Starting your own investment shop with a Brokerage-only background?

Does anyone have experience moving directly from brokerage into starting your own investment firm?


I've been toying with the idea of starting my own small-ish investment shop (sub-$30M deals) where we acquire and run our own deals as the Sponsor/GP. The problem I am coming to involves trying to find LP or fund capital. People have been completely dismissive of my background (institutional investment sales at a major CRE shop for >10 yrs) and don't consider it a transferrable skill set to the principal investment side. 


This is a legitimate criticism, and I'm now wondering if I should give up and toil away doing acquisitions at whatever firm I can find for a few years to get my chops before trying again down the line.


Has anyone actually done this successfully (or unsuccessfully) before?

 
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My former MD on the multifamily investment sales side tried to this. This was someone that had over $1B worth of transactions just by himself and two other junior brokers. He knew all the players. Unfortunately, he ended up falling flat on his face. I think the problem was that he was a solid broker, a solid salesmen, etc, but when it came to investing, it takes a different kind of personality. Also one difficulty he ran into was that several of his clients would later become his competition if he became successful. The other issue he ran into was that he was a successful broker with an existing book of clients, he was making high 6 figures on just his existing relationships. For him to drop that and try something new became a challenge especially when he had clients calling him to list properties. This broker didnt have to lift a phone to make a pitch.

I am sure there are brokers who have become successful in this route, but just sharing the one (and only) story that I know.

 

This is what the guys at Brazos Residential did and they've been on a buying spree. Not saying they're making good decisions but it's definitely possible. Use your brokerage experience to make good institutional relationships and once you have those, you can branch off. Just keep in mind that all the pro forma numbers you're used to putting in your deck are complete BS.

 

Do you know how to operate a building?  Brokerage is a broad and shallow pool - you look at a lot of deals, but don't actually do anything with them.  You might have perfect pricing knowledge for an asset class as a result, but that won't help you be successful.  Buying in at the right basis is important, but it's the tiniest bit of nothing when put against actually owning and operating real estate.

So, yeah... of course LPs are going to dismiss your background.  You don't have a relevant background!  You always have to remember that you aren't the only claim on their attention - giving you a dollar means not allocating it to someone else, so not only do you have to have a good deal at a good price, but you need to have a compelling reason why you're a better bet than every other person with a good deal in hand.  "Figuring it out as you go" is all well and good, but if I can invest with someone who has done this before, can point to their experience in actually taking risk and distributing returns, then of course I'm going with them.

Maybe the better solution is to go buy a small deal and run it yourself for a few years so you learn the ropes a bit, and then turn around and try and raise real money.  I say this a lot, but real estate is not a short-term game.  Wanting to go out and raise millions of dollars with no experience and no skills is an insane mindset, and yet it's one everyone seems to have.

 

Very possible. I work for a firm where the principal was one of the biggest brokers in the city. It’s about running through walls. Just because 20 people have told you no doesn’t mean number 21 will. You need to keep pounding the pavement until people tell you yes. Just like cold calling in brokerage. Get to yes. Don’t stop. Also there are plenty of investors in NYC that started as brokers. 

 

You’d have an edge sourcing deals. Maybe start smaller with low hanging fruit that shows you can execute operationally and work your way up. Additionally, if you know someone with institutional asset management background, you source deals and equity, he/she runs the ops. Good luck, don’t give up, raising money is always hard and you’ll always run into hurdles but that’s part of the business. 

 

Hate to break it to you, but you don't have the skills.  Not to say you have no skills of value.  You just need to partner up with a deal guy and a PM.  I've done solo deals for years and I do them because I am in a unique position when it comes to capitalization and have an investment thesis that leads me to doing a couple deals a decade.  However, you will do 10x the deals if you partner up than if you go it alone.  Period. End of story.  

 

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