The following Q&A was completed as part of our conversational Commercial Real Estate FAQ Interview Series, we hope you find it helpful.
With 75 years of experience in the world of real estate investing, the Beach Company has experience in just about all facets of real estate assets and acquisition. Working in just about all fields of real estate, four professionals from The Beach Company sit down to discuss their experiences, their lessons learned, and their tips for success for young and budding real estate investors out there. Making authentic connections, being flexible with your investing, and learning from experience are important factors to their lasting success.
Richard Wilson: Hello everyone. My name is Richard C. Wilson, I’m the founder of CommercialRealEstate.com and our sister company The Family Office Club and I’m excited here today to have Beach Real Estate Funds and the Beach Company with us. I have 4 different professionals from their team, and the Beach Company has been around for over 75 years. They’re relatively humble, there’s other data points that they could also share that are very impressive, but they’re a multi-faceted company that focuses on real estate development, real estate investing for most of their activity and we’re going to be going through about 15 questions now with their team digging into the knowledge that they’ve gained and the expertise they have and sharing that with you in this frequently asked questions series with the Beach Company. Leonard, before we start is there anything you would want to add to the description of the Beach Company just to make it really clear who you are and what you’re focused on?
Leonard Way: Thank you, Richard. Yeah, in our 75 years we’ve touched on pretty much every type of real estate there is other than heavy industrial. Quite frankly, what we concentrate on now and have for the last 15 plus years is the multi family world both from a development perspective, management there of, and for our team in particular we’re in the acquisition of existing property.
Richard: Okay, great. And then this interview will be a little bit different than some of our other ones where we’re going to be cycling through a few different professionals on the team, from Darby to Teddy to Louie, and kind of going back and forth so we can draw on all of their expertise versus just interviewing one professional from the team. So I hope everyone enjoys the interview. So, first off Leonard I have a question for you, now that you’ve been with a multi hundred million dollar real estate investment company for over 20 years yourself what do you see from your particular view of the forest that that most investors and investment firms don’t realize or that’s not obvious?
Leonard Way: Great Question. I’m going to stick with your analogy of the forest there. You know the forest is made up of lots and lots of trees, and every one of those trees has the ability to impact the investment both on a positive and a negative basis. So in order to manage that investment you have to manage the trees. What do I mean by that? It’s the day to day management of real estate. I don’t think that’s so obvious to people trying to get into real estate. They think about “Oh, I want to own real estate. This will be great for me.” And they go through the acquisition process. And then as I said before it’s like the proverbial dog that caught the car – you know, now what? You’ve got to go through the day to day asset management of a property. That’s where you’re going to create your value, create the returns for the property. You know, real estate, particularly multi-family real estate that we do really just demands day to day management. And an investor should never underestimate the amount of time and effort that such management does require.
Richard: Right. Like anything else, it looks easier from a distance, right? And then once you actually get into it you find out there’s 400 different nuances to actually succeed and excel in a niche. I’m sure like most other things in life and business. What has been core to keeping your momentum going at your real estate investment firm for 75 years?
Leonard: As a family owned business we pride ourselves on what we own there, so that helps go along. But quite frankly understand what your business is about. We have always had a defined company mission statement, and we work very diligently to stay true to that mission. In the case of the Beach company, our mission is sustained balance growth by maximizing the value and utilizing premium real estate, and trying to bring impeccable services to bear for all of our investors, our clients, and the stockholders. That as served our family company very well for over these many decades. In terms of carrying momentum forward, you need to be adaptable and you need to be flexible, but just don’t go too far afield. We found that in the 70’s and 80’s we were in a variety of different businesses that had nothing to do with real estate, and we chose to bring ourselves back to a focus. So you need to be cognizant of the past, and always make sure you learn from it. What we do as a company is have a strategic plan, we had our first one in ’97 and we’ve had an update to that plan every five years or so, and that plan is to look out for another 5 to 10 years. It is a living, breathing process for us. What we have found is 1) it keeps us moving forward, it keeps everyone engaged, and the more you get your employees involved in preparing that strategic plan, they both get excited and they both see the challenge for what’s ahead.
Richard: Right, right. Great. Well, related to team, one thing that people know of that followed our events over the years is just that everyone says that quality of the team is most important. So much so, I think some people kind of ignore this advice because everyone’s heard it, they heard it in their MBA program, they heard it in books they read, on podcasts, et cetera. So, in your case, what specific actionable takeaways do you have on attracting the best talent and keeping them that are maybe not so obvious to listeners?
