Welcome everyone to episode 24 of Offshoot. My guest today is Jason Luker, a Principal and Founder of Cardinal Group which is a vertically integrated institutional asset manager and developer focused on student housing. From a 2006 start at zero, Jason and his three partners have absolutely crushed. They have 2,000 employees, 100,000 beds, and $2B of gross asset value under management. With a P.O. Box as an office and just the four founders, to this scale in 15 years is incredible. This is a unicorn in real estate operating companies.
Jason’s really open here and provides ton of dimension around the challenges of growing the company, institutional capital, entrepreneurship, and strategy.
This one’s a bit like hopping in the back of an F-14 with an ace pilot only to have him explain the instruments, the different maneuvers, and some of his past flights. Jason’s career and life are really on a roll and I think you’ll enjoy the unique perspective he offers.
Listen in as we cover topics that include:
Why listening to your dad’s advice for a career path isn’t always a bad idea.
How capital markets are starting to thaw, and the fact that real estate is beginning to trade more freely now.
How having kids changed his view of the world and his business.
How Jason started with almost nothing yet successfully pitched an equity group to support them on a $30MM acquisition and how conviction that they would be successful or die trying influenced that capital raise.
How Cardinal Group is organized and how they think about the sharing of internal resources and profitability within each of their operating companies.
Why being the employer of choice has been a coup for Cardinal Group, and why they invest heavily in operational improvements and HR with a focus on recruitment, training and retention.
How they think about culture, providing the opportunity to grow into any role within the organization as a competitive advantage.
The nature of their capital inflows from internal funds to programmatic LP vehicles and how they are structured.
How the pull back in office investing is pushing capital allocators into alternatives within the real estate sector like student housing, data centers, B2R, and outdoor storage.
How they get called, weekly, by groups wanting to acquire their platform.
How large allocators of LP capital think about, or prefer, investing in sector-specific platforms vs. investing in co-mingled, closed ended funds. As well as how those investors would like to put GP capital into those platforms to own part of the sponsorship.
How gaining scale brings more, better, and cheaper capital to the table.
How Cardinal looks to be the tip of the spear in terms of consolidating the fragmented student housing industry.
The fact that this entire enterprise was self-funded, and not from deep pockets.
How they manage the partnership with 3 principal’s votes, any one of which can veto and create a no.
How brining in an executive team really freed up the founders to grow the company even more, and how that was hard to do.
The fact that hiring is a crap shoot.
How culture was at the foundation of Cardinal Group’s formation; they spent a lot of time thinking about what the place would be, long before they grew.
The sacrifices that Jason made in his 20s and 30s to get here.
The fact that they’ve never lost money.
How having confidence that you’ll figure it out is essential. Know that you don’t know, but that you do know people who have the answer.
Transcript
[00:53] Kevin Choquette: Welcome everyone to episode 24 of Offshoot. My guest today is Jason Luker, a principal and founder of Cardinal Group, which is a vertically integrated institutional asset manager and developer focused on student housing.
[01:06] From a 2006 start at zero, Jason and his three partners have absolutely crushed they have 2,000 employees, 100,000 beds and $2 billion of gross asset value under management with a PO box as an office and just four founders.
[01:23] To scale this large in 15 years is incredible. This is a unicorn in real estate operating companies.
[01:30] Jason’s really open here and provides a ton of dimension around the challenges of growing the company, institutional capital, entrepreneurship and strategy.
[01:39] This one’s a bit like hopping in the back of an F14 with an Ace pilot, only to have him explain the instruments, the different maneuvers in some of his past flights, Jason’s career and the life he’s on.
[01:51] Really impressive and I think you’ll enjoy the unique perspective he offers.
[01:56] Listen in as we cover topics that include why listening to your dad’s advice for a career path isn’t always a bad idea, how capital markets are starting to thaw and the fact that real estate is beginning to trade more freely now how having kids change his changed his view of the world and his business how Jason started with almost nothing, yet successfully pitched an equity group to support them on a $30 million acquisition and how conviction that they would be successful or die trying influenced that capital raise how Cardinal groups organized and how they think about the sharing of internal resources and profitability within each of their operating companies why being the employer of choice has been a coup for Cardinal Group and why they invest heavily in operational improvements and HR with a focus on recruitment, training and retention how they think about culture, providing the opportunity to grow into any role within the organization as a competitive advantage the nature of their capital inflows from internal funds to programmatic LP vehicles and how each of them are structured how the pullback in office investing is pushing capital allocators into alternatives within the real estate sector like student housing, data centers, B2R and outdoor storage how they get Called weekly by groups wanting to acquire their platform how large capital allocators of or large allocators of LP capital, excuse me, think about or prefer investing in sector specific platforms versus investing into commingled closed end funds as well as how those investors would like to put GP capital into those platforms in order to own part of the sponsorship.
[03:41] How gaining scale brings more, better and cheaper capital to the table. How Cardinal looks to be the tip of the spear in terms of consolidating the fragmented student housing industry.
[03:53] The fact that this entire enterprise was self funded and not from deep pockets. How they managed the partnership with three principles, votes, any one of which can veto and create a no.
[04:05] How bringing an executive team in freed up the founders to grow the company even more and how that was hard to do.
[04:12] The fact that hiring is a crapshoot. How culture was at the foundation of Cardinal Group’s foundation. They spent a lot of time thinking about what the place would be long before they grew and began hiring.
[04:23] The sacrifices that Jason made in his 20s and 30s to get here. The fact that they’ve never lost money and how having confidence that you’ll figure it out is essential.
[04:34] Knowing that you don’t know, but that you do know people who have the answer.
[04:39] I hope you enjoy the pod.
[04:47] Jason, welcome to the podcast.
[04:50] Jason Luker: Thanks man. Happy to be here.
[04:52] Kevin Choquette: Yeah, I’m super looking forward to chatting with you. We’ve known each other for a long time and you’re one of the few that’s been on this self created rocket ship. So look forward to getting into it with you.
[05:04] Jason Luker: Yeah, I think we met, what, 2005? It’s been coming up on 20 years now. That’s just crazy to think about.
[05:11] Kevin Choquette: Yeah, yeah, times like that.
[05:15] So just to get us started, maybe for the listener, I’ve got some sense of Cardinal Group. I know you’ve been there for a good while now. Could you just tell us a little bit about Cardinal Group, what you guys do?
[05:27] Jason Luker: Yeah, so we’re an owner operator of real estate and more specifically kind of our niche is really student housing off campus student housing. So it’s an asset class that’s become a lot more institutional in the last decade or so and it’s essentially purpose built student housing all over the country.
[05:49] So we’re in 75 or so different markets and we do everything totally vertically integrated. So we started on the ownership side, on the acquisition side, sponsoring deals and putting those together.
[06:02] And over the years we grew out the property management business and then grew another gosh, dozen or so ancillary businesses that service the real estate. So anything that kind of touches operations within student housing we control in house.
[06:19] So it’s been. Yeah, we started the business around 2004, 2005, we bought our first deal. So it’s been a while. We’ve been out this a while.
