The deals I’m proudest of

People often ask me where I get my deals.

More and more, we get them off-market, from agents with whom we have pre-existing relationships.

But those aren’t the deals I’m proudest of. After all, it doesn’t take a genius to decide to buy a building for $235 / sq ft when it would cost $350 to build it, if the land were free, and everything in the neighborhood is at $350+.

The ones I’m proudest of are the deals that we buy on market, where everyone else had a crack. Why?

Our return requirements are higher than other buyers’. That has to be true, because our deals need to be good enough that investors can pay us our fee / ownership stake and STILL come out ahead of where they would have been if they bought a building themselves and handed it to a management company to run.

If we need materially higher returns than other buyers, we’re all seeing the same deal, AND we are the high bidder, it means that we’re looking at the deal differently than the other buyers.

I love being different. It means we’re either crazy or smart.

What I’ve learned about hiring and team building

Of all the things we do at Adaptive, the least glamorous, but possibly most important, is hiring and building team culture.

In building our team, we confront a set of annoying problems:

  1. We are not exactly curing cancer here at Adaptive. Very, very few people grow up excited about the idea of renovating and managing apartment buildings. So we’re not in a position to attract people motivated by mission.
  2. We are a small company, and therefore unable to offer the kind of pay and benefits that Google or Goldman Sachs can.
  3. I am a bad manager. By that I mean, I do not do a great job of creating, maintaining, and improving processes, nor holding people accountable to deadlines.

Despite those problems, we want to attract hard-working, smart, honest people to help us serve our tenants, clients and investors.

Here is what we have learned:

  1. Good people often don’t have the backgrounds or resumes you would expect. We have got A+ performance from people who didn’t finish college, people with personal bankruptcies, and people with (minor) criminal records. The majority of people who work for us had never worked in real estate before coming aboard.
  2. Further to the above: Good people are often refugees from the creative industries, where hours are long, stress is high, and pay can be uncertain. Often, people who start their careers in more glamorous industries burn out on them as they’re exiting their 20s, when they start to value life-style, predictability, and steady pay. We are always looking to scoop up the best of these people.
  3. Good people often have outside interests / lives they prioritize over work. So, we try to create an environment that allows them to do good work while also leaving plenty of energy and time for their outside interests.
  4. Good people HATE being micromanaged. As noted above, I am a bad manager. I barely keep up with the work I need to do to move the company forward; it would be impossible for me to do this while also telling other people how to do their jobs. So, I need to try to hire good people, point them generally in the right directions, and get out of the way. Usually, this works pretty well.
  5. Good people are demotivated by low-performing colleagues. My personal bias is strongly towards trying to treat employees like family. However, if you have someone who is not performing, it makes things awful for everyone else. So, I have learned to cut ties quickly (and humanely) with people who, for whatever reason, don’t get their work done here.

Obviously, Adaptive is still a major work in progress. It remains to be seen if we can grow our current team of around 10 full-time people into the (much) larger organization I imagine we will be 10, 20, or 30 years from now, without losing what makes us special. But we’re going to try.

Looking for talent (as usual!)

Regular readers know I’m fascinated by the history of the Blackstone Group, which is currently the world’s largest alternative asset manager.

I love the story. Steve Schwarzman and Pete Peterson took one look at what KKR was doing with earlier LBOs and immediate set out to build their own shop. But they didn’t stick to buyouts.

Instead, alongside the LBO business, they built a boutique investment banking platform and, eventually, a huge real estate private equity shop. They also incubated a number of other businesses, including, famously, Blackrock, which has, itself, grown into an enormous financial institution.

Why is this relevant to Adaptive?

Well, we have built a very successful business repositioning sub-institutional scale apartment buildings in LA. We’ve done 80 and we’re very happy to keep doing them for the next 30-40 years.

But we’re also hungry to grow. And what Blackstone demonstrates is the importance of bringing entrepreneurial people, the kind of people who can start and grow new businesses, onto the platform. Schwarzman and Petersen didn’t build Blackrock. Instead, they brought in Larry Fink as a partner, and Fink built (and, eventually, spun out) Blackrock.

That’s why we’re looking to meet some entrepreneurial people, ones who would like to build serious businesses on our platform, giving up some of the upside in exchange for the stability that comes with a salary and ready access to capital.

We’re kind of agnostic about what those businesses might be… maybe it’s rehabbing suburban garden-style complexes, maybe it’s building ground up, maybe it’s creative office, maybe it’s lending. We’re open to anything, so long as the person involved is honest, energetic, and bright.

So, if you’re a early-to-mid career dealmaker with a business plan, a track record, and interest in potentially working together, get in touch.

Where my ideas come from

Was talking my Lyft driver’s ear off yesterday about how he ought to skip law-school and instead start or buy his own business.

Realized that I have a very specific view on how someone can go about doing this that has been shaped by a lot of reading / listening over time.

Figured I’d share some of the books / podcasts / etc. that have shaped my thinking. So, in no particular order (except that Buffett is the best):

  • Warren Buffett’s Berkshire Hathaway shareholder letters, beginning in the mid-1960s and continuing through this past year – taught me about long-term holding, the value of compounding, the power of trust, the right way to think about reputation, the right way to think about leverage, and a LOT more
  • The Lean Startup, by Eric Reis – This is the state-of-the-art in thinking about new companies
  • Permission Marketing, by Seth Godin – A bit outdated now, but really explains the value of building an audience and, especially, an email list (by the way – sign up for my emails!)
  • reddit.com/r/smallbusiness – This is a community of small business owners, some of whom are really, really smart about “normal” businesses (lawncare, painting, etc.)
  • Everything I’ve ever read from Brent Beshore – Especially on the value of reputation and humility
  • King of Capital, the Blackstone book – Really the gold standard for thinking about growing a huge asset-management business
  • The Bonanza King, the John Mackay book- In particular the early part, where Mackay transmutes his labor and skills into ownership in mines
  • Everything I’ve ever heard from Trish Higgins of Chenmark CapitalTrish is super-real about what is actually involved in small business, as opposed to how you think about it when you’re in finance (as I was)
  • Principles of Corporate Finance – All about how companies and assets are valued and why
  • Den of Thieves – Particularly the section about how Milken built a huge business based on one idea (which turned out to be horseshit, but still)
  • Barbarians at the Gate – About the danger of falling in love with a deal
  • HBR Guide to Buying a Small Business – About how to tell the difference between a good business and a bad one
  • The Outsiders by Will Thorndike – Specifically, about discipline in capital allocation (see the part about John Malone, in particular)

One of the dumbest things I ever did

Was just going back through old posts for inspiration and came across this one, which rivals anything I’ve ever done for shear idiocy.

If you found gold lying on the ground, would you:

  1. Jump up and down screaming about how there was gold on the ground so as to call it to the attention of everyone else? Or
  2. Shut up and grab as much gold as you could

If you answered #1, you’re a far better person than I (though likely a much worse investor).

Now, in my defense:

  1. Between when I wrote that stupid post and last year, we bought a ton of buildings in East Hollywood;
  2. At the time, we had great ideas (obviously!) but no capital… so I was desperate to attract investors

But this is why, when people ask me (as they do every single week) where we’re buying, I say something like “You know, the usual places”.