WS1448: Developing a Strong Investor Relations Strategy | #Highlights

EPISODE 1448

[INTRODUCTION]

Whitney Sewell (WS): This is your Daily Real Estate Syndication Show, and I’m your host, Whitney Sewell. Today we have packed a number of shows together to give you some highlights. I know you’re going to enjoy this show. Thank you for being with us today.

Whitney Sewell (WS): Our guest is Brian Adams. Thanks for being on the show, Brian.

Brian Adams (BA): Yeah, thank you for having me, this will be fun.

WS: Brian is the president and founder of Excelsior Capital, where he spearheads investor relations in the capital markets arm of the firm. He has 10 years of experience in real estate private equity. Prior to forming Excelsior Capital, Brian co-founded Priam Properties, an institutional real estate private equity sponsor, in 2010 and provided leadership and direction for the firm in connection with capital markets, investment management, and investor relations.

Let’s dive into, just your secret sauce for raising capital and just how you developed that over the years. You’ve gotten into the business and you’ve made lots of connections, no doubt.

You know, what was – walk us through that a little bit, maybe early on, your ability to raise capital and how you grew that to where you are at now?

BA: Right, this is going to sound cavalier, and it’s probably going to come across as obnoxious, but honestly, the secret sauce to raising capital is to actually listen to your logical investor base, right? I’m not talking about the Saudi Arabian pension fund, right? Because that’s not a realistic investor for you, or it’s not for me. Probably isn’t for a lot of folks listening to the show.

If you write down 50 to 100 people, that will realistically take a meeting, they will realistically give their resources, time, and money to you in return for your product offering, and you actually listen to what they want, don’t just cram down what you think is a cool idea, or a cool investment, or a great deal, because if you have the best deal in the world in your mind and you think it’s terrific, but unless you can raise capital to acquire it, it’s just art.

Art’s wonderful but art is not a business, right? If you want a business, you need to have a product offering and a service that people are willing to give up their resources for. About halfway through my journey of trying to cram down the product into my investor base and what I thought was cool or interesting, I actually did kind of a mini road show, and I sat down and listened to what my investor base wanted.

I realized they really wanted three things: Capital preservation, access to real assets, yield, they wanted income generation, and they wanted to really push the tax benefits that come with direct real estate ownership through their K1 as a taxable investor. Once I pivoted my product offering and my investment thesis to satisfy those three things, that’s really when I started to raise much more efficient capital.

WS: Capital preservation, yield, and tax benefits, did I get that right?

BA: That’s right. 

WS: Nice.

BA: A lot of entrepreneurs and people who want to get in the business talk about IRR and multiple and all these other things that are great, but frankly, in my experience, even sophisticated family offices, they don’t care. Just give people what they want.

WS: Would they be in that order? I would imagine.

BA: Probably so.

WS: Capital preservation is – 

BA: I’d say, certainly in today’s environment where the stock market has extreme volatility, it seems like it’s extremely expensive right now. Yields on bonds or fixed income or corporate debt are terrible, but taxes, you know, are a real issue. Even though it doesn’t seem like it on the CPI level, inflation is real, right? 

Anybody who pays tuition or is buying a home feels that inflation coming. It’s really, I think a way to put some money to work outside of the public equity market but also, to get something in that, I think realistically, 6 to 7 to 8% cash on cash yield, that current income, so they can pay for their lifestyle, they can maintain their quality of life, and/or maybe be opportunistic with some other type of investments. Cash is king, and I think especially in inflation hedgeD product would do very well over the next cycle. That’s where, you know, investors that I talk to on every day, you know the stock market’s scary, and municipal bonds or whatever kind of fixed income, their financial advisor wants to put them in, yields are awful, right?

It doesn’t make a whole lot of sense to lock up your capital for that. I think you just need to listen to what the needs are from your investor base, and deliver on them. Once you start doing that and giving them that experience, it’s much easier to raise more capital from your existing investors than it is to go out there and make a brand new relationship, right? That takes time. Especially in a COVID area where we can’t necessarily meet with people in person, this is much more powerful in my opinion.

WS: You mentioned like delivering on those things. Ultimately, listening to what they want and then delivering on what they’re requesting, what’s most important to them. What you found was capital preservation yield, tax benefits, you mentioned like pivoting, changing your messaging. Can you elaborate on that a little bit? What was your way that you got that message out? You know, was it pamphlets, was it just the way you spoke to people, was it a little bit of everything, could you elaborate?

