Working Capital The Real Estate Podcast
Investing During a Crisis and Raising Capital with Hunter Thompson|EP2
Apr 4, 2020
In This Episode
Hunter Thompson is a full-time real estate investor and founder of Asym Capital, a real estate investment firm that helps clients build a diverse portfolio around low-risk cash flow production. Since starting Asym, Hunter has raised more than $30million in private capital for real estate offerings. He is the author of Raising Capital for Real Estate: How to Attract Investors, Establish Credibility, and Fund Deals. Hunter is also the host of the Cash Flow Connections Real Estate Podcast.
In this episode, we talked about how to get started with content creation, how his podcast educates audience and having conversations with industry leaders that understand different sectors in real estate in a very high level especially economists that are specifically trained to talk about recessions in crisis, he also explain his tips for real estate entrepreneurs that can make money in these critical times and raising returns in terms of minimum capital with syndication model.
- “You can see that there’s always an opportunity in real estate. There’s a reason that real estate created more millionaires than any investment”
- “Most people we don’t care about the long-term. We want to know if I’m refinancing now, what I am going to get a good deal.”
- “So if you have the opportunity, I would say wait and see how this plays out”
- “I’m a huge proponent of the passive approach to investing because it allows you to leverage other people’s time energy expertise and access to capital but still can get favorable returns”
Links and Resources:
Everyone goes, Oh my gosh. When is there going to be a buying opportunity? And then what happens? And everyone goes, not like this. This is not what I meant. Welcome to the Working Capital The Real Estate Podcast. My name is Jesse Fragale and on his show, we discuss all things real estate with Investors and experts in a variety of industries that impact real estate. Whether you’re looking at your first investment or Raising your first Fund join me. And let’s build that portfolio one square foot at a time. My guest today is Hunter Thompson Hunter is the managing principal at ACE and Capital real estate investment firm that helps clients build a diverse portfolio around low risk cash flow production with nearly or over 10 years experience.
And Fund management. Hunter, he’s also a writer on finances of commercial real estate in the host of the cashflow Connections podcasts in his book Raising Capital for real estate. He teaches aspiring operator’s the art of Establish Credibility attracting Investors and funding Deals that scale. So we were talking a little bit before we started the Podcast on kind of the current environment today, given you know, the Corona virus and its impact on real estate. You had a Podcast that I believe a week or two ago, just talking about a little bit of the impact are what you see is the impact as it relates to real estate with, with the environment that we’re in. I thought, you know, listeners would love to hear a little bit about that and in your current thoughts, cause everyday it seems like, you know, we’re getting new information.
. (1m 23s):
Yeah, well, it’s really interesting. And I think in the world of content creation, this is when you rarely start to see why this is such an important industry, because when there’s uncertainty in the market, people who provide legitimate educational content, that’s actually useful really end up succeeding when there’s a massive scramble for actual answers. And, you know, as well as I do that, there’s been a massive uprising, the popularization of the Podcast medium and in particular, but a lot of it’s fluff out there. So one of the things that we’ve done and we have a show called the Cash for Connections Real Estate Podcast. We have always differentiated ourselves by having very high caliber, very in depth conversations with economists and industry leaders.
. (2m 4s):
And there’s a great shows that are out there that focused on a beginner of content, but our show has always been intermediate to advanced. And now I think is a great benefit to our listener base because we have had conversations with people that understand different sectors of the real estate game and a very high level, as well as economists that are specifically trained to talk about recessions and Crisis. So all that’s to say, I’ve been very much the benefactor of having the platform to be able to invite people on my show and be able to ask them questions I’m genuinely interested in, you know, cause I’m not curious, but also I want to protect my investor capital and my own Capital. So I say all that to say, to set the stage for, you know, I think that right now it feels like for the last five years, every conversation that you’ve had with any investor, if it’s been more than a 10 minute conversation has been about when is the next question going to be and how we’re going well, positioned ourselves to take advantage of it and what happens during this?
. (3m 3s):
Cause I’ve seen now to massive corrections, not that this is one yet, but I’m anticipating that will be, everyone goes, Oh my gosh. When is there going to be a buying opportunity? And then what happens? And everyone goes, not like this. This is not what I meant because that’s what it means to have an incredible buying opportunity. It means that your friends are struggling. It means that someone’s gonna lose their job. It means that there’s going to be a lot of bankruptcies. It’s the carnage and destruction. Unfortunately, that’s what widespread buying opportunities meet now on the good end of that. There are some real estate asset classes, which I believe are going to be incredibly well protected in particular self storage, just by the nature of the fact that you’re not even supposed to go to the asset class anyway, it just to go twice, once to drop your stuff off once you pick your stuff up.
