WSO Podcast | E125: CRE Private Equity Associate Chasing Growth
About
In this episode, Cole shares his winding path in real estate private equity. From landing an analyst position in Agricultural PE right out of Duke to pivoting to a CRE acquisitions and dispositions role, he has always looked to make the move where he'll learn the most rather than chase the biggest paycheck. Learn what he's up to now in the midst of the major slow down due to Covid-19.
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WSO Podcast (Episode 125) Transcript:
Patrick (CEO of WSO): [00:00:06] Hello and welcome. I'm Patrick Curtis, your host and chief monkey, and this is the Wall Street Oasis podcast. Join me as I talk to some of the community's most successful and inspirational members to gain valuable insight into different career paths and life in general. Let's get to it. In this episode, Cole shares his winding path in real estate private equity from landing an analyst position in agriculture p right out of Duke to pivoting to a commercial real estate acquisitions and dispositions role. He has always looked to make the move where he'll learn the most rather than chase the biggest paycheck, learn what he's up to now in the midst of a major slowdown due to COVID 19. Enjoy. All right, Cole, thanks so much for joining the Wall Street Voices podcast.
Cole [00:00:58] Good to good to be here, Patrick, thanks for the invite.
Patrick (CEO of WSO): [00:01:01] It'd be great if you could just give the listeners a short summary of your bio.
Cole [00:01:06] Yeah, absolutely. I am primarily based in commercial real estate and have touched on buy side and sell side out of college, my first major role was as an analyst on an acquisitions team in agricultural private equity of all things, but that was a really great learning experience. And from there I moved to an internship working in a more traditional OPKO private equity startup where they were focusing on medical office primarily, which is a really interesting niche. We can touch on that later. And then from there, I moved over to more traditional sell side, analogous to bulge bracket and investment banking, sell side commercial real estate brokerage, sort of in-house back office analytical type work, as well as project management, property management. And then after that, I spent time as a land acquisition manager at a large national homebuilder in Raleigh. And finally, I spent time recently working as a catchall analyst to a private investor out of New York buying distressed retail property. And then, most recently, I've been helping an entrepreneurial effort for a brokerage firm in Raleigh as well. All of these experiences have basically created a commercial real estate focus for my career, and that intersects sometimes with more traditional private equity. And sometimes it doesn't.
Patrick (CEO of WSO): [00:02:48] Very cool. Love it. So let's go all the way back to Duke. And so you are a history major.
Cole: [00:02:55] My most common question asked Why? Why real estate? Yeah.
Patrick (CEO of WSO): [00:03:00] So tell me, Well, did you know early on, was there family in it, like freshman year, sophomore year? Like, I know I want to do commercial real estate? Or when did it? When did it kind of pique your interest? Was it during college?
Cole: [00:03:10] I assume it was an internship and it was an internship that I got, interestingly enough, via tutoring a son of the managing director for what was later my boss, and I basically asked him what he did. And if you've ever seen the pursuit of happiness with Will Smith, it was kind of like one of those. What do you do and how do you do it and
Patrick (CEO of WSO): [00:03:35] What the guy was like? What do you even do? No. Sorry, go ahead.
Cole: [00:03:39] Well, you know, he had done well for himself. However, through that kind of investigative effort, he gave me a shot and I worked in a very, you know, traditional unpaid internship arrangement for a while and that eventually converted to an opportunity after I got my license where I could earn some fee income and things like that. However, once I discovered the transactional nature and the real, consequential nature of real estate in the sense that there are no real arbitrary deadlines in a deal environment, it's all real. And that was really exciting for me. So that sort of led me down the path of a career in commercial real estate
Patrick (CEO of WSO): [00:04:23] To me, like it was just exciting, like the transactional nature of it, like, OK, when are we going to close that type of stuff or just like the race?
Cole: [00:04:31] Both and to be more precise, when a deal is live and you are in the process of collecting diligence documents much, much like banking, I imagine there is a true deadline in the marketplace for bids to be submitted and you have to process those. But even before that stage, you're just you're just under the gun to get it done as quickly as you can and as accurately as you can. And so that in a way really focuses your effort on what you're doing.
Patrick (CEO of WSO): [00:05:05] Yeah, just tell me a little bit about the whole process of interviewing. And like, so you knew this is this interest you, your sort of real estate interests me for sure, right? Coming out of Duke? Did you ever think, Hey, I should maybe do something besides history? Or did you say it doesn't matter? Like, as long as I'm doing getting the right work experience, which you were on your resume? That's what really matters. And I'd agree with that. But tell me, like what was your thought process going into kind of your senior year? Did you have a job lined up, all that good stuff?
