Working Capital The Real Estate Podcast

Going Big! Investing in Large Multifamily Real Estate with Ashley Wilson | EP70

Sep 8, 2021

In This Episode

Ashley Wilson is Co-Founder & Co-Owner of Bar Down Investments, and HouseItLook. Bar Down Investments owns and operates large apartment buildings, and offers opportunities for investors who are looking to passively own real estate. HouseItLook flips primarily higher end homes in the suburbs of Philadelphia, Pennsylvania. Prior to Real Estate, Ashley worked in Clinical R&D for GSK, Wyeth, and Sanofi-Aventis.

In this episode we talked about:

  • How Ashley got into Real Estate Investing
  • Her Experience on Short-time Rentals
  • Buying Larger Scale Commercial Properties
  • The Deal Ashley is Working Right Now
  • Deal Structure and Terms
  • Debt and Equity Financing
  • Real Estate Funds vs Syndications
  • Mentorship, Resources and Lessons Learned

Useful links:
https://www.bardowninvestments.com
https://www.instagram.com/badashinvestor/?hl=en

Transcription:

 

Jesse (0s): Welcome to the working capital real estate podcast. My name is Jesper galley. And on this 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. All right, ladies and gentlemen, my name is Jesse for galley. I am host of working capital the real estate podcast. My guest today is a special guest that I’m speaking with a little bit later this year.

Her name is Ashley Wilson. She is the co-founder and co-owner of bar down investments and house it look bar down, investments owns and operates, large apartment buildings and offers opportunities for investors who are looking to possibly own real estate. How’s it look flips primarily higher end homes in the suburbs of Philadelphia, PA prior to real estate. Ashley worked in clinical R and D for GSK. Why? If I hope I said that, right. And Sanofi-Aventis Ashley, how’s it going?

Speaker 1 (60s): Great. Thank you so much for having me, Jesse.

Speaker 0 (1m 2s): My pleasure. You know what? I didn’t even give you the last introduction. She is the new owner of a adorable boxer, Harold. So if you hear anything in the background, that’s just Harold messing around. But yeah, thanks again, Ashley. I really appreciate it. I’m excited to, to meet up again in person a little bit later this year at BP con, where we’re both talking, I believe correct me if I’m wrong. It’s October 3rd for anybody that is interested.

Speaker 1 (1m 32s): Yep. First week in October.

Speaker 0 (1m 34s): Perfect. Well actually, why don’t, why don’t I give it over to you in terms of a little bit of a background of your career, we can talk about, you know, deals right now and a little bit about the market, but before we do, maybe you can give listeners a little bit of a history of how you got into real estate.

Speaker 1 (1m 51s): Absolutely. So as you mentioned, I was working in the pharmaceutical industry and my husband was a professional ice hockey player. So we were both looking for ways to diversify our retirement strategy. We weren’t heavy believers in the stock market. We didn’t like that. It wasn’t an asset backed investment. It didn’t have tax advantages. It wasn’t, you know, a hedge against inflation. It just there’s a lot of different principles we didn’t like about it. So we started looking for alternative investments and we stumbled upon real estate.

In fact, we actually stumbled upon bigger pockets, which was the one and only source at that time, about 13 years ago. And we started doing some research and listening to their podcasts at the time and, you know, whatever article that they were publishing. And we figured out that this was the best fit for us. So we started in real estate by house hacking, which is a way in which you can offset your expenses on your primary residence by having someone lease out space.

So it could either be a bedroom or living room, really any sort of space that you can lease out. And the way we did that is we would lease to my husband’s teammates. So we had to live somewhere for a season and we basically then were living for free. And my husband’s teammates were paying us rent to live in these places. And of course they became, you know, like the party houses because a bunch of guys were living there. So it was, it was a really fun time. And then we transitioned into short-term rentals.

So we started during the off season, we had a property that was located in a tourist area and Hershey, Pennsylvania. So we would short-term rent that property during the off season. And that really turned us on to real estate. I mean, it was nice to have your expenses offset, but once you were able to automate a process of doing these short-term rentals going between us and Canada in the summer between my family and my husband’s family, and still being able to collect money, that was pretty intriguing for us.

And it definitely hooked us so shortly after that I left pharma and my husband continued his career, but I ended up partnering with my father and starting a high-end flipping business. So we focus on flipping historic and pretty expensive homes in the suburbs of Philadelphia, Pennsylvania. And then we have done that for the past seven, going on eight years.

And a few years ago, we transitioned into large commercial real estate. So today what we do is we buy 150 200 unit minimum properties. And it’s almost like either the Burr strategy on steroids or flipping on steroids. However you want to say it, but it’s taking distressed assets and then repositioning them and being able to offer passive investment opportunities for people who may have some other career, but they still also like us wanting to diversify their retirement strategy and have tax advantages.

Speaker 0 (5m 17s): Yeah, that’s very cool. It’s funny. I was going to ask from the outset, when I saw bar down investments, I was like, who plays hockey here?

Speaker 1 (5m 24s): Exactly. My husband of course came up with the name and the logo, which most people don’t get actually is a, you know, it’s a sky view of a net and you know, the B and the D is the crease in front of the net. So yeah,

Speaker 0 (5m 41s): So I was a goalie for a lot of years. So that’s why we were at, well, the other thing, obviously the apparel company, but that’s, that’s funny. So was, are either of you Canadian born or were you just playing hockey up there?

Speaker 1 (5m 54s): My husband’s Canadian born he’s from London, Ontario,

Speaker 0 (5m 58s): Right out, right on out to London. That’s great. So you start with a house hacking like a lot of people do and you know, whether that’s a basement walkout, a duplex where you’re, you know, living in one, renting out the other, covering your expenses, but graduating towards short-term rentals were, was short-term rentals. Was that a stepping stone or did you stay with that for, for some time,

Speaker 1 (6m 21s): That was really just a matter of convenience and how to maximize a system we already had in place because we weren’t making any income during the off season. The benefits the players of renting with us is they didn’t have to rent a year, lease from someone else they could just rent month to month from us. And then that made it so we could do short-term rentals at the same property during the off season. So it was not something looking back.

I’m surprised that I didn’t turn it into, you know, our main business. I think if we had done that, we would have been very successful at doing it. But of course with what’s happened with COVID and everything. It’s not necessarily a recession resistant asset class, so it probably would have taken me down a different road. And I’m fortunate that I didn’t. And I think being in pharma at the time and clinical R and D I was so distracted with my W2 that I didn’t see the potential there.

So that was obviously a good and bad thing. Long-term it was a great thing, but short-term, it was probably a bad thing.

Speaker 0 (7m 32s): Yeah. It’s funny. You know, when, when the, we first got into lockdowns, it was one thing that I didn’t even think about when it came to short-term rentals. Obviously hoteling, first thing you think about is, is vacations people not using them, but yeah, it was one of those things where as we got more property managers or systematized in short-term rentals, I felt like a lot of people moved into them because if you remember the Airbnb, when it first started there, isn’t, wasn’t really companies that were going to be able to manage this stuff. And that’s key for turnover, or you were just, you would have a full-time job and then some, so from there, you, you go into a small step into, you know, a hundred unit plus investment.

So how does that, how does that pathway happened to, to start doing these larger scale commercial properties?

Speaker 1 (8m 18s): I’m a firm believer that you should always lead with value. And I think every single person in this world has value to offer. For me personally, the value that I added to stepping into commercial real estate is my knowledge with construction management. So I grew up with a, an, you know, my father still is my one business partner on the one business, and he’s a general contractor and he’s had his own business for 40 years. So for me, it was great to have that exposure into construction and be able to see it on both the residential commercial side, and then be able to leverage that skillset in a different capacity.

I think that when you lead with value, as opposed to saying, how can I, how can I partner with you? How can I get into multifamily without saying what value you can provide to someone that is why oftentimes that conversation never gets to the next level? In my particular situation, I was telling everyone I wanted to get into commercial real estate. And it just so happened to have a friend who was already in commercial real estate, which I didn’t know, I knew he was in residential, but I wasn’t aware that he was also in commercial real estate.

And when I told him that I wanted to get into commercial real estate, and I thought I could add value by leading construction management. His response to me was the timing of this is incredible because I just went under contract with 124 unit property of which there is a $2 million renovation budget. And one of the buildings was burnt to the ground and needs to be rebuilt. And I have no construction knowledge experience. So it was a perfect partnership in the sense that I could use my value to offset a deficit or a pain point that he was having and he was seeking.

So that is how I got into commercial real estate so quickly. And I mean, you can say so quickly, but it was all the years of preparation that gave me that opportunity to be able to exploit. So I think if you just figure out what value you can provide, and it doesn’t necessarily have to be real estate related, I think people might be listening and saying, well, what value do I really have to these larger entities?

We’ll just ask them, what, what is your major pain point? It might just be as simple as we’re terrible on social media. We need someone’s managers, social media account, or, you know, we’re having issues with accounting or legal, and maybe you’re not the solution, but you know, someone who is a solution just by doing an introduction can provide value as well. So I think when you just seek to have a conversation, instead of what can you do for me? What can I do for you?

And flip that script, then I think you can get really far in this business very quickly.