. (3m 53s):
So when you’re able to see the space with the wide lens, you can see that there’s always an opportunity in real estate. There’s a reason that real estate’s created more millionaires than any other investment or any other vehicle. Now real estate has also bankruptcies. So how we move forward in these times is so critical. And in the short podcast that I did was that really significant recessions can create two things that are incredible moneymakers for real estate entrepreneurs and real estate investors. One a, which is price deflation in the other is a pronounced decreasing of interest rates.
. (4m 33s):
You would think that if we’re all machines operating on a binary code, that those three things at the same time could never happen. But that’s exactly what we see throughout history. We see a combination of low prices and low interest rates. Something that if you’re well positioned to take advantage of, and you’ve done some of the things that outlined in my book that you can create legitimate multi-generational wealth yourself. If you participate intelligently and don’t ever lose investor Capital. So if we go down this path, the way we have been over the last couple of weeks, we have seen, as you mentioned, I’m now in, on this podcast that The, the actual overnight rate has decreased. However, one of the debates or conversations we’ve had at, at, on the commercial real estate side for what I do day to day I’m in the office side, but a lot of my colleagues are in retail, industrial multifamily.
. (5m 21s):
We’ve talked about potentially lenders, just keeping the spread for themselves, given the fact that you’re going to have this decrease in the discount rate and then lenders, you would, in theory, people will say, well, that should be in lock step. They should be giving me the five year fixed mortgage at that rate or that, you know, whatever it is. M what do you think is, is going to play out there and do think in fact that the rates will come down commensurate with the, with the Fed’s policy of reducing rates. And I mean that at the bank level, right when there are actually lending Capital. Yeah. So first of all, great question. I liked the way you structured it, because there’s a lot of misconceptions in the world about what the differences between the discount rate in the federal funds rate and whether this is all tied to mortgage rates.
. (6m 3s):
So for your listeners that are interested in those vocabulary words, I do suggest you take the 15 minutes to grasp what the differences are there, because they are not all one in the same. Now, to answer your question directly, I think that over the short term, their can be that Delta There, but because we live in a larger capitalist society, supply and demand will dictate where those prices fall. And it’s not just that all banks are going to just stick to it, right? The beauty of free markets, even though I kind of scoff, when I use the word free market to decide to describe our banking sector, there is enough competition in the marketplace, so that prices will reflect a legitimate supply and demand component.
. (6m 47s):
So I do think that over the short term, you will see a Delta and then over the longterm, as people compete against themselves, you’ll bring that Delta down, basically to act and walk step with all of those other metrics that you mentioned previously. Now that doesn’t mean that if you’re refinancing now that Delta does not going to exist, it does that. Most people, we don’t care about the longterm. We want to know if I’m refinancing now, what am I going to do a good deal. So yeah, if you have the opportunity, I would say, wait and see how this plays out. That’s for me, my true answer for most of the questions about predicting the future. We’re in a massive question, Mark, right now, I’m not saying that this is the buying opportunity. As of the recording of this right now, it’s a question Mark.
. (7m 30s):
We actually haven’t had our tenants even have to pay rent once you set. And from a lot of conversations that I’ve had paying rent once is not actually the big determining factor. A lot of businesses can float their employees for two months. A lot of people and households can Flint their expenses for a month or two. So I’m looking at April 1st is a very important date, but perhaps May 1st is an even more important dates and you know, not to get ahead, but I think that the massive tailwinds spiraled out of control that took place in 2008, because the lack of liquidity, that’s not what we’re facing. Banks are extremely well capitalized comparatively.
. (8m 10s):
So most banks don’t want to be real estate owners. The problem is that in 2008, they didn’t have a choice. They would say we’re willing to take a 70% haircut just to get some liquidity. I don’t think we’re facing that right now. We could, if we end up popping the corporate debt bubble, which can actually cause some liquidity challenges, but right now we’re all on pause. And the big question is how long is this going to last and what the implications will be once we come out in the other end of it? Yeah, I think that’s a great point because we talked so much about the income side and yeah, we haven’t had that April one date yet. Is it, this, is it the case, your, your in the U S I presume Correct.
. (8m 50s):
Los Angeles calorie now, and we invest nationally. Okay. So So in LA. I imagine that it just given the limited amount that I’ve re research or I’ve read so far on the, kind of the feds in the U S Fed’s response to this, there has been a bifurcation is somewhat in Canada, between the commercial real estate industry and the residential real estate industry, as it relates there, the response to this Crisis, and I’m going to move multifamily into the residential side based on kind of a policy response. Number one, has that been the same in the U S in, in the room, in the fact that any of the I’m hesitant to say the word bailout, but any of the stimulus that has been put into the system to assist with tenants, landlords lenders, ah, has it been for both areas in real estate or has there been that same bifurcation?
