Listen to some of the best principles on private equity real estate investments from this week’s guest, Daniel Cocca. Join our private investor network at 👉 www.vonfinch.com/invest 👈 Daniel Cocca is the co-founder of Alpha Investing, a private capital network that’s all about creating marketplaces, raising capital for sponsors, and providing top-notch investing opportunities to their clients. He is with us here this week to share some of the best principles in private real estate investments, and how they have helped him take Alpha Investing to what it is today in just a span of six years. Alpha Investing gives investors and sponsors an opportunity to come together and invest as a collective. However, how did Daniel manage to gain investors’ trust despite being ‘young’ in this type of industry? In this episode, Daniel also shares the value of mentorship, and why hiring people with more experience than you is imperative to growth and success. Furthermore, we talk about focusing on recession-resistant assets. Daniel shares their own strategy in Alpha Investing that allows them to continuously develop regardless of the state of the market; a strategy that you can apply to your own business or investment endeavors. If you want to learn more about private real estate investing, building a track record from scratch, or achieving stability no matter the state of the market, join Daniel and I on this highly informative episode.
Listen to some of the best principles on private equity real estate investments from this week’s guest, Daniel Cocca. Join our private investor network at 👉 www.vonfinch.com/invest 👈
Daniel Cocca is the co-founder of Alpha Investing, a private capital network that’s all about creating marketplaces, raising capital for sponsors, and providing top-notch investing opportunities to their clients. He is with us here this week to share some of the best principles in private real estate investments, and how they have helped him take Alpha Investing to what it is today in just a span of six years.
Alpha Investing gives investors and sponsors an opportunity to come together and invest as a collective. However, how did Daniel manage to gain investors’ trust despite being ‘young’ in this type of industry? In this episode, Daniel also shares the value of mentorship, and why hiring people with more experience than you is imperative to growth and success.
Furthermore, we talk about focusing on recession-resistant assets. Daniel shares their own strategy in Alpha Investing that allows them to continuously develop regardless of the state of the market; a strategy that you can apply to your own business or investment endeavors.
If you want to learn more about private real estate investing, building a track record from scratch, or achieving stability no matter the state of the market, join Daniel and I on this highly informative episode.
KEY TAKEAWAYS
1. When you’re trying to bring a young company to success, it’s all about building your track record from scratch.
2. Hiring people with more experience than you is imperative to learning and achieving growth.
3 .Find people you can learn from; people that are already successful in the path you’re taking.
LINKS
https://www.alphai.com/our-firm/
https://www.linkedin.com/in/daniel-j-cocca-jr-esq-80628313
Steven: [00:00:01] Some strategies don't change. Today's guest, Daniel Cocca dives into his investment philosophy and why, over the last 10 years, it stayed consistent. We dive into the way he thinks and how you can apply that within your own investing business. Let's get right to it.
INTRO: [00:00:22] This is The Investor Mindset Podcast 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 for the most successful real estate investors and entrepreneurs in the nation. Today's episode is sponsored by Vonfinch Capital. If you're interested in investing alongside me in the same type of real estate opportunities that I personally invest in, then head over to Vonfinch Capital and join their private investor network. You can do so at vonfinchcapital.com/invest. Join me on that next deal, I look forward to seeing you on the inside.
Steven: [00:01:05] Alright guys, welcome back to the Investor Mindset Podcast. I'm your host, Steven Pesavento and today I have Daniel Cocca in the studio. How are you doing today, Daniel?
Daniel: [00:01:13] I'm doing well Steven, thanks for having me.
Steven: [00:01:15] Yeah, excited, Daniel is coming to us from Nashville, where he's based out and he's the managing director at Alpha Investing a firm focused on institutional quality investments and he's got an impressive track record. They've grown dramatically over the last decade and we're going to be diving into a lot of the way that he thinks in his philosophy, and how you can model some of those same things in your investing business, regardless if you're on the operation side, the passive side or just a business owner looking to grow yourself. You're ready to dive into things.
Daniel: [00:01:47] Let’s do it.
Steven: [00:01:48] So before we get into business, let's first start out by taking a look back at earlier in your life, what events or influences from your childhood shaped who you are today?