Leonard: Yeah, compensation is easy, you can always attract people with compensation, but that only goes so far. We at Beach Company have been quite blessed a lot of long term tenured associates. In fact, this year we had two gentlemen retire with 50 and 51 years of tenure with the company. Our management team has a tenure of over 15 years. People refer to working with us as being part of a family, and really all that means is we’re really just trying to bring out the best in the individual person, and give them room to grow. The company overall is relatively lean, and there’s not always a straightforward path of progression upward, so what we strive to do is encourage our employees to progress laterally. You may be an expert at one item, but you could pick up more responsibility in other areas of the company as well. Over my 22 years, I’ve been in 6 different aspects of the company. So as we see a strength, we go to it. One of the things I tell people when we’re interviewing for a job is we’re looking for an entrepreneurial spirit, and we like for our employees to challenge themselves. We want to keep those employees engaged and we try to do so in a numerous number of ways outside of just their direct day to day responsibilities. That might be an ad hock committee, that might be being part of the overall strategic planning process, what have you there. Our result is that the employees truly embrace the company and they do choose to stay with us for 10 years greater than the industry norm.
Richard: Great. Great, yeah, that makes a lot of sense. Just this morning, because yesterday we got notice of one of our team members leaving our company, or switching over the department they’re working in, just like you said it’ll end up in them being cross-trained and a more well rounded employee without leaving a gap on our team. So I can definitely relate to that in real time. What is the number one smartest due diligence question a new investor could as a commercial real estate investment firm when getting to know them?
Louie Soffner: Thank you, Richard. I think that we found that most investors tend to ask about our track record from previous real estate investments that we’ve completed in the past. And although I do understand the value of having a good track record, I don’t necessarily think that that’s the most important question they should be asking as far as performing due diligence on our company. I think new investors should really be asking about the team responsible for the investments and the value that they bring to the table. We feel that developing trust, having open communication between the investor and the manager is key, a new investor is ultimately investing with the firm and not just in one specific deal. I think it’s very reasonable for any investor to want to speak with or meet with most of the team members that are guiding his or her investment, anywhere from the CEO to the company to the analysts or maybe support staff behind the scenes. And I feel that our company, the Beach Company, has done a really good job in offering those interactions early with potential investors, whether it be in in person meetings, Zoom meetings obviously with the pandemic, email correspondence, phone conversation. I think all these interactions tend to lead to a sense of comfort with our company, and then we can also speak to our track record as support for what we’ve accomplished in the past and will strive to accomplish in the future. Ultimately it’s our goal as an investment firm to create lasting partnerships for current and future investment opportunities alike, and that begins with creating trust between the investor and the management firm.
Richard: Yeah, great. Yeah, it seems like all investing is about building trust and getting enough trust to move forward on something of course. What is the number one thing that you look for in due diligence on a property that determines if it’s worth your time?
Darby Parker: Well, thank you Richard. I don’t think we believe there’s really one thing as much as there’s one overriding question guiding us from the start. And that’s generally what’s the likelihood we’re going to get our equity back? Being sure the downside is adequately covered is pretty much the best way to know if a property is worth pursuing. There’s more, you know, than a dozen variables that could affect this and it’s always a bit situational, and that’s by design as we want to be able to pursue throughout a nice spectrum of the multifamily apartment stock. But we generally have 4, 5 easily identifiable quote unquote dealbreakers that we can usually spot within a few minutes of being on site, chatting with the deal rep, glancing at an OM, and the like. And I’ll add it’s worth noting that our dealbreakers might not be something that a competitor would have as one of theirs, and that’s vice versa. But our generally lend to our strengths and to the broader term investment horizon that our company embraces.
Richard: Right, okay. Great. Related to measurements, what are the metrics that really drive the success of your business there at the Beach Company?
Leonard: Well, we pride ourselves on our reputation and that’s an intangible, right? So yes there’s metrics for the dollars that can be achieved from the development, the management, the value creation processes, those are easy to measure there. We do use those metrics to determine whether we wish to buy something, develop something, and the like and then how did we do at the tail end of it? We’re very happy with those results. But what we really try to measure are the intangibles. We go back to our company motto – making the world better one awful place at a time. Well, how do we do that? To us the key metrics here are relationships – how do I measure that? It’s very tough to do but you have to ask yourself simple questions. Do your residents and tenants choose to renew their leases with you? Are our investors continuing to invest with us? Are your venders, your lenders, your brokers pleased to work with us? And are the stockholders happy with the direction of the company? And then have we done right by our employees? It’s one of those intangibles you don’t know exactly how to measure it, but you know when you get it wrong. And every time we think we may have started to get it wrong we will re question ourselves and get back in line there. You know, over our 75 year history the company has succeeded first and foremost by not always being bottom line focused. We strive to do the best we can by everyone, and that strong positive reputation will pay dividends towards having a profitable enterprise.
