Looking for an intern

Am in the market for a new intern, and figured I’d see if you people can help.

I hired my last intern, David, maybe four years ago. He worked for us part time during college, then came on full-time immediately after graduating.

At first, he was just my assistant. Over time, as he gained experience and I gained trust in his competence, I gave him more and more responsibility. At this point, he is extremely knowledgable about the business and handles important, complicated projects for me. I hope he’s with us forever.

Because David has grown into such an important contributor, I find myself wanting to try to repeat the process with another young person.

The role is very fluid, running the gamut from assistant-type stuff, to research, to looking at potential deals, to coordinating appraisals and insurance inspections… in short, whatever needs to get done on a given day.

Because the job is so varied and, more importantly, because I’m hoping to grow this person into another key contributor, I’m looking for:

  • Interest in real estate
  • Smarts, both book and, importantly, street smarts (a ton of what we do involves quickly identifying the incentives of different parties in a situation and figuring out how to create win-wins)
  • Energy (this is an underrated attribute in life, generally – give me an energetic 7 over a lazy 10 any day)
  • Some knowledge of business / contract / insurance law – even just a few classes would help
  • A sharp memory
  • Personal integrity (I have structured my life so as to spend literally zero time with people I distrust)

We can create a schedule that fits around school. And we will pay something reasonable (I hate the idea of people working for free, ever).

So, if you or someone you know is a college kid who fits the above criteria, that person should reach out to me.

Doing things backwards

Just had an interesting exchange on a call with the other people participating in my panel at IMN’s Winter Opportunities conference.

Our moderator, an attorney experienced in putting together large real estate funds, asked the panel about our experience transitioning from raising capital on a deal by deal basis to raising commingled funds.

I piped up that, actually, we haven’t made that transition at all. Instead, our commingled funds act almost like marketing vehicles for our much larger joint-venture business.

That’s really unusual for our business, where everyone wants to get on the gravy train of raising larger and larger funds and collecting that tasty 1-2% / year management fee. So, of course, our moderator wanted to know why we are doing things backwards.

The answer is pretty simple. Through a fund, we can commingle the capital of lots of investors writing checks for $500k-1MM, then use that money to buy a small portfolio of projects.

A really rich family can write a check for $500k or $1MM without negotiating the docs, doing much diligence, etc., since, even in an absolute disaster scenario, the loss would not affect them in a meaningful way.

So, that kind of family can invest in a fund and then, once they’ve seen us operate, get comfortable with writing a $3-10MM check for a joint venture with us, where they provide all the capital and we do the work.

Obviously, this is not the normal way real estate private equity businesses develop. But nothing about how we operate is normal, so what’s new?

How I quit worrying and learned to love raising capital

All the capital for my second through 12th deals came from one of my best friends from highschool.

Once he forced me to start raising money from other people, I remember complaining to him that I hated raising capital.

You should have seen the stupefied look on his face, right before he said: “You realize you’re in the most capital-intensive business in the world, right?”

I admit that I had not realized that until that conversation. Not my finest hour.

I bumbled along, asking close friends and family for money, but doing little to expand my network. I adopted this totally self-defeating mindset, where I felt like our results were so good that people should be falling all over themselves to invest with us, and that, if they didn’t it was because they were stupid. And I refused to do the type of things that other capital-raisers do, like quoting IRRs and ROIs, because I felt like doing so was totally dishonest.

If you’ve ever run any kind of business, you can spot the problem right away: I needed customers (that’s what capital providers are: very special, highly-valued customers), but I wasn’t doing anything to find them and tell them our story. This is conceptually stupid, and the results bore that out: Adaptive Realty Fund 3 boasted a whopping ~$2.3MM in investor equity.

Anyway, over the past few years, I have radically re-shaped my approach to raising capital.

First, I really examined my own weird, defeatist nonsense. No magic fairy was going to descend from the heavens to Historic Filipinotown and shower me with capital. I needed to take ownership of this process and get good at it.

Second, I realized that I wasn’t trying to get people to do something bad. We do really good deals. The numbers are great. Smart people who really pay attention invest with us once, then do it over and over again, because what we do makes sense. So telling prospective capital partners about what we do isn’t like being a sketchy used car salesman – it’s doing them a favor.