Daniel: [00:02:00] It’s a great question, I always think back to my father, who was a very--someone who really promoted education and hard work. And from a very young age, I thought the path to success and therefore happiness was paved by lots of education and hard work at big institutions. It probably wasn't until I was in the real world for a few years, 25, 26, 27, where I started to think a little bit differently. And that's part of what gave me the courage so to speak, to start Alpha with my partners is really the transition. And so as I think back on things that defined my life, and my trajectory, that's a big one, I would have never ended up in a New York City law firm if it wasn't for the way my parents raised me but I also would never have made the jump to start a company. That's kind of my story, so to speak.
Steven: [00:02:51] Yeah, it's so interesting, right? How we learn these things, when we're really young, that if we follow this specific path, and we go this direction, that we're going to end up having the life that we want. And then when we get in that, and we actually start experiencing and making some of those decisions ourselves, we're able to realize that there's actually other paths that maybe are a path that fits us better or fits the direction we want to go. And that's where we get to that decision point, or are we willing to go into that unknown to then go and create something that might be that better life we dream of. So what I'm curious about is, you obviously started out working in that institutional, or I should say that law firm space, and then you've since transitioned and grown this business over the past decade to be able to do that kind of deals you do. For those listeners who aren't familiar, tell us a little bit about Alpha Investing, so that we can really dive into the strategy from a perspective of understanding what you guys do and how that's different.
Daniel: [00:03:45] Yeah, sure. So Alpha Investing was a company born somewhat out of necessity. All the founders of the firm were very busy working professionals. I was turning their partners and counting other partners, venture capitalist entrepreneurs, what have you. And we were trying to do the same thing that a lot of people are still trying to do today, which is find access to high quality real estate private equity, so we can take money we have in our stock market accounts and push them into the real estate world. The challenge that everyone finds is that being able to invest with a group that has a billion dollar portfolio is not something you can do even if you're writing a $100,000 check. It's just not that interesting. And so all of this was happening on the heels of crowd-funding and I was actually working on a lot of the venture deals behind the scenes at this time. And so I had a lot of good insight into how those businesses were set up and what they were set up to do. And at the end of the day, it just didn't feel like they actually met the needs of the investor. The goal was about creating marketplaces and raising a lot of capital for a lot of sponsors. For us we were putting real estate deals together, but it's 10 or 12 a year, it's four or five partners that we have long standing relationships with. The goal of everything we're doing, we can, of course, talk more about a very specific strategy is trying to create this concept of Alpha, what our firm's named after. And at the end of the day we do that in a number of ways but a few of them are; partnering with the right groups, looking at sub $50 million small middle market deals where we think we can find off market opportunities, where we think there are pricing inefficiencies, where we believe we can partner with an institutional buyer, and buy from a mom and pop seller, that's where you get to add value just through management expertise and whenever you can add value without spending money on a real estate deal. That's incredibly valuable. And so, at the end of the day, what we wanted to create was a mechanism by which people like us could invest in real estate deals in the manner that we wanted to invest.
Steven: [00:05:54] Yeah, and I think that's so cool to see how you've been able to create that especially at a time where there was so much transition happening, and people were starting to participate in crowd-funding and recognizing what's available. And when people hear about crowd-funding, they often think about websites that you can go online, and you can find access to these deals, and you don't have any connection to the sponsor or really any connection, even with that personal relationship with the company, and that firm that you're finding that with. And I think that's one of the things that really is given the space, a bad name in some ways because without having that relationship, without having that experience with that company, you're not having the same type of investment dynamic that you would with a firm, where you're knowing who is making those investment level decisions, and finding a way to be able to invest alongside them. And so really, it sounds like the firm was really developed out of necessity because you couldn't find what it was that you were looking for personally and one of the ways to be able to do that is to be able to come together and invest as a collective. We have some very similar values there and are really looking to partner with the experienced sponsors and operators. So what is that value proposition when you're going to a billion dollar play or an institutional operator like this, what is the value proposition that ends up getting your foot in the door and ends up allowing you to be able to invest and be able to place your investor’s capital in your own capital into these deals?