Cole: [00:05:32] It was very much Wild West Rodeo. I did have some internship experience at the commercial real estate firm I mentioned and then also at a London based private wealth management shop. However, the history major well, it was great on the research side. Most people, when they look at your resume, as you know, well, they go off of first impressions and they see history and they say, well, that's not real estate, that's not finance. Why are you here? And you have to overcome that hurdle and there are elegant ways to do that. You know, every job requires research skills. Every job requires composition, skills, you know, and down the road, once a hire has been made, hopefully they see that. But in the interview stage, that's a harder, harder hurdle. And so that's why I would always emphasize at least get a minor or something in finance or real estate or civil engineering to show demonstrated interest, if not through clubs and extracurricular efforts.
Patrick (CEO of WSO): [00:06:30] That's good advice. So, OK, so you're getting the right experience, you're getting the internships, you're able to start communicating, I guess. So a little bit of a wild west, meaning you didn't have like exactly a set plan coming into your senior year or your parents at this point. Are you are you nervous at this point? Is are your parents nervous? What was the thought process like? I know maybe you weren't on Wall Street was panicking like everyone else who doesn't have an internship like freshman year. But tell me about like, yeah, tell me about your thought process and your mindset back then, which wasn't that long ago, is what?
Cole: [00:07:01] For sure. No. Yeah. When I stepped foot at the Spring Job Fair, the off cycle job fair at Duke, which I really have to thank them for all the effort they go to to put that on. Having had that prior internship experience, there was a lot of confidence walking in there compared to other students who maybe didn't know what was on the other side of those, you know, those job booths. And you know, when I was able to communicate with the firm that ended up hiring me out of college, they immediately knew that I'd done what they were doing before, and that was critical in securing an opera in offer. And so without the job fair, I think my search would have taken a different form. But given that it was there, I was able to find that AG private equity opportunity. And once I got there, it was really, you know, despite being in Raleigh, there were guys working there that were formerly at Goldman Sachs, McKinsey, Canadian Wheat Board, really, really sharp guys. And so outside of New York and San Francisco and these well-known finance hubs, you can still get a secondary mentoring and education that's close. I won't say it's equal to it, but it's close to that if you pick the right group of people to work with great.
Patrick (CEO of WSO): [00:08:23] And so you kind of found this at the job fair. Tell me what the process was like. Did you have like three rounds? Was it intense? Was it more just casual and conversational and just more fit once they saw kind of you had the right experience?
Cole: [00:08:37] Tell me what that was like? Sure, sure. So the job fair was fit casual. However, the interview round following that was more like Super Day sort of eight interviews straight through non-stop, a mix of technical and non-technical questions throughout the day. I don't think that was intentional. Each interviewer has their own style, and so if you're being interviewed by somebody who really places a high premium on technical proficiency when you get that interview, then if you've prepared for it, you're going to feel good when it's finished. However, I found that that was probably about 20 percent of the questions that I do.
Patrick (CEO of WSO): [00:09:17] You remember what some of those technical questions were, or was it all real estate focus like or just more general evaluation corporate finance?
Cole: [00:09:25] One of them was a valuation in the sense of explain high level conceptual. Of, you know, a discounted cash flow. Explain why you would prefer using IRR versus equity multiple to evaluate an opportunity. Another was explained to me the process of a sale leaseback. A third example was explain to me how cap rate compression works. These are not rocket science questions, but if you haven't put in some time to study them and you haven't directly been exposed to them, they might trip you up in an interview. And so getting experience, practicing those kinds of interview questions with people who do that day in and day out is really, in my opinion, the best way to prepare for it.
Patrick (CEO of WSO): [00:10:14] Did you do any mock interviews leading up to this if the job fair or with?
Cole: [00:10:18] Yeah, I did, but mostly through friends and former colleagues.
Patrick (CEO of WSO): [00:10:22] But now that was helpful, right? So this is this was did you do? Did you rush and do like quick, like three or four mock interviews as soon as you heard you had a Super Day?
Cole: [00:10:31] It was more something that I probably did about two of them, and I felt comfortable with that level of practice because I'd already done an internship that exposed me to these concepts. Yeah, whereas if I'd never had the actual internship experience I might have been, I might have been more inclined to do closer to six to eight mock interviews, for example.
Patrick (CEO of WSO): [00:10:54] So agricultural private equity, tell me what that is. Is it more to purchase the land, I assume, and be putting on debt like a traditional PE firm would and betting on the appreciation of it? Or are you making improvements to the land? I'd love to just hear just for the listeners, to
Cole: [00:11:11] All of the above all of the above. Agriculture is it's an interesting niche because it's extremely complex and historically low margin business. And so there were there's that involved. Generally, you can't get as much debt on an agricultural investment as you could on a more traditional real estate investment. However, most of these farms already had crop yielding crop crops being yielded on them. And so the question was not does it produce value? Is how much is it producing? And can we do better with a different crop, so much like a tenant in a building? When you purchase a new building, you want to examine if that's an efficient use of that space, highest and best use analysis. So and sometimes people even go so far as to explore the cost to demolish the building and build something entirely new. Oftentimes, you buy raw land and figure out what you can plant successfully and backing up. This acquisitions department, by the way, was an entire agronomy department which was full of really, you know, very qualified experts helping us support the underwriting that eventually would lead to the predictions on future revenues.
