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Ian Formigle, the Chief Investment Officer of Crowdstreet joins us on this episode. Speaking about their 2013 startup through today, where CrowdStreet has become one of the preeminent crowdfunding platforms in the Nation, Ian shares a ton. The platform has done nearly 500 deals and invested $1.3B in multifamily, build-to-rent single family, industrial, hotel, office, and retail. They invest capital across the entire risk spectrum from joint venture equity to pref. equity, mezzanine debt, and even senior loans. At Crowdstreet, there are over 50,000 investors on the platform, the average deal falls right at $40MM, and the average investment at $50k.
From a team of four original members, Ian helped build the platform to well over 30 people and watched the company really thrive. Ian’s a very astute investor with an incredible grasp on the texture and nuance of commercial real estate investing on a national scale.
As the single team member charged with making the go/no-go investment for the platform, Ian brings forward a ton of insight.
Key takeaways in the episode:
- Multifamily and Industrial remain strong.
- The implications of monetary policy will be cap rates compression.
- Today, to manage risk, you need bet on the long-term market and underwrite to normalcy after the pandemic. Look at basis and the costs to “clear the chasm” to assess investment viability.
- Build to rent is here to stay.
- The overweight to commercial real estate as an asset class will continue and that will provide tail winds for the incumbent investors.
- When you start a company, know that the demand is there, and that the market is growing. Get that right, at least.
- Build a team that fills in where you are weak. Cover the corners of the company’s needs with other’s skills.
- Crowdfunding’s impact promotes the promise of greater capital efficiency.
- Be tenacious and do not be afraid to fail; get up and carry on.
- Tenacity inspires the team.
Transcript
Kevin Choquette:
Hello, everyone. Thank you for joining me for episode four of Offshoot. Today, Ian Formigle, chief investment officer of CrowdStreet, joins the conversation from a 2013 startup in the wake of the JOBS Act to today where CrowdStreet has become one of the preeminent crowdfunding platforms in the nation. Ian shares a ton of information, knowledge, and expertise with me and you. The platform’s done billions of dollars of transactions, and he shares that he believes both multifamily and industrial remain strong, that monetary policy’s going to have huge implications for both cap rates and interest rates down the road, said another way, the wave of capital continues.
He talks about risk management, risk mitigation, betting on markets long term, and underwriting to normalcy after this pandemic, looking at basis and the cost to clear the chasm, to assess risk of any particular investment. We talk about build-to-rent. We talk about starting companies and making sure that your market has sufficient and growing demand, and also about team-building and filling in your own blind spots. A few comments also in there about tenacity and not being afraid to get up and carry on after a defeat. I hope you enjoy the conversation, and here’s Ian.
Hello, everyone. Thanks for tuning into the conversation with me and my guest today, Ian Formigle. Ian is the chief investment officer of CrowdStreet, one of, if not the, nation’s premier crowdfunding sites. Ian and founder Darren Powderly are almost certain to be heralded as overnight successes for the incredible wins they’ve had with CrowdStreet. But thankfully, I’ve known Ian since before CrowdStreet and the 2012 JOBS Acts, which really enabled the whole crowdfunding phenomena. Safe to say these guys have been tireless in their pursuit of success, and it’s been a good long haul to get here. That said, they continue to put up impressive numbers in raising JV equity, pref equity, and debt from their large pool of individual investors.
As I understand it, they’ve raised over $1.3 billion, 464 deals, well over 50,000 investors in the community, and importantly they wok with sponsors who have an average of seven years in the business and have done at least $200 million in transactions. Ian’s one of the smart ones. He’s thorough, meticulous, and able to both zoom in and zoom out to understand opportunities. I always enjoy bringing deals to CrowdStreet and learning from their vantage point. So, it’s my pleasure to welcome Ian to the podcast. Welcome, Ian.
Ian Formigle:
Thanks, Kevin. It’s a pleasure to be here. I don’t know if I can live up to that intro, but I will do my best.
Kevin Choquette:
Hey, we’ll be fine, I’m sure. So, hey, to start, could you just tell the audience about yourself and CrowdStreet?
Ian Formigle:
Yeah, absolutely. Happy to. So, as you mentioned, I am the chief investment officer at CrowdStreet. We are an online, commercial real estate investment platform. As you mentioned, Kevin, we were born out of the JOBS Act of 2012, so in essence Title II of the JOBS Act went live in September of 2013, and what that changed was syndication at the national level. And what I mean by that is, prior to that, there’s a particular part of the 506c Reg D Act that was syndication had always been done this way, all the way dating back to the Securities Act of 1933, and that what we would refer to as country club deals, so groups of individuals coming together to capitalize commercial real estate projects, you could do that offline, you could do that with people you knew, and it was small, and it was not really scalable. So, what that translated into was essentially kind of a cap or a lid almost on the amount of capital you could amass in any one given transaction.
So, in 2013, when Title II went live, you were able for the first time to publicize a private Reg D offering by changing the registration under 506, which is now 506c. And really where the a-ha moment for the company and what gave rise to the launch of our marketplace in April of 2014 is that, for the first time really since 1933, you could publicize a Reg D offering, which means that you could change the order of operation in terms of the current domain being know the investor, second, talk about a deal. You could talk about a deal, and then you could get to know the investor. So, when you change that order, you enable the mass distribution of an offering through any means of communication, including a website. So, if you could publicize it and put it on a website, and if you could attach a robust platform and transaction center to it, you could have what is now commercial real estate crowdfunding.
So, that’s what got us going. And in 2014, we did a few deals, raised $5 million over of course that first year, and just started to gain our footing. Fortunately for our company, we found our way. And by consistently working with good companies, getting access to good deal flow, meeting great investors around the country, we’ve now scaled to the point where we’ve raised about $515 million last year. We came into 2020 with eyes set on a billion in 2020. COVID hit, and we’re not exactly going to hit a billion this year, but I do think that we’ll exceed a billion in funding next year. So, I think after six years, the promise of getting great deal flow all around the country to individual investors out there is actually really here. The quality of the sponsors and the deals on the marketplace these days I think we’re pretty pleased to see. So, it’s been an interesting journey, and we’ve finally reached a point of scale where we are relevant to the commercial real estate industry.
Kevin Choquette:
Yeah, absolutely. Your role, in the day to day, what is it that you’re tasked with?
Ian Formigle:
Yeah. So, I serve as the key decision-maker on all the deals that come to the marketplace. We have a deal team at CrowdStreet. It’s about 12 people that I work with every day that are evaluating deals that are coming into the pipeline. We have about another I think 18 people that are on our capital markets team, and those are the people that are out there actively seeking deal flow for the marketplace. So, on a day-to-day basis, it’s constantly evaluating the deal flow and the companies that are approaching us, and we’re approaching them, to be totally honest too, and looking for that next best opportunity to get onto the marketplace.