BA: Yeah, I think you know, a lot of people, especially in our business, when I meet young entrepreneurs or people that want to be a sponsor or syndicate capital, they always – lots of them will try to third-party the capital raise. Or they’ll say, “When I raise a little bit more capital or have some more revenue coming in, income generation, I’ll hire a chief marketing officer, or I’ll bring in a third party to do the capital raise.” Wrong. If you as the principle and sponsor are not the chief sales officer and the chief marketing officer, you will fail.

This is exceedingly capital-intensive business. Unless you feel comfortable getting a hundred no’s a day and making up 200 asks, it’s not going to work. You cannot offload that, no one will have the passion or the drive that you have, and no one will understand the story the same way that you do. I think, that’s a really big mistake that people make.

In terms of how to present it, you know, oftentimes, when people do the pitch, you know, kind of like you did, you teed me up and I gave you my background. Honestly, no one really cares, right? No one cares that I’m from New York, no one cares that I went to a liberal arts college in Connecticut, nobody cares that my wife’s from Nashville, I mean, not really, if you ask them.

What they care about is how can you address their needs? How can you help solve their problems, and allay their fears. Once you understand what their fears are and what their needs are, just come out of the box and tell them what you do and how you can address those problems. I think your pitches will go much smoother.

WS: What’s been the hardest part of your journey in this business of real estate and syndication? 

BA: Yeah, I mean once I realized an efficient way to raise capital, we became deal guys, which is, “Oh we’ve found these great opportunities, we’re going to do these deals, we’re going to close them,” and we did. We acquired a lot of real estate in a short period of time for our – in our world. I made a huge amount of mistakes because instead of leading with what I should have been, which is investor relations, business development, and communication. We just focused on doing the deals.

And all of that stuff got pushed the back-burner, and it was a huge mistake because it really alienated a lot of my investor base. What I did, starting two years ago, I scrapped everything, went down to the bare bones. I hired an internal controller, who is a CPA with a public accounting tax background because tax is huge for investors who are taxable investors. I got Juniper Square, which is a great investor relations CRM, 365, 24/7 investor portal, which is just terrific and does all kinds of great things. 

I started leading with, “Hey, we’re going to be best in class for investor relations, and communications. We are going to go over the top and provide you with all of this information and accessibility,” and now out of 450 somewhat investors, you know I rarely got a phone call, because it is all right there for them. We are getting way out in front of anything, which I should have been doing earlier in my career but, frankly, I think making those mistakes and having that painful period of my life as a manager, ultimately makes me a much better sponsor.

And so, I am not happy it happened but I do think it is a necessary pain point for me to be where I am today. 

WS: Nice and I wanted you to elaborate on that a little bit. I know we briefly mentioned it earlier, 250 million in four years. I mean most people listening would dream of being able to scale that fast.

Can you elaborate any more on just mistakes made of scaling that fast or things you would have done differently, I mean anything at all that the listener or even myself can just take from that? 

BA: Yeah, I mean obviously it is a big cliché but just because you can do a deal doesn’t mean you should, right? And ultimately, just because you can make acquisitions and raise that capital, you’ve got to understand that are two distinct parts of our business. There is the deals themselves, there’s the acquisitions, there’s the underwriting, there’s the diligence, there’s making a good investment based on the thesis that you have. 

But there is this whole other component of the actual business that you are running, which is the vehicle that enables you to make those investments. For a long time, I didn’t really spend that much time or effort on the business side of it because you are, essentially, you have to understand. If you are an investor, you’re taking a risk that this sponsor knows what they’re doing in the real estate world, right? But especially as a young sponsor or a newer sponsor that investor is also taking a risk on you as a small business owner. 

And I think what is important to understand is investors who have been doing this for a while, they understand they are taking a risk on the deal, right? I mean COVID happens, 9/11 happens, ’08 happens, these things happen. It’s a big boy game that’s why accredited investors are accredited, but what you need to focus on in my opinion is taking care of everything else on the small business side and de-risking the small business component, and it takes money right? 

It takes energy and effort to have that kind of system in place for the enterprise level. So, I think it is really important to understand that you need to have all of these things, investor relations, a really good portal, a really good in house controller account, really good asset management, you know a decent office where you can actually do the work. Those things are all separate from the deals but they’re just as important. Frankly, it is probably more important. 