. (9m 35s):
Yeah. So When it comes to interest rates in the United States, you’re seeing significant interest rate reduction in the space of residential. And so we’re seeing all time highs in terms of refinancing. We actually have all time lows, unsurprisingly in terms of interest rates. So people are taking advantage of all the equity that’s been built up over the last 10 years or so refinancing in blocking in historically low rates on the commercial side that hasn’t quite happened yet, which has kind of what I was talking about previously with the whole supply and demand thing. There’s a tremendous demand for real estate debt. And that demand allows rate’s to be somewhat high in terms of the policy.
. (10m 17s):
There’s two components of this one. Yes. There have been some very widespread what’s the exact word, a memorandums moratoriums on evictions for people that are in some manner have been negatively impacted by Corona, from my perspective, and a hundred percent of everyone. And the judge is going to have to decide and trust me, you’re not going to want to be on the other end of that right now. So in effect, it’s very challenging to evict right now in effect, it’s very challenging to foreclose right now on residential houses. Then on the commercial side of things, the government sponsored entities, the Fannie Mae, Freddie Mac, they again, have more tutorials on foreclosure in the event that, you know, you are, excuse me, I should say they have forbearance programs, which are extremely long winded for up to three months are up to 12 months where if you have a government loan, you can forbear and not actually pay interest that comes along with some additional requirements.
. (11m 18s):
Number one, being that you most likely can not evict someone for up to 12 months. So you’re seeing a lot of flexibility being granted by these programs. Now kind of what I was saying earlier is that to a large degree, as you probably can tell from some of my earlier comments, I’m a big proponent of the free market. I think when we see these top down demands from are overlords for that kind of a better word, people are extremely grateful and understandably so, but my perspective is that this is what most normal people would do. You know, if I’m a real estate owner and we’re seeing a massive pause and seize up of the economy, I’m not going to foreclose.
. (11m 59s):
What am I going to do to take, just create empty land for myself? I understand if I’m a retail owner, for example, that these businesses are not ignorant, they just may be insolvent. It may be strong business’s that just needs some flexibility. And I, as a real estate owner would want to be in a position to do that. And then of course, my person that I have to answer to as the real estate owner, his, the lender, and there in the exact same position. So if they can provide that flexibility, they will, it just so happens that there have been some legislation to enforce that a kindness, let’s say, What is yours? I mean, in the States right now, is it the same as ours? Because part of, like you said, we, I did a video for BiggerPockets about two days after we got a lot of this information.
. (12m 42s):
And what I was saying was the idea of evicting a tenant right now is so far away from reality. Like if I, I wouldn’t do it, everybody’s trying to get through this together. But I did look into, you know, I was telling investors, looking to what kind of deferrals you can get on expenses within your building. Kind of like you said, instead of bottom, you know, bottom down, if you want to, you want to go with a story, you want to be a bottom up, not top down. And so what we’re trying to do with our tenants is basically give them, you know, the ability to pay what they can, and then we can try to pay what we can. And then, you know, hopefully that, that moves its way up. And part of the issue I had was somewhat of a communications issue with our feds, because they basically said we have a moratorium on evictions, and that is true, but they said it almost in a way where it gave you the idea that, Oh, I don’t have to pay my rent and that’s completely not the case.
. (13m 30s):
Right? So my, my worry is on, we have been very blue collar tenants. My worry is that you have this, you know what? You give them three, four, five months to go without paying and not looked down the road of the, you know, we haven’t talked about payment plans yet. They haven’t said, and our, you know, our landlord tenant boards, what, what is going to actually unfold. So now you have a tenant that’s already sensitive too, to money in terms of being able to make their monthly, monthly payments. And now you’re giving them four or five months potentially of payments to make. And I don’t think we’ve kind of gone through how they’re supposed to make those payments. There are multiple payments, a paid back. Yeah. Challenging. And you look at some of the statistics, I’m not as familiar with Canada, but you know, there’s a lot high percentage of people in the United States where they’ve got $400 and their bank account.
. (14m 19s):
And I think I’ve heard only one counter argument to that, which has that, Oh, know people who have credit cards and they can use those. It’s like, that’s not a reasonable answer at an 18% interest rate. So you have a really serious problem. And just extending that out by four months, isn’t going to solve that ability of lack of savings. Now, the whole thing ties in really nicely with this challenge with interest rates and the moral hazard associated with all that, because low interest rate environments, incentivized that people do not want to save for a lot of reasons. One of which is that they can’t make L return on their investment by saving and another his, which they understand that inflammation is going to eat up expenses.
