort to hopefully prevent people from stepping into that same pothole twice. And so I think on a high level we can't do details but the biggest mistake I think people make in this business and the one that I certainly made, was not appreciating the fact that you've got the real estate investments themselves, the deals which have to work, and you work really hard on those obviously. But you're also starting a small business which has the infrastructure that helps maintain and run those deals themselves. So you're talking about Investor Relations, Communications, Reporting, Asset Management, Tax, Audit, HR. Those don't really have anything to do with the real estate investments. But they are critical and I would say even more crucial to your long-term success than the actual real estate deals themselves. And I did not appreciate the fact that you need to put time, energy, money and resources into building that infrastructure. I was purely focused on the deal side for a long time and it caused a huge issue with my investor base, it almost crushed my company. And I had to eat crow and get my teeth kicked in for about two years by my investor base because of that.
Steven: [05:51]: Yeah. And so many young sponsors, I say young, just an experience, new folks coming into the business, they're looking at the real estate side, they think, "hey, I've got an understanding of how to go and operate this asset. I know how to buy a great asset; I can raise the capital. So therefore, I've got this business figured out." But really, there's so much more that goes into the back-office portion of running successful syndication. So what were some of those things that are absolutely critical that you've overlooked?
Brian [06:19]: Yeah. So the biggest one is just Investor Relations, Communications and Reporting, I put it on the back burner. And that was a huge mistake and honestly, with a lot of what's referred to as prop tech, or technological advances these days, it's very doable. And you don't have to go to the extreme end of the price point but there are some affordable options out there that can really help make sure that you're staying in touch with your LP's as much as possible. And that just is not something that on an organizational level, we put as a priority when we should have. And when you're dealing with 350 investors, you can imagine that if you are not transparent, and you're not communicative, people will go to the worst possible place in their minds about what's actually happening with the capital, what's actually happening with the money, what's actually happening with the deals, and the time, and energy you spend reassuring, those folks will take up your entire day, all night, every day, it's much better, even though it seems painful, to take the money out of the company, build that infrastructure accordingly, have top notch reporting and communication, it will save you a ton of time and headache down the road, and eventually will lead your current investor base to continue to invest on your other deals that you bring to them.
Steven : [07:45]: So what you're really getting to is setting up a structure so that your investors are able to see in real time, on a regular basis, whatever information is pertinent to them understanding what's going on with the deal, they can go there and all the communication is handled through there. Otherwise, you're stuck at the whim of taking and making all these phone calls and trying to understand exactly where money is going without having one kind of central location for all that data.
Brian: [08:12]: Yeah. That's right. So now we use Juniper square, there are a lot of good vendors out there. But we have a 24/7/365 investor portal where people can log in anytime they want on their phone, and they can see if they're in five different deals with me, they can see historical distributions, they can see asset management commentary, they can see their K1, all those things are at their fingertips. And once you allow them that ability, and you continue to have good reporting and good cadence with that reporting, they really shouldn't be calling you up that often. And if you have to push them to that at the initial end, which might be a little bit awkward to some of your older investors, but it's an incredible tool and I think there's no reason that any sponsor should not be using something like Juniper Square.
Steven: [08:59]: Yeah. So that's definitely key, have a portal, have a way and a process and be able to manage investors. What were some of those other things that went into the investor relations piece that you've now implemented and that other people should really be taking consideration if they're on the operator side or looking for this if they're on the investor side?
Brian: [09:18]: Yeah. I think going to your investors who have been doing this for a long time and getting best practices and what they expect. I think part of the issue here is that sponsors don't set expectations with their investor base. They're so focused on closing that investor out and getting them to sign the checks and the wire tip to close them as an investor, that they probably over promise or they just don't want to have that conversation because they're scared it might kill the sale. But I tell you, it is much better to be very forthright and honest and open about what those investor expectations are from a reporting and marketing standpoint. So I tell every university that comes online with me, you can expect monthly PNLs that come out this day of the month, you can expect asset level and market level commentary that comes out once a quarter, you can expect ACH to hit two weeks after the end of the quarter. You can call me, you can send me a note somebody from my team will respond to you within 24 hours, they may not have exactly what you want or the answer to your question. But they will respond to you and they will call you. You are not allowed to call me on the weekend. That is the time that I spend with my family to recharge. It seems awkward, it seems counter-intuitive, but clear is kind.