Daniel: [00:07:24] Yeah, at the end of the day, in my opinion, real estate investing is about relationships and execution. And when we first started, our objective was much more about starting to build relationships, all the sponsors that we work with, you can actually trace back to a very small number of people, most of them were attorneys that I've worked with in New York. I worked in a capital markets practice that has our firm's re practice under the same umbrella and the attorney who actually created the infrastructure was the partner in that group. And so over the course of time, all those attorneys scattered to other firms, and took on a bunch of sponsor clients and allowed me to basically go out and say, hey, this is exactly what I'm looking for, a sponsor who on your roster check these boxes, can I speak with them, and that's kind of how we started the process, warm intro build relationships. And we started out being gap equity that one to maybe two and a half million dollars, like a little bit larger than a lot of sponsors want to syndicate to high net worth. If they're going to do a 95/5 or 90/10 LP GP split, sometimes there's going to be one major LP and then a handful of smaller ones. But that one to two and a half million was very valuable for a lot of firms that are looking at the sub $50 million deals, a $50 million deal at 70% leverage and 50 million in equity. And so in a world where you have a partner who can do 10 to 12, and another that can do 1, 2, and 3, that's really where we fit in. And we spent a number of years, probably four or five, building up a track record with just providing this somewhat elusive, very attractive capital to sponsors. And then over the course of time as our network grew, we built out relationships and track records and proved that our asset management team is going to actually add value to the process. I think we've set up a system now where we're going to be the majority LP on any given transaction that we invest in. And so the value proposition is a little bit different when you're not positioned. It's not about the size of the check as much as it is about what we're bringing to the table. And so that's kind of been our evolution as a firm, so to speak.
Steven: [00:09:44] And so when you're in that position, when you guys were starting out and you were developing as a firm, you're placing those one to $3 million, was that a single check you were going with like an SPV model where you're raising the capital and managing the investors? So when you were going out and doing that, talk a little bit about what ended up leading you to being able to say to those sponsors and having them say, yes, we're interested in doing that, when they're in a position where they need that capital right now, and you haven't raised it yet.
Daniel: [00:10:15] Yeah, the reality is, we actually never engaged with groups under the idea that this is the capital you need right now. We typically spent three to six months that in groups, sometimes your to the extent that it's probably a bit annoying but we want to take a deep dive, we want to get into the track record, we want to look at case studies, we want to have four or five conversations with principals and underwriting team and just really understand and confirm that we're ultimately on the same page. And so it's only at that point that we actually start looking at deals and considering investments, but there's definitely a process leading up to it.
Steven: [00:10:53] Yeah. And that process ends up putting you in a position where they know like, and trust you, you know, like and trust them, and you obviously have the confidence that you're going to be able to come through when that does happen. So when it comes to growing a firm like this, what has been your investment philosophy beyond what we've talked about so far?
Daniel: [00:11:10] Yeah. So I think an important thing to keep in mind when we started the firm was we needed to build a track record from scratch. I'm not a 55 year old guy who's been in real estate for 30 years and neither are my partners, they were backed by a lot of people that check that box. But when we got out there, it was all about building attraction and understanding the landscape, and our investment philosophy from day one is really predicated on need based on residential assets. People need a place to live, they need a place to grow old. That's true, and a good economy also drives bad outcomes. And if we circle back to 2015, which seems like an eternity from now, the rumblings around real estate recession, general economic recession, we're all there. And so our focus really, from day one has been downside protection. Now, the interesting thing about downside protection, is that, you don't know that you need it until you do and it's part of the reason why our portfolio has held up so well during COVID because all the assets make sense on a cash basis. We haven't been dependent upon residual value or appreciation or whatever for the deals we're in to ultimately make sense.
Steven: [00:12:22] Yeah. And by focusing on those recession, resistant assets, you've been able to continuously deliver, even while things were growing. And now when things have contracted, even if it was for a short period of time, it's been able to stay strong and that obviously gives people a lot of confidence. And how is that philosophy changed over time over the last six years since Alpha has really been focused on doing what you guys do?