Speaker 0 (11m 22s): Yeah. That’s a, it’s a great point that you have this, you know, time you’ve been doing this stuff and it’s, we have people on the podcast all the time where it just looks like they, you know, one day they, they bought a 200 unit property where it’s, you know, 10, 15 years in the making do another things. I really like what you said about the value. I, because you hear so much and you know, I’m sure you do, I’ll get messages saying, you know, I want to get into commercial real estate, you know, w what can I do to help? And it’s funny how initially you think, like, I, there’s nothing I can do because I’m not in construction, or I know anything about property management, but that’s a really good point that about social media or, you know, helping you with accounting.

Because as we scale in real estate, we are creating businesses, right? A large business, you know, a a hundred unit building is a large business. So all of a sudden you have this, these ancillary things that we might not know much about if our background is in real estate and social media might be a perfect example of that, you know, editing videos. Sure. You could hire somebody, but if you have a talent that’s tertiary to the real estate business, that’s definitely something that, you know, if you want to add value to somebody in your kind of area in real estate, that’s definitely an an avenue to do it.

Speaker 1 (12m 34s): Absolutely. I couldn’t agree more with you in the, the icing on the cake of that is the consistent followup afterwards, because I think oftentimes people make that initial connection and they reach out and they try to provide value, but then there’s no follow-up after that. So I can give you an example out of every time I’ve ever spoken at an event or conference or anything I always get, and I’m sure you do as well. People who come up afterwards and then they want your contact information, and maybe they send you one or two emails.

But after that, it’s crickets. And there is a, there was an event that I spoke at, at my Alma mater. And there was a girl who came up to me as senior. And she said to me, point blank, you know, how do I work for you? And, you know, it was like, well, let’s just stay in touch and, you know, keep the conversation going. And after that, she continued to email me consistently for a couple months, keeping the conversation going.

And now, so this was not last may, but the may before, and now we are hiring her. So, you know, it wasn’t the right time at that. You know, she, she provided and is going to provide extraordinary value to our company. But at the time that we started talking, it wasn’t a great fit then. But her persistence that to me, show me more than anything else, because she was so committed to wanting to learn and wanting, you know, I was actually coaching her, coaching her on the position that ultimately I would want her to be in and she wanted to be in, so it does take time.

But I think when you spend the time, then you get rewarded handsomely. And I am very confident that the relationship that we will have will be long lasting professionally personally, because she just was so dedicated. And that’s very rare. I mean, think about, you know, how many hundreds of people send you an initial email and, you know, she’s like the needle in the haystack.

Speaker 0 (14m 50s): Yeah. A hundred. I think, you know, there’s a lot of, I think, benefits to having a sales background in general, because whether, you know, whether you work for Xerox or you’re actually in brokerage and real estate, if you’re in this industry long enough, you’ve taken defeat, you’ve contacted people. You don’t let it bother you. And I know for a lot of people, it’s a really challenging thing to do to constantly follow up. But, you know, even myself, not that I’m that great, but even people, I know mentors of mine that have been doing this for 20 years longer than I have.

They’re still doing that stuff. Two people at a, at a, just a much higher level. I still reach out to people all the time. And it’s even people I’ve had on this podcast that I should not be on this podcast at all. Like, especially when we first started, it was, you know, follow-up a, follow-up okay. A video, a video call like through video card and say, Hey, listen, I think there’s a great market out here. And just like being able to just kind of, don’t worry about the, the outcome there, but for sure, I can’t imagine, I can’t agree with you more on how many times the initial reach out happens, which is great, but no, follow-up, and it’s going to be dead because these people are not going to be calling you back.

You have to stay top of mind and that you give a perfect example there, you know, even in Toronto, another one, another thing I like doing just generally in brokerage is that when you do follow up, it is one of the most annoying things for me personally, is when you follow up with, did you get that? Did you receive that note below? And we had arts object on the podcast, he’s has a best-selling of cold calling book. And it’s like, if you’re going to touch that person again through a contact, you better add value there.

So in our market, now we just put a, an opinion of value together for a 30 unit apartment building for, you know, people in the U S in Toronto, 30 unit apartment building is probably still like 10 million USD. We’re extremely expensive market, but anyways, I send it out and then it goes quiet for two weeks. And now I’m like, okay, I want to follow up, but I can’t follow up with just saying, Hey, how did everything look? So, you know, we said, okay, we’re bringing this listing out this. I thought it might be interesting. Just something where if that second contact is happening, give them something, you know, offer some more value.

Speaker 1 (17m 3s): I couldn’t agree more. I think when you lead with value, follow-up with value, you’re really helping someone permanently ingrained in their brain that you provide value. And it’s just a matter of that repetition. And you always want to be around people who provide value because at the end of the day, the people who are successful or either providing small value to the masses or large value to the few, but regardless of how you look at it, it’s that they’re providing value.

Speaker 0 (17m 41s): Yeah. That, that is a great point. Yeah. I couldn’t agree more with that. And, and it’s even stuff where, you know, we know the industry, like, especially brokerage, you know, we had one of our competitors, CVRE guy called me for, you know, you just wanted Intel on some building. We have some listing we have, and he’s like, before the call, he’s like, Hey, did you hear about this comp, this comp, this comp? And he’s like, listen, you know, I don’t even know it’s a quid pro quo. I’m not going to just call you, ask for information, especially, you know, we’re competitors, but obviously it’s, you know, it’s a small industry as you know.

Okay, cool. So I want to get to a, we were talking a little bit before we started recording. You have a deal that’s a, that you’re actively working on right now, without going into too many of the, of the details. Why don’t you tell us a little bit about that deal, how it came to fruition and where you’re at?

Speaker 1 (18m 31s): Yeah. So we’ve been working pretty heavily in the Houston market for a few years now, and I’ve established really great connections with brokers and even direct to sellers and vendors. And we get deals sourced to us all different ways, but this particular deal is from a broker who only does off-market deals. So this was a situation and it was just extremely fast. I think we got it on a Monday and we were offered.

We offered on a Wednesday morning and the offer was accepted Wednesday. Mid-afternoon it was very, very fast. So this speaks to all of the time that you put into building a relationship, all the things we just talked about, and it also speaks to knowing your market, because once you know your market, it’s very easy to make quick offers. And it’s easy to make quick golfers on $15,000 houses. And it’s easy to make quick offers on hundred million dollar properties, because once you know your market, you know, you know, your numbers, you underwrite the deal and you, you know, it pretty thoroughly.

You have someone go out a local that you have a relationship with because I’m not located in Houston. So how did I be able to ascertain the capital expense budget for this property is because I was able to call on someone very quickly and have them walk the property for me. And we went through it together. So ultimately it was the deal that we put together very quickly. And it’s over 400 units in Houston. It’s located within 15 minutes of another property that I already owned there.

So,

Speaker 0 (20m 18s): Sorry to interrupt. Just curious in that market right now, are they like one 40, a unit, 140,000, a unit, a hundred were, where are they at right now?

Speaker 1 (20m 26s): It varies. It can be anything from, you know, I mean, it obviously depends on the class. It depends on the submarket, but anywhere from like 80,000 a unit to over 400,000 a unit, I mean, you have such a, a spectrum. It could even be than that, to be honest. But those aren’t the deals that I’m looking at,

Speaker 0 (20m 53s): No value add. So maybe in the high, you know, just under a hundred or maybe just over a hundred, something like that,

Speaker 1 (21m 0s): The majority of deals that I look at are over a hundred anywhere from, I would say the average deal I’m looking at is between a hundred to two 30 a door. Gotcha. That’s what, that’s what I’m looking at. So it’s pretty broad, but it also depends on, you know, the sub-market and the value that I see in that property. But yeah, we, we typically like to be in B markets B slash a minus markets.

We don’t go after new construction. We, we like to be right under new construction. So we’ve created a buffer there, but that’s typically where we’re, where we’re seeking

Speaker 0 (21m 52s): The deal. Like you said, Monday, you get it Wednesday, put the offer in, in terms of how you structure your deals. Are we, you know, 45 days for due diligence are, you know, is capital, is capital ready to deploy or do you raise assets specific? Could you talk a little bit about the mechanics of, of, you know, the actual financing?

Speaker 1 (22m 13s): Yeah. So for this particular deal, it’s kind of a outlier from what we normally do, because it’s an assumption. So with going through,

Speaker 0 (22m 23s): Sorry, assuming the debt for correct. Yup.

Speaker 1 (22m 27s): Yup. So this is a completely different process because you’re at the disposal of whatever the original loan was originated under assumption process. So this is typically we’ve actually hired an assumption consultant there. They only do assumptions and they specialize in it there. My understanding is basically they’re the only shop in town and I don’t mean locally.

I mean, nationwide did they do every single assumption. If you’re hiring a consultant, you’re hiring this group. And they have told us with the lender that the original loan is under. It’s going to take about 90 days on average to be able to close the loan. So we’ll go through a typical DD period, which for us is around 30 days plus or minus.

Sometimes we’ll get access agreement while we’re structuring the PSA, the official contract, you know, once we’re under LOI, other times, we’ll just wait until the PSA’s signed. It’s all property dependent. And then from there, we typically into a financing contingency period. But because this is a, an assumption, it’s a completely different beast. So the, the lending approval process is happening in parallel while the DD is going on.