[06:28] Kevin Choquette: What’s the whole student housing, you know, opportunity set? I, I would, I’m going to ask the question, like I don’t know anything about it. I mean, don’t the universities have dormitories and probably rents that are below market, maybe borderline kind of subsidized housing?
[06:43] Why, why is there a private play?
[06:46] Jason Luker: Yeah, I mean intuitively you would think that, but the, the whole concept of off campus student housing really started a little over 20 years ago or so.
[06:58] And it was primarily, you know, multifamily owners who had buildings surrounding universities and it was kind of a mom and pop operation. It was guys who were multifamily owners who might have a lot of students at their asset and they started sort of catering to the student, to students and operations.
[07:18] But the universities really, the last 20 years one of the big themes has been a reduction in state funding.
[07:26] And they’ve looked for any and all ways to squeeze more value out of their existing assets. And so that’s kind of led to a couple things. One, they’ve disinvested from a lot of their on campus housing.
[07:36] So if you go around the country, you’ll see a lot of 1960s dorms with like seven foot ceilings and cinder block walls, no amenities, two kids to the room and then they, they sort of match that by jacking the prices.
[07:50] So you have to buy food plans. And the on campus housing is generally actually more expensive.
[07:59] Yeah. So when the private sector stepped in, they thought it was great because I was like, okay, well you guys are essentially building infrastructure for the school and it’s all happening privately so we can kind of outsource this.
[08:09] And as people come visit the university, they say, well the campus is great. And then there’s thousands of, you know, fantastic off campus options that are affordable, close to school, highly amenitized, new and you know, run professionally.
[08:24] It’s been kind of a, a very symbiotic relationship with the universities and is.
[08:31] Kevin Choquette: Is the risk of, well, I don’t know how in vogue college is at the moment. It seems like with the massive online courses and some of the, you know, create your own educational path stuff that enrollment could be dropping, but I’m not anywhere near as close to it as you are.
[08:50] Is it, is there A how is the macro demand for university education?
[08:57] Jason Luker: Yeah, that’s an interesting story. I think this is probably one of the biggest stories that I guess the Wall Street Journal’s covered a little bit. But so we’ve got, we had, I think the largest college enrollment bulge come through with the millennial generation who came through and we’ve gone kind of a flat to moderate increase since then.
[09:18] Uh, we’ve got a big demographic cliff coming up in a few years here. Um, but generally, even when you had smaller graduating senior high school classes, really for the last 30 years you’ve had a larger percentage of those kids attending college.
[09:34] So this is the first time where we’re going to see like a smaller aggregate demand pool. And then culturally I don’t know what that percentage is of kids who would otherwise, you know, the marginal kid in 1995 would have chosen to enroll at their local state school.
[09:52] Now I don’t know, you know, if they’re going to go to trade school, if they’re going to put it off, they’re going to the, the kind of online education and choose your own pathing is actually a much smaller percentage.
[10:03] I think that story has been a little bit oversold.
[10:06] We saw in Covid, you know, the kids went home for two weeks, got you know, bored of sitting in their parents basement and all came back to school.
[10:14] So they all actually wanted to be there for sort of the cultural experience of being, you know, American higher education.
[10:20] So you know, interestingly, the way we’re looking at it is this, the story is actually of kind of lesser aggregate demand as far as we can forecast over the next decade.
[10:30] But the, the application of that demand is hugely disproportionate. So the fallout from that is hitting smaller, expensive private liberal arts schools in the Midwest and the Northeast. And it’s really, really the southern states, West Mountain West.
[10:50] And so it’s, it’s sort of a, from a, from a university perspective, you know, if your parents went to College, you have a 99 chance of going to college yourself.
[11:00] So we can foresee cast that pretty, pretty easily. And then most kids, I think it was 90 some percent will go to school within 50 miles of their house. So you can see, you can actually look at these surrounding universities and understand pretty clearly like where the spikes in enrollment demand are going to be.
[11:17] And it’s primarily in the places people are moving to. You know, it’s in Texas and Florida and Georgia and North Carolina. All the, all the places you hear about with kind of general population growth that’s Interesting.
[11:30] Kevin Choquette: So what are you guys seeing right now in terms of opportunities and challenges in the business?
[11:36] Jason Luker: Oh, in the business, you know, there’s kind of on two sides of things is one, one is just the business, the business growing and being what it is and becoming a lot more people intensive and you know, complexity in the regulatory environment around housing, which I’m sure you are intimately familiar with.
[11:53] And then the second sort of side is just on the market of, you know, where the capital markets are right now, where we’re investing, sort of the state of raising debt and equity.
[12:04] I would say I kind of split those challenges into two. My day job consists of really running the organization on one half and then, you know, running the investment side of the shop on the other half and having an opinion on markets and deals and things like that.
[12:18] So I’ve got no end of problems to deal with.
[12:21] Kevin Choquette: Yeah. And on the people side, we spoke of this just briefly the other, the other day. How many are now at Cardinal Group?
[12:30] Jason Luker: So we have a little over 2000 people and about 1600ish or so of them are the on site direct operations team and then the rest work on the corporate side. And that’s everything from, you know, our investment management team, which is, you know, only 20 people or so, but that’s, you know, 20 people.
[12:51] We manage a little over 2 billion in, in Gav. And then our operating companies, you know, we’ve got a marketing business, financial service business, and all these kind of other ancillaries that service the real estate.
[13:04] That’s really where the balance of them are.
[13:07] Kevin Choquette: And you had on your website, which I love this comment of. We started with four people and a PO box and it may have been 15 years, but even over 15 years in the real estate space, the trajectory of four guys to 2000 is exceptional.
[13:22] I don’t know that you guys have any peers that have grown at that kind of a pace. What’s that experience and how’s that been?
[13:31] Jason Luker: It’s been wild. Um, there’s kind of no other way. There’s no, I mean it’s been a pretty exceptional run and certainly we’ve been incredibly lucky. You know, I, I remember when we were, you know, 2007, 2008, when we were all hanging out back in San Diego.
[13:46] I, I remember thinking that I was born too late and I, I missed that 2000, you know, 3, 4, 5, 6 run.
[13:55] And I was like, man, there’ll never be another run like that.
[13:58] And little, little did I know that. I think the smartest thing I Ever did was be born when I was. So I was sort of coming in to my, coming into my professional competency at a time when we had a 15 year bull market run, which is incredible.
[14:16] So that experience has been wild. But yeah, it’s been in fits and starts. Certainly it’s been incredibly challenging.
[14:23] I think probably somewhere around 2016 we all sort of woke up and looked around and thought holy ****, this is so much bigger than us now.
[14:31] You know, it’s not just dudes doing deals anymore. This is like, you know, we have thousands of people who rely on us to pay the mortgage and kids tuition and all of that.
[14:40] And like it got real serious. We had to grow up real fast and you know, start making I think a lot more thoughtful decisions and managing risk and things like that.
[14:49] Kevin Choquette: So was there anything in particular that happened in 2016 where, where that light switch went on, if you will?
[14:56] Jason Luker: No, we, we had, I think that was the point when we, we sort of, I think maybe breached about a thousand people or something like that and it just became, it sort of settled in and became real.
