WS728: From Limited Partner to General Partner with Luc D’Abreu

[INTRODUCTION]

[0:00:00.0] ANNOUNCER: Welcome to The Real Estate Syndication Show. Whether you are a seasoned investor or building a new real estate business, this is the show for you. Whitney Sewell talks to top experts in the business. Our goal is to help you master real estate syndication.

And now your host, Whitney Sewell.

[INTERVIEW]

[0:00:24.3] WS: This is your daily real estate syndication show. I’m your host Whitney Sewell. Today, our guest is Luc D’Abreau. Thanks for being on the show, Luc.

[0:00:32.9] LD: Yeah, definitely. Thanks for having me, Whitney. Looking forward to getting into it.

[0:00:36.8] WS: Luc’s educational and professional experience is in the architecture, engineering and construction industry. He has been involved with projects valued at over $750 million over the last nine years. He’s a limited partner in 445 units across two assets in Texas, totaling $36.8 million. Is part of the National Black MBA Association and African-American Real Estate Professionals and holds a masters in Engineering from UCLA and soon, an MBA from the University of Illinois.

His goal in real estate is to create generational wealth, leave a legacy and provide a better life for his family. We’re going to hear it today, just some of the things he’s done to get that started, especially investing as an LP in a few deals, things he’s looked for. We will learn from his experience and how he chose, whether it’s the GP or the market in different ways that he has been successful in that, in his path moving forward. Luc, welcome again, grateful for your time and being willing to share your experience and expertise with us.

Give us a little more about your background and just getting in the syndication business and why invest in syndications and why was that right for you all.

[0:01:46.6] LD: Yeah. When I had finished grad school back in 2012, I ended up reading the famous purple, yellow book that everybody references Rich Dad, Poor Dad. I kind of had things on my radar in that way already, just being able to do more than simply work in order to have income. I saw things like that growing up as well. I had some exposure to that, but I didn’t really have any sort of framework or plans to move forward with that. Reading that kind of definitely shifted my mentality a bit, Whitney.

Then I continued to just get education, and learn, and read books and — I mean, podcasts back then wasn’t nearly as big as they are now, but maybe five years ago, podcast were — that kind of helped along the way. I had an opportunity to invest in a couple of those deals in Texas like you mentioned. I knew it was the right time and wanted to move forward with it, because I’ve been preparing for it, I’ve been waiting for it for so long at that point it felt like. I jumped into those and the rest is history. I’m still involved in both of those deals. They haven’t gone full cycle yet but those are doing well and looking forward to invest in it more.

[0:02:51.7] WS: Nice. Well, let’s jump in there a little bit. I’d like to even back up and say. How did you know you were ready and why was it syndication? You have been educating yourself? But you could have invested with a single-family operator or you could have invested in land, or hospitality or — there’s so many other avenues, right? I mean, the stock market even. Why was it syndication? And I assume, it was multifamily because we share the units

[0:03:16.7] LD: Yeah. I never ended up doing a 401(k). I was 22 when I started out working. I didn’t do the 401(k) because I didn’t understand it. I didn’t want to put my money into something that I didn’t get. It didn’t seem like anybody else at work really understood it. It seemed like they were just doing it because that’s what you’re “supposed to do.” Now, I understand what the heck is going on with those. But I’m a cashflow person and I need to understand what’s going on in capital preservation and of the different asset classes, whether it’s in real estate or in the public equities that you just mentioned. Real estate, specifically multifamily real estate is the one that’s able to provide capital preservation. It’s something I understand and it has that cashflow.

Everything else, it could be a little more volatile, it can be a little more tricky, something like single-family obviously, land, it doesn’t cashflow. That kind of met my criteria that I was looking for.

[0:04:06.3] WS: Tell us a little about your — you were educating yourself. So many people that are listening right now are doing the same thing you were doing quite a few years ago now. They’re learning about the syndication business as they’re looking to invest and grow their wealth. They’re also trying to figure out, “How do I trust this general partner? How do I trust this operator?”

There are so many who have different qualities, right, that we bring to the business. I mean, I just got off the phone with numerous investors that I ask different questions, right? Many are the same, but many are different and they want to know how they can trust me. We just want to show everybody that we can be trusted, right? But how did you go through that process to say, “Okay. This is the operator that I want to put my hard-earned money with?”