WS: And I am grateful for you hammering that home because if you don’t have the business side if you don’t have the investor relations component alone, the property doesn’t mean anything, does it? 

BA: And maybe you should just be an allocator, right? Maybe you should just really focus on underwriting GPs and sponsors and you have your own relationships and you come to me and you say, “Hey, I like what you are doing, let’s have a relationship on a business level.” That’s fine but I’ve got 12 employees, right? So that’s a legitimate HR issue. I’ve got them to worry about all of these other things that have nothing to do with office buildings, but from the investor side, that’s how they experience it every day, right? And so even if it is the best deal in the world unless you’re transparent and communicative and addressing the actual needs of those investors, it doesn’t really matter.

WS: How did you develop the business side? I know you talk about how important that is and I couldn’t agree more. I know that’s been a growing point and a struggle for me personally as well. You know, I can raise a lot of capital now, you know, work with hundreds of investors and we have done that in a short period of time, I feel like, and tried to do it the best that we possibly can, but then just like you said, when you’re talking about, “Okay, we need to hire somebody for this. We need to hire somebody for that.” 

I go back and think, “Okay, you know, what should that job description be? What should these things be for this person?” And those are things you didn’t realize maybe five years ago that you are going to have to deal with, right? And so how did you learn to operate that business and put those things in place? 

BA: It is just by making huge mistakes and screwing it up initially and then talking to sponsors in GPs that are 20 years older than me and just asking for as much free advice as they’re willing to give me and being unabashed about it. Calling up a sponsor whom I know has done really well, track record, grown a great company saying – and don’t just ping them and say, “Hey, I’d love to pick your brain,” “I want free advice because you seemed to be doing a really good job, and I want to copy everything that you have been doing so I don’t step in the same pothole again,” right? 

And that’s part of this community, which is really cool. Not every sponsor is going to respond or GP is going to respond but the ones that do, they’re just a gold mine. Because they have made all of these mistakes too. You know I think oftentimes, we look at them as, oh they have achieved this greatness and they’re perfect and they are terrific, never the case, right? 

They’ve all been on this hero’s journey in chapter one, is this a great idea? They do this thing and it is wonderful. Chapter two, they have failure and chapter three is redemption, right? That is what we all like to see. So if you can find folks in chapter three that are willing to be honest about what chapter two look like for them, it is so much more valuable to understand what not to do than it is what to do because I think we all have a sense of what we should be doing. 

And what would be great but really avoiding the pitfalls is what’s going to prevent you from having a catastrophic failure in your business.

[INTERVIEW 2]

Whitney Sewell (WS): Our guest is Michael Episcope. Thanks for being on the show, Michael.

Michael Episcope (ME): Thank you for having me. I appreciate it.

WS: Michael, there’s so many things there I’d like to cover and/or like to ask you about. A few things specifically, you mentioned that in the last four and a half months, over $100 million has come into your fund. That doesn’t happen overnight, right? That happens over a long track record and history. Obviously, 1600 investment partners or investors. Congratulations. I know the work that goes behind building those relationships and that level of trust with that many people and investors. I want you to just speak to that a little bit – some marketing tactics or ways that you’re building those relationships. I’d love to get into the fund a little bit as well, eventually. 

But I’d love for you to highlight just maybe some of the marketing tactics. I know many of the listeners right now are trying to grow their investor base obviously, or they’re trying to present themselves right, as this credible company so investors are attracted to them and trust them, build that level of trust. All those things that we’re all trying to do. What are some tactics that you have seen that have been crucial for you all to be able to accomplish something like that – a hundred million in four and a half months is no easy feat.

ME: No, no. That’s not a normal four and a half months. Stars have, sort of, lined up. I’ll take it back to 2015 when my partner and I just had this sort of ‘Aha’ moment. It came and it was only as a result of the JOBS Act that it’s possible to actually market what we had. And if you have a great product and you put it in front of enough people, it’s very simple to believe that they’re going to buy it. That was kind of our thesis in the beginning. Prior to that, the marketing department was me and my partner. We would go out there and meet with individuals and have lunches and do things like they were doing for eighty years. And we’re like, there has to be another way to do this. 

