Most real estate transactions get into trouble because they run out of time or money.

[22:45]

"Most real estate transactions get into trouble because of two reasons. One, they run out of time or they run out of money. And when you're entitling real estate, we deal in raw land. I am a raw land guy"

[11:45]

"So, with the what I call the the deleveraging that occurred over the last couple of months or years, sponsors now, if they're getting institutional financing, they're only getting 60, if they're lucky, 60% loan to value on their acquisitions."

[12:21]

"We're putting money out anywhere between 9 and 11%. However, when you're talking about a 75% loan to value with maybe a pref equity slice in there as well, a sponsor's equity just went from $40 million to maybe $10 million."

Full transcript

What you learn when you're out hunting geese is that the probability that the goose that's in the front of the V gets popped is very high because the minute you pull up with the gun you instinctively go hit that first goose in the V. And so when new ideas come along it makes me think of goose hunting because we tend to sit back and go let those guys go try that first and let's see if that works. So anyhow, we're here to talk about real estate, real estate investing the next decade. Uh we got a great panel here.

We're going to start out by allowing everybody to introduce themselves and if you will uh talk about any specialty area real estate that that y'all look at specifically. I can tell you I'm a little different here because I'm more a broker. Um many of you heard me speak yesterday. We we have a very large company, 200,000 active agents.

We're the largest privately owned real estate franchise in the world. And I get this question all the time. People go, "Did you know you were going to do that?" No. No way. I mean, it just turned into this very fortunate uh that we had a lot of people who believed in what we were doing.

But we see all asset classes because of that. We have 3,000 commercial agents embedded around the US and parts of the world. So we see lots of parts of the market. So So let me uh start out. Why don't you guys take a little time tell us who you are and about your firm and then any asset specific asset classes you look at.

We are an opportunistic real estate investment trust. We're a national fund. We specialize in private credit. And as far as real estate and what we look in, we're all real estate professionals. I'm sure you could probably tell from my accent. I I started in New York real estate 30 years ago.

So, as far as what we are looking at with respect to what we're investing in, we have no specific bucket. We have no specific asset class. We look at the real estate, we look at the sponsor, and if the basis makes sense, if the deal makes sense, we're in. If it doesn't make sense, we're out. So fortunately enough, we're balance sheet lenders in in the private credit arena.

So we do not have a necessary bucket that a deal has to fit into for us. So again, just any real estate deal, and I know that sounds so broad, but you know, a real estate deal could be good, right? Any real estate deal could really make sense if the basis is right, if the sponsor is right, if the location and the fundamentals are correct. So that's what we're looking for.

We're a Dallas-based uh family office. Uh partners are Indian-American. So um you know the DNA first and foremost as a basis is uh land hotels and gas stations, but we're branching out right now. We're looking at a Canopy by Hilton um hotel um opportunity zone and historic building um and as well as triple net deals. Um, right now it's tax season.

So, you know, we love to invest, you know, a triple net, uh, preschool buildings, government buildings, 7% cap rate. We do it all inhouse offmarket. Thank you. Hey, Barry, would you do me a favor? Define for the group here what triple net is. I'm not sure everybody would know.

Right. So, tripnet basically means that, you know, we don't like to get our hands dirty. We just collect the check and uh the tenants do all the work. And I spent a large part of my career building uh US academic medical centers outside the US where I worked with sovereign wealth and high netw worth individuals. And that led me on a journey when I came back to the US to really explore how we can better invest in our biggest export in the US which isn't military which isn't finance but it's actually healthcare.

So we uh formed a company, a physician uh owned and led company called Titan 3 Capital. We built multifamily communities next to the most prolific academic medical centers in the world in Philadelphia and Boston. And we formed a vertically integrated uh development investment and management company. So delighted to to meet you all here today and I thank Richard for the kind invitation to participate.

If I can stop you a second, Rakkesh, that's incredible because I have people now who say to me, "Well, yes, I need to have this procedure done, but we're going to go down to Panama to have it done." How does that impact what you do building these centers outside of that? Well, there's a lot there. So, um, people travel for different reasons.