And then continuing of course, for approximately 60 days after the due diligence period is over. So this is a bit longer closing than normal. Typically we’d like to be within a 60 to 75 day close period. And that’s also contingent on the loan. If you’re going after agency versus bridge or CMBS, you have different loan, origination timeline. So you have to comply with those because otherwise you won’t be able to close the deal. If you’re using debt on the equity side of your question, we do equity on a deal by deal basis.

Meaning we like to partner equity with the appropriate asset type, meaning we’re, we’re very familiar with what our different sources of equities appetite is for a particular investment. And if we get, you know, a specific property that matches one source of equity versus another, we will approach that group, whether it’s a family office institutional, or if we’re syndicating, depending on the deal.

So that’s how we structured. It’s not a, there’s some businesses and it’s not, it’s not a right or wrong. It’s just different ways of doing business, but there are some businesses that structure, every single deal is the same return model. It’s the same crop of investors. It’s the same deal type. And then there are other businesses that have more fluidity. So the buy box or the properties for which they seek have more variation, the equity, the whole capital stack fluctuates.

So the debt they’re using the equity they’re using that varies the return models vary. So we’re more the latter.

Speaker 0 (25m 50s): So it sounds like, correct me if I’m wrong. The, it sounds like a bit of a hybrid of a fund and a syndication. Whereas you kind of tap into say, you have a return profile for some family office that, you know, whatever it say, it’s more conservative, say it’s a four or 5% yield or 6% stabilize asset. Whereas one wants a really value add, like you will go out specific to the, to the deal. Is that right? Correct.

Speaker 1 (26m 17s): So for example, there is another deal. We were invest in vinyl with a couple of weeks ago and that deal was a perfect deal for some of our institutional family office folks. So we had approached them about that deal because that penciled perfectly for what they sought for an investment, as opposed to us, you know, going the route, let’s say there’s pluses and minuses to every source of equity.

So that once again, there’s no right or wrong answer, but what we like to do is have a lot of different options because then that allows us to have a lot of different buying criteria options. It allows us to build out our business with diversity as well, because we have a lot of different types of assets within our portfolio too. So that’s one of the benefits that we see of course, by being more diversified in terms of the assets for which we seek in the return structures that we offer.

Speaker 0 (27m 24s): So with the, just for the particular pro property in Houston did, at what point do you contact your source of funds? Like once you have it under contract, you’ll, you’ll tap them and is, is their funds, is it legally committed in the, in that they’ve signed a subscription agreement already that commits? Or is it, you know, we have this under contract conditional, or, you know, maybe one or two conditions and then you, then you reach out to them.

Speaker 1 (27m 51s): It depends on the deal. So for example, on this particular property, we waited until we had it under LOI to announce that we had something and this deal situates itself better for syndication, as opposed to, I’m not saying that there aren’t family offices or institutional funds that would’ve sought this property, but there are fewer than, than institutional and family offices typically seek more stabilized, performing assets, newer construction, lower risk, lower return, basically, you know, risk is inherent with higher return expectations.

So we were able to yield higher return expectations on this property because it had a higher risk portfolio as well. And once we had it under LOI, we released some details, but not all of the details until our purchase and sale agreement is finalized because if you’re in the industry, you know, that the LOI is basically a gentleman’s handshake and it’s legally not enforceable, but the purchase and sale agreement is. So for due to that reason, you have to keep a lot of things close to the chest with respect to the other deal that I mentioned, where it was more stereotypical than an institutional quality asset, we actually, I get a good, you know, I always establish a good relationship with a broker and figure out where are we in terms of how many other offers am I competing with, you know, from the get-go.

And normally I won’t tell an institutional partner at that time when we’re submitted an offer, because for those institutional assets, it’s typically a three minimum rounds of submission. So you first, originally you have to submit an offer, then it’s best in final. Then it’s buyer, buyer, seller calls, but oftentimes they’ll do two or three rounds of best and final, and then they’ll do the buyer calls.

So I just figure out, you know, I’m not figuring, I’m obviously not able to figure out what people are offering, but I’m able to figure out, okay, how many people are best in vinyl and then how many people are with the buyer calls. So once we got to buyer calls, that’s when I started having the conversations with the institutional folks, because there’s a high probability of getting the property when I’m only competing with four other people on a phone call.

And in that particular situation, it actually came down to us and another buyer and our offer was better all the way around the price point, the terms, everything, the only difference between us and the other buyer was that the seller knew the other buyer personally. So that’s why we ended up losing out on that deal. But once we got to the buyer calls, I informed our capital. And it also too, even if you don’t get it, a lot of people are like, well, what if we don’t get the property?

It’s still is another touch point to you. What you were talking about is have an opportunity to have a touch point that whoever you’re speaking with then also knows too, that you’re constantly working and looking for deals and opportunities for them. If you wait until you get a deal, you might be waiting a year or longer because it’s just so difficult in commercial real estate to acquire. So it does provide an opportunity for you to connect.

Again, typically they want to go through your underwriting. So it provides another level of confidence too, because you will be in a situation at some point where you’ll need to move fast. And if you’ve built up this relationship with this institutional partner or family office, and constantly have provided underwriting, they’re going to have a level of confidence going into whatever situation you have. That’s fast moving with a higher, I guess, confidence level of confidence to know that you right, underwrite a certain way that mirrors what they they want.

So it, it’s never a bad idea to share where you’re at with these groups.

Speaker 0 (32m 24s): So for the, for the non-institutional, if it’s not a family office and you’re you find a property, are you going through the typical, you know, I think for, for you, it’d be 5 0 6 B or five succeeds, just that going for the accredited investors that you’re looking for. And you’re kind of, you’re going through that process. And the reason I ask is I’m curious for how you, as a company are compensated, if it’s upside with the promote, if it’s, you know, you’re, you’re in there as a limited partner as well.

How do you structure typically?

Speaker 1 (33m 0s): Yeah. So a couple of questions there. The first question with respect to the sec, reg D filing, we file under 5 0 6 C I’m a firm believer. And when I first got started in the industry, only 10% of deals were done with . And I only believe in doing five or six deals. And the reason being is because as you mentioned, five 60 is for accredited investors. And when I first came into the industry, everyone was pushing this whole concept of, well, the people that are going to invest with you most likely are your friends and family.

That is true when you first get started. However, it also puts a ceiling on how many people you have in your network. We’re a five or six C doesn’t. So that’s for starters, because five of 16, you can advertise. The second reason, I prefer five of 16, which to be honest with you is the primary reason that I prefer is that 5 0 6 C allows a third party to verify the accreditation status. It actually requires it in five or six B you as the investor, or you as the investment offering entity are qualifying the person to be of financial capacity, et cetera, to be making an investment.

And I think that creates a bias because at some point that deal might go south let’s play worst case scenario. And if someone comes back and says, well, I wasn’t fully aware of the risks, or I didn’t understand what I was doing, but they qualified me and they allowed me to, but they also to one in need to invest because they were the ones who needed the funding. I think that that is a conflict of interest and it creates liability. I want to eliminate as much liability as possible, which is why I believe Five-O succe limits one’s liability because it allows a third party to verify the accreditation status and not the ownership entity.

So that’s first and foremost. So we always structure with 5 0 6 C. I’m not going to say we will always in the future because like everything rules change. So maybe something will change in the future and we have a different opinion. But as of today, I will only move forward with five or 60 offerings, because I think it’s the safest way to move forward. The question with respect to how is the general partnership compensated first in terms of every deal we ever do, the first investor on any deal is always the general partnership we invest in every single deal we do.

And we also invest alongside of the limited partners. That may seem like a no-brainer, but that is not often the case with some other ownership groups. They’ll create another class where the general partnerships investment goes into a separate class and it’s treated differently than the limited partner class. A shares are investments always go into the class, a shares alongside every other limited partner. It doesn’t get treated any differently.

The general partnership also is compensated because of the fee structures, as you mentioned, and also too, in terms of the splits, our typical deal is anywhere from an 80 20 split favoring, the limited partners with typically a seven or eight pref all the way down to a 60, 40 split with 60 still being to the limited partners. So we, we do have some compensation up front.

It is honestly, it’s an industry standard or below the going market rate. We stay on top of, you know, we subscribe to almost everyone’s offerings just to see how are people creatively structuring their deals and what our industry rates trending at. So we have our own in term internal barometer of what’s fair, and what’s been circulating in the market space, but we are not a heavy fee based entity.

We always believe in being aligned with the investor’s interests too. So what we, for example, in the last deal, we structured a waterfall because it had huge upside and the waterfall was to show that the general partnership is obviously going to work harder in that waterfall structure, because if we reach certain milestones, then the split changes at those different milestone levels.

So that shows the limited partner. Yes, they’re going to be motivated because, you know, once I hit, let’s say a 16 IRR and it’s goes from a 70, 30 to a 60 40, the general partnership is now receiving more, but I also too have reached my hurdle of 16 IRR. So,

Speaker 0 (38m 2s): Well, yeah, the, you know what, it’s on that. I’m curious cause w the deal that we raised capital for recently, we did it that way before, excuse me, before we would have different share classes for GP and LP. And we structured this one because it was a value add, and there was gonna be a lot of legwork. We structured it in a S in the way that we had the general partner would invest. You’d have obviously the general corporation that the partnership that, that physically owns the real estate, but we had basically arm and arm.