One thing that we’ve been a little bit different in terms of 2020, in terms of the previous years, is I would say that it was fair to say that, over the course of call it 2014 to 2018 or so, we were in that exploratory, kind of building up phase of CrowdStreet as a company to kind of find out really what we were good at, where we fit into the scheme of capital markets, and what was going to resonate with us. So, we finally landed kind of coming into 2019 on a more direct and prescriptive investment thesis, and we were building upon that in 2019. And in 2020, it really took off in terms of, once we hit COVID, our company and our deal team had to sit down and acknowledge that the commercial real estate industry, leading up until March 11th of this year, it ended. There was a downturn that was going to ensue of some form. Then there was going to be the emergence of an upcoming cycle.
So, really part of the work of 2020 was to think through how we were going to navigate the pandemic, what would be the best opportunities out there around the country, and really what would we gain strong conviction in terms of bringing to the marketplace, in terms of sponsors and deal flow, in the months and even now the years ahead. That’s been a big thing for us this year, and we’re pleased to see how we’ve been able to manage through the pandemic, get access to amazing deal flow. And it did culminate this summer in that we published our investment thesis on our website. So, now investors can log in and just see exactly how we’re seeing the world and how we’re attacking commercial real estate deal as we go forward.
Kevin Choquette:
Well, I have a little bit of trepidation to ask this, because I’m certain that it’s got a lot of attributes, a lot of texture, a lot of nuance, but where do you see this strategy? Where do you see opportunity in a COVID or post-COVID world? I mean, I know, like I said, it’s going to vary by asset class, but where are you guys focused?
Ian Formigle:
Yeah. So, yeah, Kevin, as you can imagine, it is really, really nuanced. It varies by asset class. It varies by location. If we were going to try to roll it all up really quickly, asset classes that we think have the most legs going forward are going to be predominantly multifamily and industrial real estate. Those are the ones that we see … Industrial kind of just being the asset class that’s just genuinely strong. A spike in ecommerce sales in the United States to over 20% of all sales this year essentially means that, while we entered 2020 with industrial in a relative state of equilibrium, it’s now undersupplied. I will agree with anyone who says, “Hey, there’s going to be some regression to the mean on that spike as we exit the pandemic.” Fair. But it does mean that we are undersupplied, and we’re going to see this continued absorption of ecommerce sales as total sales.
So, anytime we can find ground-up industrial deals, either last mile distribution or major distribution in hub markets, we like those types of deals. We like multifamily in growing secondary markets where we liked them before. You can see sometimes slight discounts on those types of deals when we would probably have expected slight premiums. So, anytime we can get access to a deal in a Florida market or a Texas market where there’s strong growth, we like that. The nontaxation aspect of those states is always appealing to investors as well.
And then I think after you go down from there, you’re going to start to see the introduction of more opportunistic type of deal flow. We’ve done a hotel deal on the platform during the pandemic. If we do those, those are going to be pretty heavily discounted for all the obvious reasons. Retail, same thing. Very anecdotal, but discounted and more distressed or opportunistic.
Then from there, other niche asset classes that we’ve had some success with, needs-based medical office. Senior housing is more of an opportunistic standpoint. And then other things like self-storage we’ve done. We’ll continue to do that from a ground-up perspective, predominantly. And even manufactured housing. Great asset class in manufactured housing. As you can imagine, it’s niche. There’s just not a lot of it out there. It’s hard for the world to create more of it, particularly in the United States. So, we’re just not see a lot of that.
But that’s kind of how we see it. So, again, I think there’s going to be a lot of interesting opportunities as we get into ’21. Even the emergence of other types of distressed deal flow. We’ve done a discounted banknote deal on our platform. That was the first time we’ve ever done that, which was this summer. So, we might see more of that in the months ahead. But industrial and multifamily I think are going to lead the way next year.
Kevin Choquette:
Okay. Yeah. And to say you’ve just put 10 paths for us to go down is a bit of an understatement, but let’s pick multifamily. It’s a space that we are also very active in. I’m curious what you guys see coming, if you’re talking HUD, which is always the low-price leader. Long-term fixed rate debt, its base right now is down around 2.1%. Just like an FHA loan, you add mortgage insurance premium to that, Fannie Mae, Freddie Mac, at the low, low leverage levels, say 55% LTV. I think you can see that money as low as 2.6, maybe 2.7%.
Ian Formigle:
Yeah.
Kevin Choquette:
And the agencies haven’t … They’re overwhelmed, because there’s a burst in refinance activity, but they haven’t pulled back. That’s not true of all the banks and credit unions and the like. But where do you see multi going in that backdrop? And we can also sprinkle in things like monetary supply. We don’t probably need to go there right now, but it’s obviously part of this conversation. But what’s your crystal ball? I mean, I have gotten a lot of things wrong on COVID and the economy, and multi has been pretty fascinating.
Ian Formigle:
It has been fascinating, and I think that you nailed the fact that the key underlying thing right now that is producing just strong floor of demand under multifamily is the cheap debt. The way that I think that … When I talk to a lot of operators out there, the anecdotal comment is in some ways right now you’re almost paying a little bit more to get a little bit less at the national level. So, we take that from the standpoint of saying, hey, knowing that if you can see that fixed-rate, 10-year Fannie money priced at sub 3% today, that was over 4% this time last year. And then you take that, and you attach to a deal that’s in a market that you liked before, like long-term demographics. Right?
I mean, we’ve been bullish on all the typical growing secondary markets, the Charlottes, the Nashvilles, the Austins, even the Denvers of the country. If we can take deal flow, get into a submarket that we fundamentally like, we like at mid term, long term, see that deal priced with a small discount, whatever discount could be had … Right? And maybe that discount is procured through certainty of execution by the operator. Then you now take that deal. You pair it with cheap debt. The economics just got better, and you feel really good about that deal three or four or five years down the road.
Multifamily I think is still sitting in a good spot overall. I do think that you have to pay attention to where supply is, where it’s going to come, which is why we like the markets that have job growth and population growth, that have outpaced national averages for the last few years. I think one thing that you can look at during the pandemic is that, to some degree, it has simply accelerated some of the trends that we already saw in motion. I mean, we were a fan of growing markets within Florida last year, and, if anything, we’re just seeing further growth this year, kind of short-term I think growth spikes. We’ve seen the migration out of New York down to Florida. Okay. I characterize that as a short-term phenomenon. But it is dumping another later of demand into those Florida markets right now.
So, then when we think strategy-wise, one of the strategies that we have jumped in on is ground up this year, from the perspective of we’re watching the top of the funnel from an entitlement perspective, deals that are in planning around the country. Things that are at the top of the funnel are starting to kind of winnow down in terms of their supply. We have been really focused on strong operators and developers in key markets that we like that had projects that were nearing the bottom of the funnel. Then we get into COVID. Then you’ve seen the scenarios where maybe they had different JV capital partners lined up, others that they were about to line up throughout the summer, and then in the current environment you have a lot of institutional capital that’s decided to sit on the sidelines for a little bit.
