Episode 105 – The ‘2024 Will Blow Your Mind’ Webinar For Syndicators And Investment Fund Managers

This webinar is called “2024 Will Blow Your Mind.” It’s specifically for real estate syndicators, real estate developers, investment fund managers, and businesses looking to raise capital. It’s all about how to get ready for 2024. Hence the title. Now, it doesn’t matter where you come in. It doesn’t matter whether you’re a syndicator who’s done 500 deals or if you are a total newbie at this – you’re in the right place, we’re going to help you. This webinar is about taking a look at where we’re at today and where 2024 can lead us, and is going to lead us for certain, so that you have the best 2024 that you can. I hope you find this webinar helpful. Let’s go ahead and get started.

A lot of people always do their planning for the next year around this time. That’s why we put this webinar together. I think you’re going to find it very useful. It’s got a lot of tools. At the end of this, I’m of course going to give my contact information. Please do feel free to reach out to me if we can help make you successful. We’d love to do that. Listen here to this webinar about each of the steps, each of the phases that we’re going to go through. There are parts one, two, and three. Then we’re going to talk about how they all fit together. So without further ado, let’s get started. This, again, is the “2024 Will Blow Your Mind” webinar. You’re in the right place.

Part one I call “The Landscape of Tomorrow.” The landscape of tomorrow is where we’re at this one point here today in December of 2023. Now, how are we going to go from where we’re at today? Let’s first talk about what that path is going to be there, that takes us to 2024 that we can expect to happen. Now, these are all things that exist outside of our control, really, to a large extent. It’s big macro forces that are going on in the world. But we need to understand those to understand how we’re going to adapt to this changing world.

First, of course, if we’re going to talk about economics and syndication, investment funds, all those things, we got to talk about the reality that we’re in today. Obviously, we’re in a very high interest rate world. If you look at a lot of the reports about what’s coming down the pipe, we’re going to see that rates will either stay the same, go up, or come down. It doesn’t necessarily matter so much how much they change. What matters is that we know that we’re at this point right now, where we’ve got the Fed set at a rate. Chances are that they will be reducing, at least that’s what the Fed has told us they’re planning on reducing rates in 2024. They’re not expecting necessarily to raise rates again, or to maintain them indefinitely for a very long, protracted time. So that’s good news. But what does that mean for us? What do we do about it?

Well, when it comes to our investments, the reason that it matters is because if we’re doing a syndication or an investment fund, we’re buying assets, right? So whether those assets are real property, or they’re buying promissory notes, or they’re buying other securities, or they’re buying businesses, those are all assets, and so we’re buying those assets. Now, there are different sources of funds to purchase assets. We can raise money from investors, just what we do, or you can also raise money from the banks. You can borrow money in order to do it. So most of the time, you will be doing a mixture of the two. You’ll be borrowing money from a bank and raising capital from investors.

There are two reasons why interest rates matter in this context. As interest rates rise, so as the Fed raises interest rates, the bond prices and the yield prices that are available options to your investors, those prices change as well. The prices get very, very high in bonds when the interest rate goes up, and when it comes down, the bond prices tend to go down. What’s important in that context, not only is that investors have that choice, but a lot of the other securities are paying different treasuries, treasury bonds. So your money market accounts, your CDs, places where your investors can park money in a very liquid way, are going to pay a certain interest rate.

Now, you could probably put money into a good CD that’s fairly liquid and expect to get about a four, four and a half percent return. It would not be difficult to find such a thing. So that’s off the table, like automatically as an amount that investors would be able to say, “Wow, I know I can get a return there.” When we’ve got that, if you were to put together a great offering, it looked amazing, you know, the best presentation in the world of founder investment theory that was off the charts in most respects, but it was paying at 3%, you’re not gonna get any investors because they don’t need to. They can go to a very, very safe investment, and have it be almost guaranteed as close to guaranteed as it can be, and get a return of four and four and a half percent. So why would they come to you? It sort of lowers the boats for all.

It also changes our borrowing costs. The higher the interest rates, the higher the borrowing costs. Banks are making loans out at certain rates. Most of the time, they’re looking at different measures. A lot of the times it’s the fixed market world, what the Treasury bills are trading at, and then they come up with certain rates, and in between them is a spread. That spread fluctuates a little bit, but it doesn’t fluctuate a huge amount. We may see a spread in the commercial market of like 3-4% for the servicing and treatment of it, which is on the high side.

So if those rates go up, say they will go up to 10, well, now we’ve got rates that are suddenly 13-14% for our borrowing costs or our mortgage cost. If they go down, that will also go down. Now it’s not going to go to zero, obviously, because the bank still needs to make money and they still need to lend money as well.

Lastly, we need to look at when we have those increased interest rates, it changes the cash flow dynamic of what your investors are going to get. If you have variable rate loans, those are going to be changing all the time. So where the direction of interest rates are is going to matter.

We’re in this world of high interest rates today, or at least high that we think they are. And those are going to be changing. It could stay the same theoretically, chances are it’s not. My prediction is it probably will go down. Basically, I’m hearing maybe dropping a point, something like that over 2024. Maybe by June, we’ll drop the point. And then we’ll see where we’re at, and then reassess.

Here’s an interesting map I just thought was useful for us. We’ve got this high rate period here, that we’re actually coming down just a little bit. This is on the average mortgage of a 30-year fixed. I thought it was a little bit more important for us to look at that rather than what the Fed rate is. Actually, historically, we’re not that crazy on where we were. We’re even below the rates of where we were at in 2000, right before the recession in 2000. We’re a little bit above that. It had flattened out a little bit, to some extent. And then we had the recession in 2008. And then we saw them fall even more as the Fed lowered rates. And so now we’re at this huge peak.

What’s remarkable about this peak in 2022 is that it’s so steep. We had a very, very low interest rate loan world. I remember getting a loan on commercial real estate below three, and it was great. And for apartments, you could get it much, much lower than that. And then we had this massive steep rise. That’s what’s kind of remarkable. So just keep that in your mind as one of the places where we’re at today.