Daniel: [00:12:45] Yeah, I mean, we have to believe that we are at or near the end of this current real estate market cycle. And you'll talk to some people and think we're basically there or six to 12 months out, and we'll talk to people that think we're still 3, 4 or 5 years out. And so I think I sit in the latter camp meaning I think there's at least a few more years to run. But at the end of the day, the philosophy is actually very similar and this is the question I want to take. How we were thinking in 2015 is really the same way we're thinking now and with the added qualification that there's probably been a little bit more emphasis on downside protection. We set a standard that any deal we invested in will be able to absorb at least 20 to 25% economic vacancy, assuming there's no rent growth during the first year of ownership. And so that always gives us a strong downside buffer and then we want to make sure that the cash yield for whatever project we're working in makes sense. Now, we do a lot of no light to midsize value add multifamily, we do a lot of affordable housing through a very partnership that generates double digit yield, we do a good bit of senior housing, assisted living memory care, again, all the base residential, but an asset class, it's very fragmented tends to be higher cap rate acquisitions, that are cash, those are the types of things that we're going to be looking for.
Steven: [00:14:09] Yeah, that makes a lot of sense. And what ended up leading to any of that evolution? You've stayed with the exact same philosophy of focusing on properties that are going to be able to be secure, regardless of what's going on in the economy. But what has led you to stay with that philosophy versus changing it as you've grown as a company?
Daniel: [00:14:32] Real estate investing particularly this type of small middle market investing is already on a relative basis, very high. We're talking about projects where you're 2x in your money, if not more in three to five years. And so, if that's your baseline, you don't take an approach where you say I need to optimize my returns and try to cut and maximize returns based on risk. You're trying to find projects that can generate you that 15% average return where you know that there's a strong downside protection. And so that's part of the reason why we haven't had to change it much because it makes sense in a good economy and it also makes sense in a bad economy. Now, listen, we're sitting here today, seeing multifamily assets, for example, 80s, 90s vintage apartment buildings, no trade that sub for caps and smaller primary markets and that doesn't always feel very comfortable. If you believe that cap rates are going to continue to compress, you have to ask yourself, at what point is it just below a threshold where anything looks interesting in the RE deals. And so we will look at other asset classes, we do look at other deals, but we always circle back to the kind of the founding principles and the initial higher caliber of the sponsor partner, underlying fundamentals of the asset class, and the markets that we're looking at and if all those boxes are checked, then we would consider an industrial deal, which is also very hard to find one that makes sense right now. A storage deal, what have you, we do take comfort, though, and in again, knowing that people will always need a place to live and this kind of class B, particularly, you can create an elevated Class B multifamily product, it positions itself very nicely in the marketplace.
Steven: [00:16:25] Yeah, that makes sense. And so I'm really curious, you guys have been able to grow in such a smart way, what role have strategic advisors or an investment committee played in your company's growth and the stability that you've had?
Daniel: [00:16:42] It’s a great question and the short answer is, the people who have backed us and advised us have made all the difference. Because, again, we were not this group of people with 30 years of experience in the space, we hired those people, and they're part of the team now. But when we first started it was, you know me, you trust me, like can you get behind what I'm doing? And this is why it makes sense to say yes. And so there are a lot of different groups that have helped us along the way, whether it was sponsors who said, listen, I'll give you some one way, I'll let you go out and I'll give you a $2 million allocation into my deal, even though I don't need it with the hope that you're going to come back to me three or four years later, with a $10 million cheque. Those types of relationships to the groups that invested in our firm who don't let us work out of their office, give us guidance on how to build a business, how to build culture because what we're doing here is not just building a real estate investment company, we're also building Alpha Investment. Typically, those are aligned, but they're not always identical. And so having advisors who have kind of been through that process already, really makes all the difference and some of the biggest ones in particular is a group in Los Angeles called Wedgewood Enterprises, one of the largest fixing flippers and hard money lenders vertically integrated in all of that space. They backed us, they gave us office space in their building in Redondo Beach, tons of guidance to me and my partners, and those are the types of things that have been very valuable in our firm's growth for sure.
Steven: [00:18:24] Yeah, it's so interesting because sometimes people end up looking to companies that have been successful and they think, wow, how were they able to do that? And it definitely, it's great, definitely its perseverance, and definitely it's all the things that we know, go into creating phenomenal business. But in part, it's going out and finding great people who you can learn from, so that you can end up quickly, being able to model what's already been successful. And in some ways, it's through those relationships more so than logic, it's through those relationships that end up leading you to have an opportunity to be able to grow your business because without those opportunities to raise on deals that they may not have needed you on, you would have had an opportunity to be able to develop the kind of relationship that you now have or be able to develop the investor relations that you currently have that only come from actually doing deals. And so that is such a big piece. And what I'm really curious about is what you recommend to others who are developing in their own business and their own career, who are looking to find potential members or mentors, people who are going to be able to work with them and alongside them in their company for mutual growth across the board.