[15:07] We also had kids around then. Everyone’s, you know, all the partners started starting families of our own and it was sort of, you know, when I started the business I had 2002 Toyota Tacoma and like 1500 bucks in my checking account.
[15:20] So yeah, yes, you know, I still have the Tacoma by the.
[15:26] Kevin Choquette: That’s awesome.
[15:27] Jason Luker: You know, but like, you know, I put that up as collateral. It’s like, go ahead, take it. You know, I’m, I’ll take all the risk in the world. Um, but now, you know, we’ve got to be a little bit more thoughtful.
[15:37] There’s a few more, few more things that could to lose now. So yeah, the risk management, I think it just sort of dawned on us at that point. It’s like we’re grown ups now and this isn’t a startup anymore.
[15:49] Kevin Choquette: Uh huh. So on the people side you’re saying your day is sort of split half and half managing the people and then you know, investment allocation, managing capital, raising capital. On the people side, you know, I would, I literally have no idea what it looks like to manage 2000 people.
[16:07] My guess is that you have direct reports and things sort of waterfall down, but that’s just purely a guess. How do you, how do you go about managing 2,000 people?
[16:17] That honestly strikes me as insanity.
[16:19] Jason Luker: Well, yes, it is crazy but it’s kind of one of those things where the water slowly boiled on us and now it’s just, you know, that’s Just what our life’s like right now.
[16:28] Humans are amazingly adaptable.
[16:31] Kevin Choquette: The frog hasn’t cooked yet, right?
[16:33] Jason Luker: Exactly, exactly.
[16:35] You know, we sometimes joke that we’re a staffing agency that does real estate on the side and we have student housing in particular, is such an operationally intensive asset class, it’s got a lot more in common with hospitality than it does with conventional multifamily.
[16:54] So we spend just an ungodly amount of money on our HR platform, which included bringing in a head of HR who was ahead of HR at a Fortune 400 company, and building out a training recruiting retention platform.
[17:12] That’s all sort of centered around the culture and looked at and said, this is. It’s really difficult to create any type of separation as an operator of real estate. And one of the ways we can do it is if we’re the employer of choice.
[17:25] So if you think about our asset class, you know, if you’re Greystar and you own, you know, 10,000 units in the Bay Area, you sort of have a deep, deep pool of operators who could run your real estate for you.
[17:39] If you’re us, we have deals in Tuscaloosa, Alabama and Oxford, Mississippi, and these small markets that are very difficult to recruit in. And we’re competing against all the other student housing operators in that space.
[17:52] And so the recruiting, the training and the retention is like, enormous for our business. So if, if we own the equivalent. So we, we have about coming up a little over 100,000 beds now on the platform.
[18:07] If we manage the equivalent size multifamily business, I think our operations team would probably be about half as big as it is now. And the vast majority of that is around kind of HR training and recruiting.
[18:20] So it’s. That is a huge, huge part of the business. So people who tend to succeed well in student housing are people who can manage others really well. That being said, I would not say that’s a very strong point of mine, to be honest.
[18:35] You know, I was sort of a, you know, consulting finance guy and that was really like, what animated me about the business. And I’ve sort of had to learn this side of it.
[18:46] Kevin Choquette: When I think about hospitality and your comment that, you know, it’s operationally intensive, the best operators I’ve seen are really clear on process and procedure.
[18:57] Jason Luker: Right.
[18:57] Kevin Choquette: Like, there’s a way that we do this. You’re talking about recruiting and training.
[19:03] You know, how, how do.
[19:06] Okay, here comes the new guy. He’s going to go work in asset 63. His role is to, I don’t know Clean up the kitchen. How do you make it so that he does it the right way and when he’s replaced, the next guy knows what the right way is to do it.
[19:23] I mean that’s what I see in hospitality that blows my mind. Like the top operators can run all of their properties with the same level of precision and then there’s just a whole slew of people where you can see they’re just, there’s all kinds of stuff falling through the cracks and it seems really, really challenging to get people to understand where they’re playing and what their responsibilities are.
[19:47] Jason Luker: Yeah, you’re exactly right. And the way we did it was we just lifted the playbook from hospitality.
[19:55] So yeah, so we’ve sent everyone, you know actually we just had our executives at the Disney customer service thing but we, we essentially took like Marriott’s operating model of how to train customer service model and adapted it for, for our own kind of product.
[20:15] So we have, you come in and you’ve got the cardinal way of leasing which is, you know, essentially our sales manual for anyone joining. And you know, there’s things you say, things you don’t say, how you work through the process, how to make the ask.
[20:28] It’s a very intensive training process. I say everyone who joins our business is like floored at how many resources we put behind that.
[20:37] But the reality is student housing as an investment class has such a higher variability of outcome based on the operating inputs in it that for us it’s worth it to invest there because every dollar we invest back in the OPCO comes out at 3 or $4 in promote on the investment side.
[20:59] So to us it’s a obvious place to reinvest in the platform but man is it intensive. It is incredibly intensive. And yeah, the other thing to understand about our workforce is SKU’s very young so we have a lot of, you know, I think our average age is something like 32 years old across the business.
[21:18] So it’s great for our health insurance program but not so great. Right, for the training program.
[21:24] Kevin Choquette: Well and you, you mentioned like recruit, train and, and retention.
[21:29] How do you get people to stick around? I think you said you want to be the employer of choice.
[21:34] Jason Luker: It’s, it, it sounds kind of cheesy and a bit of a dodge but the, the culture piece is actually very real for us and we’ve got a culture. I, I could have, you know, you can see all that stuff on our website but you can’t really understand it until you’re in a day to day and kind of the way, the way I’ve always thought about the culture piece is sort of like to crib from like John Rawls is.
[22:00] I want to create the company where if I woke up tomorrow and had no idea what my position was, that I feel like I was treated fairly and had good opportunity for growth.
[22:09] So if I woke up tomorrow and I was the CEO, great. If I woke up and I was a first year on site, you know, maintenance porter, I’d feel great.
[22:17] Like I’ve got a shot here, like I’m respected, I’ve got opportunity for growth, I’m paid fairly and like it’s a generally a better environment to be than any of my alternatives in the space.
[22:29] So, like, it’s very hard to sort of put that on paper. It’s kind of a lived thing.
[22:35] But I think that’s been, I think by far our biggest, our biggest value add is figuring out how to create that kind of culture that attracts all the best talent in the industry.
[22:45] Because there’s not too many people who know what to do in this space, you know, know how to operate student housing well.
[22:51] So getting those people and retaining them is absolutely critical.
[22:55] Kevin Choquette: Well, and if you’re able to be on a platform of that scale with a hundred thousand beds, I have to imagine that there’s opportunity for advancement and that, you know, this thing’s a rocket ship.
[23:05] Right. So you can not only make them feel, and I certainly don’t intend to be putting words in your mouth, but make them feel like they’ve got opportunity but also be able to show that other people are moving through that growth path because it’s real.
[23:19] Right?
[23:20] Jason Luker: Like, totally. Totally. And we have some awesome success stories internally too. Some like really good success stories that. So like, people sort of see, they look around, they’re like, dang, that girl was a leasing agent and now she’s the head of capital markets.