We were limited partners as well. So the three sponsors of the deal were limited partners put in the same, at least the minimum that we asked of others. And if, if I, if I hear you correctly, it is, it is an alignment with your other limited partners, but it’s also, I think it’s also preferential for the general partner to, because you’re participating in a pref where depending on the deal structure, oftentimes you get a different share class that you don’t participate in the pref.

So I, I don’t know if you have any thoughts on that or if I, if I heard you correctly.

Speaker 1 (39m 9s): Yeah, no, I completely agree with you. I think that when you, you co-invest in the LP shares and you participate in the same pref, you’re motivated intrinsically for the same reasons that, you know, an investor would want you to be motivated. I think heavily feed ownership, groups, and entities offering groups. I think that’s what creates misalignment because they’re getting paid before any of the work is really done.

It’s a pet peeve of mine. When I see people, you know, basically throw parties when they acquire a property, because yes, it is hard to acquire property, but the work actually starts once you acquire the property. So, and I think a lot of people forget that and they rely so much on appreciation to get the, the sale kicker. And historically, that has happened. But that doesn’t mean it’ll always happen.

I mean, look at the 2008 real estate crisis, you know, within the U S market, I didn’t hit obviously Canada as heavily as it did in, or not even close to what happened in the U S because you have different underwriting systems and banking systems, but ultimately that showed you real estate. Doesn’t just continue to appreciate forever. You have ebbs and flows in the cycle and you have to be prepared for when it’s not consistently increasing, you know, there is such a term called depreciation, you know, so I think the thing is that when you have alignment as an investor, if you’re a passive investor, one of the things you should really seek to understand is, is the number one is the general partnership, putting capital into the deal.

Number two, what is their fee structure? And what are those triggers that are those they’re capturing those fees. If it’s all front ended, what is the motivation to operate the deal? I think understanding those points really position you better for making wiser investment decisions.

Speaker 0 (41m 28s): Yeah. I think the other thing too, I thought you were going to go there with this, but as a good point, but the celebrating at the, at the acquisition, especially as a sponsor or a GP, it’s almost in bad taste because, you know, you’re, you’re almost like, okay, we got our acquisition fee. We, you know, we, cause there is, there is obviously from that perspective, that’s what keeps the lights off. And it is one of the bigger fees that most syndicators and funds have on acquisition. So it’s almost like, you know, when you do get the deal, I don’t know, maybe just be a little bit more like, all right, let’s get to work kind of thing.

Yup.

Speaker 1 (42m 0s): I agree. And we work really hard. I mean, what we do even leading up, even before we even acquire the property, the day we acquire the property, the first week of acquiring the property in the first month, it is honestly running on adrenaline because you have worked so hard to even get the property to close and there’s so much work that’s involved there. But then after the property closes, I don’t know about how other operators work, but I can tell you how we work.

And it is just organized chaos maybe because it is, I mean, there is a rhyme and reason for what we are doing, but it is just super fast paced. And, you know, that’s, that’s why we work with the property management team that we work with because their tenacity to take over a property and reposition it as quickly as possible is just exceptional. And it’s something that I’m very grateful for that we align so well with our property management company.

So I think that’s when the real work starts and that can’t be forgotten.

Speaker 0 (43m 13s): Yeah, absolutely. Well, actually I think we can definitely say we can do another episode here. I just want to be mindful of the time we’ve got a kind of wrap up with basically final four questions. We ask every guest. So if you’re okay with that, I can kick us off here. Absolutely. So first I’d like listeners to get your thoughts on mentorship. And we talked about it a little bit already.

Speaker 1 (43m 39s): I am a huge believer in mentorship, gurus and running to the back of the room. I’m not a fan of, but mentorship I think is amazing. I think you learn so much through other people. If that person is willing to provide quality education to you, but ultimately you have to pay one way. So it’s either with time or monetary. And if you can find a really good mentor and take action from the things that they’re telling you to do and telling you to avoid, you can learn very quickly through someone else and be able to propel your journey.

So I’m a huge believer that mentors provide a lot of value. You should have a mentor at whatever level you’re at. You were never enough to not have a mentor. Mentors are good too, because even if you know something, just having someone else from an outside point of view, constantly looking, they’ll bring things to the forefront of your minds. There is a, a psychology study that was done on physicians, and it was talking about how physicians have to retain so much information and how they are likely to diagnose certain ailments, viruses, diseases, et cetera, based on the things that they have most recently read, not always based off of symptoms and because of that, it speaks to how the human brain works and being in the front of your mind, to be able to recall the information.

So sometimes having a mentor, just to be an extension of your brain, so to speak, and maybe they have some other things that they’ve recently read or heard, and then they just shine the light back on those things that you’ve already, you know, put like in a closet somewhere in your brain. And it’s hidden in a dark room. They, they can be helpful that way too.

Speaker 0 (45m 47s): Yeah, that’s great. I think it’s also, it kind of years ago it would be taboo to ha you know, go to talks to somebody, whether it’s, you know, a psychologist, a psychiatrist, but we, you know, we have a company that we work with that when they put, or they do venture equity for this, for startups. And when they put a CEO in the CEO role, or when they acquire a company or fund a company, they basically force this person to speak with a mentor, which happens to be a trained psychiatrist. And they will have people that’d be like, no, I won’t do it.

And they’re like, if you want the capital, this is a requirement of the job. And it’s amazing how many times they say they come back and just say, it was one of the best things that they’ve ever done. So whether you call it, mentor somebody, talk to a friend, just somebody that you’re, you’re, you’re basically getting everything out. And I find our job sometimes, like you said, you could be running on adrenaline. And especially if you don’t have a huge team, it’s, it’s lonely when you’re doing a lot of this stuff. If, if you know, like say you’re CEO of a company and there’s there, aren’t, co-founders something like that.

But that’s a great point. I will, I’ll definitely have to Google that. Do you remember the, where the study came from? If we put a link up,

Speaker 1 (46m 58s): I don’t remember where it came from, but it was my undergrad. So I was a psychology major and took neuroscience two. And I obviously did a lot of research on research studies. Exactly.

Speaker 0 (47m 18s): So second question, basically your experience in the industry, you go back in time, you meet a younger Ashley at the outset of your real estate career. What do you tell? What do you tell that?

Speaker 1 (47m 33s): For me personally, I wouldn’t change any part of my journey because I am very grateful for everything that, that I’ve been able to accomplish. But if I was going to tell someone how to do it faster, I would say to partner sooner, take more risks and just go bigger sooner. That’s probably what I would tell that person.

Speaker 0 (48m 5s): Yeah. It’s amazing how much that comes up on the show. All right. Number three, basically. Sorry, just let me get my bearings here. Resources, anything you’re reading right now, podcasts, you’re listening to that. You know, it doesn’t necessarily have to be about real estate that you think listeners would benefit from

Speaker 1 (48m 25s): I’m reading, who not how, which I’ve heard amazing things from actually from Brandon brought it up. Brandon Turner from BiggerPockets was talking to me about it the other day. So that is on my reading list right now. I am really into trying to find people that I haven’t heard speak before. So I’m trying to find meetups.

When I see a meetup of someone I haven’t heard before speak, I’m seeking out people that I think could provide a fresh look. It doesn’t matter their experience level that never has mattered to me. In fact, I think newbies probably provide the best value out of everyone that I’ve heard speak on average. So of course there are some really phenomenal expert speakers. I’m not trying to discount them, but I think people new to real estate have such, you know, like fresh eyes and perspective, and they’re not tainted by like, oh, you can’t do it that way.

Kind of philosophy. So I love seeing a really innovative ways that people are doing things, but that’s what I’m doing currently.

Speaker 0 (49m 43s): Awesome. And listen to this though. My favorite question, first car, make and model. Maybe this was in high school. Maybe this was off at a Colgate. You,

Speaker 1 (49m 53s): I bet you can guess this, but I had a Jeep Wrangler. I grew up in the error of clueless. So hair in the wind blonde hair in the way. And my brother always tells his story that we were driving with a top-down and a cop yelled from his car slowed down, and my brother started laughing and he was like, two cops always just tell you to slow down. Normally they’re supposed to pull you over, but yeah, the rules.

Yeah. But I had a Jeep then and I actually have a Jeep Wrangler now as

Speaker 0 (50m 32s): Well. They’ve come a long way. Yeah,

Speaker 1 (50m 35s): They definitely have. So it’s actually my husband’s car, but I still steal it from time to time. But it is stick shift. He has a thing for stick shifts and that, that drives me insane.

Speaker 0 (50m 48s): Yeah. I’m surprised they still make that car with stick. Is it still like the long stick goes like right to the floor? Is it, it’s not,

Speaker 1 (50m 55s): It’s not the long stick version, but it’s, it’s just very rough to shift gears. And, but he’s like no one will ever steal it because how many people can drive stick, shift these days. So that’s his philosophy,

Speaker 0 (51m 12s): One guest calling it a millennial security device or something like that

Speaker 1 (51m 17s): Because nobody,

Speaker 0 (51m 19s): Nobody drives stick anymore. Awesome. Okay. Well, aside from BP con later this year, people want to reach out to you. So you on social aside, as I always say, aside from a Google search, so any anywhere you’d want to point them.