That’s given us a window of opportunity to jump in and say, “Hey, we like that deal. We like the opportunity to deliver a great project at a good basis at the end of ’21 or coming into ’22. We think that deal is going to have relatively muted supply behind it for another 12 months,” which will essentially give you the nicest, newest thing on the block and give you that clear … Kind of be the shiny thing without a lot of other shiny things around you to lease up and stabilize. And ultimately, I think that now we’re talking ’22, it’s the next phase. We think we’ll be getting into the beginning of the growth phase of the cycle. I think you just like that spot. So, that’s been a strategy that we have actively pursued.
I do think that the window of that opportunity will start to close some as we get towards ’21, just because, well, that top of the funnel will get down to the bottom of the funnel in terms of the entitlement perspective. So, we expect that deal flow to kind of peter out a little bit, and then we’ll have to probably move onto other things. But we’ll take it while we can get it. Go ahead.
Kevin Choquette:
Well, no, I mean, literally you’re echoing the same conversation we’ve been having internally, and there’s another reason that I like what you’re saying, which is pick whatever you think your stabilized deal on cost is for whatever secondary market it is that you might be pursuing. Maybe it’s five and a half. Maybe the developer tells you it’s a six. If he’s able to build that product today with a purported exit … Let’s say it’s a five and a half yield on cost. And he thinks he can exit at four and a quarter, maybe he’d even argue four, 125 basis point spread. My contention, given that the Fed’s telegraphing they’re not moving rates til 2024 and you’ve got, what we just said, sub 3% long-term, fixed-rate debt, that deal’s going to trade at a cap rate that’s lower than the cap rates we had going into 2020.
Ian Formigle:
I agree. There’s no doubt. So, you mentioned monetary policy, and I think you’ve got to start talking about it a little bit here, because you take the combination of low interest rates that are here to stay for call it the next three to five years. We don’t know, but it’s going to be a while. And then you dump on top of that a 25% increase in the money supply this year. And you cannot simply put those two together without having some sort of upward pressure on hard asset pricing in the years to come. So, again, I think we think about it from a high quality perspective, is that typically in that kind of a scenario, the assets that are going to go potentially at large premiums, they’re going to be the best assets in the best locations.
So, we’re looking at it through that lens and saying, “Look, if we can see highly reputable, enterprise-level developer who’s had a great site tied up for a while …” In the case of when we’re looking at these deals right now, these are two years in the making. So, they’ve already kind of placed their bet from a strategic location perspective. Now they’re bringing us a deal and saying, “This is finally ready to break down later this year.” And when we look at the combination of great location and great developer, and then you think about what that market looks like in ’23, that to me sets you up for a lot of success.
Kevin Choquette:
Yeah, I agree, and I think, as information has become more abundant and transmitting more quickly, the markets move more quickly. We can see this in the stock market. I was talking to a client yesterday about potentially getting a perm loan on a 280-unit project that they’re building out in Denver, and they’ve got a comp, a project very similar to theirs, that’s being sold 50% leased on pro forma NOI at a 4.22 cap rate today on a 50% occupancy. For their pro forma, they’re going from a 305,000 per door to a 350,000 based on that. So, I think we’re already seeing the big, institutional, yield-driven capital recognizing that there’s a moment where they can grab this and actually be ahead of the curve and look back and be happy that they got it at a 4.22, because it may be shockingly inside of that in 18 to 24 months.
Ian Formigle:
Well, yeah. I think you’ve got potentially the next major data point on that thesis in terms of … I don’t know if you watched the Willy Walker Webcast from this past week, had the brothers from the Motley Fool on. At the onset of that webcast, Willy Walker points out they’re getting ready to take an institutional multifamily asset deal to market, and they’re expecting not only a sub four cap rate on that deal. The expectation is they might actually hit a three and a half cap. So, if people are paying a three and a half cap today on class A multifamily … I haven’t seen the location of the deal yet. My guess is it’s going to be somewhere like in the gulch. The only way you pay a three and a half cap on multifamily right now is Nashville, is if you fundamentally just … You’re going to take a bet for five to seven years in the future, and you’re all in on just future asset appreciation. Right? Because there’s very little yield coming out of that for the short term.
Kevin Choquette:
Yep. Agreed. Well, look, you talk about a little bit risk spectrum, and I know that the pedigree of CrowdStreet is a lot of value add and opportunistic deals. You just articulated that you guys are starting to look with some focus at multifamily development more like a broad arching topic. And I know you’re very capable in this regard, but how do you think about risk? How do you think about risk-adjusted returns, downside variance, when you look at these markets or a specific opportunity? I mean, I know that’s your job. I’ve had these conversations with you, but …
Ian Formigle:
Yeah. The notion of risk and how to look at it and evaluate it has been fascinating this year, and it has been hugely dynamic in the sense of … I mean, if we back it up to March, we looked at deals in March and April with … I mean, just think about where we were at that period, in the early phase of the pandemic. We had zero idea what the next two years would look like. So, what it really forced us to do is think about deal flow during that period of time I would say very similarly to how we looked at deal flow, or I looked at deal flow, in 2009 when I was still on the private equity side of the shop, the buy side. And what I mean by that is it was a period of time where you just had to stare into the abyss, look at an asset, look at the price of that asset, and think about the potential of future normalcy returning to the market sometime in the next few years, but you have no idea.
And first thing to answer was, can I get to ’22 with the way my capital stack is formed today, knowing that it could look ugly for the next 12, 18, even up to 24 months? And then, two, if I could do that and then I could have the world start to look a little bit more normal by ’23 or ’24, and this asset could then bounce back, what would that look like? And if that would turn into a good return, it’s almost literally kind of that just pure gut call to say that’s the type of risk that you’re going to take in April of 2020. We saw a handful of deals come through that had that texture, and so we did jump in and do them. I think I feel increasingly really good about those deals that we did do, because maybe they will potentially show up to be as some of the best opportunities that we’ll see through this whole period. But that was the early phase.
I think what’s been also interesting is that, so, we’re already seeing how dynamic the aspect of risk has proven throughout 2020, because now what we can point to is saying, “Okay, well, now that we have seen this massive influx in terms of liquidity and bumping up the money supply, seeing how that’s already started to play out in equity markets …” And I’ll totally understand people will point out equity markets and say, “Well, yeah, look, I get it, the S&P is back up, but it’s also dominated by the top 50 and the bottom 450 are trailing.” Fair enough. But there’s no doubt that money is coming back into the market.
And now, if we know that, look, we pair cheap money and a monetary policy that’s going to be lax for the going forward period, and you think about the fact that you only can put your money really in four places today … It’s either in equities … Okay, we’re seeing money come back there. Or debt, bonds. Well, bonds are going to have no yield for however long. We don’t know, but for a while. And after that, you’re left with either cash, but there’s debasing of the dollar, so cash doesn’t look that great, and then alternatives and hard assets within alternatives. So, CRE being the number one space within alternatives, we kind of feel that fundamentally that’s going to now be a good place going forward. That’s already changing the way that we evaluate risk and reward in the out years.