[23:34] That’s crazy. You know, like, that is crazy. But it’s like, hey, if you’re talented and hard working, we are growing so fast that there’s going to be power vacuums all over the place.
[23:45] And if you can fill those, like, that’s your role. That’s yours too. Awesome.
[23:49] Kevin Choquette: Yeah, that’s awesome. And then the other side of your day you said was capital markets. So what, what are you seeing out there right now in terms of, I mean, this is a big conversation, right?
[23:59] But I don’t know, I’ll just leave it at that. What are you seeing right now on that for your day?
[24:04] Jason Luker: You know, I. We’re starting to see the slow thaw, I think is, is how I would, I would characterize it. So, so we had raised, we had raised our first discretionary fund in 2017 and we had a, you know, half dozen LPs in there.
[24:20] It was great. We placed the fund. It was doing really well.
[24:25] We had a great exit on it. You know, we’re top four tile in it. We were out raising fund too, and I had my like kickoff road trip scheduled for January of 2020.
[24:35] And it was like, okay, well, that was not good timing. So after. And unfortunately my, my wife works at Stanford Hospital. And so she would come home and be like, hey, this is going to be a thing like, like settle in.
[24:48] You’re. You’re not going back to the office for a while.
[24:52] Kevin Choquette: No road show.
[24:53] Jason Luker: Yeah. So she’s like, yeah, that’s not happening. So, so we ended up pivoting and we did some really awesome large programmatics with TPG that did really well. We’ve got a program with Blackstone and we invested actually through those kind of programs for a while and really put the fundraise down to a size like, God, it’s just, it’s such a difficult environment.
[25:16] All the LPs are loc up right now. There’s no, you know, redemption requests are through the roof. Like, nobody’s allocating to new funds. And so we really kind of like pivoted back to doing programmatic ventures and whatnot.
[25:29] And that’s been the case for the last couple of years. And you know, and they’re just offering.
[25:34] Kevin Choquette: You guys, hey, put it in this strike zone we’ve got up to. I’m just making up a number, $200 million of allocation we’ll put into the platform.
[25:42] Jason Luker: Exactly. So we, you know, our, our venture with TPG was like, hey, we want student housing value add. This is what it looks like. Here’s, here’s kind of the university criteria.
[25:52] We like it. We put it into to a bucket and we’ve done two large programmatics with them and that’s been an awesome venture together.
[26:00] Kevin Choquette: Do they cross all of those over one massive cash flow or does each asset get paid out its promote and return of capital independent of the whole thing?
[26:11] Jason Luker: We crossed it in two buckets. We crossed it in two buckets. So.
[26:16] And you know, the structure worked out that that was an acceptable trade off for us. Yeah, so that, that’s worked out really well. They’ve been a great partner for us and we did a lot of damage there over a few years.
[26:27] I think we Were probably been the largest buyer of student housing in the last three years.
[26:33] But as the markets have sort of firmed up a little bit and we’re seeing a little bit of liquidity back in the space, there seems to be a little bit more clarity in the macro environment.
[26:41] Rates are abating a little bit.
[26:45] We’re starting to see capital come off the sidelines. So, you know, the other kind of big theme that I’m seeing is office, which used to eat up like a massive portion of most of these institutional LPs, allocations is not necessarily off limits, but they’re a lot more selected than they used to be.
[27:05] So that that marginal suburban office deal is no longer getting done and that money is getting reallocated elsewhere. And most of that money is looking at alternatives within real estate.
[27:16] So, I mean, real estate’s an alternative on its own, which is funny. But outside of the major food groups of office multi industrial, we’re starting to see a lot more interest in student housing.
[27:28] You know, built to rent, outdoor storage, you know, certainly digital assets and infrastructure.
[27:34] So we’re seeing actually a huge wave of liquidity interested in student housing right now. So this has actually been, I think the last six months or so. We sort of feel this thaw and, you know, deal flow has picked up considerably.
[27:47] Kevin Choquette: And do you guys ever get approached to take all 100,000 beds to Blackstone and make one of these massive splashes or, or is it more that you’re, you’re fighting the competitive wins a little bit more when you go to purchase an asset.
[28:00] There’s. There’s more equity in the market.
[28:03] Jason Luker: I get that call once a week, man.
[28:05] Do you? Yeah. As far as we built a large platform in a really weird niche space that’s super operationally intensive. So one of the other kind of big themes that I’ve seen in the capital markets is most of the large LPs really want platform exposure at this point.
[28:29] And we managed to kind of fight the gauntlet. I have two other partners in the business and we’ve self funded the whole thing from the start. And so we never, we never took outside capital.
[28:41] It was painful, man. It was painful. It’s great to be, yeah, it’s great to be where I am right now. But you know, if I had to do it over again, I would have sold some of the business to raise more money and I probably could have moved faster.
[28:53] But, but nonetheless, like, we have a, we have a small toehold partner, Whitman Peterson, which is a private equity group out of la. They own Graystar and a couple other big names, awesome guys, super smart.
[29:09] And we sold them a small sliver of the business to essentially open the relationship up. And they invest GP and LP capital with us and they’ve been fantastic. But.
[29:20] But we’re sort of one of two or three of the large kind of privately owned ones. So it’s Graystar and Blackstone are kind of the two behemoths in the space and then there’s a few smaller privates after that.
[29:35] So there’s a mad rush for consolidation right now. The industry sort of understands that we don’t need 25 operators in the space and that 12 would be just fine.
[29:45] So I think you’ll see a lot more consolidation in student housing.
[29:48] Kevin Choquette: And when you say that LPs want that platform exposure right now, I think I know what you mean, but can you explain it however it seems fit to you?
[29:59] Jason Luker: Yeah. So the traditional model of if you’re a XYZ pension fund, your sponsor’s coming around with their book and you’re coming into a commingled pool and you have no discretion over how that money’s spent.
[30:12] You’re just investing in the theme and the sponsor.
[30:16] And that model worked well for a long time. But I would say given.
[30:23] I’d say returns were not amazing for a lot of those LPs. And they’re looking at and saying, well, we’ve developed a lot of expertise in real estate and we want to one, control our deal flow and two, cut our fee exposure.
[30:37] And so if we can invest in the GP ourselves and coming in a preferential position, we’ll have more control over the execution, we’ll have a lot more control over the discretion and in the long run it’ll end up being cheaper for us.
[30:51] So we’ll buy into the platform and we’ll own a piece of the economics of the sponsor.
[30:56] And as our LP money gets out, we’re essentially charging ourselves fees, which reduces our cost.
[31:02] So that’s been a model. That’s a great idea. I think it’s been very difficult to execute.
[31:08] A few have done it really well.
[31:12] But that’s been a big theme is a lot of these institutional LPs want platform exposure.
[31:17] Kevin Choquette: Well, but here’s where you guys have done something I think that’s really remarkable. And especially with the commentary of the 2002 Tacoma pickup, it’s really hard to be large enough, to have enough sort of wherewithal and credibility and mass for an institution.
[31:42] Let’s just say Calpers to go, oh, hey, let’s let’s back this acquisition, management and development company.