. (15m 0s):
And so they don’t want to keep money around. They just want to buy things. Now, if you want to buy one tomato sauce now, and five years, you can buy half a tomato sauce. So they understand that. So its it’s a massive, massive challenge that we see working its way through the system. Yep. Okay. Well, you know, I know this is going to unfold. Like we said a pretty much on a daily basis and its a, you know, you’re just trying to react right now to all the information that’s coming in and basically what to tell our, you know, our lenders, our tenants or clients. So we appreciate that perspective. What I wanted to do was kind of pivot towards kind of the book you wrote. If you could remind me when, when this book was actually written because I got a copy of it, I think about six months ago.
. (15m 40s):
Yeah, That’s right. So we launched the book about six months, basically about 12 months ago. Then I had this idea that I should write this book about raising money because I have started to feel like we have had this, like I mentioned, this massive tsunami of interest. I also feel very much obligated to help people learn how to do something that I failed miserably at. You know, I’m communicating to you now. I generally am a confident communicator. I, if there is something that I’m passionate about, I’m able to convey that passion to other people, which is what most people think of is being a good salesman. I never thought of myself like that, but its like if I liked something that I share this, right.
. (16m 21s):
Yeah. I found out about investing in syndications prior to the massive crowdfunding explosion. And so when I realized it, I was like, this is an incredible opportunity. I was very bullish on a mobile home park sector in particular. I started Investing for my own portfolio portfolio and it’s having success and went out to my friends and family to say, this is unbelievable. You’re not going to believe this, but you can generate 15, 16, 17% returns by just investing in this land and having mobile home parks parked on the land. And I gave this 40 minute presentation in front of 30 accredited investors and just fell on my face.
. (17m 3s):
I raised no money, zero Thompson. This was the first race right in the book. Right. Okay. Yeah. But can you talk about it? You start it with humility in that that’s fantastic. Yes. And truthfully, so, and this was like, yep. Everyone has their own strengths and weaknesses. A certainly a weakness of mine is just not necessarily the financial component of that. But the emotional component, like I was embarrassed, you know, I had told my friends and family, I was committed to being a real estate entrepreneur and that this was the first real launch of my career. And it was, couldn’t be more of a failure. The only con more of a failure. It could of been if someone withdrew money, but there was no money to withdraw.
. (17m 43s):
So is this bad as it could possibly be? And I didn’t, I didn’t get it. I thought that raising money was like what most people think, which is you see yourself in the center of the circle, unlike most people do. And you’re gonna to go out to your friend, you’re going to go out to your rich uncle. You’re going to go out to your friend that owns a franchise and try to give them an opportunity to give you 25 or $50,000, or can you convince them that you’ve got a great deal and that is not scalable. Data is extremely challenging, even if you know what you’re doing. And you’re basically trying to convince someone who’s successful. Obviously you wouldn’t be asking them for money to take something that they have never done and trust you to do it correctly.
. (18m 27s):
And it wasn’t successful for me. And so I realized I don’t want to have to go around chasing around investors. I want them to chase me. I never want to convince someone to invest with me. I want, whenever I get on the phone with someone, they already know who I am. They have to understand that the USCIS, they probably have invested in real estate before and their interested to learn about my particular perspective. So the whole book is about creating that infrastructure so that you don’t have to chase around Investors ever again. And I went from failing to raise half a million dollars to, I will frequently get an email from someone I’ve only spoken to once on the phone at my request to invest three, a hundred grand to aggressive, to a quarter million dollars because of the fact that we put so much work towards ensuring that they can know everything about me, the type of business I have the particular investment without it requiring as much a my time.
. (19m 21s):
And if you read the book, you know, it’s very detailed, very granular. It’s a playbook too, exactly what I do professionally, but it’s a different thing to read it and say, Oh, that makes sense. And to actually put in a decade of work, which is what I’ve done For sure. And one thing just on the book itself, one thing that’s great is that I th I imagined it was going to be very similar to your Podcast in that year. Podcast is, is very different than a lot of other real estate podcast. You will have, you know, you’re a podcast to me is a mix of real estate finance, economics, political philosophy. I find that a lot of the things that you talk about on your show, you just don’t hear real estate investors talk about so much.
. (20m 2s):
I think I re I was listening to an older, a podcast you did with, I think Tom woods was on the Tom woods show. I was like just, just having that, that person as, as a guest where you’re talking about, you know, the political implications of the financial crisis. And anyways, to say that is to say that the book itself was just as unique and detailed. So when you had that first res for listeners and viewers, if you can talk a little bit about what, I mean, you’re, you’re doing a postmortem on that first Raising are you going, what went wrong? And what was that dialogue like? And then how did you move that into being able to kind of launch the beginning of would, what is the career now? And we need some Capital now totally So.