The other issue is a market slowdown. The market itself for whatever your assets are may very well be changing. If you’re in the real estate market, you’re probably seeing this already. If you’re in the business market or something else, you may be seeing other effects as well. So expect to see lower transaction volume. It’s not like you’re going to open up your computer browser, and suddenly there are a billion things to invest in. It’s going to be a little different than there’s a million options to choose from.

Oh, which can be good for you, really, because the real value that you bring to the table is bringing together investors, bringing together the right assets, and then managing those assets in a way that makes your investors more money. If there’s lower volume and there are fewer deals out there to invest in, less assets that are on the market, your investors have the same problem. They don’t have the opportunity to just buy it themselves because it doesn’t exist.

So if you have investors who were just using real estate as an example, and let’s use an apartment building, if your investors could just buy an apartment building, and then put their money in that and get the same return, they may consider that. But if that apartment building is harder to find, they’re not going to be as likely to. Whereas if you found one, because that’s part of the expertise you’re bringing to the table, if you find one, now your investment is like, “Okay, well, now I can put money in there,” because they know they’ve got the real estate to do it, or whatever kind of asset type, because this goes across asset types. Securities is not just about real estate. It’s not just real estate syndication, it goes across, it goes to venture capital funds, and all sorts of different things.

There’s also a prime opportunity in distressed assets. As the market slows down and high interest rates exist, that may cause people to need to sell their assets or maybe even do deeds in lieu of foreclosure or something like that. Those assets may become distressed fairly easily. And when there’s distress, that means opportunity for you. Now you can buy those assets at a discounted price, offer them to your investors, and they’ll get a better return for it.

It’s also a good opportunity to diversify your investment portfolio because there will be different offers out there that you may not have previously considered. By diversifying, you may decide if you’re an apartment guy, maybe it’s time to start looking at, “Oh, well what would happen if I took something that’s somewhat similar to an apartment building, say a flat industrial flex building?” Which is similar, but it’s different. They have different drivers, it’s a different market. But maybe there’s a relationship there. Or if that’s a little bit too much, use something that’s very closely correlated, which is self-storage. So maybe you combine self-storage and multifamily into one and now you’ve got a much more diversified portfolio. But it’s still in the same general asset class. And all because you couldn’t find just that apartment building to buy another one.

As part of this, too, you really want to also make sure you’re spending time to do better due diligence. Due diligence is going to be necessary because people are going to be in a state where those assets may be distressed, and they may need to be gotten rid of at any cost. Of course, people want to maximize the amount of money they make. And so there may be opportunity there for people to hide things and not be as forthcoming as they would, and you want to dig and make sure of when it’s there.

But also as part of your due diligence is considering what could happen. Some of the syndicators who have gotten in trouble, like a year ago, two years ago, are getting in trouble now. They are ones who thought that the low interest rate world would last forever. So they got as highly leveraged as they could. They bought mediocre assets. And now look what happens. Suddenly, they’re upside down. And it’s a bad, bad world.

So as part of your due diligence, do your financial analysis and stress test. What would happen if? Those are all things that need to take place.

There have also been massive technological advances in 2023. And they are going to continue into 2024. This is a good opportunity. It’s an opportunity for you to improve your own efficiency. It’s an opportunity for you to look at ways for how you’re doing things now. What are those processes now? Is there a way that you can do them better? Is there a better way to talk to investors, to find investors, to get them into your investment? Is there a better way to manage your properties and do the asset management piece? In order to make distributions and communicate more effectively? Are there better ways to do those sorts of things? Technology is oftentimes the right answer for them.

Also, it’s important to stay up to date. You need to know what’s going on. You need to be able to know those things because you don’t want to be caught off guard. Let’s say that you are in the data center world. So you do data centers as your real estate. If you don’t know what’s going on in the technology behind AI right now, oh my gosh, you’re in big trouble, because that is what your investors are going to be talking to you about. What is the impact of AI going to have on data centers?

As an aside, the impact is, wow, you’re in the right market, because AI needs a lot of data centers and a lot of computing power. So you’re in the right place. But if you didn’t know that, if you weren’t staying up to date with what those advances were, you wouldn’t be able to talk reasonably to investors and you’d start losing confidence. So also just keep your eyes open and your mind open to new opportunities and new ways to expand your market. New ideas that are out there, new technological advances, new sociological advances, what are those things? And how can they better do things?

Right now, there is also a huge amount of geopolitical uncertainty. We haven’t seen wars exist on this level for quite a while. We have a war in Ukraine, we have the war in Gaza. Those are having an effect. Now on one hand, it’s causing a lot of fear and a lot of unrest. On the other hand, it’s also creating a lot of opportunity. It creates opportunity because your investors still need to put their money somewhere. And who better to put it with than someone that they actually know, actually like, and actually trust? And that’s you. Capital always needs a place to go.

I like the analogy of capital as water. If you think of a big rushing river, if you were to dig out something and because something becomes a hole, what happens? It gets filled up. Water spreads to where it’s needed, to the lowest point. It always is spreading. So as long as you are making sure that the water can efficiently go there, water will always come. So capital means it will always come, you just have to open it up so that it can.

Sustainability is also very big. I’ve had a lot of discussions in the past year about sustainability projects, green buildings, different sorts of very creative ESG ideas, anything from tree farms to buying surface rights to nonprofits who are trying to do very creative things with investment to build eco-friendly things. A lot of really good ideas.

Now, what this means is not that you have to have a green project. What it means is that you should be thinking about greening projects and how it relates, or even broader than green is ESG. So environment, sustainability, and governance. Sustainability is also very important, and governance is very important. How can you make the world a better place and do your investment? Because as we’ll talk about when we discuss founder investment theory, that’s part of your story. That’s part of what investors want to know. And if you’ve got a good ESG story that resonates with that, it doesn’t have to all be tree huggers. It needs to be a story that resonates with your investors. If you’ve got that right story, then they’re going to be good.

There has been this massive movement towards ESG. Now, yes, we’ve been hearing a lot about greenwashing and things like that, but the fundamental doesn’t change. People still care about different things about how ESG affects them personally. Some people will have very strong feelings about how environmentally it should be taken place, about how sustainability should be taken place, even about how governance should be taken place.