So, we really rebranded the company. So we used to be called Origin Capital, and we wanted to make it more investor-focused. So now we’re Origin Investments. We rebranded our website as well because that’s sort of our front doorstep. We hired our first marketing director at that time. What we also did – and this is a point that I think a lot of firms miss out on – we started to build our Investor Relations Department and the customer service side of that to make sure that any of our investors, if they have questions, when they’re onboarding, when they’re an investor with us, they can get their questions answered. People get back to them, usually within a few hours, but absolutely within 24 hours. That was important to us to make sure that that leg of the stool… You can’t just hit on risk and returns, but it’s also that side of the equation. And so that’s how we built a lot of goodwill and in any environment, just being responsive to people when they email you, getting back to them. 

The simple things really, really matter because if you don’t get back to people for two or three or four days, it’s really indicative of how you run the rest of your business, so I’m really proud of the team that we built. Today we have seven people. We have one person starting next week. Seven people in our Investor Relations Department to handle everything we need from onboarding people to servicing our existing investors, sending out, reporting on time in a way that makes sense. That’s what we fundamentally share. My partner and I, because we’ve invested passively in private equity in real estate and we’ve seen how frustrating that can be without a good IR department. The other side of that is the marketing department as well. In the marketing department, we have five people dedicated to that department and the overall arching theme of the marketing department is to create content for our audience to educate them on this subject. You will hear this come up over and over. But the number one thing that you need with content is authenticity. There is a time to promote your funds. There’s a time to do things. But you have to try it all times be a neutral party, and be authentic and not be writing about something and then all of a sudden promote your fund within there. Do something. 

Those are some of the things that people really fundamentally…they look for authenticity with anybody who they’re investing with. All too often you get these individuals who are on Instagram and doing this and showing on there. I don’t want to go there but too many individuals are pumping themselves up and have egos and things like that. And you have to cut through all that. So for us, it’s been a long road. 

And by the way, this does not happen overnight. Building trust with investors takes a long, long, long time. You can’t grow it overnight. So everything we do, especially when you are in a public forum that if we’re not always on our game and always improving, and we are doing something out there that is creating ill will, that can just go viral within our community and shut us down. So we’re very vigilant about that and cognizant about all the pieces of content. The way we behave, the products, how we market, and just making sure that there’s a consistency and continuity. But it’s not inexpensive. I mean, again, you know, I just need…We have more than 12 people dedicated marketing and investor relations to both educate investors and then surface them on that side and make sure that all their needs are being met.

WS: Wow. That alone shows the importance of investor communications, investor relations, marketing, all those things we have 12 people dedicated to that. Are there some specific things that you could mention that have helped build that trust though? I know it doesn’t happen overnight but what’s been a couple of key things that’s you know… ‘We did this and this just really showed investors that we cared about them’ or ‘this really helped build the trust’ and it also authenticity which is so important. I couldn’t agree more. But what or how did you present that? What’s a couple techniques, potentially, that have worked well for you all?

ME: So, If I’m looking at one tactic, it’s so hard to point to it. You can’t just have one thing that you do that’s great. I will say this, that my partner and I, even getting in front of people, we have monthly webinars where we have an open forum. We go out and we let everybody know about the performance of the fund. We don’t sugarcoat anything. We open it up in dialogue where people can email in their questions. I think one word that you won’t find on our website anywhere is transparency. You won’t find honesty. Those things are so cliche. You have to show those things in what you do. If you go out there and you go and research 100 of these investment firms, you’ll find those plastered all over the website. We said, ‘Look, don’t put any of those on. We’re about showing, not telling.’ 

When we’re doing webinars and people are emailing their questions in and we’re answering them live or we get in front of our investors in our annual events, those are opportunities for us to just be open and honest and authentic and transparent about everything we do and owning what things we’ve done right, what things we’ve done wrong, how we’re getting better, how we’re growing the firm. It’s really almost this cycle of accountability because when you put yourself out there, and you know that you’re going to continue to put yourself out there, and you’re telling investors that you’re going to do X and Y and Z. And you’re making certain promises, for lack of a better word, you want to hold yourself to those because we’re an organization that really believes that you do what you say you’re going to do. It’s as simple as that. 

I wish I had one thing for you, but I think it’s the ability for us to be available. It’s the quality of our team who we’ve hired. Even in our Investor Relations Department, everybody who we hire has a real estate background, but on top of that, we put them through a very rigorous training program. And so when they call up and they’re asking questions, there would be no difference between somebody talking to me and me answering the questions and somebody in our Investor Relations Department, answering those questions. And that professionalism extends to our asset management group. It extends to our acquisition group. We’re constantly trying to let people know how we operate because there’s a cost, right? What are you paying for? And then there’s value, right? What is the value of the fees that you’re paying and how much are you willing to pay for that service? It’s really about the quality of that team over and over. 