Uh, sadly, one of the most, uh, frequent reasons that you you're citing is cost. Uh we simply are crippling in the health care system because people without insurance or people who cannot be employed by the right employers simply cannot afford to have life-saving therapy and that's a bigger question regarding rejuvenation and rebuilding of the health care and insurance system which I'm also involved with on in my executive's roles. Yeah. But it makes me think that what you're doing is just brilliant.

Well, it you know it's a very personal reason. So I I trained at the Mayo Clinic as a professor of surgery there and also at the Cleveland Clinic. And what struck me is even in these neighborhoods, even in these worldclass medical institutions, we would work in one place and then live and play and raise our families in another place. And and simply speaking, it just didn't make sense when we dedicate 40, 50, sometimes 60 years of our lives to saving lives, to generating worldclass research that drives our specialty forward.

And yet we can't live next to where we work. And therefore I've dedicated the rest of my life to making a dent in that problem. Wow. Cool idea. Next. I am a NextGen single family office.

I also founded a company called Lightspace. Um we are a regenerative real estate consulting company. Is that too much of an echo? Now it's not an echo but I'm sitting here in my mind going what is a regen? Explain what that is. Okay.

Uh so regenerative real estate is real estate that gives life to people and to the planet. So I focus on building eco retreats and eco resorts with people all over the world. Everywhere from eco hotels to personal properties to islands and to cities and now with countries that are implementing innovation to be self- sustainable off-grid and net zero. And there and also to have holistic ecosystems within the property that can sustainably support the local community and provide essential resources like food, water, shelter, education, these types of things.

So I am very happy to work around the world. We've worked with hundreds of properties around the world. I started by building islands in Indonesia. Um building sustainable development plans for these islands u for the thriving of the local community with respect to indigenous people that are living on the land as well as implementing innovation so that the people on the island and the community can sustainably prosper.

I'm very blessed to be working with indigenous communities all over the world and supporting them with building their properties and places like the Amazon rainforest in um templates, Mexico, um Indonesia, Europe, United States and we've worked all over the world. So I and I personally have invested as well in an eco retreat property in North Carolina. Um we host retreats and help people to heal themselves from all types of things. Um and to host retreats for meditation and nature bathing and um and things that are good for people.

Um I really see this as a trend um out globally and um people are especially since co people are moving into nature. They want to be closer to nature and also to have resources available to them that are not reliant upon the the existing systems. And so I I'm seeing this as very much as the future of real estate um in many ways and also the adoption of net zero policies globally. This is certainly an emerging trend and also is an a niche yet growing market globally.

So I'm really happy to be on the forefront of it and happy to to introduce regenerative real estate as an asset class. Thank you. Very cool. Sasha, you're up. That sounds great. Andreas, can we happy since it's happy new year everyone, can we do one of these at one of these eco uh lodges, I guess, next year.

But it's um a really a small multif family office. U I I used to run Cheltonham. It's one of my one of my partners. Um so I just consider ourselves to be uh we we invest opportunistically, but uh real estate has always been our our core. Um we go um up and down the capital structure. Um we like to support what you call um emerging sponsors.

Um you know they sponsors that don't have funds and we can invest with them and help them help them grow. And um it's been really I think these past couple years have actually been a golden opportunity um coming out of COVID. You know, I think um uh you know, senior living at one point uh really took a a hit. So, we've been finding that it's been an interesting area because of um uh the tailwinds and um interesting enough um we also think uh office could be a interesting place.

So, very opportunistic and looking for uh people who have uh interesting ideas. You know, it's interesting too. You say senior housing took a hit, but we've got 10,000 people a day that turn 65. So, if it's a hit, it's not going to last very long. So, tell me, uh, what type of structures y'all tend to use? Y'all, you can tell I'm from Texas, right?