There’s also been a massive shift in work dynamics. Now, this has not only been since COVID. Before COVID, there was this major move from office out of the office, telecommuting, non-telecommuting. Companies prior to COVID would be like, “Okay, everybody work from home. Okay, wait, wait, that’s not work, everybody come back to the office.” And so there was this dynamic ever since telecommuting became more of a thing. It’s been a general evolution that was pushing more and more people back home.

I remember before becoming a lawyer, I had a job where I was working at home for a short bit, and they wanted me to come back in, but they wanted me to come back into an office that was very, very far away. That wasn’t going to happen. They wanted me to travel basically two hours, two hours commute time. I lived in the Bay Area, so it probably was about five minutes away with no traffic, because traffic was terrible. But they wanted me to travel very, very far for my business.

The point is, there’s been this shift to people wanting to have different kinds of work environments. When COVID happened, of course, everybody was winning. And now people are having a hard time coming back. Companies are having a real hard time bringing them back. Most companies do want to bring their people back for good reason, because it works better when everybody’s in the office.

I have a friend who has a law practice. He has 60 lawyers in his office. Each one of those lawyers mostly works from home now. Ever since COVID, it used to be everybody was in the office, that was the expectation. Now he says he goes in and he’s lucky if he sees one or two lawyers in the office. I mean, that’s a major shift. And he himself hardly ever goes in too. But they’re uncomfortable with that. Because how can you do mentorship? How can you do real collaboration without everybody being together in the same place? You can’t. So there’s this shift in that work dynamic and how you’re going to address it needs to be thought about especially if you’re in real estate.

So if you’re in multifamily, if that’s your thing, which a lot of my clients are, well, what can you do in the multifamily space to make it a little bit easier for people to work from home? Maybe it’s something like you buy the internet for the building and you sell them the internet back? Right? I’ve seen people do that successfully, primarily in the office world. Not a lot of people are doing it in the multifamily world, where you pay for very high level internet service, you know, lots and lots of bandwidth, and then you sell it out. That’s certainly something that you could do.

In the office environment, obviously, you’ve got quite a big problem. But in the retail environment, too. Are your centers providing free Wi-Fi? Or are they providing those things? I remember before, maybe 10 years ago, I had no expectation of getting Wi-Fi anywhere. It was neat when Starbucks offered it maybe 15 years ago, it was like wow, okay, that’s pretty cool. But there was certainly not an expectation. Now I get kind of bummed. It’s like, well, why isn’t there a Wi-Fi connection? The internet’s too slow right now. I need to get on a Wi-Fi connection. What’s your password? So if you’re in retail, that’s a major thing. Same thing with industrial.

So anything in the real estate world, you need to be thinking about, well, how can we better provide services? How can we better make it so that people do what they do, which is work and play, but you’re mostly talking about work? How can we make what they do do in the most effective way?

There’s also been a major shift primarily since COVID, at least as I’ve seen it, towards secondary and tertiary markets, which is a lot of opportunity. So we’ve got major growth happening, especially in Raleigh Durham, where I live, and Austin. Those growth markets are happening because it’s a good place to do work. It’s got a great standard of living, it’s a nice place to live. And so businesses that have just started growing are going there, you know, to be closer to their workforce, just like we talked about in the last section.

And as that growth has been happening, we’ve seen that it’s created incredible raises in the value of real estate, but we also see other trends as well. We also see demands on other services, there’s demands on datacenter services, there’s demands on community computing services, there’s demands on medical services, really everything that supports human existence is growing in the secondary and tertiary markets. So that creates additional opportunity by finding those opportunities, capitalizing them, securitizing them, making it available to investors. That’s how we do our work.

And of course, inflation too. So not only do we have incredibly high interest rates, but what about inflation? Inflation generally has a major impact on the cost of everything. Development right now is in a kind of weird transitioning period, because the cost of materials is so incredibly high, the cost of labor is so high, because inflationary forces are there. So you’ve got those things going on, at the same time that you’ve got rising real estate prices, and but rents are maybe not falling in line as much, or maybe they are in your area.

Interestingly, inflation primarily has an effect on the energy sector. That’s been the major part of what has been impacted in this go-round of inflation. We’ve had a massive spike in the cost of energy, which automatically correlates directly to the cost of food, they’re very closely correlated. That’s why we experience costs going up. We feel like costs are going up, they’re going up, they’re going up, when in reality costs everywhere else weren’t really going up that much, until people started feeling that costs need to go up and some prices go up, and we get actual inflation that was started by just sort of perceived felt inflation.

Now granted, cost of energy and cost of transportation, all those things also drive all of our values as well. So there was an effect there, but it wasn’t nearly to the extent as the spike in energy itself.

So the point of this part is that the facts of where we are today, plus the path of tomorrow – how we get from here in December 2023 to where we want to go in 2024 – is going to equal where you’ll end up in December of 2024. That’s why we need to be aware of what are the facts today? Where am I at today? And then we can start working on what to do for tomorrow. So what should you do? Well, we’re gonna get to that. But first, let’s talk about part two.

So this hopefully will be your lightbulb moment. Now my goal here is to stretch what you’ve been thinking about, about how you think about opportunity in syndication, investment funds, whatever it is. I want to stretch that idea because this last year has really strengthened my perception of it as well. I’ve seen ideas come through that have been like, wow, that’s really, really creative. That’s really good. And the reason that’s good is because now it gives me a broader sense of, okay, so now my offer can look like this. Maybe I should think about this as well, or talking to people in this way or things like that. So hopefully, this will be a lightbulb moment for you.

So here’s what I’ve seen less of in 2023. I’ve seen less office. I’m not surprised. I haven’t had a single office deal. I had one office deal, but it wasn’t even barely an office deal. There hasn’t been a single transaction that my firm has done other than that one. Certainly not one that I would do. Why? Well, we’ve got a vacancy rate over 50% in San Francisco. We’ve got major vacancies in all the major cities. It’s not a good time. We’ve got WeWork filing bankruptcy. Well, that was kind of the writing on the wall for a while that that was going to happen, but that’s a big shift. That’s a big change. You know, what is that change in the co-working space going to be like? I don’t know.