. (20m 43s):
We realized that despite the fact that I had a background in communicating, despite the fact that I was extremely confident, despite the fact that these people knew me and trusted me to a large degree, cause there are my friends and family or, you know, their plus ones, plus two, I did not have enough advantage to be able to raise the half a million dollars in a room with $30 million in it. And so it’s kind of counterintuitive, but my key takeaway is I don’t want to ever be in a room with only 30 people. Like that’s, what’s crazy. You know, I mean, unless it’s the right people, like I cannot waste my time trying to convince people that I’m the guy to make a bet on.
. (21m 27s):
They have to already be welling that path in order to get a phone call with me because I cannot make hundreds and hundreds of phone calls trying to convince people one-on-one. And so I thought, OK, how am I going to do this? And the first thing I did, which is what I talk about in the book, I really am cautious about my time. So any time I want to do something, I will block at least 60 to 180 minutes. Something like that. I just stream of conscious, wrote down about a hundred topics of articles that I could potentially write that would be convincing for someone that was interested. So like what’s the relationship between interest rates and housing prices, which asset classes are best positioned for a recession is self storage actually going to succeed.
. (22m 9s):
Or the next 10 years as millennials are most likely purchasing less consumer items, just random things that come into my mind. That’s three right now. So for doing it at home, he only have to come in with 97 more. Right? And then I sorted those by the best that I thought were most aligned with my business that I was most knowledgeable about. And here’s the key in the world of content creation. I wanted to create content where people didn’t just read it because of the keywords, but they read it and thought, I need to send this to my friends so they can know how smart I am. Not me. Hunter the reader to be like, I want to impress someone by the fact that this is an interesting perspective on this cool take. That is the key writing one article that has the potential for someone to share it with their friends or that they share with their friend’s is much more powerful than just jamming keywords into your articles.
. (22m 56s):
And so I wrote 10 articles that I thought were like that. And I remember the first person came through by just reading the articles. By the time we got on the phone, there were already sold on investing in real estate that are already selling, investing in self storage. And there are already ready to listen to who I was and figure out if it was a good fit from the gut perspective. And once that was overcome by sent my first $25,000 cheque of the internet, and I said, this is what I’m going to do. I’m going to double down on building this infrastructure and then came to Podcast in the conference and a half Hundreds of hours of interviews. So what was the initial, like you said that the Podcast came after, what was the initial conduit for putting those a, those articles and information out?
. (23m 36s):
Were you on YouTube where you just writing blogs, Just My website. And I do on a huge advocate of building your own platform. It’s really amazing to use and Facebook and all these things. And these are cool tools that you can use at your disposal. And we all have access to them, which has incredible, but you wanna build your own platform. You want to build your own email address so that you can monetize that email address in any way you go from here on forward. I didn’t mention this specifically in the book, but the book you preneur is very, very powerful. It basically talks about if you can build a true following of people that truly buy in to your worldview. I mean, you mentioned Tom Wood’s for example, right? It’s like, you know how few people think that that is even know who Tom woods is, but now, because I’ve had him on the show, I get reached out to by Investors that are fans of his all over the world.
. (24m 27s):
And live there is such an inclination. I don’t want to go on too much of a ride, but I’ll keep it brief. From an evolutionary standpoint, we are pre like our inclination is to kind of want to be liked by everyone because we know that if the person that has all the food doesn’t like us, we’re probably gonna die, but that is not how the modern economy works. I don’t want a little bit of buy in from thousands and thousands of people. I want a ton of buy-in from a few hundred. So being yourself and being authentic and having guys like Tom woods on your show can attract people that have a high degree of buy-in and those few hundred people can present amazing opportunities for you plus you’ll love your clients.
. (25m 11s):
Yeah. And for those that don’t know, Tom woods is a, I guess you call them like an American historian, like political commentator. Ahh. He has the Tom woods show, which has a podcast. And I believe he’s got a contract crew. It’s it’s a Podcast, that’s a, I guess, reviews and critiques a the Nobel Laureate, Paul bins, a weekly, weekly writings. Economical is the biggest troll of podcasts. But it it’s, it’s interesting you say that and I think it’s so true because just like you said, somebody’s would reach out to you that happens to fall that its kind of an intersection of, of two very, not very different areas of the Podcast world, but it’s just, you know, real estate investing and political commentary is not necessarily a logical fit, but you’re going to have those Venn diagrams of people that are like, you know what?
. (25m 59s):
You just gained credibility by having that person on the show and you know, maybe even segwaying into that. Cause I know you do spend, you know, a little bit of time in the book talking about Credibility and how to go about that. And you alluded to it a little bit about it right now, writing articles, becoming a subject matter expert. Is there any thing else that you would tell individuals that are looking to move from maybe being a real estate investor right now too raising capital for real estate? Yeah. So I mean, it’s obviously you’ve got a lot of tailwinds for the, to fall. I mean even with this recent Crisis some people think that this is going to be a further push for people to get money out of the stock market. Cause this volatility happens. You can’t help a feel for people that have their whole net worth tied up in that total casino.