Speaker 1 (51m 34s): Yes. So if you’re looking to passively invest, you can find more about the opportunity I was talking about@bardowninvestments.com. And then if you want to follow my real estate journey, you can find out more at bad Ash investor on Instagram,

Speaker 0 (51m 51s): I guess today has been Ashley, the Wrangler Wilson, Ashley, thanks for being part of working capital. Thank you so much for having me. Thank you so much for listening to working capital the real estate podcast. I’m your host, Jesse for galley. If you liked the episode, head on to iTunes and leave us a five star review and share on social media, it really helps us out. If you have any questions, feel free to reach out to me on Instagram, Jesse for galley, F R a G a L E, have a good one.

Take care.

Transcript

ion:

 

Jesse (0s): Welcome to the working capital real estate podcast. My name is Jesper galley. And on this 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. All right, ladies and gentlemen, my name is Jesse for galley. I am host of working capital the real estate podcast. My guest today is a special guest that I’m speaking with a little bit later this year.

Her name is Ashley Wilson. She is the co-founder and co-owner of bar down investments and house it look bar down, investments owns and operates, large apartment buildings and offers opportunities for investors who are looking to possibly own real estate. How’s it look flips primarily higher end homes in the suburbs of Philadelphia, PA prior to real estate. Ashley worked in clinical R and D for GSK. Why? If I hope I said that, right. And Sanofi-Aventis Ashley, how’s it going?

Speaker 1 (60s): Great. Thank you so much for having me, Jesse.

Speaker 0 (1m 2s): My pleasure. You know what? I didn’t even give you the last introduction. She is the new owner of a adorable boxer, Harold. So if you hear anything in the background, that’s just Harold messing around. But yeah, thanks again, Ashley. I really appreciate it. I’m excited to, to meet up again in person a little bit later this year at BP con, where we’re both talking, I believe correct me if I’m wrong. It’s October 3rd for anybody that is interested.

Speaker 1 (1m 32s): Yep. First week in October.

Speaker 0 (1m 34s): Perfect. Well actually, why don’t, why don’t I give it over to you in terms of a little bit of a background of your career, we can talk about, you know, deals right now and a little bit about the market, but before we do, maybe you can give listeners a little bit of a history of how you got into real estate.

Speaker 1 (1m 51s): Absolutely. So as you mentioned, I was working in the pharmaceutical industry and my husband was a professional ice hockey player. So we were both looking for ways to diversify our retirement strategy. We weren’t heavy believers in the stock market. We didn’t like that. It wasn’t an asset backed investment. It didn’t have tax advantages. It wasn’t, you know, a hedge against inflation. It just there’s a lot of different principles we didn’t like about it. So we started looking for alternative investments and we stumbled upon real estate.

In fact, we actually stumbled upon bigger pockets, which was the one and only source at that time, about 13 years ago. And we started doing some research and listening to their podcasts at the time and, you know, whatever article that they were publishing. And we figured out that this was the best fit for us. So we started in real estate by house hacking, which is a way in which you can offset your expenses on your primary residence by having someone lease out space.

So it could either be a bedroom or living room, really any sort of space that you can lease out. And the way we did that is we would lease to my husband’s teammates. So we had to live somewhere for a season and we basically then were living for free. And my husband’s teammates were paying us rent to live in these places. And of course they became, you know, like the party houses because a bunch of guys were living there. So it was, it was a really fun time. And then we transitioned into short-term rentals.

So we started during the off season, we had a property that was located in a tourist area and Hershey, Pennsylvania. So we would short-term rent that property during the off season. And that really turned us on to real estate. I mean, it was nice to have your expenses offset, but once you were able to automate a process of doing these short-term rentals going between us and Canada in the summer between my family and my husband’s family, and still being able to collect money, that was pretty intriguing for us.

And it definitely hooked us so shortly after that I left pharma and my husband continued his career, but I ended up partnering with my father and starting a high-end flipping business. So we focus on flipping historic and pretty expensive homes in the suburbs of Philadelphia, Pennsylvania. And then we have done that for the past seven, going on eight years.

And a few years ago, we transitioned into large commercial real estate. So today what we do is we buy 150 200 unit minimum properties. And it’s almost like either the Burr strategy on steroids or flipping on steroids. However you want to say it, but it’s taking distressed assets and then repositioning them and being able to offer passive investment opportunities for people who may have some other career, but they still also like us wanting to diversify their retirement strategy and have tax advantages.

Speaker 0 (5m 17s): Yeah, that’s very cool. It’s funny. I was going to ask from the outset, when I saw bar down investments, I was like, who plays hockey here?

Speaker 1 (5m 24s): Exactly. My husband of course came up with the name and the logo, which most people don’t get actually is a, you know, it’s a sky view of a net and you know, the B and the D is the crease in front of the net. So yeah,

Speaker 0 (5m 41s): So I was a goalie for a lot of years. So that’s why we were at, well, the other thing, obviously the apparel company, but that’s, that’s funny. So was, are either of you Canadian born or were you just playing hockey up there?

Speaker 1 (5m 54s): My husband’s Canadian born he’s from London, Ontario,

Speaker 0 (5m 58s): Right out, right on out to London. That’s great. So you start with a house hacking like a lot of people do and you know, whether that’s a basement walkout, a duplex where you’re, you know, living in one, renting out the other, covering your expenses, but graduating towards short-term rentals were, was short-term rentals. Was that a stepping stone or did you stay with that for, for some time,

Speaker 1 (6m 21s): That was really just a matter of convenience and how to maximize a system we already had in place because we weren’t making any income during the off season. The benefits the players of renting with us is they didn’t have to rent a year, lease from someone else they could just rent month to month from us. And then that made it so we could do short-term rentals at the same property during the off season. So it was not something looking back.

I’m surprised that I didn’t turn it into, you know, our main business. I think if we had done that, we would have been very successful at doing it. But of course with what’s happened with COVID and everything. It’s not necessarily a recession resistant asset class, so it probably would have taken me down a different road. And I’m fortunate that I didn’t. And I think being in pharma at the time and clinical R and D I was so distracted with my W2 that I didn’t see the potential there.

So that was obviously a good and bad thing. Long-term it was a great thing, but short-term, it was probably a bad thing.

Speaker 0 (7m 32s): Yeah. It’s funny. You know, when, when the, we first got into lockdowns, it was one thing that I didn’t even think about when it came to short-term rentals. Obviously hoteling, first thing you think about is, is vacations people not using them, but yeah, it was one of those things where as we got more property managers or systematized in short-term rentals, I felt like a lot of people moved into them because if you remember the Airbnb, when it first started there, isn’t, wasn’t really companies that were going to be able to manage this stuff. And that’s key for turnover, or you were just, you would have a full-time job and then some, so from there, you, you go into a small step into, you know, a hundred unit plus investment.

So how does that, how does that pathway happened to, to start doing these larger scale commercial properties?

Speaker 1 (8m 18s): I’m a firm believer that you should always lead with value. And I think every single person in this world has value to offer. For me personally, the value that I added to stepping into commercial real estate is my knowledge with construction management. So I grew up with a, an, you know, my father still is my one business partner on the one business, and he’s a general contractor and he’s had his own business for 40 years. So for me, it was great to have that exposure into construction and be able to see it on both the residential commercial side, and then be able to leverage that skillset in a different capacity.

I think that when you lead with value, as opposed to saying, how can I, how can I partner with you? How can I get into multifamily without saying what value you can provide to someone that is why oftentimes that conversation never gets to the next level? In my particular situation, I was telling everyone I wanted to get into commercial real estate. And it just so happened to have a friend who was already in commercial real estate, which I didn’t know, I knew he was in residential, but I wasn’t aware that he was also in commercial real estate.

And when I told him that I wanted to get into commercial real estate, and I thought I could add value by leading construction management. His response to me was the timing of this is incredible because I just went under contract with 124 unit property of which there is a $2 million renovation budget. And one of the buildings was burnt to the ground and needs to be rebuilt. And I have no construction knowledge experience. So it was a perfect partnership in the sense that I could use my value to offset a deficit or a pain point that he was having and he was seeking.

So that is how I got into commercial real estate so quickly. And I mean, you can say so quickly, but it was all the years of preparation that gave me that opportunity to be able to exploit. So I think if you just figure out what value you can provide, and it doesn’t necessarily have to be real estate related, I think people might be listening and saying, well, what value do I really have to these larger entities?

We’ll just ask them, what, what is your major pain point? It might just be as simple as we’re terrible on social media. We need someone’s managers, social media account, or, you know, we’re having issues with accounting or legal, and maybe you’re not the solution, but you know, someone who is a solution just by doing an introduction can provide value as well. So I think when you just seek to have a conversation, instead of what can you do for me? What can I do for you?

And flip that script, then I think you can get really far in this business very quickly.

Speaker 0 (11m 22s): Yeah. That’s a, it’s a great point that you have this, you know, time you’ve been doing this stuff and it’s, we have people on the podcast all the time where it just looks like they, you know, one day they, they bought a 200 unit property where it’s, you know, 10, 15 years in the making do another things. I really like what you said about the value. I, because you hear so much and you know, I’m sure you do, I’ll get messages saying, you know, I want to get into commercial real estate, you know, w what can I do to help? And it’s funny how initially you think, like, I, there’s nothing I can do because I’m not in construction, or I know anything about property management, but that’s a really good point that about social media or, you know, helping you with accounting.