[31:52] Because even if, God forbid, Jason or one of his three partners has an adverse outcome, there’s something here, you know, if you talk to, I mean, I don’t, I’ve never seen the stats on this, but the percentage of real estate companies that are larger than 15 people is, is probably sub 3%.
[32:18] Right. And then you guys have gotten 2,000. So that’s cool because what you probably have done is made a market for yourselves. Right. Like you’re not, you’re competing against a handful of other large scale operators.
[32:30] And now the institutions want to execute a different strategy other than that commingled fund.
[32:36] Jason Luker: Yeah. So this is, this is actually one of the appeals of, of bringing Whitman Peterson in. And these, these are guys, Bob and Wes Whitman, who are fantastic human beings, have been friends of ours for a few years before we ended up doing a deal.
[32:50] But one of the things. And these guys have, you know, Bob, the senior partner there, he built like Wyndham. And the guy’s just an absolute legend. He was the CFO at Trammel Crow for years and years.
[33:02] Just has an absolute storied resume in real estate. But one of the things he told us, which we see now, is that when you start doing this, you can go out and do a handful of deals and if you have good outcomes and you hit big, promotes, you can do really well.
[33:20] And a lot of guys just look at that and be like, well, you know, we did really well on our deals and that’s great. And I’m making a lot of money.
[33:26] Why would I, why would I sort of reinvest in the enterprise value of the business?
[33:31] And the Whitman Peterson guys have been with Bob Faith since the start, really.
[33:40] And that was, I think one of their key insights is like, you know, Bob Faith started with like, I don’t know, 900 units in some like, junky Houston property management company.
[33:51] But his vision there was to actually grow what he has today.
[33:55] And they looked at, so, God, you can create so much value at the real estate, but you can create an equal amount of value on the OPCO side and, and like, sorry, I’m gonna.
[34:04] Kevin Choquette: Have to confess my ignorance. Bob Faith is who?
[34:09] Jason Luker: Greystar.
[34:10] Kevin Choquette: That’s Graystar. Wow, Graystar. Okay. Yeah, yeah, he’s done all right.
[34:14] Jason Luker: Yeah, he’s done all right, man. The guy’s done okay.
[34:18] Kevin Choquette: So their encouragement was to maybe not look at just promotes, but move into the direction of. Go ahead, I interrupted.
[34:25] Jason Luker: Yeah, no, that’s exactly right. It’s like, you know, if you can because nobody’s sort of willing to do this in real estate is to actually build out enterprise value. But that enterprise value, like you said, at a certain point becomes its own momentum and its own center of gravity.
[34:41] And that attracts more, better and cheaper capital.
[34:45] And your deal flow increases and you find, and this has been true for us, and this is why we have so many of these subsidiary businesses is if you just get big enough, the nooks and crannies of the, of the business start to become really interesting.
[35:00] So you know, we have a, a risk platform where we are our own insurance company. So you know, we self insure health benefits, workers comp, we provide renters insurance for all of our students.
[35:12] We have a couple of other like guarantor products on there. But like that insurance business that we own is bigger than I ever thought the entire business would be. You know, so it’s like that as you, as you scale, you just find these opportunities that, that aren’t interesting at 10,000 beds but become really interesting at 100,000.
[35:32] Kevin Choquette: That’s impressive.
[35:36] Do you think the future is going to see Cardinal scooped up by one of these groups or will you guys continue to say, hey, we’re the platform, we’re the four owners and we’re riding this machine, taking care of our team and doing these sort of serial platform investments or whatever it is and just keep riding that or do you think somebody’s going to come along and throw a number that’s just too big?
[36:07] Jason Luker: You know, we would actually like to be the consolidator.
[36:10] Kevin Choquette: Okay, there you go. Even better.
[36:11] Jason Luker: Yeah, so yeah, we, we, I think we’re well positioned to do that when we kind of look across the landscape at who the players are in the space.
[36:20] The other kind of interesting thing about student housing is we’re all like unusually close as you know, competitors of ours because we all kind of came up and learned the business at the same time in the same way.
[36:32] So we have, it’s a, you know, everyone who comes from the outside and kind of surveys the landscape is shocked at how friendly the environment is.
[36:42] But one of the other problems is, you know, every founder is like 40 something years old and makes a lot of money and has, doesn’t really have an incentive to sell.
[36:49] So there will certainly be consolidation as there’s more pressure from capital to operate more efficiently.
[36:59] But we would, we would prefer to be the consolidator. Yeah, we, we’ve, you know, got plenty of energy.
[37:04] Long, long, long run line run left here.
[37:07] Kevin Choquette: So how old are your kids? You said 2016. So like eight. What do you, what do you think?
[37:12] Jason Luker: Yeah, so I’ve got a, I’ve got a seven and a five year old.
[37:15] Kevin Choquette: Seven and five. We are, we are side by side on that. It’s a good thing. You have a lot of energy.
[37:22] Jason Luker: I had way more energy and way more dark hair before the kids. But I’m still alright.
[37:27] Kevin Choquette: Right. I feel kind of good about the gray hair showing up. It’s like you’ve done something with your life.
[37:32] Jason Luker: I finally, I finally have that distinguished look I always wanted. Yes, right.
[37:39] Kevin Choquette: So how did you get here? I mean like I met you, you were an analyst for a real estate group down in San Diego. I think you just come out of USD.
[37:51] Like how the heck do you go from, from that into this absolute odyssey?
[37:57] Jason Luker: Yeah, that’s a good question. So I, I, I actually never studied real estate or finance. I was an, I was an English major for undergrad.
[38:08] That being said, I grew up and I’m like the only CPA in my immediate family. Non CPA in my immediate family. So none of it was, you know, unusual to me.
[38:18] But so I, I entered college in 1998 and when I went into school I thought my career prospects, you know, I was in the Bay Area too, so I thought my career prospects were like unbelievable.
[38:32] And I graduated in 2002 and like I couldn’t get a job waiting tables at that point. Like after the tech wreck up here.
[38:40] Yeah, it was unbelievable.
[38:42] And so I actually sat down with my dad, I said, hey, of all your richest friends, what, what jobs do they have?
[38:49] And he’s like, well there’s insurance and there’s real estate. I was like, I can’t sell insurance, man. That’s not my thing. So it was like real estate it is. So I went around knocking around looking for any real estate job I can find.
[39:01] I moved down to San Diego just because I’d never left the Bay Area and ended up catching on actually with the city of San Diego and then caught on with, went to work for the London group down there in San Diego, which was an amazing job, an awesome job.
[39:20] And our, our mutual friend Nate Mader was an, you know, probably the best boss I ever had.
[39:26] And but around that time I was just, I was always kind of restless. My parents are entrepreneurs, most people in my family were. And I always knew that, you know, I wanted to do something on our own.
[39:37] So I pulled with a few friends and we went and started flipping houses.
[39:42] Kevin Choquette: I didn’t know you did that.
[39:44] Jason Luker: Yeah, so that was, I Think I bought my first house And I think 2004, which is like amazing timing.
[39:51] Kevin Choquette: Yeah, right.
[39:52] Jason Luker: We did that.