Now, you definitely have to get into the next level of asset class and location, because it is not a one-size-fits-all strategy, because you could go to the most risky part of the spectrum in, say, hospitality. Yeah, hospitality is still in a massive state of distress, and it’s not going to get out of distress probably until ’22. However, meanwhile, industrial, there was no distress. There was zero distress. So, really what that looks like now is that we have to take the aspect of risk on a case-by-case basis. If it is hotel, yes, we’re acknowledging that that asset has massive risk attached to it.
And how do we navigate the chasm between 2020 and 2022? You start sliding down that scale and then looking at each different deal by location. You get all the way over to industrial, which is kind of saying, look, it’s more of like a, hey, we’re about ready to embark on the next ups part of the cycle. And then you could even throw something in the middle in saying office, office where we don’t even know exactly where it’s going yet. The emergence of the distress in that space is probably really coming next year as we get towards more maturities in the CMBS markets and we kind of see more of the current philosophy of kicking the can on six-month renewals start to slow down and get post-pandemic. And then I think the office market’s going to start actually changing.
So, it’s a long way of saying that, when you think about risk and reward, you’ve really got to get strategic on what are you doing and where are you doing it and what part of the cycle do you think it sits in, because it’s all over the board. I mean, I think the final point here is that talking to people, my mentors and so forth, in this space, the level of asset dispersion that currently exists in this market, unprecedented. I mean, unprecedented in our lifetime. So, there’s risk there, but it’s also going to create opportunity, because, as we know, commercial real estate is just hugely inefficient. So, it’s just an interesting time.
Kevin Choquette:
I agree. I was actually speaking to somebody yesterday, and we were getting into the commercial space and the fact that, at some level, it’s actually not terribly complicated. Right? I mean, you’re buying an asset, you’re putting leverage on it, you’re running it. But the truth is every story, every asset, there’s a lot of skill, a lot of expertise, a lot of experience that’s required to not only make the right acquisition, have the right lens, to what you were saying on basis and duration to recovery, but then also to get in there, put the right vendors, the right consultants, the right experts on the ground to actually execute a business plan. So, this is going to be absolutely fascinating. It has been thus far, and I’ve got a bunch of it wrong, and I’ll probably continue to do that.
Ian Formigle:
We will all get a bunch of things wrong, but hopefully we get more of it right than we get wrong, and that’s where the opportunity lies.
Kevin Choquette:
Yeah, I agree. So, look, you mentioned one other thing that I think is really fascinating, which is I think it was kind of a quiet entrance when real estate was deemed an asset class. And since then, we’ve seen large-scale institutional investors, whether they’re life companies or pension funds or endowments, continue to increase their allocations to commercial real estate. And simultaneously, you’re seeing the winners of the fund management business get bigger and bigger and bigger, and there’s less diversity in the investment community or call it the fund allocation community, meaning the fund managers. I think Blackstone’s current mortgage rate is like $167 billion. What do you see in that space? What do you see that injecting into commercial real estate, and how does CrowdStreet sort of fit into that fabric?
Ian Formigle:
Yeah. Well, I think you’re kind of teeing up part of the reason why we got into this space and wanted to build this company, is because, coming out of the downturn … So, you go back to the co-founders of the company, so Darren Powderly and then when he found Tore Steen and they co-founded CrowdStreet. And Darren was a commercial real estate broker. So, he saw what was happening during the Great Financial Crisis in terms of this massive aggregation of capital amongst a few players and what that was translating to and how that was playing out. And you could just see that it was, well, there is a high concentration, and maybe that level of concentration is getting to unhealthy levels.
And now when you have this opportunity to have a small upstart space come in and chip away and get into a piece of the market share, that was the fundamental reason behind building this platform, is that we wanted to get individuals access to this asset class. I mean, we drank the Kool-Aid in terms of kind of modern portfolio theory and why commercial real estate makes sense for an individual to be in their own portfolio.
And you don’t need to look farther than the likes of the endowment model and see how Yale and Princeton and Harvard have managed their money really well over the years, and having hard assets in their portfolio was a key component of it. And it will ebb and flow just like anything else. Right? You see those groups increase their allocation and decrease their allocation as they see fit and where they feel like they sit in the cycle. But having hard assets, commercial real estate assets in their portfolio has always been a core part of their investment thesis.
So, that was the whole thing. I think when we look at that going forward in saying, yes, institutional real estate will still have a heavy, heavy component of capital coming from the likes of the Blackstones and so forth, that’s never going to change. But we think that there is this kind of small little wedge that we think can grow going forward that can create an allocation and an entrée for the likes of the CrowdStreets and other parts of the online, commercial real estate space to get in there and have a seat at the capital markets table.
We do think that, if we go from 500 and change of million raised this year, maybe we hit 550 or 600 million in 2020, going to into the billions in the years ahead, that we will carve off a plank of equity capital markets and start to change that equation a little bit. And hopefully the billion goes to four or five billion. I mean, now it’s real, and it’s at the national level real. So, that’s our vision and hope. But it remains to be seen how that plays out.
Kevin Choquette:
Well, and I think there’s another overlay there, a parallel condition in this sort of phenomena of larger and fewer fund managers. They only have so much human capital. They only have so much capacity in terms of annual deal processing. And there’s a significant opportunity cost for them to take on any deal. And then you look at the built environment. My understanding is somewhere around 50% of the commercial real estate world is 50,000 square feet and less. Well, $162 billion debt fund isn’t going to be playing with many, if any, 50,000-square-foot assets. It can’t do it. And I think that’s where there’s a huge hole. There’s a huge hole, and there’s a huge opportunity, and I think you guys … I mean, I know you’ve done some very, very large projects with some very high-quality sponsors, but I think you’ve also had some smaller allocations. Well, why don’t you tell me? Tell me, have you had smaller allocations to the more niche plays and the great basis plays, great rehab stories, but they’re just not big deals?
Ian Formigle:
Yeah. So, the answer is yes. If we look across every deal that’s ever come to our marketplace, and then you say, “Well, what is the average total cap of that deal?” it’s in the 40-something-million dollar range. And predominantly speaking, we are most active in those secondary markets. We picked that up as a thesis coming into 2018, and we really leaned into the markets that were the Charlottes and the Nashvilles. We were shying away from at that time the San Franciscos and the New Yorks. But I think, probably for starters, a couple reasons, one, is that real estate was really expensive in those markets. Valuations were a little bit hard for us to wrap our head around. But then also, practically speaking, we also had to have relevancy. And when you have a single asset in New York City that can trade for a billion dollars, and our platform at that time can now start to raise 5 or maybe $10 million on an individual asset, it’s not really relevant. It’s not really moving the needle.
Now you take that same capital size, and you apply that to a $40 million asset, and you lever that up at about 65 loan to cost. Okay. Well, now we’re in the teens in terms of the total amount of millions of dollars of equity that need to go into that deal. And if we can produce 7, 8, $10 million, well, that’s meaningful. It’s not going to be the 90% of equity of that deal, but it’s going to be enough that, now if that operator or developer comes to us with some capital in tow, be it its own co-investment and then maybe its own friends and family or a family office or a small institution that’s alongside of it, we’re meaningful, and we can help get that deal done.