Because as we scale in real estate, we are creating businesses, right? A large business, you know, a a hundred unit building is a large business. So all of a sudden you have this, these ancillary things that we might not know much about if our background is in real estate and social media might be a perfect example of that, you know, editing videos. Sure. You could hire somebody, but if you have a talent that’s tertiary to the real estate business, that’s definitely something that, you know, if you want to add value to somebody in your kind of area in real estate, that’s definitely an an avenue to do it.

Speaker 1 (12m 34s): Absolutely. I couldn’t agree more with you in the, the icing on the cake of that is the consistent followup afterwards, because I think oftentimes people make that initial connection and they reach out and they try to provide value, but then there’s no follow-up after that. So I can give you an example out of every time I’ve ever spoken at an event or conference or anything I always get, and I’m sure you do as well. People who come up afterwards and then they want your contact information, and maybe they send you one or two emails.

But after that, it’s crickets. And there is a, there was an event that I spoke at, at my Alma mater. And there was a girl who came up to me as senior. And she said to me, point blank, you know, how do I work for you? And, you know, it was like, well, let’s just stay in touch and, you know, keep the conversation going. And after that, she continued to email me consistently for a couple months, keeping the conversation going.

And now, so this was not last may, but the may before, and now we are hiring her. So, you know, it wasn’t the right time at that. You know, she, she provided and is going to provide extraordinary value to our company. But at the time that we started talking, it wasn’t a great fit then. But her persistence that to me, show me more than anything else, because she was so committed to wanting to learn and wanting, you know, I was actually coaching her, coaching her on the position that ultimately I would want her to be in and she wanted to be in, so it does take time.

But I think when you spend the time, then you get rewarded handsomely. And I am very confident that the relationship that we will have will be long lasting professionally personally, because she just was so dedicated. And that’s very rare. I mean, think about, you know, how many hundreds of people send you an initial email and, you know, she’s like the needle in the haystack.

Speaker 0 (14m 50s): Yeah. A hundred. I think, you know, there’s a lot of, I think, benefits to having a sales background in general, because whether, you know, whether you work for Xerox or you’re actually in brokerage and real estate, if you’re in this industry long enough, you’ve taken defeat, you’ve contacted people. You don’t let it bother you. And I know for a lot of people, it’s a really challenging thing to do to constantly follow up. But, you know, even myself, not that I’m that great, but even people, I know mentors of mine that have been doing this for 20 years longer than I have.

They’re still doing that stuff. Two people at a, at a, just a much higher level. I still reach out to people all the time. And it’s even people I’ve had on this podcast that I should not be on this podcast at all. Like, especially when we first started, it was, you know, follow-up a, follow-up okay. A video, a video call like through video card and say, Hey, listen, I think there’s a great market out here. And just like being able to just kind of, don’t worry about the, the outcome there, but for sure, I can’t imagine, I can’t agree with you more on how many times the initial reach out happens, which is great, but no, follow-up, and it’s going to be dead because these people are not going to be calling you back.

You have to stay top of mind and that you give a perfect example there, you know, even in Toronto, another one, another thing I like doing just generally in brokerage is that when you do follow up, it is one of the most annoying things for me personally, is when you follow up with, did you get that? Did you receive that note below? And we had arts object on the podcast, he’s has a best-selling of cold calling book. And it’s like, if you’re going to touch that person again through a contact, you better add value there.

So in our market, now we just put a, an opinion of value together for a 30 unit apartment building for, you know, people in the U S in Toronto, 30 unit apartment building is probably still like 10 million USD. We’re extremely expensive market, but anyways, I send it out and then it goes quiet for two weeks. And now I’m like, okay, I want to follow up, but I can’t follow up with just saying, Hey, how did everything look? So, you know, we said, okay, we’re bringing this listing out this. I thought it might be interesting. Just something where if that second contact is happening, give them something, you know, offer some more value.

Speaker 1 (17m 3s): I couldn’t agree more. I think when you lead with value, follow-up with value, you’re really helping someone permanently ingrained in their brain that you provide value. And it’s just a matter of that repetition. And you always want to be around people who provide value because at the end of the day, the people who are successful or either providing small value to the masses or large value to the few, but regardless of how you look at it, it’s that they’re providing value.

Speaker 0 (17m 41s): Yeah. That, that is a great point. Yeah. I couldn’t agree more with that. And, and it’s even stuff where, you know, we know the industry, like, especially brokerage, you know, we had one of our competitors, CVRE guy called me for, you know, you just wanted Intel on some building. We have some listing we have, and he’s like, before the call, he’s like, Hey, did you hear about this comp, this comp, this comp? And he’s like, listen, you know, I don’t even know it’s a quid pro quo. I’m not going to just call you, ask for information, especially, you know, we’re competitors, but obviously it’s, you know, it’s a small industry as you know.

Okay, cool. So I want to get to a, we were talking a little bit before we started recording. You have a deal that’s a, that you’re actively working on right now, without going into too many of the, of the details. Why don’t you tell us a little bit about that deal, how it came to fruition and where you’re at?

Speaker 1 (18m 31s): Yeah. So we’ve been working pretty heavily in the Houston market for a few years now, and I’ve established really great connections with brokers and even direct to sellers and vendors. And we get deals sourced to us all different ways, but this particular deal is from a broker who only does off-market deals. So this was a situation and it was just extremely fast. I think we got it on a Monday and we were offered.

We offered on a Wednesday morning and the offer was accepted Wednesday. Mid-afternoon it was very, very fast. So this speaks to all of the time that you put into building a relationship, all the things we just talked about, and it also speaks to knowing your market, because once you know your market, it’s very easy to make quick offers. And it’s easy to make quick golfers on $15,000 houses. And it’s easy to make quick offers on hundred million dollar properties, because once you know your market, you know, you know, your numbers, you underwrite the deal and you, you know, it pretty thoroughly.

You have someone go out a local that you have a relationship with because I’m not located in Houston. So how did I be able to ascertain the capital expense budget for this property is because I was able to call on someone very quickly and have them walk the property for me. And we went through it together. So ultimately it was the deal that we put together very quickly. And it’s over 400 units in Houston. It’s located within 15 minutes of another property that I already owned there.

So,

Speaker 0 (20m 18s): Sorry to interrupt. Just curious in that market right now, are they like one 40, a unit, 140,000, a unit, a hundred were, where are they at right now?

Speaker 1 (20m 26s): It varies. It can be anything from, you know, I mean, it obviously depends on the class. It depends on the submarket, but anywhere from like 80,000 a unit to over 400,000 a unit, I mean, you have such a, a spectrum. It could even be than that, to be honest. But those aren’t the deals that I’m looking at,

Speaker 0 (20m 53s): No value add. So maybe in the high, you know, just under a hundred or maybe just over a hundred, something like that,

Speaker 1 (21m 0s): The majority of deals that I look at are over a hundred anywhere from, I would say the average deal I’m looking at is between a hundred to two 30 a door. Gotcha. That’s what, that’s what I’m looking at. So it’s pretty broad, but it also depends on, you know, the sub-market and the value that I see in that property. But yeah, we, we typically like to be in B markets B slash a minus markets.

We don’t go after new construction. We, we like to be right under new construction. So we’ve created a buffer there, but that’s typically where we’re, where we’re seeking

Speaker 0 (21m 52s): The deal. Like you said, Monday, you get it Wednesday, put the offer in, in terms of how you structure your deals. Are we, you know, 45 days for due diligence are, you know, is capital, is capital ready to deploy or do you raise assets specific? Could you talk a little bit about the mechanics of, of, you know, the actual financing?

Speaker 1 (22m 13s): Yeah. So for this particular deal, it’s kind of a outlier from what we normally do, because it’s an assumption. So with going through,

Speaker 0 (22m 23s): Sorry, assuming the debt for correct. Yup.

Speaker 1 (22m 27s): Yup. So this is a completely different process because you’re at the disposal of whatever the original loan was originated under assumption process. So this is typically we’ve actually hired an assumption consultant there. They only do assumptions and they specialize in it there. My understanding is basically they’re the only shop in town and I don’t mean locally.

I mean, nationwide did they do every single assumption. If you’re hiring a consultant, you’re hiring this group. And they have told us with the lender that the original loan is under. It’s going to take about 90 days on average to be able to close the loan. So we’ll go through a typical DD period, which for us is around 30 days plus or minus.

Sometimes we’ll get access agreement while we’re structuring the PSA, the official contract, you know, once we’re under LOI, other times, we’ll just wait until the PSA’s signed. It’s all property dependent. And then from there, we typically into a financing contingency period. But because this is a, an assumption, it’s a completely different beast. So the, the lending approval process is happening in parallel while the DD is going on.

And then continuing of course, for approximately 60 days after the due diligence period is over. So this is a bit longer closing than normal. Typically we’d like to be within a 60 to 75 day close period. And that’s also contingent on the loan. If you’re going after agency versus bridge or CMBS, you have different loan, origination timeline. So you have to comply with those because otherwise you won’t be able to close the deal. If you’re using debt on the equity side of your question, we do equity on a deal by deal basis.

Meaning we like to partner equity with the appropriate asset type, meaning we’re, we’re very familiar with what our different sources of equities appetite is for a particular investment. And if we get, you know, a specific property that matches one source of equity versus another, we will approach that group, whether it’s a family office institutional, or if we’re syndicating, depending on the deal.