Patrick (CEO of WSO): [00:12:37] So can you give me an example like a type of deal that would go through? Is it like a $10 million acquisition of, you know, X number of A.?
Cole: [ [00:12:44] Like just would be? Yeah, sure, that would be a minimum. We were typically looking at $20 million or higher in terms of allocating capital efficiently. Yeah. Any upwards, you know, hundreds and hundreds of acres were purchased at a certain single time. And basically the goal was not to buy as much land as you could, but to buy a land that was as productive as it could be and that included soil quality and included municipal politics. Oftentimes, there were limitations on what you could do with the land future land use that applies to regular commercial real estate just as much as AG water availability, riparian water rights. We're really big, and this seems
Patrick (CEO of WSO): [00:13:32] Like a really cool job, really interesting job right out of school. It was very, very cool. So tell me why it kind of was a little bit short lived and why you ended up taking an interest with what seems like a step back going to an internship, you know, less than a year out? Was it something where they were restructuring or like restructuring the way it worked? Or was this something where you felt like you wanted to get into more the health care side? I'd love to hear like what your thought process was around that. I know I got fired six months into my first P.E. gig, so no judgment if there is like just a restructuring because, you know, they basically cut us when I went there and got blindsided within, I think, four or five months and they went from 20 down to four investment professionals. So I don't know if something similar happened there, but I'd love to hear a little bit about just like. Because I see in your resume you have a couple long stops, but there's also a couple of short hops, so I'd love to hear like what your thought process was on going to this health care p job.
Cole: [ [00:14:35] Yeah, sure. So the guiding philosophy behind every opportunity I've taken has been exposure. The money will come later. If that's something you're obsessed with, I, we can get into that later, but I don't think that's the end. All be all, but the exposure is really key. And so acquisitions and you know, historically, I was angling for a more traditional operating company style private equity rolls. Real estate is fascinating and I always say boring people get bored and there's always something really cool and interesting to do in real estate. But if you're chasing private jet money, everybody knows that's kind of big traditional private equity. And so the internship was sort of like a downward lateral transfer, but into a OPKO style underwriting role where I was had the opportunity to help value family medical practices for consolidation in a more traditional opcode private equity style role. And that's why I took that opportunity. Unfortunately, that company had its own slew of issues at the parent level, which I was unaware of at the time. And so in a way, I was very grateful. It did not get continued, but it was a really good exposure. And one of the biggest insights to me is that the methodology behind the underwriting of a real estate deal and a private equity deal is not wildly different from a theory standpoint. It's a discounted cash flow. And the question is how precise are you getting? How granular are you getting in the projection of the future income and expense? And how much can you really how accurately can you truly predict those things? And you know, the models in a leveraged buyout are quite complex, but at that level, for a family medical practice, it was not as complex as you might assume it would be. It was just different formatting norms and different, different jargon. But fundamentally is pretty similar,
Patrick (CEO of WSO): [00:16:40] And I assume a lot of these were relatively stable cash flow businesses since it was in medicine.
Cole: [00:16:45] Yes. Go ahead.
Patrick (CEO of WSO): [00:16:47] Yeah. So I guess I think what you said was really interesting. There were some issues at the parent level and you didn't know about that when you made the jump. Tell me a little bit about at the AG PE fund when you were there and you were kind of starting to. Were you starting to interview before you jumped? And then this opportunity kind of presented itself and you're like, I got to take it because of this exposure. Like, how did they sell it to you? How did they sell it to you such that you felt comfortable jumping?
Cole: [00:17:13] Sure. I guess it was not a premeditated jump to a secure branch or whatever you want to call it, but the AG fund was in an interesting, tough spot because they had and I'll touch on this allocation issue at the at the internship opportunity later. But they had a fair amount of capital they had for a rally based fund. They had about one point five billion dollars to invest, and they had these very strict limited partnership restrictions on what they could buy and if it was in a core group of agricultural investments that had been pre-approved so they could be sort of rubber stamped or this alternative asset bucket that was higher yielding, but had to be individually approved by all of the limited partners for each deal. Oh my gosh. And that is makes it almost impossible to win an open market bit because of the timing and the, you know, the price changes
Patrick (CEO of WSO): [00:18:16] Basically forced to only be in this one kind of sub segment of land type or crop type or something like that.