[39:54] We sort of slowly hit on the idea that like, you know, hey, all these kids at, at these big like state schools are like moving out of their parents like palatial suburban houses into these crappy like dorm rooms or jun off campus.
[40:10] Like certainly there’s enough price elasticity that if you delivered a really nice off campus product, the kids would pay for it. So we sort of hit on that thesis and then we started investing in small, you know, duplexes, threeplexes, like small 20 unit apartment deals at like Miami of Ohio and Madison, Wisconsin and new schools.
[40:33] And it kind of. The thesis played out. It worked. We were doing value add deals and creating product that didn’t really exist and raising, you know, all friends and family money.
[40:44] At first it was like if, if I had heard you got a bonus that day, I was asking you for money to invest. You know what I mean? Like, like hustling as hard as you could possibly hustle to ra.
[40:54] Raise every dollar we could from everyone who we knew and most people who we didn’t know, which in San Diego is great because there’s an awesome country club culture down there and there’s just a lot of like wealthy older guys who love real estate.
[41:08] And so it was a pretty target rich environment for raising sort of friends and family money. But around, God, what was it, 2009?
[41:17] So after, after the crash, that’s when we really started investing institutionally. So we had, we bid on a deal in Atlanta that we had absolutely no business buying out of bankruptcy.
[41:31] And when we were talking to the broker who was listing it, he said, hey, I’ve got a capital partner here who needs an operator and I’m going to make an introduction.
[41:40] So we introduce ourselves and we meet and hit it off and it was great. And we have like a four hour lunch at some Atlanta steakhouse and cut a deal and get it all going.
[41:48] And they say, okay, you guys come up to New York, I want you to meet the CEO and like tell him. And so we get up there and I get off the elevator at this like unbelievable, like you know, on like across from the Apple store in the Burgdorf building overlooking Central park and this like office and the analyst comes like running up to me and he’s, he’s like really agitated and he’s like, you guys, you said you had 15 assets.
[42:14] I said, we do have 15 assets. He said, I thought they were apartments, dude, not 15. Single family homes like, what are you doing? This is a 12 year unit building.
[42:25] A 12 year unit building. Like, this is 100 plus million dollar asset. Like, I’m going to get fired. Like, don’t, don’t freaking blow this on it. So it’s like we had to navigate that whole thing and we ended up doing that deal and it worked out great.
[42:38] And, you know, we bought it for $30 million in 2010, and I think we sold it for 140 or something like that. About, you know, we’d actually, we’ve bought and sold that thing like three times at this point.
[42:50] But like, that kicked off a partnership with, that was a group called Fundamental Advisors that we did for probably five years and investing with them.
[42:59] And then, you know, we went through the kind of JV ranks of, you know, all the different, you know, private equity funds that were willing to go into student housing.
[43:09] Kevin Choquette: Hang on, let’s stop there for just a sec. Like, you’re, you’re like, hey, man, I got 15 duplexes. And the guy’s like, oh my God, like, I need to just kick you out the door right now so I don’t get slaughtered.
[43:23] But somehow you get in there. Like, there must have been a moment where that guy looks across the table, the CEO, and is like, okay, like, who are these guys and why the hell would I ever make a $30 billion bet with them?
[43:39] Jason Luker: It’s a good question. It’s a good question. I mean, you know, from the, from a friends and family standpoint, like, you know, you’re kind of building your reputation your whole life.
[43:50] So as you’re, you know, raising money in that realm, like, people have seen you and they know you and they know you’re responsible and you take care of your. And, you know, you’re just a good, you know, you work hard and you kind of take care of it.
[44:05] And I would say, you know, when we started actually, like talking to institutional capital, I was actually surprised that a lot of them were sort of.
[44:13] They wanted to understand that we understood the business and what we were getting into, but what they were really interested in is that we were willing to absolutely kill ourselves to be successful.
[44:21] You know, it’s like, you know, I was 26 years old or something like that at the time, and it was like they knew that I would prefer to die before I’d fail on this.
[44:33] It’s like, that’s a pretty powerful thing to have at your back. So we had, you know, plenty of guardrails from, you know, the senior people at the fund, but like you can’t really pay someone to care that much.
[44:45] You know, as much as a 26 year old doing their first deal when they’re that far in over their head. So, you know, I think they took a risk certainly, and it worked out really well for them.
[44:54] We made them a lot of money. We got absolutely hammered on terms as you can.
[45:00] Kevin Choquette: But you got the deal then.
[45:02] Jason Luker: Yeah, I mean, you know, it was like it built our reputation and it built our track record, which is, you know, everyone’s first objection when you’re starting up is, well, what have you done?
[45:11] Kevin Choquette: And then you say from there you did few deals with them and then you went into sort of jv of. Of. And I think you don’t mean joint venture equity. Maybe you did.
[45:20] Jason Luker: Yeah, yeah.
[45:21] Kevin Choquette: Okay.
[45:21] Jason Luker: Yeah, yeah. So we, we, we went from there and then, you know, our network sort of built and as we did more deals in the space with them, we became a little bit more visible.
[45:29] So it was a lot easier to get at callbacks from, from funds.
[45:33] Kevin Choquette: And, and was this already cardinal group at that point?
[45:36] Jason Luker: Yeah, yeah, it was, it was.
[45:38] Kevin Choquette: Okay, and what made the four of you guys decide to, to do this? And was it four from the start or was it maybe the four of you when you did the first.
[45:48] I’ll just say duplex. I don’t actually know what your first deal was, but how did you all come together?
[45:53] Jason Luker: Yeah, we all came together. So one of the founders who left three years ago, so there’s three of us, three partners left in running the business now, was a roommate of mine in college and we were both down in San Diego together.
[46:08] And he was very entrepreneurial as well. And he was actually working for Manchester Financial Group down there in San Diego back when they were, I think he did like the second tower of the Hyatt, something like that.
[46:21] And then just some other friends from around San Diego. I mean, San Diego’s, you know, sort of like a little bit of an Ellis island type city, is like everyone just kind of floods there after college and then, you know, leaves to go start their lives.
[46:33] And so we just had such an interesting friend group of, you know, military and real estate and academics and things like that. It was, it was a cool group. And I say from a partner selection standpoint, man, I’ve got nothing useful to say there other than I got so lucky.
[46:49] You know, I got so lucky with, you know, my partners. Alex and Eric are two of my closest friends. Eric was the best man in my wedding. We’ve been partners for 20 years.
[46:59] I think seven of those years we didn’t even have an operating agreement.
[47:02] Kevin Choquette: Wow.
[47:03] Jason Luker: We’ve never had a major disagreement over anything. And if anyone dissents on any major decision, we just don’t do it. And that’s worked out really, really well for us. So we’ve gotten crazy lucky.
[47:14] Crazy lucky.
[47:16] Kevin Choquette: How often do you dissent? I mean, not you, but one of you say, hey, I don’t want to do it. And that’s pretty remarkable that any no vote is a no.
[47:24] Jason Luker: Yeah, you know, we’re pretty, I think, practical.
[47:29] None of us are ideologues. And so like good sound logic, reason generally wins the day. So I, you know, it’s not too often that we, that we end up, that we end up, you know, at odds over something.