I’ve seen less sales. And this is specific here, I’ve seen fewer deals that have been about stabilized multifamily that rely only on the increasing of rent. When you do a stabilized strategy on your fit, the point of the stabilization is that your rents are going to go up at some given market rate. Say that’s 3% 4%, something like that, depending on where you are, could be as high as 5-6%. So rents are gonna go up on that portion. It’s possible to find a stable multifamily building. And by stable, we mean that the vacancy has stabilized, right? So maybe your vacancy is 1-2%, something like that, it’d be awesome. And it’s been that way for a little while. So you don’t have a lot of expectations of a huge amount of churn, where you’re gonna go from 98% occupied to 50% occupied, you know, back and forth, back and forth, that’s not good. Stable is a lot easier in that.

So the strategy is you’re relying on increasing the rent. Now, those rents were increasing at, say, 4%. Well, maybe the previous landlord hasn’t raised rents for quite a while. And so the difference between where the rents are at today with today’s leases, and what market is can be really big. And so you can drive those rents up, then you’ve just increased the value, right? Because we capitalize buildings based on their rents, which means you’ve got massive growth. It’s not just an arithmetic growth, but it’s actually compound. But I haven’t seen a lot of those deals. It’s just not in the market right now. I don’t know that I’ve actually seen… I know I’ve seen a few. That’s not true. So I’ve seen a few, maybe five, which normally my business would see like 30. So quite a bit less.

I also haven’t seen any deals at all that have been where the strategy was a triple net or retail with the sale on the new. So typically, in retail, especially in a triple net, you have a 15-year lease. A lot of times, after five years, the rent bumps up. So there are increases every five, the rent bumps up, but there isn’t a discount, and because of the decrease on the term, until way after year 10 until after that fifth year. So normally, you’ll start to see that on years like year seven, but not year five. And so the strategy is, okay, you buy it at year one, you wait for that rent to go up, it goes up, you sell the property, there’s an increase there. That was actually my first transaction, my first syndication that I did, and it worked out great. We made a great return for investors that everybody was happy with.

I haven’t seen a lot of deals either with hotels without a story. So just a hotel. This is your normal workforce hotel, you know, where people instead of commuting for hours, they’ll stay in a hotel the night so that they can meet do a meeting at the office, your tradesman is coming out to fix something. But it’s a very long way away, is the specialist in the country. And you know, just fixes that one big machine that makes widgets or whatever it is. So those hotels, those normal Days Inn type hotels are great. But if they don’t have a story, I haven’t really seen a lot of transactions in that.

And then I haven’t seen a lot of developments by people who are new to syndication. So people who have just started their syndication world, their rear in syndicating, and are doing their first syndication. I’m not seeing any development that normally I’d see a few but I haven’t seen any of that this year, probably because the margins have not the map because of the increase in price.

So what I’ve seen now, here’s what I’ve seen a lot of this year and I’m expecting this to be even more so in 2024. One other I should add, I haven’t seen a lot of crypto either. I’ve seen practically none. Normally if there is a crypto it’s actually a business that has some crypto component to it, but there’s been no offers for crypto really coming down the pipe, even the businesses aren’t doing a lot this year.

So what I have seen a lot of and I’m expecting even more is experienced builders, we’re looking at better access to capital. So there’s high interest rates right now they could go to a bank, much better for them to offer preferred equity, and then to be able to pay a rate as those rates get changed, right. So they are able to pay this one particular rate, as the bank rates become up, it starts becoming feasible to do it that way, it starts becoming quite actually beneficial, because not only do you get the benefit of having the investors, you know, who are lending you the money, we have, oftentimes an easier underwriting threshold, right, you have to do the underwriting of many of the people who are buying the preferred equity aren’t actually doing a substantial amount of the equity, that’s really your job to take care of them, right to make sure that they’re taken care of, at your job as a manager.

But so it’s a lot easier to get preferred equity to get to do a syndication or do a fund. And developers are now becoming a lot more into using this as a tool. The other benefit, just as an aside is that preferred equity goes on the shareholders equity side of a balance statement. So banks don’t count it against you. So if they do go for loans, they’re not looking at it as “Oh, we’ve got this huge amount of debt,” because they’re going to take priority anyway. And they’re going to take so much priority that there are other legal things that make preferred equity different than true debt. We oftentimes call it that or a debt fund, really, it’s not, it’s not debt in a true sense. Like, it’s not on the liability side of a balance sheet.

Other things, I’ve seen a lot of lenders looking to additional capital, like hard money lenders, that you know, basically who’ve maxed out the amount of money that they have on their own to lend. And so they want to increase the amount of money so they can still make more loans so they can make more money. I’ve seen a lot of single-family home developers who develop in that smaller space. So this isn’t the DH Hortons of the world, you know, doing 2000 homes at a time. These are the developers doing five to 100 homes, you know, in a single block. These are people who are typically builders, and very experienced builders, who also a lot of times had a lot of access to capital to just build from their relationships with banks or with one investor, and now suddenly want to move on and use us to raise money, raise private money in order to do that.

The other thing I’ve seen a lot of is short-term market arbitrage opportunities. So this is your very short-term holds. Three months, six months sometimes last, a lot of times we see this in the land world buy at an extremely low price. And then quickly resell, put together a marketing plan or something like that. And resell is quite common right now. It’s very hot. This any kind of market arbitrage buying anything low, buy low, sell high. It’s really all it is.

So let’s talk about those, some of my favorite opportunities from 2023. Because this, I’m hoping these three examples, I’m hoping will start pushing, expanding your ideas about what is possible out there. By far my ultimate favorite deal that came to my attention in 2023 was Masterworks. I’ve done video about it. I’ve done an email blast about it. I’m not affiliated with them at all, I’ve never talked with them. I just think they’ve got something really brilliant here. Their founder investment theory is so smart. Their pitch is very smart.