But trust is one of those things that’s hard to build. It’s easy to lose it quickly. It happens over a long period of time, doing different things. I’ll just go back to this hundred million dollars that we raised over the four and a half months because there were a few things that sort of – when I said the stars lined up – and one of them was the end of the year. And so there’s some tax dates with QOZ but number one, we were actually floating our unit price at the fourth quarter of last year, so there was a rush to get in before we floated it. And then in March of this year, this was… March 31 was the deadline by which you could put 2019 capital gains to work. So those two deadlines. 

Deadlines are always important when you’re raising money that people, you know like, have a reason to actually invest. We don’t use deadlines though, or a sense of urgency as a way to get people to act quickly without doing their due diligence. So these are things that we’re communicating well in advance. I’ll say one of the challenges I see today, because there are tactics out there that work no matter what market you’re in: a sense of scarcity and a sense of urgency. And people always act on those. However, when you’re in an investment market, that’s not what you want to be doing as an investor. You don’t want to be making a split-second decision in investing. And so some of these platforms out there, what they’re doing is they’re setting you up on a webinar where you get to listen for 30 minutes and then you have two minutes to decide whether you want to invest. It’s great for the platform, but not for the investor. And we really fundamentally believe there is not… 

Out of the 1600 investment partners, we are not a click-to-invest firm. We want our investment partners to ask a hundred questions and know exactly what they are getting into because everything is about expectations. And even if you deliver here, but their expectations were here, you have disappointed them, right? And we don’t want people learning after the fact, “Oh, I should have asked that. I should have asked that.” But give them plenty of time. That’s a long-winded way of saying there’s no shortcut. It’s a lot of things that you have to do between setting up a phenomenal team, delivering on your track record, being available to them, and just showing consistent service and performance.

WS: That’s a great answer. I love that. I just want the attention to detail around the relationship with investors. I think it obviously shows long-term commitment to them. Would you just walk through maybe the first… you know if somebody signs up on your website or somebody tries to reach out to you as an investor, what are some of the first few things that happened with them just so you’re showing that level of commitment like that. 

ME: If you go to our website today, and this has sort of been an evolution but we just revamped the website recently. So you can be anonymous. And you can go in there and you can download our fund documents directly. Or you can go to our website and you can actually… There’s a box in there where you can actually connect with one of our investor relations content or personal investor relations individuals there, book a meeting in their calendar, you can connect with them right there if they’re available as well. 

Or you can just email any of them as well. [email protected] and somebody will get back to you immediately. But we wanted to really, you know… because there’s some people who want to talk to somebody right away. But I will say that conversations are always better when you’ve done your due diligence when you’ve read those. I’ll say this: there’s nothing worse than somebody going to the website, not reading anything, and then taking up the time of our people in our Investor Relations Department. “Tell me about Origin.” You can learn about Origin on our website. You can learn about Origin by looking at our deck and stuff. It’s always better if people have taken the time to download the deck, look at the website, really understand what it is they’re looking for, and then have a better conversation that’s a lot more nuanced rather than something at the 50,000-foot level. 

So, again, we believe in the customer journey. Everybody’s in a different spot, so people want to just browse and peruse, and some people are ready to talk to somebody in Investor Relations. But the whole process we make is as simple as we possibly can from onboarding to even investing in funds itself. So we streamline the process which can be quite daunting. I mean, if you’ve ever invested in private real estate, you have a wealth manager and he sends me these packages that are about this thick and they’re all tabbed out and they’re still not in the kind of 21st century today.

But everything we do is done by DocuSign. So, we have a support team there that handles all of this. We have continually tweaked those documents so if there’s any areas that are confusing, we make it super easy and simple. Anytime somebody wants to check on their investment, we have investment portals that they can log into and see the status of their investment. We’ve really embraced not only the team but also the technology behind that to be able to service so many investors.

[END OF INTERVIEW]

[OUTRO]

Whitney Sewell: Thank you for being with us again today. I hope that you have learned a lot from the show. Don’t forget to like and subscribe. I hope you’re telling your friends about Real Estate Syndication Show and how they can also build wealth in real estate. You can also go to LifeBridgeCapital.com and start investing today. 

[END]