So, that’s where that we were finding our stride, and we loved the fact that we were finding our stride in those markets, because we had conviction around them anyways. And then to say, all right, well, if this is the size deal that we can do and these are the markets that we can do it in, and those types of assets are easier to find in those markets, because they aren’t as expensive as a New York or a San Francisco, then it just all started to fit.
Then the last point here I think is, when you think about it from an asset class perspective, then some of those niche asset classes that we really liked, self-storage and manufactured housing, for example, and maybe some smaller medical office buildings, to your point, Kevin, those are smaller deals. I mean, medical office buildings, you can look around the country. They’re not usually big on average. They’re 30 to 45,000 square feet. Right? They tend to be three floors, have a little elevator in the middle. Those are what we would say is more bite-size assets that you can get in and put some capital in, and they’re being overlooked by the monster capital out there, because they’re just too small.
Kevin Choquette:
Right.
Ian Formigle:
Same thing, manufactured housing is not going to … It’s hard to find a $10 million manufactured housing deal. They just don’t really exist. So, again, these niche asset classes, you can find a lower level of competition. So, if you’re able to find a great operator who actually does focus in that space, and then empower them with 5 to $10 million per deal, I mean, now you can go get some really great deals and I think earn outsized returns relative to the risk that you’re taking.
Kevin Choquette:
Yep. So, then, since it seems like I’m teeing you up, that’s certainly not my intention. Look, the idea of crowdfunding as it’s always been in my mind from inception was Tammy Teacher is putting money in her local pension fund. That pension fund is hiring the consultants that put the pension fund money into the large opportunity funds that allocate through people like me to the local developer. And there’s a ton of value add in that process and a lot of expertise brought to the conduit that allows that money to move. But it’s hugely inefficient, because everybody’s getting paid all the way up and down so that Tammy Teacher can finally get whatever she’s supposed to recognize on her pension. How do you guys play in that space in terms of trying to remove some of those middle layers and getting a more efficient return to your investors?
Ian Formigle:
It’s interesting that you mention that, Kevin, because when I first joined CrowdStreet, and coming out of a commercial real estate operator/developer perspective, I felt that the value that a CrowdStreet-type platform could offer to the world was the ability to remove a link in that chain where it didn’t necessarily need to be. Once I saw that and I thought that that was plausible, then I was really interested in putting my efforts toward trying to build and scale this platform. So, now, I think we are making good on some of that promise of saying, “Hey, we’re trying to get the returns one step closer to the actual individual.” Right? Because to your point, if it is the teachers of this world that are contributing money to a pension fund, which is getting allocated, the end user, the end beneficiary of that commercial project out there somewhere is the teachers. Right? It’s their pension.
Kevin Choquette:
Right.
Ian Formigle:
And I agree with you that what I saw was a really inefficiently structured product from start to finish to get that money and too many different profit sharing schemes to get down to the teachers, and that was ultimately … I mean, the way you can look at it is you start with a project-level return. Right? Real estate can earn returns at the asset level. And then the question is, well, what are your returns? Well, it depends on, are you the developer? Well, you get them all. Are you not the developer? Are you a limited partner? Well, then, you share with the developer. Are you a partner that is an allocator, which is then amassing money to go give a return to somebody else, so profit sharing? Okay. Well, that’s what we call the double promote.
The more that you water this down, I would look at the scenario of the pension contributor, in saying sometimes you wonder if the level of risk that they’re ultimately taking is commensurate with the reward that they’re getting out of that deal, because there is a lot of profits sucked out along the way. So, that was our whole mindset, to say, “Look, if we can get the individual a step closer to the actual project-level return, we’re making the world better for investors, better returns.” We can make the world better for even the developer and operators, because there can be a sharing of that. Right? If there isn’t the middle person extracting a pound of flesh, then the developer/operator can make a little bit more and pass on more to the end user, the investor who’s really going to change their life. It’s going to help them retire or help put their kid through college. Right?
These are the reasons that we wanted to pursue this element of it, and I’d still say that it’s a relatively nascent industry, but it’s one that it’s finally starting to scale.
Kevin Choquette:
Yeah. Well, look, the other side of that coin and where I think CrowdStreet has done some things right is, in truth, if we go with this notion of Tammy Teacher, she doesn’t have a clue. She doesn’t know if your hotel acquisition at $115,000 a key for a select serve property in Nashville is a good buy. And she could go on CrowdStreet, and she could look at the deal, and you guys have great materials. She could kind of research that and look at all the pro formas, but she doesn’t have the expertise to make a highly discretionary, highly discerning conclusion as to whether or not it’s a good investment.
And if you go back to this whole notion of people buy IBM … Why? Well, because it’s IBM, and there’s credibility in the decision without having to take the risk of being wrong with that purchase. As platforms like CrowdStreet develop track record and pedigree and results that show what goes on the platform isn’t just there for you to pick through to decide what’s good and what’s bad; it’s curated, and it’s already deemed by a qualified group of professionals to be sufficiently robust to merit investment.
That’s where I think you guys have got it right. You aren’t just opening it up like eBay and saying, “Hey, if you’ve got something to sell, sell it on our platform. We’ll take a little technology fee.” You’re actually like, “Well, look, I’ve been on the other side of this.” In fact, the deal that you and I most recently spoke of, it was, “Eh, I think your cost-per-unit’s a little too high for a tertiary market.” Okay. I mean, what are your thoughts on that? Again, I’m not trying to make this like an infomercial, but I love the space that you guys are in, and I’ve given it a fair bit of thought through the years.
Ian Formigle:
Well, thanks. You make an excellent point. I think there’s differences between what our platform is to the users on the platform that’s very different than anybody who shows up at the huge platforms such as Amazon or eBay or so forth. Those transactions can be down to the $20 on an average ticket. Right? The average ticket on our platform’s $50,000 roughly. And that’s a large amount of money, no matter how you look at it.
So, what that requires of us, and what it requires of both sides of the transaction, is a lot of trust. There’s a level of required incoming trust from the investor on our platform that is just so different than any sort of other form of ecommerce out there for the most part. Right? Probably the only one that equates to us is something like that you look at Charles Schwab. Right? Okay. There has to be a lot of trust from the person who’s using the Schwab platform to go use it. I mean, from that perspective, we live in the financial world. We’re just a tech-enabled segment of it.
So, we begin there, because at the end of the day a marketplace like CrowdStreet, it is a trust platform of which investors are trusting developers and operators and vice versa to come together on transactions, and then, us being the gatekeeper of trust on both sides, it’s how it functions. So, I think that’s how we look at that space.
And to your point of … I do totally agree that there are many people out there who, one, are not sophisticated enough of a commercial real estate investor to know whether $115,000 per key for a select service hotel in Nashville is a good deal or a bad deal, nor should they have to be that level of sophistication.