Cole: [00:18:22] Well, up to a point. And so you know what they what they were wrangling with was trying to achieve. The Kerry carried interest that they had promised their limited partners or themselves rather and then also achieve the returns of preferred returns. They promised the limited partners. But when they hit their allocation limit for the alternative investments that were higher yielding specialty crops, they had to move towards a more traditional staple crops, which, of course, their larger investors invested in them precisely to fill that low yield, low risk bucket in their own portfolios, right? So they don't want so
Patrick (CEO of WSO): [00:19:04] Doing all this alternative stuff. So they were there basically with all their LP agreements. They were they were marked in and kind of hamstrung. They couldn't really do that. So. Is that what led you to say, Hey, the writing's on the wall, the returns are going to be pretty compressed here? Let me let me see.
Cole: [00:19:22] There was. Significant deal flow in my first year there, and then just like that, it all stopped.
Patrick (CEO of WSO): [00:19:29] I can't believe you were like, Well, did you have any sort of heads up or it was like the writing just it stopped and just the writing was on the wall.
Cole: [00:19:36] We allocated about two hundred million dollars very quickly and we found some good deals to do that. And after that, the allocation had been reached and unless they were going to amend the partnership agreement, that wasn't going to change soon. They're still doing well, and they've managed to continue to operate a successful business. But I think they did have an internal shift into more operational issues.
Patrick (CEO of WSO): [00:20:04] And so they well, the upside is gone, right?
Cole: [00:20:08] And so I was approached about helping them on the investor relations side and I said, You know, I think you guys are doing really cool stuff here, but my goal is to build a career as an acquisitions professional. And so at that point, I started looking and I found,
Patrick (CEO of WSO): [00:20:24] How were you? How are you so savvy? What are you? Twenty two, twenty three to know that you shouldn't just take that and to start interviewing, because I think a lot of kids would say, Oh, well, this is a good salary. It was just obvious to you that, Hey, I'm not, I'm not going to get the deals and I want I want more than eight months, nine months of acquisition experience.
Cole: [00:20:42] Well, I, you know, savvy is very flattering, I think. Call it a gut feeling. But you know, when something is changing based on an initial thesis and as you get older in your career, you figure out when the rug is starting to move under your feet a little bit. And I can imagine in this current environment, 20 20, most people there, their spidey senses have improved to anticipate internally when that's happening. And I've always said the more exposure you can gain individually and the more value you can add to an organization, the less you have to fear from being blindsided at your at your local company. But you never really get full transparency on how they're managing their business or how much cash flow they have in reserve. And so sometimes things do come up, and even the best prepared individuals will be surprised. So you just have to make sure that you are working hard and you have really good experience so that you're flexible if something should change.
Patrick (CEO of WSO): [00:21:49] So, OK, so things changed. You start kind of interviewing actively or something kind of just came to you at the right time. I'd love to just hear about that and what your thought process was of accepting kind of the title even internally. Why didn't they give you the analysts title? I mean, you already been doing it for a while? Why did they care about that? It seems odd to me. You know, I think was it unpaid or something like that?
Cole: [00:22:11] No, no, it was paid, but it was very informal. You know, I was working out of a kind of reminded me of what a San Francisco tech startup might feel like. I have never done that. But it was inside of a two bedroom apartment inside of a mid rise apartment building in downtown Raleigh with the pool on the roof. And so it was, you know, cool because at lunch you could go upstairs and get a little tan and come back down. But the title was less important to me than the content of what I was working on. And you know, a common theme throughout my career has been taking roles that are going to give me that exposure to the product type and the type of analysis that I'm trying to get better at not necessarily concerned with title or compensation. Later, you can take that experience and you can leverage it. And if the market's not giving you what you think you're worth and go out and start your own company, you know?
Patrick (CEO of WSO): [00:23:11] But so tell me, so tell me a little bit about that. So you went there. It was a short stint and then jumped to eventually commercial real estate, private equity and other another firm. But tell me about like that short stint. Why you think it didn't work out in any lessons for the listeners?
Cole: [00:23:27] Sure. So that internship was never a guaranteed full time offer, and that was understood going in. And I did it anyway because it represented an opportunity to take a swing at more traditional operating company acquisitions. And even though it didn't pan out, I still have that experience. And who knows down the road when that might come up. And if we're looking at a real estate deal with a medical office component, it all, it all goes together. And so that's why I took the opportunity when it didn't convert, I was mentally and emotionally prepared for that and I'd been continuously networking, which as an aside, I think that's critical, especially these days, is no matter how secure you think you are, continuously network and and expand your network and talk to people from, I would say, wherever you went to college, that's going to be the easiest network to leverage by being that you're
Patrick (CEO of WSO): [00:24:26] Doing like LinkedIn and stuff like that, just continually getting meetups for people with people around Raleigh
Cole: [00:24:32] Kind of thing. Yeah, I'm a I'm a big fan of the LinkedIn cold, cold call, cold message method. And you know, this internship came to me as a I applied through LinkedIn and I went through a battery of personality and, you know, IQ assessments. But. Beyond that, one of my favorite things to do is to travel to a city outside of where I'm currently living for a week or so and stay with a friend and LinkedIn message as many Duke grads as I can find a week prior to set up coffee or lunch. And then when I'm there, I've always been pleasantly surprised at the hit rate that I get, and all of them are willing to talk depending on how it's phrased if you are. If it sounds desperate like you're looking for a job, they don't really want to want to share their knowledge with you. But if you approach it, as I'd love to learn more about what you do and just kind of learn more about your professional history, everybody likes to talk about themselves, myself included. And so they will happily get coffee with you if that's how you phrase it.