[0:04:47.0] LD: Yeah. The two offerings that I invested in were both 506(b), so there was a connection that both of us had. My former roommate had a connection to one of the lead sponsors on the deal. That helped provide a bit of a sense of trust, of course. But meeting with him and talking to him, just two partners. And meeting with him and talking with him, that ended up helping a bunch to provide some more, I guess greater level of comfort. It’s like, I want to be able to feel like, “Okay. Does this person know what they’re talking about? Number one. But do they seem like they’re a good person, could actually have a conversation with them? If we ended up working or partnering together in some way down the road, is that somebody who I want to actually partner with? Like, “Can I talk to them, period, like have a basic conversation.” That was honestly big for me.

Then there’s just a lot of due diligence. I mean, I’ve checked out both of the sponsors, I’ve checked out the property management company. Like my fiancé and I, we secret shopped both of the deals. We look at the areas. Both of the deals are in San Antonio and we weren’t as familiar with them because we’re native Californians. We went out here, we secret shopped them. We talked to the property manager and the leasing agents who were there. I want to see what kind of cars were in the driveway, all that sort of thing. Like at the very least, would I want to live here, would I be comfortable living here, do I feel safe?

Then the last piece was doing my own underwriting on them too. I took the pro-forma and ended up doing sensitivity analysis, and just ended up checking like, okay, so how bad do things have to get to where this deal isn’t going to work anymore. Because like I said before, I’m big on capital preservation. Especially when you’re working, I’m sure you’re aware of this. It’s like, it takes so much time and energy to end up actually collecting the money and keeping it. You get taxed on it, like I don’t want to lose it because of the bunch of time and energy that got put into it. I want to make sure the capital was going to be preserved.

I put that in my own underwriting. That’s gave me a greater level of comfort as well. You know that group, the Wildhorn Capital, it anybody has heard of them. I guess one of the partners is in LA, the other one is in Austin, Reed and Andrew. I mean, those were the two first deals, and I think now they’re on to their eighth, I want to say, something like that. They definitely continued to grow along the way over the past several years.

[0:07:01.3] WS: Yeah, I know both those guys pretty well, great guys. They’ve had some success. Yeah, I think a lot of both of them. I want to jump in to a few things you said there. You talked about — you integrate lengths to be able to vet the general partnerships. Look at the deals specifically, there’s very few times — we offer it to all of our investors also. Like, “Come out to the property. We’d love to host you. Come out and walk the property with us. We’d love for you to put your hand on the building, know it’s real.” Most can’t do that or they’re too busy, right? Or they’re busy operating their professional business or whatever they’re doing.

It’s hard to get a flight out within a week or two and see the property in time before they have to make that decision. That’s why they’re investing passively in the first place, right? Because they don’t want to be the operator, they don’t have time to do that. That’s why this business model works for them, but you did. I think it’s incredible. Tell me about how did you prepare for even like a property management conversation, because that seemed — or how did you vet a property manager and what was your thoughts behind that and just being prepared for that meeting when you’re really just learning about syndication business.

[0:08:05.8] LD: Yes. I guess it was two things. There wasn’t a lot of digging I ended up doing online about the property management company. I just did my own sort of research. That ended up helping I would say, just to figure out, “Okay. Well, how long have they been in this business? Do they do well with value-add properties?” Those were the sorts of things that I was interested in.

[0:08:26.8] WS: You knew the business model that was going to happen, that they were planning for the property or investment and said, “Okay. Has this management company done that before?”

[0:08:34.6] LD: Right. Is that something that’s on their website as — they might have all these units, but are they — do they do more lease up or have they done value-add in turns or like these turnaround properties so to speak. That was something that I wanted to like get a sense for, because they’re completely different competencies.

The other part too was just literally, like I said, we secret shopped them. So we went in, we said, “Hey, we’re looking to move into the area. We just want to look at a couple, a one-bedroom or two-bedroom.” That ended up helping a bunch. I just wanted to see — I’ve been in sales for the past six years, right? So customer interactions are very, very important. I’m like, “Okay. How do they greet us? Are they professional? Do they have their stuff together?” That was something that was important, and I wanted to see, “Okay. What’s the quality and the feel? Are they asking for the sale at the end of it? Are they trying to get us to apply?” All of that sort of stuff.