The next phase of the evolution of platforms like ours are the infusement of vehicles, which we now have on our platform in privately managed accounts, which are essentially investors opening accounts and giving discretion to CrowdStreet to make those decisions on their behalf. Or just kind of blended vehicles, whether they’re blended across multiple different asset classes, whether they’re strategic vehicles that are going into specific asset classes. I mean, that’s the logical next step.
So, we are deploying discretionary capital today. It’s still relatively small percentages as a percentage of the total velocity on the platform. But there’s no doubt that, as we scale, that as that trust builds and as our track record builds, that the introduction of more vehicles and larger vehicles is just kind of a natural evolution of the space.
Kevin Choquette:
Yeah, I agree. And I won’t go down those particular wormholes, because we’ll get wrapped around a whole nother couple chapters there. But a couple times now you have mentioned manufactured housing, and you haven’t said build-to-rent, but I already capitulated that I’ve gotten a few things wrong on COVID. During the Great Recession, Colony American, Waypoint, Blackstone’s play … I can’t remember what they called themselves. These large-scale players. And this whole notion of REO to rental or just SFR rental, it really came into its own. And personally I said, “Look, this is a moment in time. You’ve got assets on bank balance sheets at below replacement cost that can offer some yield to the buying, and it’s just brilliant, to take it at pennies on the dollar. And who cares if you make …” I mean, at the time, those cap rates in many markets were actually stronger than the comparable multifamily assets. But it wasn’t really like, “Hey, we’re going to go make a bunch of yield.”
It was really a basis play. And it made sense, because there was some cashflow. And, yeah, it was super labor intensive, but I honestly thought, “Hey, SFR rental, this is a moment in time. This is not a new asset class.” Fast forward, 2020, I now see slab on grade, stick-built structures being built for a fraction of the cost of more structured even just three-story garden walkup apartments. I see the rents much higher than they have been historically. And I see yield on cost for those communities, even if they’re not purpose-built, at a level that’s attractive and there’s debt financing now that’s come into that space that makes the overall accretion of the bottom of the capital stack make the equity work. What do you guys think of that space? I know you have some experience there. You have some expertise. I got it wrong. But there’s kind of a new era of it coming forward, it would seem.
Ian Formigle:
Well, Kevin, we love that space. It is part of our investment thesis. And we started pursuing that as an asset class in 2019, but with what’s happened with COVID and how we’ve seen this market evolve in 2020, I think it is now off to the races as a strategy. So, a good example, and just a little bit of an anecdotal story, but so in 2019 there’s a group that we worked with out of Dallas. Very reputable developer, multifamily and single-family. Total cap, they’ve developed over $5 billion worth of product, predominantly in Texas. And they brought us a deal. We did a deal with them in the BTR space. So, they helped us get up to speed on this emerging asset class. So, we looked at it. We studied.
Call it the end of the summer of last year, it was like, “Wow, this is super interesting. I can see how this can work,” in that, if you take a plot of land, … And, again, this strategy works really well in certain parts of the country. It’s not going to work as well in other parts of the country, because you need a more relatively unconstrained market. So, you need some flat ground, and you need access to some space, because it is more land intensive. So, it’s not a shocker to see that where this has really picked up and gained traction is in Phoenix and in Texas and particularly Dallas metro and in Denver, San Antonio as well and so forth. But a little bit more challenging in a place like Austin, for example. Right? More rolling hills terrain, higher priced land, and so forth. So, it’s a little harder to get it to pencil.
But in these more kind of wide open markets, you take the best of both of what’s happening out there. I mean, to your point about if you look at the single-family housing model and the Blackstone model being the invitation homes and so forth, I mean, they were just buying up tons and tons of homes, throwing them together in massive portfolios, and that worked as a strategy. But I think the one thing that was missing and where, when we would ever look at a portfolio of single-family homes, was when you look about it, one, every different house is different in that portfolio. It has different fixtures. It’s got different ACs. I mean, everything about it is relatively unique. And if you think about trying to systematize a portfolio of hundreds of perhaps thousands of those homes, it gets really challenging. And they’re spread around a metro. So, it’s even operationally challenging.
So, there was these elements of the single-family just rental aggregation play that you would wonder. You’re like, “Can you really end up managing those efficiently?” And, when you look at that product, there are really no amenities. Whatever amenities you’re going to have are just the amenities of that home. What does it have? Does it have a pool in the backyard? Well, I guess that’s an amenity, but it’s a one-off pool that’s really expensive to maintain. Whereas, now you take that strategy, and you think about the best of what single-family housing has to offer, and that is it has a garage, so it has storage. It has your own space, your own backyard. You have a little bit of a sense of privacy.
And then if you can take that and put it into a purpose-built community where it’s now new, everything alike is around you is alike. So, you’ve now amassed all of that single-family housing together in one location so you can manage it, you can have uniformity around the community in terms of the fit and finish of the product, and then the kicker is you can amenitize it. Right? You can put the clubhouse in and the pool and the dog park and the things that are going to be attractive to the people that want to come live there. And then to me, the final thing, which just pushed it straight over, was the demographic trends behind it.
Knowing that this was going to play into, number one, millennials, and number two, empty nesters. And if you think about the average millennial these days, they’re now 30 years old. They’re now oftentimes in … They have partners. They have pets. They want some space around them. They might even be starting to have children. But at the same time, what’s different about the millennial generation than previous generations is the fact that they have a lot of student debt. And so, they’re not as well capitalized as maybe previous generations were. At the same time, real estate is more expensive relative to incomes than previous generations saw. And so, they’re just less able to … And then finally you layer on the fact that it’s a little harder to get a mortgage today than it was a decade ago.
You put that all together, and it’s saying, “Look, there’s a really good thesis around why a purpose-built, single-family, residential community with good amenities in an urban/suburban location is attractive to those people that are coming out of the urban core and wanting to trade, get out of their balcony and inner corridor served building that they have to go up and down an elevator to get to their own space, and they’re willing to move out of the urban core to get there.” And then obviously with COVID, it’s like that’s just not … The urban core is not the greatest living experience right now. So, it’s just pouring some I think fuel on that fire, which is why we love that space. We love it from the ground-up perspective. We’re going to do more of it in Texas. We’re trying to get access to wherever we can.
I think the final point here is that I just recently spoke to an industry professional, someone who’s been in the institutional space for over 20 years. His take was this is the single best strategy he’s seen in his career, hands down.
Kevin Choquette:
Yeah. I listened to … In fact, it might have been one of those Walker Webinars that you were … It was, actually. Willy had Ivy Zelman on, and he asked her, “Hey, if you had $10 million to put to work, where would you do it?” And she said, “Build to rent.” So, it’s fascinating.
Look, a bit back, we’ll sort of pivot here towards more the personal side, and I appreciate all the knowledge that you’re sharing here. You mentioned you have a deal team of about 12 people. I have shared with numerous people on this podcast that years ago I was at MIT listening to what I would lovingly call a propeller-head who was in wearables, electronic space, and someone asked him, “Well, are you afraid of competing technologies?” And immediately he replied, “I’m not afraid of any technology. I’m afraid of teams.” Since then, I’ve really come to think that certainly execution’s important, but the people on the court matter. And I just wonder what your view of teams might be and in particular that team of 12 that you are running with every day.