Steven: [10:42]: Yeah. And by being able to set that expectation, then going into it, the investor is able to decide, "hey, are these boundaries going to work for me? Does this match what I'm looking for? Am I looking for somebody who's going to answer their phone, anytime, day or night, no matter what, and be at my beck and call, hey, there's people out there that are looking for that kind of service, there's people want to give it but having the ability for them to know going into it what to expect, then they don't start building all these crazy stories in your head. And once those stories start being built, that's when all hell breaks loose.
Brian: [11:16]: Yeah. And if the deal is a good deal, you will raise it. And so I'm not saying that I know an aspiring sponsor, is really worried about raising the capital. But I'm telling you, you should have a strict no jerk policy because life is too short and part of this process is understanding who the right investors are for you. There are certain groups that would like to invest with me probably, but they're just not a right cultural fit for who we are and what we do and the type of investors that we service, we only work with individuals and families and multifamily offices, we don't work with institutional LPs. And this infrastructure I've created is not meant to cater to them. So part of this is just also matchmaking and being realistic with who the right LPs are for you and managing those expectations, just like you said,
Steven: [12:03]: Yeah. I think for all of you new sponsors out there are, people who haven't raised capital in the past, or maybe you happen to fall into one of these categories, you don't want to be a jerk going into it, you don't want to be a jerk the entire time, I've had situations early in my career where I worked with some large family office type investors, phenomenal to have capital available to you whenever you absolutely need it. But when it comes with people who are very difficult to work with, it makes it very frustrating and as you kind of progress in your career, you realize it's not worth it. The juice isn't worth the squeeze. And so make sure that you're wanting to work and you got to align values with the kind of people that you're going to be bringing in on the LP side.
Brian [12:46]: Yeah. 100%.
Steven: [12:48]: Okay. So kind of shifting over. When you're talking with an LP investor and they're considering investing, what are some of the things that they need to be making sure that they have a clear understanding on for them to understand if their alignment, whether that's with you, or with other sponsors out there, I think it's really important for LPs to start learning in depth, what are some of those questions that I need to be asking and what are the some of those answers that I need to be looking for to find out if this does align with what I'm actually shooting after?
Brian: [13:21]: Yeah. I would start with expectations on my return profile and just being realistic there. I see a lot of pro-formas and a lot of sponsors penciling in some pretty aggressive cap rate compression on these deals and projecting some pretty [00:13:35 Unintelligible] IRRs in my opinion, not to say that they're not achievable, but it just seems like it would be a heavy pole. And so I think being realistic with your underwriting is a huge component on it. We are probably too conservative; we probably lose some investors because we don't push the envelope maybe as much as other folks do. But I always think that if you can under promise and over deliver, that's a long-term relationship that will always come back to you. So for us, we focus on three things, capital preservation, cash on cash yields, tax benefits of directed real estate ownership, everything else, if you're aligned with those three main pillars, the deal is itself [00:14:16 Unintelligible] little quirks and oddities, and they can have their own specificities. But that's really what we keep coming back to, and when you lead with that, I think that's the issue and the challenge and the pain point that most of my investors are trying to address. And that's the service and the product that I offered to them. So I think that's what we're really talking about here is communication, right? This is what I'm good at, this is my niche, this is what I think I can deliver. This has been my historical returns, and then not going outside of your comfort zone out there. I think that's the biggest question that LP should be asking because once you kind of do that miscommunication it's very hard to win that trust back, but I do know that a lot of sponsors are still eager to get the capital in the door, that they can be a little aggressive with their return profile promises.
Steven: [15:08]: Yeah. I definitely see that a lot in the market. And then it's difficult when you have a deal that really is strong, and you've already rolled it back quite a bit, are you falling into that category of being one of those people that's going to be labeled, as over the top, I would rather be able to over deliver for investors than to ever have an opportunity where I'm not delivering, and it's going to happen, it is an investment and things don't always go as planned. But you want to make sure that you can be as conservative as possible going in and if you're an LP, you want to find operators that have that kind of a viewpoint. So when we were talking about capital raising, you mentioned that you do things a little bit different than some other folks and that has ended up leading to having an opportunity to really be able to frankly serve more LPs and bring more people into your deals, you want to talk a little bit about that?