[0:09:23.5] WS: Nice. It’s incredible. I mean, you secret shopped. I’ve secret shopped some properties before that we were looking at purchasing. That’s interesting. As an investor, taking the time. I mean, it wasn’t like it was in your backyard either. You all had to upfront some expense there to be able to go and do that, and probably stay overnight, a night or two. Like you mentioned, you’re even seeing the types of cars that were at the property in determine whether you would be comfortable living there. The next I wanted to ask you though was, you mentioned like underwriting the property and doing sensitivity checks and things like that. That’s kind of a more detailed thing too, like there’s a whole skillset around underwriting and understanding the sensitivities of a specific property or business plan. How did you educate yourself enough to feel comfortable even underwriting a property like that?

[0:10:11.1] LD: I’d look at previous OMs before and I had an understanding of the basics of an income statement at that time, and how a DCF cashflow model works. That ended up helping, but then the other part, what I ended up doing was, I just took what they had is their pro-forma. I mean, to preface this, like I have a master’s degree in engineering so it’s like, “Okay. Well, I can work with a spreadsheet and I can understand some basics, right?”

[0:10:33.7] WS: So you got to leg up already. I mean, that’s incredible.

[0:10:36.2] LD: Yeah. It was just like being comfortable with like numbers at the very basics. But then being able to work the basics of a spreadsheet, like nothing too crazy of course, but being able to work with that.

I just ended up looking at a combination of the rent dropping and the occupancy dropping. Where does the deal not work anymore? Whether it’s year one, year two, year three. I mean, if it’s year five at that point, it probably doesn’t matter. So I kind of look at those several years. I ended up diving in that way to do my sensitivity analysis. Like I said, if the money does what it’s supposed to do and all the targets are reached, that’s great. But now, I do not want to lose money. It’s like capital preservation.

A lot of the reason why people invest in multifamily and in real estate generally is because there is capital preservation, it is the hard asset, right? It’s a very risk-averse industry generally speaking, compared to so many others. That’s what attracted me too, so I want to make sure that these properties and these investments ended up fit in that criteria for me.

[0:11:31.8] WS: Nice. I know that you had a connection through a friend to the GP, so there was already some trust there built in, and that’s always helpful, right? To have somebody refer you. We love referrals, right, because that speaks volumes before we’re even having a call with someone. You figured out, okay, I feel like we can trust these guys. What about the market itself? Was there anything specific that said, “Okay. I love this. This market seems to be doing really well. It’s a place to put that capital so we don’t lose it.”

[0:12:01.4] LD: Yeah. I think big thing was looking at the state. I mean, the State of Texas is much more business, so I’m very familiar with California. They are polar opposites as we all know. That was one thing with the state. Then looking down at the actual MSA. I mean, San Antonia was and still is more affordable than like the next closest MSA, which is Austin.

The idea is that, and it probably — it’s continuing to happen. There are so many people who are getting priced out of Austin, and they’re needing to move to San Antonio. San Antonia has the more diversified workforce than Austin does as well. It was those things, and then also population growth, jobs were continuing to go there. It was a combination of those things that I was looking at, and that ended up making it more advantageous.

The other part too is, I mean broadly speaking is, with being business friendly, the laws for landlords, and what you’re able to do there versus what you’re able to do here in California. Downside of Texas, but you just need to know that going in and just prepare for it as it comes up annually basically.

[0:13:00.8] WS: Yeah. You’ve got some experience investing. Obviously, you’re good with numbers. You have lots of experience there. But now you are transitioning, right? You want to go more to the general partnership side. Can you talk us through that? Just process a little bit what your plan is. There are numerous people listening who are doing the same thing, or maybe they’ve even invested passively in a few deals. Just to learn the business so they can also become a general partner. What’s your plan or thought process behind that as well?

[0:13:32.0] LD: Yes. I mean, really the main reason is to be able to have the lifestyle that my fiancée — Daisy and I, my fiancée, I keep mentioning her. We’re getting married in two weeks, right, and we’re planning on having children.

[0:13:43.0] WS: Congratulations.

[0:13:44.1] LD: Thank you. I appreciate it, Whitney. We’re planning on having children, and we want to be able to have a certain lifestyle with that. If you’re on the GP side, you are able to end up growing your wealth more quickly from what I’ve seen and looking at numbers, than you would if you’re on the LP side. Of course, you have to want to actually be active, but both of us do. It’s something that we want to end up moving forward with.

And so the process to kind of do that, it really started back in March, April when everything kind of shut down and we looked at it as an opportunity to really move forward with it. We started attending so many meet ups, different types of REAs I mean, the main one is MFM and there’s also FIBI here in Southern California as well. MFM is Multi Family Masters and For Investors By Investors. We started attending those meet ups, learning more, getting connected with more people within the industry, have continued to do so.