Patrick (CEO of WSO): And I mean, doing that, but doing that legwork. I think the hardest thing to get across the listeners into any young people out there that are just starting out on their careers or maybe just have internships is that you have to do that before you need something? Yes, you have to do that before you need the job or else it's not genuine and everyone avoids you because all the seats are already filled. The relationships that you needed are too. It's too late to establish those. So I just I just always implore people like I have some mentees in this other program. I call monkey to millions where I have. I mentor three other college kids trying to break into careers in finance and. You know, they're in their internship and they're like, heads down and I'm like, are you still keeping up at least some sort of networking and outreach going? And I'm like, Oh, it's been slacking like, get on it. Yeah, that is the single most important determinant of of where you're going to end up is who, you know.
Cole: [00:26:37] Absolutely, and I would add to if ever an opportunity arises to do someone a favor for maybe they have a kid in high school or college that needs help studying for a test, it's something random. Yeah, it is always worthwhile in the long run to help out other people where you can, not because you're collecting a bunch of IOUs, but just because in the long term that from my experience usually comes back to you. And even if it's, you know, we talked about the pure networking play, but at a closer level between family and friends. If you share with people what you do and more importantly, what your goals are. You never know who they know. And so they will go tell those people. And then one day you'll get a message randomly about joining some random new startup for a closed private equity fund. And you wonder how that happened. Well, it's no great mystery. It's because you've been putting in the legwork.
Patrick (CEO of WSO): Yeah, it's the same thing. You spending the time here to talk with me today and share your story and giving knowledge. It's you're sharing a lot, but you know, I'm sure it'll come back to you and in multiple ways, just because there's people will hear this and reach out to you. You'll get to know you'll get become more networked, have better connections to other people in real estate will be like, Oh, I want to hire that guy or why not?
Cole: [00:27:58] Yeah, I have to say, though, you know, I'm personally very passionate, probably like you about mentoring and networking and helping other people achieve their goals. I've often reviewed resumes and helped people craft pitches to get into their preferred companies for free just because I enjoy doing it. Yeah. But that goes back long before any of this real estate stuff to a side gig of private tutoring for the sat for college applications. And it's very fulfilling. And if you can channel that passion into something that's also lucrative, I think that's a win down the road, for sure.
Patrick (CEO of WSO): For sure. Ok, so back to your story. Sure. So you end up coming across as to the internship. It's kind of a relatively short set, but you were prepared. You had been networking all along. Tell me how that next kind of role came in in the alcohol or real estate, private equity role, acquisitions and dispositions?
Cole: [00:28:58] Sure. Yeah. So this is one of my favorite stories to tell. I made the jump from this this one month internship to a more traditional sell side real estate brokerage firm in Raleigh. And excuse me, this is this is a very dedicated kind of sales tactic, but it works and asking for a warm introduction just point blank. I reached out to an old roommate of mine who worked at this brokerage firm, but in Florida, and I said to him, I've identified a Duke grad who lives in Raleigh, who owns and operates an affiliate office of your firm. Would you be willing to make a warm introduction on my behalf? And he said, Sure, I'll reach out to this other guy unrelated first, who was the head of Florida, you know, for this company. And so I interviewed with him. Then he said, I'm going to reach out to the guy you asked to meet and if he's interested, he will reach out to you. And so because of that initiative, I eventually did get a call from the local affiliate office owner, and that turned into a nearly three year stint where I gained some of the most valuable operational real estate experience I've had to date. But it never would have happened if I didn't ask.
Patrick (CEO of WSO): And I think when you say operational real estate experience, tell me, tell the listeners, what does that mean? Like day to day? What are you doing versus like a pure acquisitions?
Cole: [00:30:30] Sure. Acquisitions is very much the Hunter model. You're out for the kill, and when you come back, you're fat and happy for a while and then it's back to the back to the grind operations. That's strictly property management, project management, typically. And those roles, even asset management, I could I could consider that operations to certain extent. Those roles are more consistent day to day you are dealing with all of the headaches that nobody else wants to touch. And so it makes sense to outsource them to a group of people who specialize in that and through those through those headaches, you learn, you know what the local fire codes are. You learn what the local ordinances are on exposed surface requirements for for real estate developments. You learn, you know, fire our ratings for four industrial walls, all of these random little things, they add up. And so when it does come time to go back and underwrite a deal for an acquisition. You have an incredibly strong grasp of the product type, whereas a, you know, a rock star analyst out of name your top five undergrad finance program, they're going to be a whiz on Excel. And I'm sure they're very good at mental math, but they're not going to have that understanding of the product. And so that's the real value of getting some exposure to property management early in your real estate career, if you choose to do that.