That y'all tend to use when you're acquiring the real estate or syndicating. Talk a little bit about what your structures look like. Yeah, I'm happy to start. We're we're very creative in our structures. So, as a private lender, we will look at any structure ranging from obviously senior mortgages, subdebt, mez, pref equity, anywhere in the capital stack.

Also, if we're lending to other lenders, we're happy to look at a note, bode structures, syndications. So, as a lender, we really leave it up to the sponsor to come up with the proper structure for the acquisition. Obviously where monitoring that that structure makes sense from a lending perspective as well. So again, very creative when you're doing transactions, especially in the $100 million range transactions, you know, we've come to notice that cash is king to most sponsors.

So, with the what I call the the deleveraging that occurred over the last couple of months or years, sponsors now, if they're getting institutional financing, they're only getting 60, if they're lucky, 60% loan to value on their acquisitions. So, you have to get very creative in your structure. If you're doing a $100 million deal, that's a $40 million equity infusion that a sponsor may be looking for. So, as a private lender, we could come in, stretch that senior loan maybe to a 70 75% loan to value.

Definitely going to be more expensive. We're not putting money out at bank rates. We're putting money out anywhere between 9 and 11%. However, when you're talking about a 75% loan to value with maybe a pref equity slice in there as well, a sponsor's equity just went from $40 million to maybe $10 million. So, these are the different ways that we've been structuring transactions in this type of environment.

That's smart. One of our partners is a former CPA and uh it's tax season. So, a lot of uh investors alongside of us uh want that bonus depreciation, right? So you just form basically, you know, a LLC in a propco and take down like a $5 million uh triple net building, preschool or um government building. So it's pretty simple.

So there's a lot of similarities between how physicians invest I found in high netw worth individuals and family offices. There's one one way is that they bury their head in the sand. And that's not meant to be porative or negative, but simply speaking, physicians are some of the worst due diligence seekers in the world in investment. Uh number two, uh is they throw a lot of spaghetti at the wall and just throw go for the swing for the rafters.

So number three, we've taken a different approach. We're not looking um to offer the incorrect uh dream field of dreams vision of free money from nothing. And therefore we stick stay away from structures that are traditional syndications. We love that our partners are actually partners uh on a couple levels. We've partnered with Quaker Lane uh who is an institution level developer with over 20 billion in uh institutional level development uh management and resale.

And they're partnered with a very similar thesis to us developing around academic medical centers. But the point is is that we attract middle market institutional capital into our deals. Then what we're looking for is between one and $10 million checks from others who are really invested in our thesis. High net worth individuals, family offices, uh groups of physicians who are actually part of our structure in terms of governance and decision-making uh rights, which allows us to build communities worth living in for generations to come, which is what we're passionate about.

Interesting. Marin, what what do your structures look like when you put these things together outside the US? Well, there actually we're focused in the US now. I I'm saying my former career uh as I I built I built a medical center and and had to structure the capital and and the um and and the funding for it operationally.

So, we're focused in the US now around University of Pennsylvania, Wharton Business School, Children's Hospital of Pennsylvania, MIT, and Harvard. Those are our thesis areas right now. So we structure uh in a in a combination type tier type of structure with with midlevel institutional partners, high netw worth individuals, single family offices, and groups of physicians who come in with LLC's for between a1 and $10 million check. We like that because it gives people an opportunity to educate themselves, particularly physicians I'm talking about now.

Uh and and we know physicians are great learners. They just have never had the opportunity to do what we're doing right now. When they come in, they're great partners and really creatively add to where we're going with the project. Makes sense. So, when we are structuring structuring deals for properties, uh we we utilize a combination of blended finance methodologies.

Um some depending on the property and where it's at and all the diff all the uh the ecological aspects of it. There are often a lot of times um government grants, incentives, um subsidies for things like carbon credits and um and solar power. Ecological friendly practices are are very supported by government structures as well as u a lot of public grants um for these types of buildings. Uh we also source um anywhere from direct investments uh lending structures um to to do the developments.