We decided to start a podcast. I mean, one way of that is a marketing tool of course. But we want to be able to address a part of the market that just hadn’t been addressed, it seems like. Anybody was really speaking to them, and that’s why we ended up focusing specifically on millennials and how real estate can end up helping them. Right now, we’re continuing to build out the team with capital raisers, lenders, brokers, attorneys, KPs. It’s a process of course, like there’s a lot of moving parts. It’s been fun so far.

[0:15:06.3] WS: Maybe you can speak to — I imagine you have a good JOB right now and you’ve probably worked hard to gain the degree you have and lots of time spent there, right? That’s a lot to leave behind, and probably family and people were saying, “Luc, what are you doing? You spent all this time over here, you’re crazy.”

[0:15:23.0] LD: Yeah. It’s interesting. I guess I look at them more like not want I’m living behind but what I’m moving towards, right? It’s more of the opportunity cost of not doing it is much more of a motivator than, I’ve put in all this time and there’s a sunk costs into doing the work that I’ve been doing. Nobody knows what they’re doing. People just kind of figure out along the way. It not kind of seems like — I mean, maybe some people know exactly what they want to do when they’re like 15, you’re Isaac Newton or Elon Musk or something, right?

I’ve just kind of figured things out along the way, and I mean, this isn’t that I’ve been sold on for quite some time now. I’m moving forward with that and it just ends up making the most sense. I think I’ve been talking to people about it for so long that it doesn’t necessarily come as a surprise that I plan the transition over, Daisy plans the transition over as well. Both of us still work full-time, but we’re LPs and forming our team and working on the syndication route in parallel right now.

[0:16:21.8] WS: Up to this point, what’s been the hardest part of this syndication journey or process for you?

[0:16:27.8] LD: It’s like knowing what you don’t know. You don’t know what you don’t know. That’s a big part of it. Like I said, there’s a lot of moving parts. It is a simple business. You buy a property, people rent it out, you get the money, but there’s more to it than that of course. I’d say, not knowing those things and that’s why we’re having more talks with KPs as we’re — we’re really diving into this to make sure that we have all those ducks in the row, so to speak.

[0:16:53.7] WS: How do you prepare for a downturn? You can say that from the LP side and looking at a GP or even you moving forward on the active side as well.

[0:17:02.7] LD: I’d say one thing is — I’ll start macro and go micro. I mean, one thing is the market. I mean, pick the right state, pick the right market, look at where trends have been going for the past five to ten years. Look at what’s been happening in the past six to nine months. Look at where things will continue to likely end up going. I mean, it doesn’t take a rocket scientist to look at how legislation and possibly drives population growth or population movement. I’d say that’s one thing.

Then the other thing is the sensitivity analysis. I ended up underwriting to see how far does the occupancy have to drop and how far does revenue have to drop in year one, two or three for it to not cashflow anymore. What’s that number? I’m like, “Okay. Has occupancy ever dipped that much?” Okay. Occupancy have to drop 80% in revenue, topline revenue has to drop 10%. Has it happened historically? How are things before? Then if it hasn’t. I feel like it’s unlikely to end up happening, it just hasn’t happened historically. Then that gives me a level of comfort knowing that the downturn is prepared for.

[0:18:03.3] WS: What do you predict over the next six to twelve months as a — investors are listening, they’re contemplating, “Okay. Is this the time to invest?” or even as a buyer, “Is this the time to buy or should we wait?”

[0:18:16.6] LD: I’m of the mind that the best time to do something is now, generally speaking, right? I mean, it’s just a matter of taking action because you’re going to be further ahead in six months than you would have been otherwise. That’s where my head goes. Inherently, there’s going to be markets and deals, and sponsors, and things that — those things that end up working, they’re out there. You can still see deals coming through and all of that.

Kind of the advice that I would give. I mean, in terms of what I actually think is going to happen. I mean, of course, part of it is dependent on who gets elected in early November, I would say to an extent. But generally speaking, over the long term, it’s like cap rates are going to continue to compress. I mean, probably the ten-year treasury is going to continue to be flat. Interest rates probably will be — I mean, I’m thinking several years out, economic growth may not end up being where the Feds is trying to get it to. That’s really where my head goes.