Patrick (CEO of WSO): That's helpful. So tell me about this stint specifically then. So almost three years and yeah, tell me what was great about it and why do you feel like it was so valuable? You just kind of set it. But specifically like for you, did you feel like you hit a wall at a certain point, or did you feel like you were continually learning and getting?
Cole: [00:32:23] Yeah, it was a continuous learning experience, and I think the real value was exposure to institutional clients such as a large industrial RYT was a primary client of ours. I was an account manager for two point five million square feet of their industrial assets in the triangle. The research triangle, which is if you're not familiar with North Carolina, that's basically Raleigh Durham Chapel Hill. And through that, I was able to gain insight into protocol at the larger institutional buy side operator owner operators. Mm. And in addition to that, I got a lot of great exposure to a group of the federal government known as the General Services Administration, which is short for the GSA. They are the go to for all federal real estate doesn't matter what department every single lease runs through the GSA. And so if you and they have their own ways of evaluating rent payment, and so for a lot of people, it's a big black box and they avoid it like the plague. But if you can dive into that world and understand how to service, well, the federal government because they lease, they lease space from private owners all the time. And I don't think most people realize that that's an option. As an investor, it's almost like buying a low risk bond.
Patrick (CEO of WSO): It's a stable tenant, right?
Cole: [00:33:56] Right. That's very stable. But, you know, real
Patrick (CEO of WSO): Estate, just print more cash. If they run it, you go, Hey, Fred, sorry, go ahead. They don't care about the deficit, right? So there's no there's no deficit concern. So go ahead.
Cole: [00:34:13] No, you're not. You're not. You're not far from it. And that's a really rewarding experience when you can find a solution in a highly bureaucratic environment because it makes everything else seem really easy by comparison. So that's good kind of training, I'll call it. And over the years, you know, as a result of being the property manager for some of these properties, I was given first bite at the apple to do the underwriting because no one else had the revenue records as easily. It was kind of like, you know, people talk about disintermediation between companies, but even within companies, you know, typically an acquisitions analyst would solicit a property manager for all historical financials on a property, and then they do the underwriting. Well, if you can do the underwriting and you know the building, they're going to say, why don't you do it if you want to as a sort of extra thing? And then before you know it, you've got extra experience under you.
Patrick (CEO of WSO): But tell me, how about like so? When you say the underwriting, this is because they're trying to dispose of the asset at this point or are they're trying to?
Cole: [00:35:20] It was a combination of company owned private owned assets that we were servicing as a property manager and then third party clients. So the owner of the firm had a private portfolio and if one of those assets was up for sale, that's when this underwriting would really happen from. In a sense of like the side job or the job within a job.
Patrick (CEO of WSO): And so the underwriting happening, the underwriting being where you need somebody to underwrite it, to provide the debt or to somebody to write the check to for the acquisition, the equity side or the
Cole: [00:35:58] Well, the debt was already in place or owned assets, right? So that was there. It was more to double check the numbers and the evaluation from against the buyer's underwriting because there are norms in the industry about how that's done, and it's a classic haggling fest between the buyer and the seller about what we want in place 12 month trailing or in place, you know, pro-forma rent. And then the seller will often prefer a model that projects rent if a lease is renewed or signed, but buyers don't like it unless the ink is dry on the lease. And so everyone does their own underwriting, they come to the table. But you want an expert in the product and the building to
Patrick (CEO of WSO): When you say underwriting, that's almost like the valuation process of valuation. Got it! Ok, sorry. So like, there's just different terms. People use it differently in banks and versus real estate, so that helps for four.
Cole: [00:37:00] Yeah, it's not Lloyd's of London sign under the line insurance underwriting. It's real estate valuation.
Patrick (CEO of WSO): Got it! Ok, so perfect. So you're going through that. You're kind of getting these, you're getting both. You're not just the property manager, you're doing some underwriting on the side as well. Hmm. Tell me kind of what was next for you, did you after a few years, did you think, hey, you know, this has been great, but I'd like more like what? What was kind of the next stage for you?
Cole: [00:37:29] Sure. So I was courted about a year in at this brokerage in Raleigh by a national homebuilder, and I actually turned them down. I said, it's a little too early. I'm still learning a lot here and I have a lot of extra value to provide, but let's stay in touch. And so about a year later, they came back and interview processes these days are very long at large companies, sometimes up to six, six to eight months, which, you know, I have my own opinions about that, but that's the reality that I've experienced. And so that process began again about a year later, and the short answer is that they made me an offer I couldn't refuse, and it was an opportunity to move out of the back office and kind of into the front office where you are developing new client relationships and particularly for it was a land acquisition role. And so at that point, I made a decision to take the leap and you joked earlier that you'd been let go within six months from a company you joined. Well, that happened to me at the land acquisition role, and it was due largely to COVID 19, but also to some local management practices. And shortly thereafter, the entire land department was dissolved.