[47:44] Not too often at all, actually. Yeah, it’s been a phenomenal partnership.
[47:49] Kevin Choquette: Yeah.
[47:51] So all of these separate business units, I’m changing gears a little bit on you, but how do you guys run that is each its own profit and loss, and they have responsibility to maintain profitability.
[48:05] Or are some of them loss leaders that support the mothership? You’ve got development, you’ve got consultant consulting. Excuse me, You’ve got just, I think the asset management ownership side of, of the stabilized assets.
[48:21] You’ve got a real estate services group. How do you guys think about all those? Just different entities. They have their own P and L responsibilities. And are there managers or executives for each business group?
[48:33] How do you guys do all that?
[48:35] Jason Luker: Yeah, so the way we structure it is like I sort of think about the business from, you know, we have our Holdco, which just the three of us own. And then underneath Holdco, I kind of split the business into two major chunks.
[48:46] One is opco and one is Invesco.
[48:50] So the Opco is where really all of the operating businesses sit. And the Invesco is just, that’s just the capital management business.
[48:59] And so within that, every single subsidiary has to stand on its own two feet.
[49:03] That being said, we will accept lower margins at certain subsidiaries to feed other value creation stories throughout the business. So, you know, if you think about property management, for instance, that’s kind of the, the engine that runs the whole organization.
[49:23] And so, you know, I, I think of that as kind of the $50 hot dogs, is you come in and we manage your asset, and when we manage your asset, we can introduce you to a whole other suite of products.
[49:36] So, you know, that, that kind of fall under our universe. So our, we have a full marketing agency that does nothing but real estate, you know, marketing, digital design, all of that.
[49:49] And so like that integration, if you’re coming onto our platform, the integration between all of these services that you otherwise might have cobbled together with a bunch of different third parties, it’s so much smoother coming in on our operating platform.
[50:01] So.
[50:02] Kevin Choquette: So that’s when you guys are property managing third party owned assets.
[50:07] Jason Luker: Exactly, exactly.
[50:09] Kevin Choquette: Yeah. And you’re referencing Costco, the $50 hot dog, right?
[50:13] Jason Luker: Yeah. Bring you in and then you walk out with a 600 doll be man. Right, yeah.
[50:17] Kevin Choquette: Got the marketing services going, got the real estate services going.
[50:21] Jason Luker: Exactly, exactly.
[50:22] Kevin Choquette: Okay. Okay, that’s cool.
[50:24] Jason Luker: Yeah, we sort of didn’t invent the small, but we do have, we have division heads for every one of those who are responsible for their own P and L. And then the way we kind of structure it is all of the direct operations kind of go to that individual P and L.
[50:40] And then we have a large shared services group which is all of the back office functions that are actually just spread out across. So we centralize all of that. So think H R IT, Legal compliance, you know, accounting and finance, all of that stuff is its own kind of back office bundle.
[50:57] And then everyone gets an allocated charge for tab.
[51:01] Kevin Choquette: That’s smart.
[51:02] Jason Luker: Yeah. So it’s, it’s a little bit more efficient to run it that way. It’s, you know, it allows us to kind of aggregate talent in there so that they can sort of service the subsidiaries better.
[51:14] Kevin Choquette: I mean you basically have a consulting company that’s consulting all of your different hold or opco, whatever, whatever you call these division heads, entities, right?
[51:24] Jason Luker: Yeah, yeah. And that’s the other kind of benefit of scale is it just allows you to like, you could just get much higher quality people who are interested in working at a, you know, a company of scale because you can afford them.
[51:35] Exactly, exactly.
[51:36] Kevin Choquette: Okay. And then on the invest co side.
[51:39] Jason Luker: What’S over there, the Invesco side is just like a very traditional private equity structure.
[51:45] And so that’s just where the acquisition of asset management business sits.
[51:50] So we think about that a little bit differently in the sense that they’re doing a very, very highly specialized function. And it’s 20, I think two people now.
[52:03] And that’s kind of a self contained business on its own.
[52:06] And we think about that business just a little bit different because it’s managing our own capital and you know, which we have our own specific needs and desires of how we want our assets to be run.
[52:17] And our clients on the third party side have their own, their own program. So we separate that out so we have our own sort of dedicated investment asset management, but they sit right next to our operating team.
[52:31] So the information share and flow between what happens on site and how that gets interpreted and how the investment team reacts to that is pretty seamless.
[52:42] Kevin Choquette: And on the Investco, from my perspective, the development side of it is new. So you guys are now building new assets on your own accounts. Is that true?
[52:53] Jason Luker: Yeah, yeah. We’d always, we’d always like focus almost exclusively on acquisitions.
[52:59] We actually broke ground on our first project this year. We’ve got another, I think 250 or so and starts next year lined up. But we, we decided that like one of the things that we were getting requests from our LPs was to sort of diversify the risk products.
[53:19] So a lot of them like student housing, but don’t necessarily like value add student housing. They want core plus student housing or they want development.
[53:28] And so having that capability was important. So we brought in a team a few years ago, probably about two years or so ago and started building that platform out. And it’s been great so far.
[53:38] It’s been, yeah, it’s been very successful business so far.
[53:42] Kevin Choquette: The LPs are the ones that told you they wanted that exposure.
[53:46] Jason Luker: Yeah, they, you know, they come in and that was kind of part of our, you know, our grander thesis of this scale as well as like we can be a one stop shop for exposure to student housing.
[53:56] So you think about, if you’re, if you’re an institutional investor and you want to invest at scale into a sector like student housing, it’s actually somewhat difficult to get access to the sector.
[54:08] You can, most of the funds you have available. You can invest with Kane Anderson, they do a great job. But that’s also diversified.
[54:16] You can invest with Harrison street again, they do an awesome job. But you’re, you’re generally diversified in product types and a lot of guys, you know, a lot of these investors don’t like coming into, you know, co mangled.
[54:29] Kevin Choquette: Blind funds with double promotes.
[54:31] Jason Luker: Yeah, exactly, exactly.
[54:34] Like, you know, so, so if you want to actually kind of like invest direct, you actually, you have to have a sponsor because nobody, you can’t just hire a third party manager as a capital partner without.
[54:44] It’s very difficult to do and there’s a lot of roadkill over the years of people trying to do that in student housing. So, so if you need a sponsor, there’s very few kind of institutionally acceptable sponsors in the space.
[54:57] So you know, creating that kind of choke point and saying hey, you already Trust us, we’ve already invested hundreds of millions of your dollars and I know you want exposure to development on the student side.
[55:07] Like we can accommodate that. Now that was sort of the thesis.
[55:11] Kevin Choquette: It’s super clear that you guys are very strategic about the way you’re behaving and, and growing and thinking about the different vectors in the marketplace, how much time is, is spent working on the business versus getting consumed by.
[55:28] You know, Sally in the North Carolina HR department has an issue of, you know, whatever consequence. I mean, it seems like you would have a lot of noise and at the same time you, you’re speaking of things at a really high level, very clearly laying out the dynamics that have made you guys position yourselves the way you have.
[55:51] How do you think about strategy and like kind of staying on that wavelength versus getting sucked into the noise?