We work with major development companies all over the world um re bio regionally that are focused on the the preservation and the conservation of these local biospheres. Uh a lot of the times these properties as well are implementing solutions like gardens uh and and water rights and and things like this. So people are also very interested to um to be an equity stakeholder in these properties because of the abundance of natural resources that are available and that are also included in the property um as part of the offering to people. Uh as a result uh we um we have also formed um because we work with hundreds of properties globally and now we're building web 3 platform to streamline that engagement between the properties and the climate techch innovations and to open this up more to a more um global community and to serve all the properties that um that are adopting this trend.

Uh we are also creating a regenerative real estate fund uh with a group of different properties that are uh protecting and uplifting sacred biospheres and our beautiful places to live, play, work and stay all over the world. Um we're also with that we're offering tokenized um tokenized investment so that people can um purchase a stake in the fund and then have equity holdings and properties all over the world that they can enjoy. Uh we call it space sharing and um and also um there are abundant returns for each individual property and also um and also with with the fund of properties. That's that's also something that's very exciting and that I also am invested in personally with my family office as well as uh fellow nextgens.

We call ourselves the regen nextgens and we're we're investing in properties that are giving life to um to local bio regions as well as the people that live there for the next seven generations and beyond. Thank you. Cool. I'm unfortunately not a NextG, so my partners only care about don't lose me money. So, I I'll tell you a couple things that um I've learned and I've thought about a little bit more.

Um as a rule of thumb, um I um I I do not participate anymore. I I I as in general I don't to participate in syndicates because the problem with that is is when things go wrong you as an investor really don't have any rights and you saw that really in the past few years and so for about 10 years um most of our investments came through the form of preferred equity because I'm sure if you were in real estate you heard for a long time we're the ninth inning we're the ninth inning And the point of doing preferred equity was to give you um a cushion, right? You have a cushion that if things go wrong that your preferred equity was equity. Um and what we saw was the preferred equity that we provided to syndicates who brought in a lot of equity.

They were more willing to actually walk away from a project because it really wasn't their equity, right? They had gotten all the fees, the management acquisition fees, all the fees already in a project was made through all these fees and it was no longer their money. It was a collection of doctors for example, right? And so while I thought I was protecting myself by having a cushion, I was like, "Wow, they they don't care about walking away, so they're not going to go to the bank and do what you have to do to protect yourself."

So that's just something to keep in mind. Um but I do believe that now it's a good time to um go into equity because we know that we've more or less have hit the peak in interest rates which means that um values have gone significantly down from their peaks in 2021 to now. Right? And so essentially you have if if you're buying a project at a good basis price per door or whatever now you have more of a possibility of getting something cheap and if there is cap rate compression it's essentially an option that brings your property up but at least now you know that your downside's protected and I think it's important though that um as equity when we structure it it's a JV agree agreement where we have controls and rights and the ability to make sure that, you know, we're getting, you know, quarterly numbers.

We understand what's going on. Um, you know, we know where the budget and where the money is being spent. And if you are a syndicator, you're better off going in with a third party that you trust that may be leading the syndicate, not the sponsor leading the syndicate. So, those are things to really think about um when you're structuring your your deals.

Something that that all the panels yesterday and today have said and and understand when I sit down with our agents and we train wealth building because we look at the agents and say if you're not out there buying real estate you guys are nuts and of the 10 rules that we talk about with him. Rule number seven to me is critical and that is here's the rule. I'd rather be in a crummiest deal in the world with great partners than the reverse because not every real estate deal you're going to do is going to be great. As Richard said earlier, talk about the elephant in the room.

Most real estate transactions get into trouble because of two reasons. One, they run out of time or they run out of money. And when you're entitling real estate, we deal in raw land. I am a raw land guy and we buy this land that we find from our agents because they're everywhere and they come to us and go, "You're never going to believe this deal.

If I just had the money and as we tell them, call me. I can get the money." That's what we have a fund for. But we've learned over time, it's kind of like we're renovating your home. When they give you the estimate and the date, double the estimate and double the date and you're probably going to be correct.

And that's just the nature of the beast.