Patrick (CEO of WSO): And before we get to that, before we get to that, I want to hear a little bit about the actual role and jumping from commercial real estate to residential. And then specifically, when you say front office, that means you were specifically tasked with. So like were the actual homebuilders were acquiring the land themselves. And so you were tasked with going out, finding that land, negotiating it, doing everything.
Cole: [00:39:17] Yes. So it was more similar to a commercial land. It was, you know, every commercial real estate brokerage firm has a land practice group. This was the by side equivalent of that in-house at a developer.
Patrick (CEO of WSO): Sounds like that sounds awesome.
Cole: [00:39:34] Yeah, it was a great experience because I get to I get to drive around and scout land in the day and come back, you know, make some phone calls in the evening to the owners after doing some research. And occasionally you get through and you know, they, I will say in general, are weary of national homebuilders. But occasionally you get people that really do see it as the right time to sell their land. And at that point, you get to underwrite or value the land based on its future profitability after you've built homes on it. So this was very different from commercial where they wanted to see in. Place now. I net operating income, the home builder in house almost didn't care,
Patrick (CEO of WSO): They didn't care because they said, what's it going to be? What's what are the homes going to sell for? Did you close any deal? Were there any acquisitions done during that time or no?
Cole: [00:40:28] A typical land all takes closer to 18 months to get through to perfection. So, no, but we got very close to getting a couple of deals under contract, and sadly, things started to change. One thing that's really critical in residential land acquisition is understanding how much runway is left in the county or the municipality for water and sewer infrastructure. And that's why I stressed earlier that getting some knowledge of civil engineering is really not a bad use of time as an undergraduate. If you're going to do real estate because you're going to have a look around the corner from a developer standpoint as to where there's actual low hanging fruit to do projects because just because a piece of land is empty doesn't mean 20 other people haven't already looked at it to try and do something, and they're not sharing their notes with you, so you have to go through the process all over again.
Patrick (CEO of WSO): Tell me a little bit about that. What you what do you mean like in terms of being able to know that there's still a long kind of useful life on the on that stuff, like maybe it was replaced 10 years ago or something like that?
Cole: [00:41:35] Well, I guess what I'm referring to more so is the available capacity in water and sewer systems
Patrick (CEO of WSO): That are servicing that, that property that could potentially service that area. Got it.
Cole: [00:41:52] You can find the land you can you can get it at a at a reasonable price. But if you can't build it, if you if you can't get permission from the city to build it based on the existing water and sewer, they're going to ask you to put in your own sewer system. And so that's been the recurring bottleneck in real estate development, at least in this metro. Some metros are really proactive about that, and they invest in that. But here, private development has basically outpaced municipal investment in sewer infrastructure. And so that's kind of an interesting side piece. That's interesting. Yeah, that's really cool.
Patrick (CEO of WSO): But so yeah. So I think so it's interesting because you kind of got this offer you couldn't refuse. You took it. It ended up kind of not backfiring, but ended up not working out like me. You just, well, yours is more related, I think, just to the economy and COVID, right where they just completely eliminated your group. Any thoughts about going back to the previous term and what was your thought process of maybe not doing that? Were they also struggling and just said, sorry, like we just there's no room now across the board.
Cole: [00:43:03] Everyone was struggling, still struggling, and I got creative and I reached out to a former client at the sell side brokerage, and I offered to work for free again because I recognized the severity of the market situation and determined that if I took a took a swing for the fences, this individual might be be compelled to give me a shot. So I just, you know, at the time I was unemployed and so I just volunteered my time. I did research. I connected this investor with. This is a New York based investor, and he buys distressed property. And so after a
Patrick (CEO of WSO): Perfect timing, yeah,
Cole: [00:43:47] Right. Yeah, that was my thesis because I knew he did that. And so I called him. And after about three weeks of that, an opportunity presented itself from a project management standpoint. And if you spent your entire career refusing to do anything besides pure acquisitions or investment banking, you know, pure M&A deal work, I wouldn't have had the skill set to service this need for the project manager that he had, and he said, I'll pay you to do this and on the side, you can help me with these other distressed acquisitions. These are big, awesome spin offs that are struggling malls in other states, and I had the opportunity to work with a guy that I'll call, you know, a Gordon Gekko type. Just a real smart, sharp investor runs a lean operation, but I got to be Bud Fox for like three months.
Patrick (CEO of WSO): That's awesome. So you helped him actually make a few acquisitions or you were just you were doing property management for him for a little while.