Richard: Right, great. How do you respond to investors that are concerned that there might be too much competition within the multi family investment space?
Leonard: Competition is good. Competition brings transparency to pricing in the market and everything else. It’s well worth remembering that the real estate market in our country, quite frankly across the world, is an extremely bifurcated marketplace. There are no major players. We may think of some major players but think in the multi family world – a major player still may only be 4 or 5% of the entire marketplace. There are millions and millions of rental units. The largest player in the country is Greystar, and they have maybe 700,000 units under their management, not even full ownership. So it’s an extremely bifurcated world and that’s fine, that’s great. That means you’re going to have a lot of competitors. In our marketplace in the southeast it’s very robust and it’s projected to stay that way and we expect to have a good number of competitors in our world. The real question that an investor should be asking is not are there too many competitors, but what is the makeup of those competitors? Are they well-seasoned? Are they institutionalized? Or are they two guys who had an idea and are trying to be a syndicate? What are their capabilities, what are their abilities to underwrite and capitalize the asset? Are their projected returns in line with the norm? You hear a lot of people now saying “I’m going to get you a 20% IRR in 3 years.” I’m sorry, that’s not the norm anymore. You might have been able to do that in 2012 and 13, but that’s not a normal situation. So ask your sponsor, ask your group there you know, you’ve got to be inquisitive about why you’re going into real estate and what you know about it and how you’re going to handle that property once you do acquire it.
Richard: Right, kind of takes…
Leonard: My question, it just falls in with this Richard, the best question for an investor is, or thought process, I want a crowded field when it’s time for me to sell. You know? You’re going to get the best price in that situation.
Richard: Right, right. And not overpromising to investors is part of protecting your reputation, back to what you said before, right? I mean that’s – If you’re seeing other competitors that are promising the world, you know, it might be hard for them to deliver more than the world versus promising something that’s realistic or even slightly conservative, and doing business with them based on other reasons that are more qualitative perhaps, right?
Leonard: Correct.
Richard: Great. How have been the big three lessons you’ve learned while building a new line of business that you can share with others that are just starting out?
Teddy Hendricks: Absolutely, thank you Richard, I’ll tell you the first lesson learned on my end throughout my tenure at the Beach Company has been really setting up and establishing processes early and up front. And giving those processes the credence to scale and scale them quickly. So whether it be a various proprietary model that we’ve established, or a KPI measuring tool of some sort, or if it’s actually setting up the renovation process that we’re going to deploy on that particular investment – setting that process up early, well before we close, is critical. And I’d also say that Covid, and the environment that we’re in today, has really amplified the need to dial in those systems even furthermore. So as we continue working remotely in collaborating via Zoom and Skype and everything in between, it’s that much more critical to establish that on the onset.
The second, I would say, from my perspective as the asset manager for our fund, it’s really picking property management firms, and contractors, and establishing those relationships as early and as often as possible as well. You know, real estate is an extremely relationships people driven business, my role in particular in asset management is even more so and I’d argue oftentimes the most personal side of real estate, so having the right people in place, the right team in place, for each individual investment is critical. We don’t subscribe to the one size fits all methodology for every investment. We really try to set up the correct team and their correct partners on each side of the asset management platform that we’re going to deploy. So that’d be number two.
Number three I’d also say the importance of collaborating with our acquisitions team early and often in the underwriting process is very key to what we do. Some firms often separate these roles completely, like bifurcate those two sides of the investment platform, we don’t do that on our team. We work together as much as possible on the front end, so that when asset management takes over the investment upon closing it’s that much more further along in the process of all the assumptions are understood and asset management is very comfortable with those assumptions on the front end before takeover.
Richard: Right, okay. Makes sense. What are the 2 or 3 excellent sources of real estate deal flow in your experience?
Darby: Yeah, thank you. I’d first say that techniques for sourcing real estate deal flow definitely differs by asset class and the market you’re in. For multi family over 100 units especially in the southeast, the market is so competitive, and rightfully so because it’s so lucrative, that you’re hard pressed to find an untouched unnoticed non professionally managed asset that hasn’t been called on by brokers and out of state buyers on a monthly or probably even weekly basis. Because of this fact you really need to establish the deep network with brokers and even principals to drive sufficient deal flow. These relationships rightfully take time and if transactional interaction were to build they can fall apart in a matter of minutes, so we don’t take them lightly. We find that focusing on smooth transactions, negotiating win/win scenarios, just abiding by our word goes a long way to ensuring those relationships remain intact and it’s translated in the success of our projects, the fund, and ultimately our investors.