Daniel: [00:19:39] Yeah, it's a really good question and building mentor mentee relationships are very important. I'm someone that believes at any given time, you should have both a mentor and a mentee and you build those relationships over time in the same way that you build your track record at a firm like ours. You can't do it in six months or 12 months, it takes time. That's just how it works. And so similarly some of the mentors in our group, professors that my partner said ta before in business school or that we had met professional, your folks, I've met a law firm, and people they have introduced me to, kind of working through just being a person who says, hey, I value having smart people around, I don't need to be the smartest person in the room, I'm here to take advice, I'm interested in learning. And I'm excited about doing something that's a little bit different than what everyone else around is doing.
Steven: [00:20:37] Yeah, it's good advice. And it's such a good reminder that we don't do it on our own. We really, as a collective have been able to learn and leverage the thoughts and beliefs of others for us to be able to grow our own. So I'm curious, like, what are you seeing that's happening in the market right now, when it comes to going out and acquiring deals and how should investors be looking at the market that we're working in right now, in comparison with what we've been experiencing over the last couple of years? It's all relative. But I'd love to get your take on that.
Daniel: [00:21:10] Yeah, my initial thought is, people are acting crazy right now and it seems crazy to say that because I think back to 2017, I probably felt the same way then and no one really knows how much room there is to run. I don't think we've seen any marketed deal in 18 months that has made sense, everything we're investing in this off market. Now, it's important to note that there are two types of off market, there's the lightly marketed where it goes out to a handful of groups, and there's still some bidding going on. And there's the true off market, and we're obviously looking for the true off market deal, the acquisition basis has to make sense. If an asset makes sense at 50 million, you can't pay 58 and make the numbers work and that seems like a huge jump. But there's a lot of foreign capital that has lower return requirements, 1030 ones through DSPs, have become very popular, a lot of cheap capital out there, dry powder in real estate private equity. And so now, you got to be kind of mindful of all of that and you need to pick partners that can add value in ways beyond just, what did I buy it for? And what can I sell it for? And that means, how are they executed, the groups that we work with on a regular basis, have a long track record of successfully implementing nearly identical business plans, in the same work or similar markets. And they're able to do the exact same thing over time to the point that we can get comfortable investing with them in this environment, knowing that they've been doing it for years.
Steven: [00:22:53] yeah, being able to see that they've already succeeded at doing it so many times over and over again, knowing that they understand that business model in and out means that you can compress some of the variables and still feel comfortable knowing that you're going to come out the other end in a secure place with the likelihood being nearly the same, that the return structure is going to be equal. And that's super, super important because whenever you're doing something 10, 20, or 30 times, you're going to be a lot better at it than if somebody is coming into a new market, they're looking at a new asset class, there's just things that you don't know and you don't want to be in a situation where there's something that you don't know that's quite costly, and across 200, 300 units, it could end up killing the deal.
Daniel: [00:23:38] Yeah, I think that's really well said. At the end of the day, when you're underwriting a transaction, it's really about taking those assumptions that make up the projections and looking at the underlying facts and saying, does this make sense, but you're never able to fully back up with 100% certainty projections because therefore, we're looking right, we just don't know. And we can say, we believe your pro forma rents make sense because we've toured all the comp properties in a five mile radius and if you renovate to this scope, we know that you can get those rents. We’ve looked at market reports, we've looked at affordability, demographic data. All those things can help you get to a point where you say this makes sense. But at the end of the day, you still have to decide, hey, this is the direction we're going and there is always a little bit of a leap of faith. And so you want to make sure you have partners, who are the type that can handle whatever gets thrown out because once the deal is acquired, what we projected is no longer relevant. We're all going to benchmark against what the deal was projected at but it doesn't matter because now we're in the game and we're playing it with the cards that we've been dealt.