So the pitch is invest like a billionaire. Because you may not know this, but billionaires actually invest quite heavily in the art in the private art market. So the amount of equity, the amount of assets they may own is many, many, many millions, right? Tens of hundreds of millions may be owned in fine art. So invest like one of them. It turns out that the art, the fine art world is very, very stable. So it generates a lot of cash. It appreciates very well and typically outperforms the market.

But more than that, the true beauty about Masterworks is the fit. I mean, what an easy, what a great story. I mean, I really like fine art quite a bit. And that’s actually how my wife and I met was becoming first museum buddies before we got married, where we’d go to museums, and so art is very important to me. Like, but who wouldn’t want to own a Banksy? I mean, you can own a part of a Banksy, which, if you don’t know is a current urban artist, who’s just very, very witty and quite brilliant. Or, I mean, any of these number of artists, there’s all sorts of different artists that they acquire.

So their plan is they buy the art, they buy a very specific curated art that they know will work and then they securitize it and sell it out. And ultimately, after a few years, then they resell it, and then take the profits. It’s a brilliant idea. And what an absolutely tremendous example of founder investment theory. So Masterworks, best idea.

Number two is actually a client of mine. So this client is in New Mexico. In Albuquerque, New Mexico, it’s a boutique hotel, where he has expanded the idea of, he’s taken a very famous book, and basically is building the hotel around that idea. Which is brilliant. Really, I mean, it’s such a great idea. So he took, he’s basically taking something that wouldn’t be like a Daisy Inn idea, right in a regular city, you know, a nice hotel, but nothing that’s… it’s not, you know, the Ritz Carlton. So that’s not their deal. It’s just a nice hotel. You know, and a lot of the people are people who are just coming to Albuquerque, and staying and those are the guests.

But now they’ve got a choice, they can go to a theme hotel, that’s all centered around the book. I mean, pretty brilliant idea. Because it’s got a really interesting story. I mean, wouldn’t you if you were going to Albuquerque? Wouldn’t you want to just stay there? And no, I do. So I that’s where I would go, it’d be because of all these choices, I could stay at that, you know, this, this 10 different hotels, or this one, which is pretty interesting and unique. So I think it’s a really great idea. So that was an idea. Really, the lesson to take away from that is really expanding on story. Now his story was quite literal, but is expanding the idea of story, within your fit.

And the third idea is MCA lending. And not only MCA lending, but securitizing other things that need money. And so MCA lending is merchant customer accounts, or merchant card accounts, I forgot what the C stands for. But basically, when you use your credit card, that is what’s going on. So what the lending is, is that so if a merchant needs cash, and they need to get access to ready capital, they can borrow money. And rather than pay the lender direct, like pay them every month, they actually pay out of their merchant account, every transaction. So a small percentage of that goes to pay back the lender.

These are very common, it’s a very big industry. And the idea here is, again, you’ve got a really good, you get really good returns from this first off, but you also have a really good story, you know, this pitch to your investors really is what we’re building is we’re building a, we’re offering a security that allows you to invest in middle America, or in onmy in mainstream. So it’s allowing you to invest on mainstream, think about your favorite coffee shop, or think about your favorite vendor or your daycare, or your karate studio, whatever that is. There are times when those people on Main Street need to get access to ready cash.

Now, maybe that ready cash is to grow their business, right? So maybe they’re looking to they need to do this massive marketing campaign and it’s going to cost a lot of money. Or maybe they just fallen on hard times and need a little bit of extra cash in order to keep the doors open. Whatever that is what we’re offering as a security as a way to help them out with back. And rather than having to pay us back every month, they just get a small amount deducted from their credit card that they’re using every day. So it’s actually the, as they get more and more customers, they get to pay back faster and faster and faster. So that way that gets that debt pays us back. Everybody wins.

That’s the story. And what a great pitch. I mean, it’s really it’s compelling. It’s like, okay, I want to be a part of that I want to help out my favorite coffee shop and help out the kids karate studios. So yeah, count me in. It’s a great story. So I love the idea of not only because it’s got a great story, but because it expands your mind about where those what those opportunities look like, right? It’s suddenly now I don’t, it’s not just I’m building buying this building, you know, that I’m that I’m syndicating I’m not buying this building, and we’re gonna take rents and, and it’s gonna be really great. It’s now suddenly like, okay, where does that happen? We’ll need to go where like juice the water analogy? Where does that water need to flow? It needs to flow to these businesses who need it, right? People who need capital that water needs to flow to them. So how can we do that? How can we make that happen? And that’s what this idea does, is it sends the capital where it needs to go. So I think it’s a great idea. And I think it really kind of changes the way that we look at what we do as syndicators and as investment fund managers. And again, ultimately, founder investment theory, that’s the starting point. Right, that’s where it all begins.

Which leads us directly to part three, your measuring stick. So a lot of people will go through the first part of what we’re going to talk about here, because we’re talking about goals, right? Because we’re here today in December 2023. And we’re going to December 2024. Without a goal, you never ended up getting it right. So let’s think about what those goals are. Where do you want to be in December 2024?

So what is, let’s look at it a little bit differently. What’s that simple goal? Like, I want to survive until December 2024? Pretty darn likely you’re going to, I hope. All right, I hope you’re healthy, and that you can get there. I really do. So that’s a really simple goal. But what is it? What’s your really simple goal as it relates to your business? Now, let’s say you own a bunch of single-family homes. And so you’ve got 10 today, and a reasonably simple goal would be to add one more, right to go to 11. So wow, 10% raise. You did it. So you could do it, right? It’s not crazy, relatively simple, you can make it happen.

So but what if you were to take that idea and stretch it? Alright, so you’ve got 10 today, what would be you know, a pretty good stretch, but probably doable, maybe buy six, seven? Wow, maybe it’s, let’s use seven. So you’re going from 10 to 17? That’s a huge change, right? That’s a big increase. But that’s, that’s a good goal. You know, that’s certainly something doable. Okay, we’re gonna buy seven buildings. But what if you were to make a totally audacious? What if you just make a goal that was just kind of totally out there? And just crazy. What does that look like? Maybe it’s going from 10 to 50. Right? Whoa, that’s crazy. How on earth am I gonna go to 50?