Ian Formigle:
Yeah. Well, just speaking for our team, the work that we do, having that team in place and having that team function at a high level is absolutely paramount to conducting our business. Within our team, the investments team at CrowdStreet, and then within that, you think about the people that are working day in, day out on deal flow, I mean, it’s hugely important for us to spend the right amount of time and focusing on understanding who are the developers and operators across the country that are approaching us or us approaching them, what are they really good at, where are they really good at doing it, how do they approach their deal flow, is that in alignment with how we look at deal flow, and oftentimes the answer is it’s not, and that leads to the scenarios where we don’t get to agreement on doing a deal.
It boils down to the quality of the product on the platform. The way we look at it is, look, if the deals aren’t good at the end of the day, it doesn’t matter. Returns won’t be there, and there’s nothing to talk about. So, marketplaces only function if the product is good, and then you can assemble that on one side of the marketplace, and then so we’ll call that the supply side; and then on the demand side, you can go assemble the people that want to come to essentially buy or invest in the product on the marketplace. So, the demand side is other teams at CrowdStreet are responsible for kind of assembling the demand, but our team in conjunction … So, the two teams at CrowdStreet, one being the capital markets team and then two being the investments team, I mean, we’re charged with going out and making sure that the quality of the product going onto the platform is the best.
So, it takes that team. I would say, to maybe to counter the position of the person you saw at MIT, is that, okay, we couldn’t do our jobs without a great team. Building that team also within commercial real estate, it takes time. Commercial real estate is very, I think, experience intensive. There’s only so much you can learn by studying it. There is so much more you can learn by doing it. So, the reps are so important when it comes to at least the functioning of our team, which is why we see that the performance of our team continues to gain traction every quarter, every year. We’re a high velocity platform for commercial real estate. As you mentioned, we’ve done 460 plus deals. That’s a lot of deals in the commercial real estate world. Some operators and developers, they do four or five deals a year. We do four or five deals within a week sometimes.
Kevin Choquette:
Right. Right. Right.
Ian Formigle:
So, what that does is that basically just changes the velocity and just takes it up to warp speed. So, the more looks we can get, the more data points we can get on markets out there, the better prepared we are to make I think astute decisions. And then I think the final thing that I want to weave in is that you have to have alignment within the team in terms of how you see the world, what are we really doing, why are we doing it. So, it’s challenging to build that right team, and when the right person comes along, they are gold. Right? You can’t overemphasize the importance of the addition of the next right team member.
It’s not surprising that it has just taken … We are now over six years old as a marketplace. It’s taken that six years to just incrementally build that team that is now functioning really well. And in the next three years, it will function better than it does today, and it’s an ongoing journey. So, there’s no endpoint for the performance of the team. Right? I mean, that’s part of the beauty of real estate too, is that we’ll only continue to get better.
Kevin Choquette:
Yeah. And so, that’s obviously the internal relationships. I agree with your statement. The only way to get real estate, as evidenced by whatever intern you and I have both worked with who is incredibly intelligent and went to a very good school, and you start talking to them, and you’re like, “Wow. You don’t know anything.” And it’s not that there’s anything wrong with them. They just don’t have any domain expertise or experience. But that’s the team internally. I see the relationships externally as pretty much the conduit through which all things flow, the kind of relationship that you and I have and I’m sure you have with 150 and probably more other experts in the marketplace. I wonder, what’s your view of relationships in particular as it pertains to the commercial real estate space?
Ian Formigle:
Yeah. Well, you and I both know that the commercial real estate industry, it’s a relationship industry. I would always say over the years, when I’d meet an investor at a conference or something like that or at one of our investor events, I’d say, “In the commercial real estate private equity world, there’s really only one degree of separation.” Right? The person we know knows somebody else in the industry, and that’s really as far as you need to get to get to understanding people. So, within that kind of space, we are all interconnected to a degree. We all belong to … We have I think this Venn diagram of intersecting organizations we belong to, I mean, ULI being one of the largest. So, I’m an active member there.
So, over time, getting to know the people across the country who you come to acknowledge are not only experienced but really good at what they do and reputable and just you can trust, having that level of trust, leaning on those people, and also knowing that real estate is a very local phenomenon in terms of a product type. So, being able to get to somebody who knows that block, who knows the players involved behind the scenes on that deal, can tell you things that you wouldn’t possibly be able to understand unless you knew the people who knew the people who were actually behind that deal.
There’s so much insider information that goes on. I mean, that’s another thing I talk about too sometimes with investors is that in commercial real estate there is no such thing as illegal inside information. Right? This is just what we call imperfect information. So, getting an assemblage of relationships out there that give you so many eyes and ears on the street of every corner is super paramount to being able to navigate it at a national level. For example, at the point, we have this luxury of we have 220, I should say, active sponsor/developer relationships. And then you layer onto that hundreds more industry relationships. So, that just gives you a lot of data points.
And, again, kind of going back to what I said earlier, it just takes time to get there. To be able to make good investing decisions in real estate, you’ve got to assemble all of the above, a good team, good knowledge, good relationships, to know what to do and not do. It all weaves together.
Kevin Choquette:
Skills and expertise both, right?
Ian Formigle:
Yeah.
Kevin Choquette:
Daily routines. For me, my nature is to be fairly ADD. I think that’s how I was planted on planet earth. So, I try to start my days with a whole array of sort of systems, checklists, even meditations to try to get the target clear in my mind and focus the day. I figure, if I can focus the day, then maybe I’ll focus the week, the month, the year, and I can head to the goal in mind and keep that goal in mind. For you, are there any daily routines that you sort of embody and do so for the hope of being a better practitioner, a better entrepreneur?
Ian Formigle:
Yeah, absolutely. So, I think for starters, the way I think about the … If I’m looking at an individual day, I am a subscriber to the theory that … I think there’s some data out there that says, hey, effective people, they tend to have a lot of regularity and systemization in terms of their day in the early to middle part of it, and it’s at the end of the day that you put in the variability. What that translates to me to is, one, my morning routine is pretty consistent in terms of I try to exercise a little bit. And during the COVID time … I mean, I used to row crew in college, so I’ve got a erg machine in my basement. I go use that. Then I’m very, very systematic in terms of my breakfast regimen. I usually make a smoothie. It kind of varies. It’s either a green smoothie or a berry smoothie, and I make an iced coffee, and that gets me kind of some basic nutrition to start the day.
Then it’s logging in, and it’s reading things that are going on. It’s obviously just doing the first parts of the day of kind of checking some Slack messages and email, trying to start intaking some information. And then pretty soon, after that, the meetings are going to start, and a lot of my day can be occupied by meetings. Then towards the end of the day, that’s when you want to throw something different in there, whether that’s visiting a friend or going to dinner or whatever. This is also a little bit pre-pandemic in terms of COVID times kind of stuff. Then at the end of the day, it’s using some quiet time to reflect and then do a little bit more catch-up on email and do a little bit of content at that time. That’s your window of time, I find, that you can think, do some quiet work, try to kind of wind down during the day.