Steven: [00:24:46] Yeah, we're on the field, we've got to start doing the actions to make sure that we can get that ball over the finish line. But at the same time, we had this whole plan going in and it doesn't matter because now it's live and the clock is ticking and it's time to do some work. So this has been really amazing. What I'd love to do is I'd love to dive into the growth rapid fire round where the questions are quick, but your answers really don't need to be. So I'd like to talk a little bit about success. How would you define success and what is success to you?
Daniel: [00:25:13] It’s a good question, we always ask on our podcast about wealth, like, what does wealth mean to you? And it's always interesting to hear how people react. For me, it was really about finding a place that I felt like can become my own along with my partners. And so I think more about the intangibles, I think about just kind of being involved in building something from the ground up, the highs and lows that come with that because no entrepreneur or anyone who started a company will tell you that there aren't some moments where your back is really against the wall and you're fighting for your life. But those types of moments, at least for me, are invigorating, like, I love to have my back against the wall, it's not so much the case anymore but during that build up period, I absolutely did and that's what motivates me. And so success is really just kind of continuing on this trajectory. It was really about putting myself out there because I saw as an attorney, and I worked on so many deals, a lot of people out there are doing really interesting things, raising a lot of money and being very successful. And the key difference when I was sitting in my water chair between me and them is that they put themselves out there, they took the risk. And so for me, it was about taking the risk, and then putting my time and energy behind something as we built it. That's how I ultimately think about success for me or at least how I internalized it.
Steven: [00:26:45] Yeah, that makes so much sense. And based on that definition, do you feel successful?
Daniel: [00:26:49] I’m not sure I'll ever actually feel successful. I think it's one of those things where you can always be richer and you hit certain milestones and thresholds and outside parties may say, hey, you guys have been doing great work, and you're successful but there's still a lot we're trying to do. And as the firm continues to grow, we plug into new avenues, everyone on the team is very hungry. It's an important part of who we hire onto the team and so, yeah, we're still working. So definitely not there yet.
Steven: [00:27:20] absolutely, always got to be dry driving towards something new. So from a habits perspective, what are some of those Keystone habits, the things that you do on a daily or weekly basis that have led to that foundation for success?
Daniel: [00:27:32] For me, a big part of it is, nutrition, exercise, getting good sleep, all the things that everyone will kind of tell you to do, and just being really smart about it, too. And I'm not going to sit here and say that I've done all this research on my own and I have created this program for myself. That's great. But I have a lot of really smart friends, I have a younger brother who is a physician, and I let them do that work in the same way we do the real estate evaluation work for their investments with us and then I implement it into my life. And whether that's something like meditation, whether it's yoga, which I'm a huge proponent of, all those things to feel good that at the end of the day, is how I stay productive, feel as good as I possibly can. And over time, I've learned these are the ways to do it and so these are some of the ways that you don't do it and you do more of the former than the latter over a long enough period of time, and it works out.
Steven: [00:28:32] Yeah, yeah, I love that. So let's finish on this. From a purpose perspective, what drives you to live your best life every day?
Daniel: [00:28:40] right now, it's about kind of building Alpha and putting it on the map as a real kind of player in this space and simultaneously building up the team around because when you've got a relatively small team that you're building up, everyone effectively becomes a family, not to be a cliché, but everyone's very close. Everyone here is personally and financially invested, emotionally invested in what we're doing. And so that's really a big part of, I think, what drives me right now is, let's do this. We've put ourselves in positions where we've spent a good amount of time getting ourselves here, now's the time to execute. And, yeah, for me, that's really what it's all about again, we're all really hungry, we all come from middle class families and we all are trying to get after it. And yeah, that's kind of the story of our firm.
Steven: [00:29:38] yeah I love that. I love meeting people who are really committed to what they're doing who are driven, who are finding a way to create a better life and make an impact not only on the people they work with, but also the people they serve. So thanks for joining us today. It was really fun diving in and getting to know a little bit more about you. Where can people find out more about you or get in touch?
Daniel: [00:29:58] Yeah, our website is Alpha I.com. We are a private group, we're not soliciting new investor so to speak. But if you are interested in having conversation, you can reach out I would just know that you saw me on this podcast and I'll give you a call and we can chat about what we do.
OUTRO: [00:30:28] thank you for listening to the Investor Mindset Podcast. If you like what you heard, make sure to rate, review, subscribe and share with a friend. Head over to the Investor Mindset.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.