. (26m 44s):
And I certainly have that feeling to, but the truth is it’s a very competitive space. And the reason for this is that it’s very lucrative. So number one, you have to pick an angle. It doesn’t mean that you only want a market to people that are like Y’s of firefighters that are only have one Pat or something like that. But like pick an angle that you think is unique and interesting and 100% authentic and honest to yourself, because if you do that, you can never be exposed for who you really are. And that’s the thing that people start to feel. If anyone that’s a reasonably intelligent always feels like they’re going to be found out that they’re not like a genius, right? So people that aren’t super intelligent, never struggle with this cause they think they’re geniuses and but people that are intelligent, they know that they don’t have all the answers.
. (27m 31s):
So in terms of content creation, pursue what you feel is interesting and the thing that you’re most naturally inquisitive about, and then you’ll be able to create content for the rest of your life. And again, those who are interested in the same things will be your followers and famous. Yeah know that that’s a great point. Just even, even myself. I’ve, I’ve been a contributor for BiggerPockets for probably two years now and I’m in the commercial real estate space. But talking about that space, I was just talking to Brandon at BiggerPockets and we were just talking about the fact that you could have just a slight difference in the area of real estate and know very little about it. So that there’s, there’s just such so many unique areas in real estate that you can add expertise in and that’s real estate, I think any area in life, if you can, like you said, you have an intellectual curiosity for it.
. (28m 19s):
It’s natural for you to not only learn about it, but want to learn about it. So I think that’s a, that’s a great point. So in terms of the actual, you know, the way that you raise capital right now, are you looking geographically and one area for asset’s you mentioned, you know, the story of the asset classes that you like, have you tried, have you expanded those? Where are you today? Yeah. So give you a day Of a structural framework in which we will operate. So we operate as a capital raising and investor relations arm for operating partners that we joint venture with. So we’ll identify someone who we believe to be best in class, in their particular niche that doesn’t like to do things like interface with Investors that doesn’t like to do things like podcast interviews, which I love to do.
. (29m 5s):
Those are like my unique ability. I can do that all day, every day, I’m going to do three today and that will be the best day ever for other people. All they want to do is the interface directly with property managers, look at the underwriting models, tweak and push their performance to try to find out what’s the most efficient, most accurate. And so we find firms that have hundreds of millions of dollars under management, but don’t want to focus on the investor side and create that joint venture. And so this has allowed us to participate intelligently in the market in a variety of different asset classes. It’s a very unique. So right now I’m very bullish on a mobile home park sector. I’m very bullish on a self storage sector and it also really liked apartments.
. (29m 46s):
Now in all fairness, that is almost always been my thesis. We’re experiencing one example as to why that is, but all these recessions and corrections and fears, they tend to not affect those three asset classes. And there’s a lot of reasons for that. But you know, with self storage, for example, you know, obviously if people aren’t supposed to be going to the property, so that’s, there are very well protected. In all fairness, tho the retail sector, we have a sponsor in an operating partner that we really like, and for the last three years have been just trying to figure out a way to work together. And basically we’re trying to meet in the middle and it just, it hasn’t happened yet.
. (30m 29s):
Retail is facing a massive challenge because of the coronavirus. Yeah. And we’re very fortunate that we did not go down that path, not to say that our Capital wouldn’t be well-protected but the likelihood is if you sign the retail deal in the last two years, your, in a position to be challenged for the next few quarters, I mean, that’s just the reality, doesn’t matter how good of underwriting you did. That’s what the reality of the situation is. So, you know, that would give you a good summary. You know, I’m very scared about the hotel business. My wife has a corporate event planning company and she works in the office right here. Every phone call is the same phone calls that people in the real estate business were having in 2008.
. (31m 9s):
Hello. I’d like to get my money back. Hello. We’re going to cancel our event. We need our deposit back. What’s the cancellation fee, every single call. So what does that mean? The hotel business is in a really serious challenge and those operating expense ratios are thin. So when that business has a massive pause, there’s going to be some carnage. One more tip there the one more time. No, go ahead. Yeah. Okay, cool. I try to just give as much information as possible. Not a lot of great have the wide view because most of them are focused on one particular sector. Yeah. Senior living space is something that I’m very bullish on or for the long term. But again, this is a massive question Mark, with coronavirus, the statistics, you’re very clear that the elderly seemed to suffer the most and the highest risk of, of passing away.