Well, that’s the idea about these goals. Because goals you can set to be whatever you want to be, you can set it to one, you can set it to seven, you can set it to 50. But if you set it, you’re the likelihood of getting above it isn’t that great, right?

If I have a goal to get to seven, it’s not likely I’m gonna get to eight. If I set it at one, I might get two but probably not. I’ll probably just get that one. Whereas if I set it to 50, wow, well, even if I only halfway get there, I get to 25. That’s really a huge change from 10 to now 25 is a lot. So how does that work? Actually, it’d be 30. So halfway to 30. That’s a massive increase. You’ve now just tripled. So what if you make that goal audacious? Because maybe you’ll get there. But you’re not going to just get there without anything, right? So you’re not going to just get there unless you plan for it.

And to do that, we start with where you’re at today. Where do you live? What do you want access to money? Who are the people you know? Who’s on your team right now? And who are those people who could be on your team very easily, like you pick up the phone and they’re there? And the most important piece of this is, what are the stories you’re telling yourself? What do those stories look like? Because if you’re telling yourself that you’re only capable of getting one, well you’re probably right. If you start telling yourself and you believe in the story that you can get to 50, or you can buy 50 new homes, maybe you’re right, too. So maybe what you need to be doing is look at this phase, just think about it. Think about those stories that you’re telling yourself. Because if you tell yourself you’re gonna win, you got a lot better chance.

I’ve been learning a lot about this from golf. Golf is my game. And my kids are becoming very, very good golfers right now. They’re young, but they’re still actively playing tournaments. So I have two sons. They’re ages eight and six. And I noticed the difference between the two. My oldest son, my eight-year-old, he beats himself up all the time. I mean, he just, he’s really hard on himself, because he’s a perfectionist. It doesn’t matter if he hits a beautiful drive. If somebody else came just as far or went further than him, it doesn’t matter to him. He needs to beat the best, needs to be perfect. Not to me. I just want him to enjoy it. But sometimes, man, he can hit like nobody’s business. But he’s really hard on himself, which really hurts him because we’ll be in the middle of a game. And if you’re a golfer, you know exactly what I’m talking about. Because I do this too. I mean, if I hit one bad shot, boy, the next four, five holes are going to be terrible. Just because I beat myself up. And see, I did it right there. That’s the story I’m telling myself. Isn’t that funny? So I’m using that as an example in here. And it just happened, like, live.

So the story I’m telling myself is that the next four or five holes are going to be awful. Well, guess what? The next four or five holes are gonna be awful, because I just told myself the next four or five holes are gonna be awful. But what if instead, I said, “Wow, that shot didn’t go so good. But you know what, I always do great right after a bad shot, the next shot is always perfect.” Then you’d really, really see some magic happen, right? If that was the story you believe, that’s probably what’s going to happen. Because so much of how we run in today’s world, it’s all about the things we’re telling ourselves.

So what are the things that you’re telling yourself today? What does that dialogue look like today? Stop and just listen to your thoughts for only a minute, just listen for a few seconds and think, you know, are those thoughts helpful? Are they not? Or just what are they? Just what are they?

So, that’s for today. But in order to reach that goal, whichever you choose, you don’t have to choose the 50. You know, you can choose the seven, you can choose the one, you can choose to sell them all and go be a hermit, whatever. But whatever that goal is, what do you need to do? And who do you need to become in order to reach that goal? What do your resources need to look like? What does your network need to look like? Basically, what knowledge do you need? What has to happen in order to reach that? And more importantly, who do you need to be?

And when you identify with that future self, who is that person that you would need to be to accomplish that goal? How do they talk to themselves? Because I can guarantee you they’re different than what’s going on in your head right now unless your goal is basically to just exist. So the person that you want to be, they’ve got very different things going on in their head than you do.

But let’s break it up. So going from today, December 2023, to December 2024 is huge. I mean, that’s so big, it’s overwhelming. But that’s not what you need to do. Focus on a quarter by quarter, or break it down even more if that’s helpful. Break it down to weeks. There’s a good book called “The 12 Week Year,” which basically breaks everything down into one-week intervals. And every quarter is like a big thing, right? So trying to accomplish a lot of things. But by small changes, you don’t go from zero to 60 instantly, right? A car doesn’t do that. It accelerates. So you need to accelerate too.

What needs to happen in this quarter? For me, quarters just make more sense. Step one, this is how you do it, by the way. So this is how you get from where you’re at to where you want to go in your syndication business, in your investment fund business. Step one: founder investment theory. This is the way to do it. This is the most important step that you could have. Founder investment theory is broken up into four different parts. It does not all have to be about real estate, but a lot of my stuff has been on real estate. It doesn’t matter what it is. Just like the MCA lending, it wasn’t at all, it had nothing to do with real estate. This founder investment theory is whatever you’re in.

So the first step is your strategy. What is that general thing? MCA lending is fine. Maybe it’s value add, maybe it’s buying those stabilized assets and reselling them. Maybe it’s buying businesses that meet certain criteria. What is that strategy? And how can we refine that a little bit better? So MCA funding is probably tight enough, but certainly buying businesses isn’t. Maybe it’s buying businesses that change the world, or buying businesses in the technology sector, or buying businesses that entertain people, or whatever it is. That’s that general strategy.

So what is it? And then it comes down a little. Now we look closer at that strategy and start determining tactics, which I call philosophy and criteria. So when an opportunity gets presented to you, what criteria are you going to judge that against to see if it’s a right fit for you? Is it something that you want to do? Some people don’t want to do anything but multifamily, that’s fine. But when you get that opportunity put in front of you, if it’s not multifamily, it’s just not meeting the criteria. It’s not what moves you. So you kick it out. And that keeps you on track, too.

So if I say to you, “Hey, look, I know you only do multifamily, but this self-storage thing is fantastic. It’s almost like multifamily. It’s really close.” You get to stay in your lane, you get to stay in your wheelhouse, you get to stay true to your founder investment theory, if that’s what you’ve told your investors anyway. You said, “I do multifamily. All I want to do is multifamily.” That’s great.