[55:58] Jason Luker: Yeah, it’s, it’s a good question. It’s very difficult. It’s probably about five years we made the conscious decision to bring in like a true executive class that’s, and to put like real executives with real track records to oversee big portions of the business and give them a lot of day to day discretion.
[56:21] And that was a very difficult thing for us to do, to kind of give that up.
[56:27] But you know, again, speaking strategically that the, the idea behind that was one, is to get us out of the muck so we could think strategically and two, was like, you know, we’re forever on a quest to make ourselves irrelevant to the business because that, that creates enterprise value.
[56:43] When you eliminate the key man risk, you create enterprise value so someone can step in and it becomes much more of a financial asset than kind of a boutique, you know, superstar run business, which I’ve seen a lot of those, you know, struggle to raise outside capital because it’s like, well, what if you die?
[57:01] You know, and at this point at Cardinals, if the three of us died, you know, there’d be a funeral and then, you know, everyone go back to work on Monday and not a whole lot would change, which makes me very happy.
[57:12] Kevin Choquette: What was the hard part about deciding to bring the executives in?
[57:18] Jason Luker: You know, you don’t start a business like this if you don’t think you’re right about a lot of things.
[57:24] Giving up that decision making power is very difficult. But you know, like, so Peter, Peter lynch is a guy who’s our head of, of HR we call it. People in culture like Peter’s forgotten more about HR than I would ever learn in five lifetimes.
[57:43] And so the idea that I would be like making decisions around anything related to that is kind of absurd, you know, relative to his talent and experience level. So, you know, you quickly, as they sort of, you know, you bring in really competent people and they kind of flex what they know and build up a lot of trust, it becomes very easy.
[58:05] But at first it’s very difficult to make that decision.
[58:09] Kevin Choquette: I want to go back to something else you said, which was, I’m not dodging the question. And it sounds, I don’t know what your word was. I don’t think it was pithy.
[58:18] But you were talking about culture and how culture is the difference maker in building this team. And I was looking at your website and. And you guys have 10 core values, and they honestly seem robust in terms of the underlying meaning underneath them all.
[58:37] And I just wonder. JIM Collins Core values, purpose Bhag or other people talk about it as mission, vision, and core values.
[58:47] How do you guys.
[58:49] What brick in the cathedral is that kind of core value part of all of this stuff you’re talking about?
[58:55] Jason Luker: You know, that was like one of the original things we did, which again, was kind of funny that, you know, we weren’t even a real company with any real assets or anything.
[59:05] And we were spending a lot of time thinking about these things, you know, thinking about, you know, what is, what are our core values as a business, how do we want to run it?
[59:18] And a lot of that grew out of.
[59:20] I had a very lucky experience. Like, I’ve had, you know, almost uniformly great employment experiences before I started this business, but my other partners had some less amazing employment experiences.
[59:36] And a lot of it sort of grew out of, like, hey, if I was in charge, like, how would I want to, you know, how would I want to treat people?
[59:43] How would I want to be treated if I was in the other thing? And so we actually kind of started with that and built those core values out as, like, let’s, let’s build the business that we want to work at.
[59:52] You know, let’s build the business we want to be analysts at. And so, you know, we really, like, put a lot of emphasis on that and made some decisions that weren’t financially optimal, particularly early on.
[01:00:04] You know, there’s that kind of whatever that Ben Franklin it’s hard for an empty sack to stand upright. Like, that’s very true.
[01:00:10] You know, like, it’s a whole lot easier for me to be generous now than it was when I was 22, you know, so, like, you know, that. That was a difficult decision.
[01:00:20] But again, I think it was sort of part of the long termism. That were, you know, that. I don’t know, that just seems to be a natural thing for us to think that way.
[01:00:29] Kevin Choquette: And what kind of impact do you think it’s had?
[01:00:35] Jason Luker: It’s tough to quantify, but I will say it’s been fun.
[01:00:42] Kevin Choquette: That’s a big impact right there.
[01:00:43] Jason Luker: I’ve had a lot of fun. I’ve had, I mean, it’s been incredibly stressful, but it would have been stressful no matter what.
[01:00:49] So it might as well be stressful on your own terms.
[01:00:53] And I think we’ve attracted a lot of great people to the business as well that I think we otherwise wouldn’t have gotten. And you know, that’s made my life a lot richer for sure.
[01:01:05] Kevin Choquette: Yeah. And look, you just talked about, you guys are kind of in some ways a recruiting company. How do you go about finding the right people? And maybe let’s bifurcate that question in my mind’s eye.
[01:01:16] Can understand there’s core attributes for people that you need and there’s aptitude tests that you can do on a whole array of things for say somebody’s going to help do the property management at one of the student housing assets and I can imagine that’s got its own challenges, but it’s probably high volume, high churn and you probably have some expertise there because you do so much of it.
[01:01:43] But on the other side, when you’ve got the 22 people or some number of the people in the, the 400 person corporate side, how do you go about finding those right people and kind of betting on them?
[01:01:57] I mean, it seems, it seems easier when there’s 2000 because you could maybe make mistakes and it wouldn’t be as taxing. It’s kind of the empty sack comment you just made.
[01:02:05] But it also seems really difficult to find the right people. I just wonder what your experience has been and how you think about getting a higher batting average when you’re bringing them on.
[01:02:15] Jason Luker: You know, the, the honest truth is like the dirty little secret in HR is it’s a total crapshoot. You just don’t, you just don’t know. And like for, for most of our consequential positions, like we made a ton of bad hires, you know, the, the, the best thing you can do is move on quickly and move on in like a respectful way that allows them to, you know, gracefully find their next opportunity, particularly if it’s like a very senior person where like, you know, you don’t want a questionable gap or you know, a six month stint somewhere.
[01:02:50] So we’ve We’ve managed to kind of navigate that, but it is. It’s a crapshoot. The one saving grace is our industry is actually very small. And, you know, between the three of us, we have a really wide and vast network.
[01:03:06] And that’s allowed us, I think, to soft interview people for years before they end up coming in. So, you know, you’ll watch people who will get hired as an analyst at a competing firm or maybe one of our LPs, and we work for them, work with them for five, six, seven years, and they move into the associate role, and then we have a director role available and we’re like, that.
[01:03:28] That guy or girl’s perfect. You know, let’s just like, yeah, let’s recruit them for that role. So we’ve had a little bit more success, I’d say there. The other thing is, like, I do not care where you went to school.
[01:03:40] I honestly don’t care what you studied.
[01:03:43] That stuff is relevant for the first 10 minutes of your first job. And after that, it’s like, how well can you adapt and learn this information? How well you can.
[01:03:52] Can you cooperate with people? You know, like, how well can you build the soft skills to be successful? So, like, you know, we don’t, you know, recruit from IVs and things like that.
[01:04:02] That to me, seems like a huge waste of time.
[01:04:05] Kevin Choquette: That’s awesome.
[01:04:12] Thanks for listening to part one of my conversation with Jason Luker. Please listen to part two, where we move into the more personal side of the discussion around hard work, mentors, family and work balance, and talk a little bit about the utility of money.