I mean, I think what’s going to happen is that people who sit on the side lines are going to be kicking themselves in five years, wishing that they would have gotten involved. That’s where my head goes.

[0:19:20.5] WS: What would you have done different on, say that first or second investment now that you know what you know?

[0:19:28.0] LD: I probably would have been more vocal and asking more questions. I kind of felt like I wasn’t able — I had this idea that, “Oh well, they’re the lead sponsor, they’re the managing partner of this deal, this firm. I should have asked questions to them or shouldn’t.” I’ll ask a few and then just kind of leave it there, and then just try to connect the dots as best as I can. But I probably would have asked more questions because I wouldn’t have known more now at this point, and would have been better prepared for what Daisy and I are doing.

[0:19:56.6] WS: What’s the way you’ve recently improved your business that we could apply to our business?

[0:20:00.4] LD: Calendly is huge. I mean, we have a podcast also, so coordinating at these times is just like crazy so many times and Calendly is a big — I don’t know how much it even cost. It’s like 10 bucks or something. I mean, that’s huge.

[0:20:13.0] WS: What’s your best source for meeting new investors?

[0:20:16.2] LD: Honestly, it’s really been the podcast. I mean, people reach out to us on Instagram or they reach out to us via email. We just have conversations with them. We just let them know what we know. If they have questions and they continue to ask questions, so the podcast for us has been huge to just meeting more people who are interested.

[0:20:35.2] WS: What’s the number one thing that’s contributed to your success?

[0:20:38.3] LD: I would say my parents. I had a pretty rock-solid foundation I would say. I think being born to parents who have degrees and — even though one of them isn’t from here and another one is — well, I’ll say not from here. One of them is an immigrant and the other, parents were both immigrants. But man, just a really solid foundation. They both have degrees, I have degrees. I was born in America. They just like set up this like very basic level for me to be able to succeed. I’d say it’s that, Whitney.

[0:21:09.0] WS: Wow. How do you like to give back, Luc?

[0:21:10.5] LD: Honestly, it’s like talking to people, especially people who are younger than me and just letting them know that these things are available. You don’t have to do what — life is what you make it. You can live the life that you want to live. There’s no rules to this thing, right? People make up new rules all the time. Like I said, Elon Musk is, “Oh, I’m going to dig tunnels. I’m going to go to Mars and whatever.”

For me, it’s like talking to younger people about these opportunities that are available and kind of seizing the day, carpe diem.

[0:21:37.8] WS: Luc, it’s been great to get to know you a little bit and just hear your story. From getting a degree, and having a great job to investing passively and the due diligence that you did there, I thought it was incredible compared to most investors when they first start investing in these deals. But just the length that you went to travel there, and secret shop, and property management company and just even knowing, look at the cars that were there, and sensitivity checks, all those things. And to the market to now becoming a general partner in your plan to get there. Just grateful for your time in sharing to listeners and myself.

How can they get in touch with you and learn more about you?

[0:22:13.3] LD: Yeah. It’s been great talking, Whitney. Thanks for having me on. The best way to get in contact is, you can reach us at Make it Rain Podcast on Instagram or makeitrainpodcast.com. Our podcast is everywhere, it’s Make It Rain Multi Family Real Estate Investing for Millennials. You can also email me too, if you’d like. My email is [email protected] and you can reach out to me there.

I’m open to any questions anybody has. If I don’t know something, I’ll say I don’t know and then refer you to a contact who does. More than happy to continue the conversation with any of your listeners, Whitney.

[0:22:50.8] WS: Awesome. That’s a wrap, Luc. Thank you very much.

[0:22:54.0] LD: Okay. Awesome. Thank you.

[END OF INTERVIEW]

[0:22:57.1] WS: Don’t go yet, thank you for listening to today’s episode. I would love it if you would go to iTunes right now and leave a rating and written review. I want to hear your feedback. It makes a big difference in getting the podcast out there. You can also go to the Real Estate Syndication Show on Facebook so you can connect with me and we can also receive feedback and your questions there that you want me to answer on the show.

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[OUTRO]

[0:23:37.0] ANNOUNCER: Thank you for listening to The Real Estate Syndication Show, brought to you by Life Bridge Capital. Life Bridge Capital works with investors nationwide to invest in real estate while also donating 50% of its profits to assist parents who are committing to adoption. Life Bridge Capital, making a difference one investor and one child at a time. Connect online at www.LifeBridgeCapital.com for free material and videos to further your success.

[END]