So that’s how we structured. It’s not a, there’s some businesses and it’s not, it’s not a right or wrong. It’s just different ways of doing business, but there are some businesses that structure, every single deal is the same return model. It’s the same crop of investors. It’s the same deal type. And then there are other businesses that have more fluidity. So the buy box or the properties for which they seek have more variation, the equity, the whole capital stack fluctuates.

So the debt they’re using the equity they’re using that varies the return models vary. So we’re more the latter.

Speaker 0 (25m 50s): So it sounds like, correct me if I’m wrong. The, it sounds like a bit of a hybrid of a fund and a syndication. Whereas you kind of tap into say, you have a return profile for some family office that, you know, whatever it say, it’s more conservative, say it’s a four or 5% yield or 6% stabilize asset. Whereas one wants a really value add, like you will go out specific to the, to the deal. Is that right? Correct.

Speaker 1 (26m 17s): So for example, there is another deal. We were invest in vinyl with a couple of weeks ago and that deal was a perfect deal for some of our institutional family office folks. So we had approached them about that deal because that penciled perfectly for what they sought for an investment, as opposed to us, you know, going the route, let’s say there’s pluses and minuses to every source of equity.

So that once again, there’s no right or wrong answer, but what we like to do is have a lot of different options because then that allows us to have a lot of different buying criteria options. It allows us to build out our business with diversity as well, because we have a lot of different types of assets within our portfolio too. So that’s one of the benefits that we see of course, by being more diversified in terms of the assets for which we seek in the return structures that we offer.

Speaker 0 (27m 24s): So with the, just for the particular pro property in Houston did, at what point do you contact your source of funds? Like once you have it under contract, you’ll, you’ll tap them and is, is their funds, is it legally committed in the, in that they’ve signed a subscription agreement already that commits? Or is it, you know, we have this under contract conditional, or, you know, maybe one or two conditions and then you, then you reach out to them.

Speaker 1 (27m 51s): It depends on the deal. So for example, on this particular property, we waited until we had it under LOI to announce that we had something and this deal situates itself better for syndication, as opposed to, I’m not saying that there aren’t family offices or institutional funds that would’ve sought this property, but there are fewer than, than institutional and family offices typically seek more stabilized, performing assets, newer construction, lower risk, lower return, basically, you know, risk is inherent with higher return expectations.

So we were able to yield higher return expectations on this property because it had a higher risk portfolio as well. And once we had it under LOI, we released some details, but not all of the details until our purchase and sale agreement is finalized because if you’re in the industry, you know, that the LOI is basically a gentleman’s handshake and it’s legally not enforceable, but the purchase and sale agreement is. So for due to that reason, you have to keep a lot of things close to the chest with respect to the other deal that I mentioned, where it was more stereotypical than an institutional quality asset, we actually, I get a good, you know, I always establish a good relationship with a broker and figure out where are we in terms of how many other offers am I competing with, you know, from the get-go.

And normally I won’t tell an institutional partner at that time when we’re submitted an offer, because for those institutional assets, it’s typically a three minimum rounds of submission. So you first, originally you have to submit an offer, then it’s best in final. Then it’s buyer, buyer, seller calls, but oftentimes they’ll do two or three rounds of best and final, and then they’ll do the buyer calls.

So I just figure out, you know, I’m not figuring, I’m obviously not able to figure out what people are offering, but I’m able to figure out, okay, how many people are best in vinyl and then how many people are with the buyer calls. So once we got to buyer calls, that’s when I started having the conversations with the institutional folks, because there’s a high probability of getting the property when I’m only competing with four other people on a phone call.

And in that particular situation, it actually came down to us and another buyer and our offer was better all the way around the price point, the terms, everything, the only difference between us and the other buyer was that the seller knew the other buyer personally. So that’s why we ended up losing out on that deal. But once we got to the buyer calls, I informed our capital. And it also too, even if you don’t get it, a lot of people are like, well, what if we don’t get the property?

It’s still is another touch point to you. What you were talking about is have an opportunity to have a touch point that whoever you’re speaking with then also knows too, that you’re constantly working and looking for deals and opportunities for them. If you wait until you get a deal, you might be waiting a year or longer because it’s just so difficult in commercial real estate to acquire. So it does provide an opportunity for you to connect.

Again, typically they want to go through your underwriting. So it provides another level of confidence too, because you will be in a situation at some point where you’ll need to move fast. And if you’ve built up this relationship with this institutional partner or family office, and constantly have provided underwriting, they’re going to have a level of confidence going into whatever situation you have. That’s fast moving with a higher, I guess, confidence level of confidence to know that you right, underwrite a certain way that mirrors what they they want.

So it, it’s never a bad idea to share where you’re at with these groups.

Speaker 0 (32m 24s): So for the, for the non-institutional, if it’s not a family office and you’re you find a property, are you going through the typical, you know, I think for, for you, it’d be 5 0 6 B or five succeeds, just that going for the accredited investors that you’re looking for. And you’re kind of, you’re going through that process. And the reason I ask is I’m curious for how you, as a company are compensated, if it’s upside with the promote, if it’s, you know, you’re, you’re in there as a limited partner as well.

How do you structure typically?

Speaker 1 (33m 0s): Yeah. So a couple of questions there. The first question with respect to the sec, reg D filing, we file under 5 0 6 C I’m a firm believer. And when I first got started in the industry, only 10% of deals were done with . And I only believe in doing five or six deals. And the reason being is because as you mentioned, five 60 is for accredited investors. And when I first came into the industry, everyone was pushing this whole concept of, well, the people that are going to invest with you most likely are your friends and family.

That is true when you first get started. However, it also puts a ceiling on how many people you have in your network. We’re a five or six C doesn’t. So that’s for starters, because five of 16, you can advertise. The second reason, I prefer five of 16, which to be honest with you is the primary reason that I prefer is that 5 0 6 C allows a third party to verify the accreditation status. It actually requires it in five or six B you as the investor, or you as the investment offering entity are qualifying the person to be of financial capacity, et cetera, to be making an investment.

And I think that creates a bias because at some point that deal might go south let’s play worst case scenario. And if someone comes back and says, well, I wasn’t fully aware of the risks, or I didn’t understand what I was doing, but they qualified me and they allowed me to, but they also to one in need to invest because they were the ones who needed the funding. I think that that is a conflict of interest and it creates liability. I want to eliminate as much liability as possible, which is why I believe Five-O succe limits one’s liability because it allows a third party to verify the accreditation status and not the ownership entity.

So that’s first and foremost. So we always structure with 5 0 6 C. I’m not going to say we will always in the future because like everything rules change. So maybe something will change in the future and we have a different opinion. But as of today, I will only move forward with five or 60 offerings, because I think it’s the safest way to move forward. The question with respect to how is the general partnership compensated first in terms of every deal we ever do, the first investor on any deal is always the general partnership we invest in every single deal we do.

And we also invest alongside of the limited partners. That may seem like a no-brainer, but that is not often the case with some other ownership groups. They’ll create another class where the general partnerships investment goes into a separate class and it’s treated differently than the limited partner class. A shares are investments always go into the class, a shares alongside every other limited partner. It doesn’t get treated any differently.

The general partnership also is compensated because of the fee structures, as you mentioned, and also too, in terms of the splits, our typical deal is anywhere from an 80 20 split favoring, the limited partners with typically a seven or eight pref all the way down to a 60, 40 split with 60 still being to the limited partners. So we, we do have some compensation up front.

It is honestly, it’s an industry standard or below the going market rate. We stay on top of, you know, we subscribe to almost everyone’s offerings just to see how are people creatively structuring their deals and what our industry rates trending at. So we have our own in term internal barometer of what’s fair, and what’s been circulating in the market space, but we are not a heavy fee based entity.

We always believe in being aligned with the investor’s interests too. So what we, for example, in the last deal, we structured a waterfall because it had huge upside and the waterfall was to show that the general partnership is obviously going to work harder in that waterfall structure, because if we reach certain milestones, then the split changes at those different milestone levels.

So that shows the limited partner. Yes, they’re going to be motivated because, you know, once I hit, let’s say a 16 IRR and it’s goes from a 70, 30 to a 60 40, the general partnership is now receiving more, but I also too have reached my hurdle of 16 IRR. So,

Speaker 0 (38m 2s): Well, yeah, the, you know what, it’s on that. I’m curious cause w the deal that we raised capital for recently, we did it that way before, excuse me, before we would have different share classes for GP and LP. And we structured this one because it was a value add, and there was gonna be a lot of legwork. We structured it in a S in the way that we had the general partner would invest. You’d have obviously the general corporation that the partnership that, that physically owns the real estate, but we had basically arm and arm.

We were limited partners as well. So the three sponsors of the deal were limited partners put in the same, at least the minimum that we asked of others. And if, if I, if I hear you correctly, it is, it is an alignment with your other limited partners, but it’s also, I think it’s also preferential for the general partner to, because you’re participating in a pref where depending on the deal structure, oftentimes you get a different share class that you don’t participate in the pref.

So I, I don’t know if you have any thoughts on that or if I, if I heard you correctly.