Richard: Okay, great. And it is a very competitive marketplace, it’s the topic that keeps on coming up at our real estate summits that we keep posting. What software tools and technology or platforms have been key to your growth or helpful in managing all the details at your size?
Louie: Yeah, our company we use a wide variety of software and technology that obviously have lead to our success as an investment firm overall, but from an investor relations perspective we’ve really come to realize the importance of having a useful investor portal that our current investors can easily access and use to track their current investments with the Beach Company all in one place. And on the flipside, I think it’s equally important that we now have a platform that our prospective investors can access in order to view our investment offerings and determine if a partnership with our firm would be a good addition to their portfolio. Again, speaking mainly on what we’ve utilized for investor relations, we think that there’s 3 main components in our current investor portal that have lead to our firm’s growth and success. Those 3 things, I think first having an internal CRM component to track our investor communications, status, investor details, has really made our equity raise process much more efficient. At any time we’re able to track current and potential investor status to make sure that we’re doing everything we can to sustain an effective dialogue with our investors. I think that having a CRM component that is used daily allows us to make sure that we’re really connecting with our investors on a timely basis and tracking that communication all in one place, not only for myself but for our entire team to reference as needed.
Secondly, I think that the ability to create databases for our investment offerings has really been extremely beneficial. We’re able to quickly send out links to our databases that contain offering materials, legal documents, and data summaries for quick review by any interested parties, as opposed to mailing them or emailing them like we’ve done in the past. I think through our current investor portal we’re able to track who has logged in and reviewed those offering materials, and who may be seriously interested, and then in turn that allows us to open up new lines of communication to further discuss these opportunities with our company.
And then last I think having a secure portal where all of our investors can easily log in on their own time and track the status of their current investments has been invaluable. Instead of investors having to constantly call or email questions about the status of their investments, they’re able to get real time investment summaries and metrics when they log in to their portal. We have gotten nothing but positive feedback from our investors about how clean and accurate the information in their portal is and how quickly they can find and download documents, reports, and information regarding their investments. I’ll give a small plug here in that we’re fortunate enough to have all these components in one platform through Juniper Square, but I think that any investment manager that has any software that offers these features will find it easier to manage their deals and investor communication overall.
Richard: Right, right. Great, yeah, I think a lot of people are missing that especially at the scale they are practiced at the first 100 million in assets or so, they’re also usually missing you. They usually have not any one person focused on this role and that’s a big downfall, I think. They don’t take it seriously enough, and they may be real estate professionals and that’s why they started their real estate investment firm, which is a good thing, but because of that they love negotiating deals, traveling to walk the deals, and sometimes don’t dedicate enough energy to exactly what you’re doing there every day, so I appreciate that. Since multi family properties have been popular institutions for some time now, what niche or type of multi family assets do you focus on still and you can still make money in that area?
Teddy: Thanks, Richard. We actually look for properties that are owned by institutional groups and larger owner operators. The larger owner operators sometimes streamline operations so much that we find opportunities to tighten expenses or increase our revenue just by simply changing management. You know, oftentimes these larger operators they do things a particular way and they deploy that over thousands of units, and we’ll find very quickly opportunities to either cut that or drive revenue by things that have just been neglected over time. So that’s one area that we try to focus on. We also try to covet properties that are in smaller tertiary markets, much of the older apartments in stock in the larger markets, the primary markets, they’ve often been renovated and sometimes 4 to 5 times by various owners in one real estate cycle. So we’ve established hyper local knowledge. You know, what we’re doing within our investment platform is not only looking at strong tertiary markets but the micro-location within that tertiary market.
So, finding a well located property is critical, obviously, but in being nimble enough to dive into these very micro locations, we’re often finding value in places where institutional owners often overlook for various reasons. And then I’d also say additionally given the nature of our fund and the structure of our fund, it’s landed itself to a variety of different options in terms of our value creation strategies. Anecdotally we were able to buy a property in North Carolina with the full intent of deploying a very particular or specific value creation strategy and inadvertently the neighboring property was able to be acquired off market. So we acquired that property, merged the two properties, totally revamped our value creation strategy to a holistic approach to encompass two assets and managed them as one.
So, just ability to be flexible and nimble and adjust different strategies as needed has been very successful for us.