Third, I figured out a way to tell our story that doesn’t make me feel gross. We’re not sellers, I’m not going to quote IRRs and ROIs, and I’m not ashamed of it. That turns off the majority of potential investors and that’s fine. Instead, I focus on educating people about how we think about the world. There are enough weirdos with money who like to hold real estate forever to allow us to build a business. I just focus on those people and forget about everyone else.

Third, I realized that capital-raising isn’t really about sales, anyway. You’re not going to convince someone who doesn’t want to invest with you to change her mind. Instead, it’s about telling our story, over and over and over again, in blog posts, meetings, at conferences, over dinner or drinks, whatever, to as many relevant people as I could. Not in an annoying way (no one likes being cornered and bored to tears). But in an open, helpful way that meets people where they are and educates them about an opportunity that might be great for them.

Is capital-raising ever going to be my favorite part of the business? Nope… there’s just nothing that matches the thrill of finding the right building, seeing in my mind what it can become (physically, and then, as a result, economically), and then working with my partner and our team to actualize that vision.

But capital-raising is now something I enjoy. And that means I’m happy to do it, which has translated into major growth for our business. Which is what I should have known would happen, all along!

On the growth of Adaptive

I have a very clear vision for my career. I have known where I want to go (I want Adaptive to be a huge company) and I know what I have to do to make that happen (a series of very good deals for the people who trust me with their money, so that they will trust me with more of their money and tell their friends).

The annoying part is that the kind of deals we do unfold over years. Because we do such extensive renovations, we usually aren’t able to begin returning capital for 14-18 months, when we refinance the projects. And, thereafter, we settle into a boring series of quarterly distributions… not exactly the kind of thing that makes people jump up and down and tell all their buddies at the country club.

Some of our savviest investors pay close attention to the market and our regular investor reporting, and can see pretty quickly, well before the deals stabilize, that we’re doing a good job. These are the people who have turbo-charged our growth over the past 3-4 years, because they have been willing to commit more and more capital to us, without waiting to get to the end of the initial project(s). And these investors have been rewarded for their faith.

But, for most investors, committing capital to us is much more passive. They like what they hear, they write a check, and then they tune out, sometimes to a comical degree. I’ve had investors email me asking if the deal is over, because we returned all their capital after 18 months. And I have to explain that, no, this is just the beginning, you’ve got your money back and now you’ll be receiving checks forever.

The problem with those tuned-out investors is that they kind of inhibit our growth rate. Because there’s no big moment where we sell the property and announce that we’ve got them a 26% / year return or a 140% ROI or whatever crazy numbers you want to imagine, there’s no prompt for them to realize that, actually, things have worked out incredibly well and maybe they should tell their friends.

And that’s where things like speaking at conferences, networking, cold emailing, and, yes, this blog come in. For years now, I have been doing what I can to bring in new capital partners and start driving them up the learning curve about what we do. And, finally, recently, we have begun to see the fruits of this labor, where old investors are committing more capital and helping us bring in new investors, who, in turn, we hope will do the same in the years and decades to come.

Growth is almost never as fast as you want it to be… that’s the nature of our business. But, if you consistently provide a really good service and consistently communicate about it, eventually you enter into a kind of feedback loop where good things compound.

Connecting the generations with real estate

Years ago, when we were still working on the Better Dwellings portfolio, before we started Adaptive, I remember having a conversation which I now realize contributed to my bias towards holding real estate permanently.

Can’t remember who it was, but the person told me about checks he receives each quarter.

The source of the funds? Apartment syndications in Hollywood in which his grandparents invested in the 1980s.

He told me that, over the years, his family has received many, many multiples of the capital his grandparents invested. (Of course, I’d love to have access to detailed records to calculate rates of return, etc., but I don’t!)

What appeals to me about this story?

Regular readers know I’m fascinated by the concept of capital as a means of tying a family together through the generations. (The capital for my first deal came from the sale of a building my great-grandfather bought in New York decades before I was born, capital which passed through the hands of my grandfather and mother before coming to me, and eventually, to my children.)

I love the idea that, by investing with some syndicator, the grandparents helped provide for their grandchildren and, presumably, the generations beyond, long after their own time on earth passed.

And I love that, in some of our deals, there are members with names like “Trust for [Person X]”, where the trustee making the capital allocation is a grandparent and “Person X” is a grandchild I’ve never met, but who will benefit from that investment, long after the grandparent is gone.

My hope is that, when those grandchildren receive the checks, they pause for just a second and think of their grandparents, the way that guy I met thinks of his.