Then the last thing is try to then, for me in particularly … I mean, let’s put it this way. I’m very envious of the people out there in the world who say that they can get by on four, five, six hours of sleep per day, and those people have that insatiable, high level of energy. I’m more of the … I’ve got to sleep. So, come 10:00, I need to rest. I need to give my brain a break. I’m winding down the day by reading a book on my Kindle every night. I’m an avid reader. I love nonfiction, so I’m usually reading some sort of nonfiction book, whether it’s about business or it’s an autobiography or biography, whatever it is. It’s usually more nonfiction than fiction. And that’s kind of how I end my day. Then it’s rinse and repeat.
Kevin Choquette:
I love it. And, look, as I said at the beginning, for those who don’t know the journey that CrowdStreet has taken to get here, I mean, I think I knew you guys literally at the very beginning.
Ian Formigle:
You did.
Kevin Choquette:
Yeah. And it’s been wonderful, honestly, to watch what has happened. I think you really, really have bright days ahead. For the entrepreneurs out there, be they beginning, mid, or late in their career, and employing the notion that we all can learn something from each other, it’s not necessarily the case that only the elders can teach the younger people, but any I’ll just say the quote/unquote words of wisdom or encouragement or thoughts to the entrepreneurs who are … I mean, look, you’ve lived it. You’ve gone through the, as I say, darkest before the dawn, and I think you guys have persevered and made it to the top of the mountain. But any thoughts you want to share?
Ian Formigle:
Sure. I think there’s a lot of stuff that I think about when I look back on the years and the journey that we’ve been on, and we have a journey that has many years ahead of it in terms of how you get there. Well, for starters, I think one thing that was beneficial to the early days of CrowdStreet, and we continue to try to augment as we go forward, is a diverse skillset. I mean, it was literally I think part of the catalyst of what made me want to come join CrowdStreet is that, when I was approached to serve as the chief investment officer here, knowing that that required a skillset of me, but then knowing I was going to join a group that was about to go try to create and build and online commercial real estate investment platform …
And if you think about all the things that have to go into that, well, then, what I did is I surveyed who are the key stakeholders at the table. Right? Who are the co-founders, and who is the other key exec that was just recruited before me to join? And when I looked at that time the other three individuals … We have a larger team now, and it’s bigger, it’s broader, it’s stronger. But at least at the time, those three original people plus me making the fourth, we had hugely diverse skillsets. We had enough in common. We were all similar ages. So, that put us in the same relative spot in terms of our lifetime and what was important to us day to day, and we had families and kids and things like that. But when we looked at our skillsets, I was like, “Wow, I can’t imagine three other people right now that could come together that would have … We’ve got the four corners going.”
And if we could do that, and if I’m being asked to do my part, but I know what I’m good at is really different than what Steve Drew on our team is good at or Tore Steen or Darren Powderly, and they’re amazing at what they do. And I can trust that they’re going to go crush their area while I’m being asked to go crush mine. That’s going to give us a good chance of success. So, put it this way, if I was ever looking at another type of opportunity or could talk to somebody who was looking at an opportunity, I would say, “What do you want to do? What are the skills that are going to be necessary to get it done? And do you have all of those skills present?”
And you don’t have to have all of them present, but I can tell you that what I think would be less optimized for success is you with a certain skillset paired up with three other people with the same skillsets and think that you’re going to go do something that needs a diverse skillset. Right? Sometimes that happens. That’s easy to gravitate towards, because those people, they’re more like you. You find them. Maybe they’re already your friends, colleagues, or whatever. I think I just can tell you from our experience having that diversity at the table was really paramount early on.
I think the other thing too, what really benefited us … And I think for very much from the entrepreneur’s standpoint, if you’re going to go embark on a venture and go create and build something, we had what we believed at the time and proved to be true just fundamental, underlying demand for the space that it was raw and new, but it was sustainable and it was growing. I think there’s enough risk … There’s so much risk in creating something new as it is, that I feel like, if you’re going to do it, you’ve got to look at the space and honestly size it up and say, “Is there just fundamental, underlying demand that’s only getting bigger in this space?” Because there’s so many other ways to get it wrong. But at least if you’ve got that, you have the ability to navigate and then potentially win. So, I think that was another one.
And I think the third is just kind of the typical don’t be afraid just to get knocked down. There’s so many different ways that we were knocked down, and you’ve just got to pick yourself up, dust yourself off, and move ahead. And if you took too long just to kind of stop and embrace and go down the rabbit hold of self-pity, markets move fast. When you’re young and you’re an entrepreneur, you just don’t have that luxury. You’ve just got to get up, get back on the saddle, and keep going. And ultimately, it’s the tenacity of the team and that ability to get back and keep going which will attract other people to your venture, to your company, whatever it is, to then join you on that journey, because they know that they can count on you to take a hit but just get up and keep going again. So, I think that’s the other thing that I think really helped us along the way.
Kevin Choquette:
Yeah, that’s fantastic. There’s the last two there. I think it’s Marc Andreessen that … I can’t remember the quote exactly, but something about markets bail out marginal entrepreneurs all the time, and they’re more inclined to bet on a market than a particular entrepreneur and his strategy. Right? Get the market right. The rest of it will sort itself out.
Then the other thing on tenacity, I’ve heard it said that, if you were to look at the top of a mountain from above, you can see that there’s lots of different ways to get to the top of the mountain. But when you’re at the bottom, your mention of tenacity, I mean, look, you’re going to go into a box canyon. You’ve never been up that mountain. You don’t know how it’s put together. Okay? Turn around, go back another way, find your way up. And I couldn’t agree with you more. It’s the people who have conviction that they will prevail that inevitably do. So, that’s great.
And congrats to you guys. I mean, you’re literally embodying those sorts of notions. So, it’s great stuff.
Ian Formigle:
Well, thanks. We’ve got a long way to go, but at least it’s been a heck of a journey since [inaudible 01:14:33]
Kevin Choquette:
It’s a hell of a start.
Ian Formigle:
Yeah.
Kevin Choquette:
Well, look, Ian, I’ve probably taken far too much of your afternoon, but I greatly appreciate you taking the time to talk to me and putting it out there for everybody else to hear.
Ian Formigle:
No. Absolutely.
Kevin Choquette:
Enjoy the weekend.
Ian Formigle:
Yeah.
Kevin Choquette:
Best of luck to you guys.
Ian Formigle:
Well, thanks. And best of luck to you as you build the podcast. I’ve been a fan of yourself for a long time, Kevin. So, look forward to what you’re doing on multiple fronts.
Kevin Choquette:
All right. Well, talk to you soon, Ian. Thank you.
Ian Formigle:
Yeah. Absolutely. Take care.
Kevin Choquette:
Bye-bye.