. (31m 60s):
And in that space, if you have someone contract a virus, it can go through a community very quickly. And so again, because of the amount of labor in that particular asset class, it can create a challenge. Will that create a buying opportunity for the longterm? I am very confident. It will. So sorry for the long time though. That one. No, no, that’s great. It’s it? We, we kind of ranked them in this similar way with, with our office, you know, once or twice a week, we’re on calls with a retail groups or industrial groups, excuse me. And multifamily. So we have seen a rangelands with landlords right now, just given the environment we’re in right now, start with retail, right? Because they’re basically saying, you know, if we can’t make these payments, we might out of business.
. (32m 40s):
So we’re seeing the landlord community in our area to really try to work with those, those retailers office. We’ve seen, ah, you know, the tech disruption that was happening in office prior to this environment that we were in, we thought would continue to happen. Given the longer term leases have been a little bit more helpful for us, but that’s not the say that, you know, everybody has impact impacted by this. But one, a speaker that I heard, I think it was at, NAIOP said something somewhat interesting. And I think it tied in with a few of the podcasts I’ve listened on your show. And he was talking about to look at this, not as the great financial crisis, as many people are saying, but also more as a natural disaster and what is being destroyed or not building in bridges, it’s human capital.
. (33m 22s):
And it’s basically to a certain extent telling people stay home and don’t work and don’t utilize that to a certain extent. You know, some people are working from home. Most of us are, but it’s, it’s definitely not the same. So that, that was just kind of a takeaway that I had over the past couple weeks. But given the, given your Investors, ah, you know, what would be the way that you typically would raise capital? What are, what type of, what type of return do you kind of, do you give them as a M as a forecast or what kind of returns are you looking for? And then what structure are you Raising in terms of, you know, minimum Capital you mentioned earlier in the show, we talked about syndication, assume it’s, you know, a preference turn with a kind of a syndication model.
. (34m 2s):
Maybe you could talk a little bit about that. Sure. So The first of all, you know, we create our own Investing entities. All of our investors will invest into our specific entity. I like to do that for a lot of reasons. Number one, because it’s a quality control metric, all quarterly distributions are received directly from us, all distributions and tax documents are received directly from us. And that just ensures that the experience is consistent across multiple sectors administratively. It’s a very burdensome, but it’s a big part of the value ad that we have with our operating partners. From a big picture standpoint, yes, we use the syndicated structure. We want to pull the Investors together so that rather than one investor investing a hundred thousand dollars and owning one property, that’s worth a hundred thousand dollars.
. (34m 49s):
We want to have 10 Investors each Investing a hundred thousand dollars, so he can buy a much larger, much more sophisticated property so that the complexities of that property lend themselves for there being a big discrepancy between a mom and pop owner and a best in class owner. You know, that’s really the magic about all these commercial real estate asset classes. If you can buy in an asset from someone who that’s their only asset, they don’t have the systems in a relationships and the processes and the, the level of sophistication that you do as a business owner of multiple real estate assets, you can create legitimate different in every single one of those line items on an Excel underwriting model.
. (35m 29s):
And those line items may add up to a million, 2 million, $5 million of value by just implementing your infrastructure. Cause you’ve done it over and over. So I’m a huge proponent of the passive approach to investing because it allows you to leverage other people’s time, energy expertise, and access to capital, but still get favorable returns. So you can sleep like a baby, get those quarterly reports to get those quarterly checks. And it sounds like an infomercial, but you know, I’m a investor In 30 passive Deals. And to a large degree, the cash flow is coming in, regardless of whether I have this interview with you or not, or if I go to Mexico for a month. And I imagine, you know, just given the fact that it’s syndicated, you guys will be the sponsors of the Deals you’ll have your limited partners Investing in terms of the investments that you have, what’s the metric you would use right now.
. (36m 16s):
Would it be the amount of units you have assets under management? Yeah, so, I mean, we have probably about a hundred million dollars. Hunter The management levered. So let’s say you raised $30 million. Can you leverage it to, to one So maybe $16 million of debt, $30 million of the equity somewhere in that range? Umm, that would probably give you a good idea. As far as their returns. You know, we always underwrite from the low to mid teens. It’s not that we stick with that metric and then reverse engineer with bang would have to be, but just generally speaking, we try to find deals where they can conservatively achieve those types of returns. Now, in all fairness, we were projecting low to mid teens when we were buying in 2000 and we had some massive home runs, but mathematically it’s impossible for the same kind of environment to take place from 2010 to 2020, I will not play it.
. (37m 6s):
Take place from 2020 to 2030 is just mathematically arithmetically, not possible, but we’re still underwriting to those low to mid teens because we think that is achievable in today’s economic climate And those 30 Deals that you’re in right now. What or do they cluster in one geographical area? Are you, are you interstate? Yeah, So all over the country. There’s opportunities in different asset classes and different geographic locations. So the self storage for business, for example, performs very well in the Southeast Florida itself, just by the nature of where the state is positioned. It’s surrounded by water. There’s a lot of baby boomers that end up retiring.