Cole: [00:44:53] And then he moved on project management. And then I helped him with some diligence work in the middle, and that was really rewarding and I'll always be able to to have that experience. But inevitably the project concluded and we moved our separate ways. Like I said, he does like to keep. Lean operation, and so the immediate need evaporated, as is so common in today's marketplace, and so currently, you know, I'm helping a local entrepreneur with her startup brokerage business, and that has been very rewarding as well. You know, just taking all of the past experience and helping partner with her and leveraging her network in the in the market and my experience in property management, project management, underwriting to help create a compelling kind of lean brokerage business, which is really exciting.
Patrick (CEO of WSO): That's cool. Really back quickly to the other, the guys did the project with tell me a little bit about did you ever try pitching him on some sort of work for free with some upside around finder's fees if you were able to find distressed properties for him or does he not
Cole: [00:46:07] Like to deal with? That was huge. That initially we were talking about some pretty, pretty compelling incentives for performance. It was based on referral fees for finding good deals. It was based on potentially saving money on project costs. We were even discussing equity in future investments, but that was all hypothetical upon you know that that current, that current operation. And so as it turned out, it didn't pan out. But had it had it lasted longer and had the market been slightly more stable, it's kind of a Catch 22 because if the market were more stable, his deal flow probably would have been lower. Yeah, but as a result, yeah, I think I think one thing I've learned in real estate is that when people find a niche and they get good at it, they realize that the more people they bring on board and they share equity with, well, it dilutes it, dilutes their holdings. And so people have gotten smart in outsourcing as much as they can. And I don't blame them. If I were, if I were them, I probably do something similar. But if you're on the other side of that, you have to recognize that's where they're coming from and find a way to add value long enough to gain their trust and to potentially join them as a partner at some point down the road. But everybody takes a different path, so it's great.
Patrick (CEO of WSO): Yeah, and it's a good lesson. I think it's actually really interesting just hearing a little bit about the jumps and the experience, the well rounded experience you've had. Obviously, all real estate related, but just really touched on a lot of different areas property management, residential commercial acquisitions, dispositions. You really in a pretty short amount of time, I've had head a lot, which is it's probably going to serve you well because you can yeah, I can serve you well, right? So unfortunately, it's a pretty brutal market for real estate right now.
Cole: [00:48:13] But you know what? There's always somebody out there waiting for that good deal, and there are still people out there looking for good property to buy, particularly in the multifamily sector. There's still enormous demand for that. It's been upwards of a decade. It's been like that. Everybody saying, oh, it's overheated, it's overheated. At this point, all you can do is just kind of there's a really famous quote. I think you've heard it. It's the market's ability to stay irrational. It is longer than your ability to stay liquid or something like that, right? Yeah. So at a certain point, you realize some investments do have maybe more legs under them than people had thought before. So you just have to find out who's buying and who has the war chest to keep the staff afloat during this, this very awkward market period.
Patrick (CEO of WSO): That's great. So before we call the pod, anything else you'd like to share to the younger listeners as they kind of embark on their career or anything, any takeaways just based on your own experience that you want that I didn't hit on?
Cole: [00:49:21] Yeah, absolutely. And I think the biggest one would have to be around finding new opportunities. There is enormous respect for go getters out there among founders and company owners, and if you sometimes take a risk and take an unconventional approach, don't make a fool of yourself but really demonstrate passion that goes a really long way. And an example of that? Yeah, sure, absolutely.
Patrick (CEO of WSO): I think like you saying, like walk out with a sign on yourself, like those people who like going to Wall Street saying, I'll work for whatever.
Cole: [00:50:01] No, not quite. I think I think a good example is, you know, that story from the beginning of the podcast where I was telling you how I was tutoring. A managing director son and asking him how he did what he did, that unpaid internship that I volunteered for. Telling that story to the folks that were interviewing me out of college was what won, won them over and they were so impressed by that story that they, you know, decided to hire me, and there were many other people applying for that role. And so things like that, or even just being willing to stay in touch over a multi-year period once every three months, just keep an excel file of the people that you are trying to stay in touch with that demonstrates consistency and commitment. And people really reward that behavior, I've found.
Patrick (CEO of WSO): I can't agree with that more. Man, it's hard to find people who are hungry, who are willing to be consistent, who can put in the time and be a real asset to the team at. I know I have a great team behind me at, so and I think it hasn't always been easy to find those people so. For sure. I second that so tell you, hustlers out there. Keep grinding. Anyway, thanks so much Colfer for taking the time and sharing your story. Yeah, let me know if I can be helpful at all.
Cole: [00:51:35] Thanks so much for having me, Patrick.
Patrick (CEO of WSO): All right. Stay in touch. And thanks to you, my listeners at Wall Street Oasis. If you have any suggestions whatsoever, please don't hesitate to send them my way. Patrick at Wall Street Oasis. And till next time.
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