Richard: Yeah, and that’s great. I just got back from a trip because I’m on the board of a real estate company and they did the same thing. They had a multi family property, they went to get permission on the easement on the property next door and ended up buying that property and expanding it, and relative to your comment earlier about tertiary markets it used to be that people went to Denver or Nashville for the better quality deals and now there’s enough competition that I know a lot of firms are looking in places like Jacksonville or Tallahassee or, you know, St. Petersburg, Tampa, or kind of another half-notch more tertiary than it might have been maybe 5 to 7 years ago or 10 years ago. Trying to stay a half step ahead of the institutional flow of capital that’s searching for that cap rate they need, so appreciate you sharing all of that. What lessons have you learned regarding raising capital from high net worth private investors and family offices that you can share with us?
Louie: Yeah I think most simply raising capital takes time, time and energy. Any firm like ourselves who are raising capital from high net worth individuals, family offices, institutions, they need to be prepared to dedicate a lot of time and on a daily basis for communication. We’ve learned this very quickly. Having the discipline and willingness to continuously follow up and follow up on prior communications having conversations with prospective investors is key. You want to show that you obviously value their interest in your firm, and that you would appreciate them as a partner just as much as any other partner that’s already investing with you. I think it’s also important to try to speak the investor’s language as much as possible, you really want to understand what their individual or their firm’s needs are, and their drivers, what their drivers are behind making an investment. It’s helpful to fully understand where your offering might fit in to their overall spectrum, so you can positively speak to how an investment with your firm will help them succeed as well.
And I think kind of our last thing that we’ve noted as far as our capital raise is that it’s crucial to keep an open line of communication internally as well. We need to do our best to introduce as many of our team members to an interested investor or a family office that shows interest in partnering with us. As the communication continues to evolve, you want to make sure that anyone on your team can jump in at any time to assist with questions and provide information as needed. We want the individual, or family office, whoever is interested to see that our team is constantly in unison and collaborating. We hope that it gives a glimpse into how we operate and how we and how we would value their partnership should they wish to invest with us.
Richard: Yeah, yeah, that’s great. I think that last point is so important. I mean, just having the four of you on here is a little of the thing that seems, you know, 50% of the competition out there that raises capital for real estate is a one or two person firm, or they won’t show up on video and be professional and well spoken. I mean it already separates you from a lot of the people out there as simple as that sounds. And also within our PitchDecks.com division we’re helping people with their teasers an their pitch decks and we often find that by putting headshots of their executive team or maybe all 20 people on their main team, and just bios and headshots of the top 3 executives it goes a long way in building credibility because a lot of companies don’t have 20 headshots to put on there. So, just the fact that you’ve built a sizable team and have credible members on the team that it’s not just one person that you like, but when you go and talk to other people there’s some depth to that expertise, I think it really makes a big difference in investors feeling comfortable at the end of the day which is the main focus of the capital raising process. It’s just to get them comfortable with who you are, you are who you say you are et cetera. I think that was a really important point you made there, I appreciate that. If someone else that’s listening is focused on their own niche area and wanted to grow to 100 million dollars plus in assets as quickly as possible, what would you suggest to them that would help them greatly?
Leonard Way: Well, always remember that growing a company is, particularly real estate investment company, is more of a marathon than a sprint. You can grow assets, but growing assets for the sake of growing assets is never a very sustainable situation. We like to remember sort of the golden triangle approach made up of knowledge, determination, and capital. And if you have any two of those three, you generally will find someone with the third to help get you there. In our case, the Beach Company has all three, we’re blessed that way but as with any company we’re limited by our amount of capital. So we have very deliberately over the last 15 years sought to bring in third party capital allowing us to grow substantially over that period of time. But you can grow that quickly, but again is it going to be sustainable? What you want is to grow those assets, manage those assets well, and to make sure that you’re keeping that capital source as happy and as satisfied as possible. So, as you grow, make sure you execute well so that the growth will continue instead of going away.
Richard: Right, great. Appreciate that. That rounds out the interview questions for today, but if somebody wants to get in touch with you Leonard or your team at the Beach Company, where’s the best place for them to go online or how would you like them to reach out to you and your team?
Leonard: Sure, we can be reached at a couple of different websites. First is TheBeachCompany.com, the second is BeachRealEstateFunds.com, and then we all are in LinkedIn and reachable there as well.
Richard: Okay, great. Well I thank all four of you for your time here today, I appreciate your involvement in the CommercialRealEstate.com platform and Family Office Club and we look forward to seeing you on stage at our upcoming Super Summit here soon, and for those listening you can listen to the individual interviews within our frequently asked questions series or our tax interview series or the whole length interviews you can find those as well through our podcast or our blog at CommercialRealEstate.com. So, thank you Leonard, Darby, Teddy, and Louie for your time here today, appreciate all the expertise that you shared with us. Take care.
Leonard: Thank you, Richard.