Brian [15:59]: What you see a lot in this business is an alpha male, ego driven mentality of I'm a really smart person, I know real estate really well, I've got a great deal. I'm going to go out there and I will pitch that product really hard to everybody. Where I come from is a little bit different, maybe because I've been doing this for a while, or I've had some failures, and I've had to rethink how I sell. But it's all about empathy. It's all about understanding the pain points that that person across the table has from you. And addressing those pain points and solving their problems. Because the pitch and the spiel of "I went to Harvard and I went to Wharton and I have this much, and I'm great, and this deal is terrific." I don't think anybody really cares. I think what they care about is what can you do for me? And so reverse engineering, that whole conversation of understanding exactly what their problems are, their pain points are, and having an experience and a product type that addresses those things, you'll get a yes or no much quicker. But that's good frankly, it's all about kind of being efficient with your time and energy. And that again, goes back to this transparent communication component, which I think is so key and it's really not selling as much as just talking and building that investing relationship where if you're not on the same page, let's move on. Because there's 12.4 billion of creditor investor households in America, I'm not going to be the right fit for everybody and I'm totally fine with that. So that's how I think about the sales component and the fundraising component of the business.
Steven: [17:41]: Yeah. That makes sense. And so I totally agree, I'm 100% with you. And I think one of the best ways to do that is just to be super clear and transparent upfront when you're having that conversation, and people are used to hearing the heavy positioning, the kind of slam it down your throat, I'm going to sell you on this and you're going to close on it type of mentality, how do you break through that so that people realize when you're coming into that conversation, that that's not you and that's not what we're doing here?
Brian [00:18:08]: Yeah. So instead of me talking the whole time, it should be the LP talking the whole time. And so I think starting the conversation with, "hey, you know, what I do, you probably have a sense of what my pitch is. But let's talk about your problems, historically, as you've done commercial real estate, private equity, or accredited investor deals, what have you liked about it? What have you not liked about it, what have been some positive experiences, what have been the negative experiences?" And within five or 10 minutes, you'll know if that person is the right fit for you or not based on what they tell you. If they are -- I love development deals I'm risk on I'm swinging for the fences. I love chasing IRR and I like the six appeal of doing ground up stuff. That's awesome, I could be in touch with some good people, that's not my cup of tea. So let's talk about baseball or the weather because this isn't really going anywhere. Whereas if it takes me seven or eight minutes to do my whole thing, and do the dog and pony show, the average person's attention span is 12 minutes long. So you just burn three quarters of your opportunity set, talking about yourself and that person has been tuned out the whole time. And that's just not fun or efficient, or productive use of anyone's time.
Steven: [19:23]: Yeah. Shifting it to that place of "Hey, I need to understand if you're a good fit is really important because at the end of the day, capital is prevalent, it's everywhere, and it's looking for a home and we want to make sure that we're working with people that have the right value. So I can appreciate that you carry that same mentality through and through. So as we are talking about raising capital and investing, we're kind of switching back and forth from this limited partner view to the operator view because I think it's good to be transparent in what's going on. How is an operator thinking about bringing capital in and what is a limited partner thinking about what questions they need to be answering. And so for you, in your business, I know that you had gone through this big transformation and now you've brought in somebody that's a full time controller, tell me about -- from the operational standpoint, what the benefit of that has been for you to have somebody on the team full time focused on the back office, and be able to really deliver that for investors.
Brian [20:25]: Yeah. And then that's where I think it's important to be realistic with your LP bases, and making a huge distinction between taxable and nontaxable investors. I'm not going out there pitching the Alaska permanent fund, or CalPERS, or some big pension plan, I'm dealing with high net worth individuals and families, those are taxable investors. And you should look at things in my opinion, they should look at things from a net of fees after tax perspective, because everything else is irrelevant. Gross returns are irrelevant, they should be looking at things from this perspective. So with that being said, bring on a controller who's a CPA with a public accounting tax background, they can make sure we're doing everything we possibly can, from a tax efficiency standpoint, it's huge, it was a big mistake I made early on was I tried to outsource that third party, maybe bringing somebody in who was too junior to understand what their role is, because your best fundraiser should be your controller, people trust CPAs. They like to talk about taxes, high net worth individuals hate paying taxes, that's what you should lead with, in my opinion, because it gives people a very clear standing of who you are and what you do. And so I brought somebody in a year and a half ago, maybe two years ago now and he's been terrific. You have to be selective. But also, just understanding that somebody is there making sure that the private, small company that you're running, is working effectively, and not just the deals themselves, because if the enterprise level doesn't work, you can't execute on the real estate side. And so for me, as somebody who's constantly out there, marketing, talking to new people networking, trying to find new opportunities, it's really vital for me to have somebody who's looking at quarter to quarter month to month budget to actual, because I'm just not going to do that my brain is not wired that way. And so I think having somebody complimentary to someone like my personality has been huge in terms of my ability to grow the company efficiently.