Me, I’m actually quite the opposite. The deals that I do, I don’t actually have an asset class as part of my criteria. I do deals that are great. I do great deals that move me. So my philosophy and criteria is actually pretty simple, which feeds into the fourth step. It’s got to have a great story. For me, that’s what it is. It’s got to be something that I can be like, “Yeah, that’s great.” So I can commit 100% to it. If it’s something I would call boring, I don’t have any interest in it. It’s just not going to be something that I want to put together. It might have great returns, but it just doesn’t do it for me. So if it doesn’t do it for me, it’s not part of my founder investment theory. It’s not even a consideration.

So those kinds of deals, I’m done with. I’ve done a couple, never gonna do them again. It’s so hard to get work done on them, because it’s just not fun. But there have been other projects that have been exciting and fun. I can get by and I don’t have any problems staying up, being awake for 23 hours and working seven days a week on, because it’s exciting. So that’s part of my philosophy right there, but choose that philosophy and criteria for yourself. Because you’re gonna be spending a lot of time here and it needs to be congruent with who you are.

The third part is risk profile. So for every deal, there’s a certain level of risk. High risk, high return. Low risk, low return. It’s just part of our DNA to do that. And the best example I have for this is, what if you had a deal, an opportunity that you absolutely knew was going to triple people’s money in one month? You just knew it, absolutely true. And you took that deal, and you went to somebody who was so risk-averse, they were just terrified of anything risky. Their cash is underneath their mattress. They just are so risk-averse, actually, they don’t even have cash, they have gold. And not just gold, they actually have precious metals, all sorts of precious metals, because they don’t want anything to go wrong whatsoever.

Well, taking them that deal that’s going to triple their money, they’re not going to buy it, even though it’s tripling their money in a month. And all they have to do is just let you use that money. They’re not going to do it. Why? Because it doesn’t match their risk profile. Because they are not going to invest in something they’ll think is a scam.

Take the opposite story. You’ve got somebody who is a fast player who’s just like, “Wow, I make big moves, I want to triple my money every month.” And then you find this deal that’s a 10-year deal. It’s low cost, and it’s gonna make you a solid 4%. But man, that 4% is absolutely 100% totally impossible to fail. I mean, it’s got insurance on it, like nothing could possibly go wrong. You try and bring that deal to the guy who wants to triple in the month, he’s not gonna touch it with a 10-foot pole. He doesn’t even want to talk to you anymore. Because it doesn’t match the risk profile.

So find that risk profile for yourself. And there’s of course a billion people in between. So find that risk profile for yourself. Where are you most comfortable? And then take it and put it into a story. So take that story element so that it’s compelling. Masterworks has a great story. This boutique hotel has a great story. MCA lending has a great story. What is that story?

Because here’s the key, and it’s so important, I cannot stress this enough: Investors do not invest based on IRRs. Investors do not invest on IRR or preferred returns. They don’t. It’s not part of what they do. It’s not how people function. We’ve seen that from behavioral finance, it just doesn’t happen. People are not rational in making investment decisions. They don’t make them that way. They invest based on one thing, and one thing only: They invest based on their emotions. They make an emotional decision. And then they use facts, they use IRRs and they use multiples and they use whatever it is to justify their decisions. That’s how people make decisions.

So you gotta have something that connects to those emotions. And the only thing that connects to emotions is how much they trust you and what that story is. The better your story is, the more they trust you. And the more they trust you, the more they’ll listen to your story. So story is absolutely fundamental. And it doesn’t have to be this, you know, the story has to look like this. It’s not, it needs to be something that you can craft into something that moves people, that’s all it is. It’s not creating fiction, you don’t want to do that. Because then you immediately lose all the trust, but you create it as an absolute true, an absolute emotional mover. It’s gonna be unstoppable.

So, that’s founder investment theory. Step two, find investors. This is like one of the two most important jobs that you have for the rest of your life as a syndicator and a fund manager. Finding investors, you’re always thinking about finding investors, it’s part of what you do. So step two, find some investors. And we can help you with strategies in order to do that. Investors come from online or offline, it can be under, you could do a 506(b) offering where you have friends and family, can have non-accredited investors, everybody’s within your network. Problem is you can’t advertise. Or you could do a 506(c) offering. And you can do it only to accredited investors. But you can suddenly advertise. So now the whole world opens up as possible investors, but that trust value is now low. So you got this trade-off, right? So you’ve got either 506(b), where you can rely on your trust, 506(c) where you just don’t have the trust yet. So it makes it a little bit more challenging. So both of them are not simply easy. The actual process itself is pretty easy. But it’s not like automatically, people are just throwing money at you, it doesn’t work exactly that way.

Step three, find assets. You can’t syndicate without assets. I mean, that funds, it’s promissory note basically is underneath it, and doesn’t necessarily have to be a promissory note. But there’s some sort of liability there, that’s making it so that you, and I don’t mean liability in the balance sheet sense. I mean, there’s some sort of money that’s owed, no matter what, you got to have an asset. All right. So the assets, you need to find those assets, or there’s nothing to amass.

So, the four steps are very simple. Establish criteria, what exactly you’re looking for that matches your fit, use a checklist. Once you’ve done that, talk to everyone you know, utilize your existing network, you know, this is what I’m looking for, make sure everybody knows. And then once you’ve talked to everyone you know, expand it. So and then you start talking to, if it’s real estate, start talking to other brokers in there. And once we’re doing a lot of business, expand that network. And then finally, review the Public Information Exchanges, you know, if it’s commercial real estate, you’re looking on LoopNet, if it’s residential real estate, maybe you’re looking at the MLS, if it’s businesses, there’s a bunch of business looking sites, expand it out.

Step four, and this is probably the one that people fail to do the most, and yet just cannot get to your goal. If you don’t do this step, you have to commit. If you don’t commit to the goal, if you don’t commit to doing it, you’re never gonna get there. You absolutely – that is one… You know, as an attorney, I never make guarantees, this is one pure guarantee, you don’t commit to it, you absolutely are not going to get there. So you have to decide, yeah, I’m going for it, it’s risky, of course it is. Everything in life is risky, but you gotta commit to it, or it’s never gonna happen.