Speaker 1 (39m 9s): Yeah, no, I completely agree with you. I think that when you, you co-invest in the LP shares and you participate in the same pref, you’re motivated intrinsically for the same reasons that, you know, an investor would want you to be motivated. I think heavily feed ownership, groups, and entities offering groups. I think that’s what creates misalignment because they’re getting paid before any of the work is really done.

It’s a pet peeve of mine. When I see people, you know, basically throw parties when they acquire a property, because yes, it is hard to acquire property, but the work actually starts once you acquire the property. So, and I think a lot of people forget that and they rely so much on appreciation to get the, the sale kicker. And historically, that has happened. But that doesn’t mean it’ll always happen.

I mean, look at the 2008 real estate crisis, you know, within the U S market, I didn’t hit obviously Canada as heavily as it did in, or not even close to what happened in the U S because you have different underwriting systems and banking systems, but ultimately that showed you real estate. Doesn’t just continue to appreciate forever. You have ebbs and flows in the cycle and you have to be prepared for when it’s not consistently increasing, you know, there is such a term called depreciation, you know, so I think the thing is that when you have alignment as an investor, if you’re a passive investor, one of the things you should really seek to understand is, is the number one is the general partnership, putting capital into the deal.

Number two, what is their fee structure? And what are those triggers that are those they’re capturing those fees. If it’s all front ended, what is the motivation to operate the deal? I think understanding those points really position you better for making wiser investment decisions.

Speaker 0 (41m 28s): Yeah. I think the other thing too, I thought you were going to go there with this, but as a good point, but the celebrating at the, at the acquisition, especially as a sponsor or a GP, it’s almost in bad taste because, you know, you’re, you’re almost like, okay, we got our acquisition fee. We, you know, we, cause there is, there is obviously from that perspective, that’s what keeps the lights off. And it is one of the bigger fees that most syndicators and funds have on acquisition. So it’s almost like, you know, when you do get the deal, I don’t know, maybe just be a little bit more like, all right, let’s get to work kind of thing.

Yup.

Speaker 1 (42m 0s): I agree. And we work really hard. I mean, what we do even leading up, even before we even acquire the property, the day we acquire the property, the first week of acquiring the property in the first month, it is honestly running on adrenaline because you have worked so hard to even get the property to close and there’s so much work that’s involved there. But then after the property closes, I don’t know about how other operators work, but I can tell you how we work.

And it is just organized chaos maybe because it is, I mean, there is a rhyme and reason for what we are doing, but it is just super fast paced. And, you know, that’s, that’s why we work with the property management team that we work with because their tenacity to take over a property and reposition it as quickly as possible is just exceptional. And it’s something that I’m very grateful for that we align so well with our property management company.

So I think that’s when the real work starts and that can’t be forgotten.

Speaker 0 (43m 13s): Yeah, absolutely. Well, actually I think we can definitely say we can do another episode here. I just want to be mindful of the time we’ve got a kind of wrap up with basically final four questions. We ask every guest. So if you’re okay with that, I can kick us off here. Absolutely. So first I’d like listeners to get your thoughts on mentorship. And we talked about it a little bit already.

Speaker 1 (43m 39s): I am a huge believer in mentorship, gurus and running to the back of the room. I’m not a fan of, but mentorship I think is amazing. I think you learn so much through other people. If that person is willing to provide quality education to you, but ultimately you have to pay one way. So it’s either with time or monetary. And if you can find a really good mentor and take action from the things that they’re telling you to do and telling you to avoid, you can learn very quickly through someone else and be able to propel your journey.

So I’m a huge believer that mentors provide a lot of value. You should have a mentor at whatever level you’re at. You were never enough to not have a mentor. Mentors are good too, because even if you know something, just having someone else from an outside point of view, constantly looking, they’ll bring things to the forefront of your minds. There is a, a psychology study that was done on physicians, and it was talking about how physicians have to retain so much information and how they are likely to diagnose certain ailments, viruses, diseases, et cetera, based on the things that they have most recently read, not always based off of symptoms and because of that, it speaks to how the human brain works and being in the front of your mind, to be able to recall the information.

So sometimes having a mentor, just to be an extension of your brain, so to speak, and maybe they have some other things that they’ve recently read or heard, and then they just shine the light back on those things that you’ve already, you know, put like in a closet somewhere in your brain. And it’s hidden in a dark room. They, they can be helpful that way too.

Speaker 0 (45m 47s): Yeah, that’s great. I think it’s also, it kind of years ago it would be taboo to ha you know, go to talks to somebody, whether it’s, you know, a psychologist, a psychiatrist, but we, you know, we have a company that we work with that when they put, or they do venture equity for this, for startups. And when they put a CEO in the CEO role, or when they acquire a company or fund a company, they basically force this person to speak with a mentor, which happens to be a trained psychiatrist. And they will have people that’d be like, no, I won’t do it.

And they’re like, if you want the capital, this is a requirement of the job. And it’s amazing how many times they say they come back and just say, it was one of the best things that they’ve ever done. So whether you call it, mentor somebody, talk to a friend, just somebody that you’re, you’re, you’re basically getting everything out. And I find our job sometimes, like you said, you could be running on adrenaline. And especially if you don’t have a huge team, it’s, it’s lonely when you’re doing a lot of this stuff. If, if you know, like say you’re CEO of a company and there’s there, aren’t, co-founders something like that.

But that’s a great point. I will, I’ll definitely have to Google that. Do you remember the, where the study came from? If we put a link up,

Speaker 1 (46m 58s): I don’t remember where it came from, but it was my undergrad. So I was a psychology major and took neuroscience two. And I obviously did a lot of research on research studies. Exactly.

Speaker 0 (47m 18s): So second question, basically your experience in the industry, you go back in time, you meet a younger Ashley at the outset of your real estate career. What do you tell? What do you tell that?

Speaker 1 (47m 33s): For me personally, I wouldn’t change any part of my journey because I am very grateful for everything that, that I’ve been able to accomplish. But if I was going to tell someone how to do it faster, I would say to partner sooner, take more risks and just go bigger sooner. That’s probably what I would tell that person.

Speaker 0 (48m 5s): Yeah. It’s amazing how much that comes up on the show. All right. Number three, basically. Sorry, just let me get my bearings here. Resources, anything you’re reading right now, podcasts, you’re listening to that. You know, it doesn’t necessarily have to be about real estate that you think listeners would benefit from

Speaker 1 (48m 25s): I’m reading, who not how, which I’ve heard amazing things from actually from Brandon brought it up. Brandon Turner from BiggerPockets was talking to me about it the other day. So that is on my reading list right now. I am really into trying to find people that I haven’t heard speak before. So I’m trying to find meetups.

When I see a meetup of someone I haven’t heard before speak, I’m seeking out people that I think could provide a fresh look. It doesn’t matter their experience level that never has mattered to me. In fact, I think newbies probably provide the best value out of everyone that I’ve heard speak on average. So of course there are some really phenomenal expert speakers. I’m not trying to discount them, but I think people new to real estate have such, you know, like fresh eyes and perspective, and they’re not tainted by like, oh, you can’t do it that way.

Kind of philosophy. So I love seeing a really innovative ways that people are doing things, but that’s what I’m doing currently.

Speaker 0 (49m 43s): Awesome. And listen to this though. My favorite question, first car, make and model. Maybe this was in high school. Maybe this was off at a Colgate. You,

Speaker 1 (49m 53s): I bet you can guess this, but I had a Jeep Wrangler. I grew up in the error of clueless. So hair in the wind blonde hair in the way. And my brother always tells his story that we were driving with a top-down and a cop yelled from his car slowed down, and my brother started laughing and he was like, two cops always just tell you to slow down. Normally they’re supposed to pull you over, but yeah, the rules.

Yeah. But I had a Jeep then and I actually have a Jeep Wrangler now as

Speaker 0 (50m 32s): Well. They’ve come a long way. Yeah,

Speaker 1 (50m 35s): They definitely have. So it’s actually my husband’s car, but I still steal it from time to time. But it is stick shift. He has a thing for stick shifts and that, that drives me insane.

Speaker 0 (50m 48s): Yeah. I’m surprised they still make that car with stick. Is it still like the long stick goes like right to the floor? Is it, it’s not,

Speaker 1 (50m 55s): It’s not the long stick version, but it’s, it’s just very rough to shift gears. And, but he’s like no one will ever steal it because how many people can drive stick, shift these days. So that’s his philosophy,

Speaker 0 (51m 12s): One guest calling it a millennial security device or something like that

Speaker 1 (51m 17s): Because nobody,

Speaker 0 (51m 19s): Nobody drives stick anymore. Awesome. Okay. Well, aside from BP con later this year, people want to reach out to you. So you on social aside, as I always say, aside from a Google search, so any anywhere you’d want to point them.

Speaker 1 (51m 34s): Yes. So if you’re looking to passively invest, you can find more about the opportunity I was talking about@bardowninvestments.com. And then if you want to follow my real estate journey, you can find out more at bad Ash investor on Instagram,

Speaker 0 (51m 51s): I guess today has been Ashley, the Wrangler Wilson, Ashley, thanks for being part of working capital. Thank you so much for having me. Thank you so much for listening to working capital the real estate podcast. I’m your host, Jesse for galley. If you liked the episode, head on to iTunes and leave us a five star review and share on social media, it really helps us out. If you have any questions, feel free to reach out to me on Instagram, Jesse for galley, F R a G a L E, have a good one.

Take care.