. (37m 46s):
There are a lot of them downsize and therefore need cell storage, but the same time, there’s a lot of really high income markets. So you have a combination of a lot of jet skis, a lot of water, a lot of people have, have Bauhaus smaller homes, just make sure a good dynamic of the mobile home park business. I really like the Midwest, a good combination of solid job growth. And then you’ve got, you know, markets like Austin, Texas, where a two bedroom apartment will be $2,200 a month and a mobile home park will be $450 a month. And you’re just basically thinking, you know, we can raise rents pretty significantly over the next decade and not worry about massive competition. Of course, that doesn’t paint the whole picture, but its a good tailwind to go into an investment.
. (38m 30s):
Well, we’re almost out of time here, but I think one of the, one of the highlights from reading and listening to you have been that, you know, the initial res of Capitol that you had, you had yourself in the middle and you had Investors you want it to pull in. And I feel like we often here in our industry, you, you just get a good deal and the money will come. And you know, that’s, I don’t think is necessarily the case for raising capital or for any deal for that matter just because you have that deal, you need to have Credibility with investors. And it seems like you’ve con kind of gone from that first deal to having establishing credibility as one of your main criteria to even start. And that’s really the table stakes of, of investing in raising capital.
. (39m 9s):
Would you say that is the case and the ad that you do feel that it starts with Credibility and really the mechanics of, of raising capital follow? I think it’s very well said. You know, I, that’s a massive, massive myth in the industry that if you have a good deal, then money will show up. I mean that it’s actually so true. So not true that the opposite is true. You know, I mentioned creating a following, right? So we have followers and people that are friends of mine all over the world. Many of which I’ve never spoken too because they know a tremendous about me, a tremendous amount about me. If I wanted to create a pet snack company, it would be funded tomorrow because people trust that I know what I’m doing when it comes to these topics.
. (39m 55s):
So I’m not saying that that’s a bad investment. My point is it’s not at all about the type of investment it’s about curating your investor base to understand and be well educated and have an incentive alignment structure that is really favorable. And right now its critical. And I don’t want a time date this particular interview, but if you have built up your investor base or if your, in the process of doing it bad news does not age well, everyone knows that we’re in the middle of the Crisis. So getting out in front of that and to a certain extent, nursing your investor base back to help us with what their seeing in the media is very, very strong. So if you send out an email saying, look, the end of times might be on us, but here’s a path towards a, you know, prosperity.
. (40m 38s):
Then over the months, over the course, as we start to recover, your investor base grows. That knowledge grows that, you know, honest, authentic communication and belief in you, and you’re going to be able to calm them down and guide them towards the very lucrative Deals. And that’s what I suggest people should be doing right now. Not saying, Hey, it’s all great about it. Don’t know. Yep. Okay. Well, before we go today, if it’s possible Hunter is if there is a couple of Resources and they can be your own, that you would like a, ah, you think would benefit them and kind of their path, whether it’s real estate investing or the fundraising in general, what would be a couple of those Resources That will, first of all, thanks so much for, for having me on. I really appreciate it really.
. (41m 19s):
Like I love this is my favorite thing to do all day. So can thank you. And this is great. Yeah, no, no problem at all. Good. Glad to see you’re having success with the show as well. I’m sure your listeners are really appreciative so you can get it the book actually, but I want it to get away. The first thousand copies, those went away much quicker than we won it’s. Now we’re giving way the first 5,000 copies, you can get firstname.lastname@example.org. All you got to do is to pay for the shipping. It’s like seven 97 or something. And right now, before we change the algorithm, even if you’re in Canada, you still get for eight bucks, only lose like $9 every time someone buys a book and people wonder why it’s been so such a success in terms of me getting ’em out. My Podcast is the cashflow Connections Real Estate Podcast it’s three words, right?
. (42m 2s):
Cash Flow Connection So three words. And then if you want to learn about how to invest with me, it’s <inaudible> capital.com I guess today has been Hunter Thompson Hunter thanks for coming on there. Thanks again. Appreciate it. Thank you for listening to the Working Capital Podcast. My goal is to help individuals break into real estate investing as well as educate experience Investors. If you enjoyed the show, please share with a friend subscribe and give us a rating on iTunes. It really helps us. If you have any questions, want to learn more or less money to cover a specific topic on the show. Please reach out to me via Instagram at Jay, for gals or head to www.jessefragale.com. My name is Jesse Fragale and I’ll see you back here for the next episode or the Working Capital The Real Estate Podcast.