So commit is step four. It’s the step that makes it all happen. After that, the rest is just making, putting all those promises, putting all those things that we talked about into play. So what sort of network do we need to do? What sort of things need to be in place? What sort of knowledge needs to be in place? And now that I’ve got these assets, these investors, and I’m still getting more investors, I’m still getting more assets. How do I keep going? But you’ve already committed so now you’ve got to just fulfill your promise. That’s all. So fulfilling the promise. So and then getting to your goal. So that’s how you get to your goal is by committing to that extent.

That’s certainly something that we can help you with. Which brings us to our law firm. So what we do, so I’m obviously Tilden Moschetti. I am a syndication attorney. I’m also a syndicator. I also put together my own deals. So I’ve got a lot of experience in this industry. And that’s what we bring to the table that I think sets us apart.

And that’s what we bring to the table is the experience in the business. So not only do I help maybe 100 people or 100 syndicators a year in putting together their offerings and getting them out there to the world, you know, supporting them along the way, making sure you know, helping them strategize. Well, what’s the marketing going to look like? What decisions do we need to make about this? Oh my gosh, the investors, they need to know x, y, z. And it has nothing to do with law. But can you help me? And yes, because I’ve been there. I know exactly what you’ve been going through. I’ve been sitting across from investors before, I’ve done pitches. You saw the one I did for MCA lending. That’s just what I do. I have to make pitches because I talk to investors all the time. You know, and you will get to that point, and you’ll get way better than me, I’m sure. But that’s the kind of thing that I can help you with.

Because we’ve got experience not only just on the business, you know, working on it, building out the structure, getting your entities set up and getting you the right private placement memorandum and the operating agreement and the subscription agreement. But we’re like a mechanic who also races cars, right? I’ve driven a car. I haven’t just worked on cars. And that’s what sets us apart. Is that we’re in there with you. We’re actually tinkering with the car too. We’re making it work. We’re tuning it, we’re helping you do everything that needs to be there. Because we’ve raced cars, we’ve been in the car, we know what’s supposed to happen. I know that when you do this, it’s supposed to do that, not just as a pure function of theory, but because I’ve been there.

I’ve had investors ask me, “Well, why are you doing your distributions that way?” You know, I’ve had that conversation many times. I’ve had the conversation of, “Well, we’re looking at the possibility of doing a capital call. And if we do decide to do that, here’s what it’s gonna look like.” And as uncomfortable as it is to have in the moment, fortunately, I’ve never actually had to make a capital call. But I’ve nearly needed to make a capital call. And I had to tell my investors and I had to be sitting across from them and explaining that. So I know the reality of it as it is there. And you’re going to be in that space, too. And so that’s what we can help you with, is making sure that your structure is put together in a way that when those things happen, you’re ready for it, you can do what needs to get done.

I’m an expert in Regulation D, rule 506(b), 506(c), it’s all we do. All I do is help investors, I mean, help sponsors, like you with putting these offers together. So on my legal side, I don’t do anything in family law, I don’t do criminal, I don’t even do business law as it relates to a lot of things, even in things like, if there is litigation around securities, I don’t do that. All I do is this stage of security. Because I know I’m the best there is, I know I can do it. And I know I can get great results. And I know that when you hire me, I can give you a product, and I can give you the support that will make you successful. And you’re never gonna have to deal with the loss of sin, you’re not gonna have to deal with those. And I can’t 100% guarantee it because anybody can file a lawsuit. But I can make it very, very likely that you’re going to be in a great place. The rest will be really up to you. And of course, if you’ve got any questions, then you can, of course, ask.

And so, one thing that I think a lot of people hire me for is like, literally, whenever a situation arises, we’re literally a call, text, email, whatever it is away. So the clients all have the ability to send me texts. I don’t give out my cell phone, but that’s just because, you know, a text is much more reliable for me anyway. My phone never really even rings, my phone just buzzed a minute ago, that was a text coming in from a client. So there you go. So I can’t obviously respond at this minute, but I will respond as soon as we get off the phone. So you know who you are. You were the lucky one. Now it lives on in infamy.

But so I’m literally like, easy to get a hold of, you get to only deal with me. I have a staff that’s built out and we’re actually growing so we’re growing in a way that still makes it so that you have ready access to me because that’s really what you’re hiring for. You know why, when you hire a syndication attorney, you don’t want to spend all this money just to get somebody you know, a paralegal and you never get to talk to the person who actually has been in the trenches. Right, even though I’m probably the only syndication attorney who’s actually in the trenches, but you ultimately want to get a hold of the attorney anyway. And not somebody who’s junior to them.

Well, I will have somebody who will be in place to help facilitate that. But that’s going to be their role, your role, their role will not be actually, you know, doing that work, it’s going to be okay, how do we make sure that all the questions of our clients are getting answered as quickly as possible. And they’ll have direct access to me. But the reality is, you also have direct access to me, as a client, you can always text me, text is probably the fastest.

That’s who we are. My name is Tilden Moschetti. I am the attorney of Moschetti Syndication Law PLLC. Most of the time, I call it Moschetti Syndication Law. And we can help you put together your offering, whether it’s your first syndication, first investment fund, you’re raising money for your business, or you’ve done it for years, you know, we’d be happy to help. Again, you get all those benefits of my experience, at no extra cost. And it’s, you know, it’s just included in what we do. And I enjoy it. And I hope you enjoy the process as well.

So that was our webinar for 2024 to get ready to launch. I do wish every single one of you incredible success. The more we do, as an industry to make alternative investments as successful as possible, the better it is for everybody. Right, this is the beauty of capitalism is that, you know, it raises all boats. So the better our industry does, the better it is for every single one. So obviously, I care a lot about making sure that the whole industry is well taken care of, that we all do the right thing. We’re all compliant. We all make our investors massive amounts of money. We make massive amounts of money for ourselves. That’s my goal. That’s my wish for 2024. So I hope you have a very, very happy new year.