Steven: [22:31]: Yeah. It's absolutely critical to know what you're the best at and find how you can bring other people on the team. And so how do you go about or how would you recommend to other operators that are in that position and they're thinking, "hey, I want to go down this path, but I'm just not quite big enough, or I'm not quite there or maybe they have a fear about bringing somebody onto the team because maybe I'm not going to get the return." What would you say to those folks?
Brian: [22:54]: Yeah. It's hard. I know, it's very difficult to come out of pocket early on in your career, because money is tight, you're putting a lot of your own capital to work into deals, you don't have a lot of revenue to put to work in these types of infrastructure products. But frankly, it's critical. So I would look at things as -- okay, initially, I'm going to have a third party bookkeeper, who's going to help me, then you move on to a fractional CFO, somebody that you have for 10 hours a week, maybe push them to 20 hours a week. And then eventually, you can have somebody full time, so I think you'd be a spectrum. And that's where setting expectations with your investors is really important and just saying on the front end, hey, listen, I know that eventually, I need to grow into having a full-time comptroller position CFO, I'm not there today. And I just want to be very open with that. So I am able to do these types of things, but the turnaround response time is going to be x, or their work product is going to look like this. You are just going to have to grow into that. But I promise you, you will save yourself a lot of heartburn and headache if you spend too much to get somebody too talented to fill this position, because it just makes a world of difference.
Steven: [24:03]: Yeah. Having the right person in the right seat focused on the right activity is so key, especially when you consider it back to our main premise, that syndication is a small business within the real estate product sector, and that you really need to be running that business effectively and efficiently. And if you're hardcore salesperson, you're great at talking to people, you're good at relationships, you need somebody on your team, who's going to be bringing up that back-office component and making sure that all the I's are dotted and all the T's are crossed. So I think that's phenomenal advice. So we're getting close to closing out here, but tell us why do you think that you've succeeded in this industry when so many other people have failed and given up along the way?
Brian: [24:46]: Stubbornness, I am not afraid to get No's, I think there's a big issue these days with embracing the sales component of it and being realistic that this is a capital intensive business, you need to make a lot of Asks, and if you're not getting a lot of No's, you're not making enough Asks. And I think people interpret a No as something that's inherently wrong with them personally or, and it's just not the case and you've got to get comfortable with that and somebody in the enterprise needs to be 100% focused 100% of the time on capital raising and investor relations with your current investor base. And I embraced that early on. I certainly made a lot of mistakes, but I continued to believe that's the right way to grow the business.
Steven: [25:30]: Yeah. Such good advice. Thank you so much for being here with us today Brian, this has been phenomenal. Where can people find out more about you or get in touch?
Brian: [25:40]: Yeah. I'm super active on LinkedIn. You can check me out Brian C Adams, Excelsior Capital. If you drop me a message, I'm happy to set up a call, a time to talk and I'll answer any questions that you have and then you can go check out the website excelsiorbp.com. We have a ton of resources there, webinars, blog pieces, anything you can imagine. And you can sign up for our newsletter as well as the website.
Steven: [00:25:59]: Wonderful. Definitely take advantage of some of that and definitely reach out to Brian for some advice and wisdom. Thanks so much for being here with us, Brian. And we look forward to the next time we get to have you.
Brian: [00:26:12]: Yeah. Thank you for having me. This is great.
Steven: [26:22] Now is one of the greatest times in history to be investing in multifamily real estate with hundreds of millions of dollars literally moving from the stock market into alternative assets, like real estate every single day. We're in the midst of a golden era. And one of the keys of success is learning how to avoid those upcoming pitfalls and mastering the process of how to scale as an operator in the multifamily business. Regardless if you're just getting started, if you've been in the game for decades, you've got to join us for this very special training put on by the multifamily MBA on how to scale from 0 to 2400 units. The three biggest secrets for building a $320 million multifamily portfolio. Register to join us at theinvestormindset.com/mfmba. Look forward to seeing you there.
OUTRO: Thank you for listening to The Investor Mindset Podcast. If you like what you heard, make sure to rate, reviews, subscribe and share with a friend. Head over to theinvestormindset.com to join the insider club where we share tools and strategies from the top investors and entrepreneurs and how to take it to the next level.