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Show Notes:
Welcome to the latest episode of Offshoot with Jeff Brown. In today’s episode, we’re chatting with Jeff about his entrepreneurial journey and the lessons he’s learned along the way.
Jeff’s story began in 2011 when he joined forces with his friend John Southard to pursue a single deal. Little did they know that their initial success would lead to multiple deals and the birth of their company, T2 Capital Management. Since then, Jeff and his team of 14 talented individuals have invested over $1.5B in various markets, property types, and investment strategies.
In the conversation, Jeff shares his insights on various topics related to entrepreneurship. He emphasizes the importance of grounding your business, expectations, and actions in reality, always hiring high-capacity and high-caliber people, and collaborating with the industry to navigate through uncertain times.
Jeff also talks about the significance of capturing scale when entering a new market, securing concurrence from debt and equity partners, aligning strong convictions with a defensible strategy, and being aligned with a “why” that goes above and beyond putting dollars on the table.
Furthermore, Jeff emphasizes that there are no shortcuts to success, and that while systems and processes can create efficiency, there’s simply no substitute for the grind. He also highlights that their business strategy is for “right now” and is subject to change.
Listen to Jeff’s entrepreneurial journey as either an aspiring entrepreneur or a seasoned veteran and you’re sure to find some nuggets of wisdom.
Transcript
Announcer:
Welcome to Offshoot, the Fident Capital Podcast with host Kevin Choquette. Offshoot is a curiosity-driven conversation that features a wide range of real estate business professionals. In each episode, we unpack the knowledge, vantage point, and domain expertise of our guests. Then we move beyond the facts and figures and dive into the personal habits and mindset which allow them to be high performers in their respective field. This podcast’s objective is simple, supporting entrepreneurs fostering relationships, and uncovering meaningful conversations that positively impact business.
Kevin Choquette:
Welcome to episode 15 of Offshoot with Jeff Brown. Jeff partnered with his friend John Southard in 2011 to do just a single deal, which led to doing two or three more until they depleted their personal investment capital. From there, the idea of T2 capital management was born. Since 2011, they’ve gone into multiple markets, property types, and investment strategies, and the mid-size team of 14 people Jeff’s built have deployed over 1.5 billion into both debt and equity investments.
Jeff is quite thoughtful, and has a lot to say here. Listen in as he covers grounding your business, your expectations and your actions in reality, always hiring for high capacity and high caliber people, using industry collaboration as a navigational tool in uncertain moments or uncertain times, resolving to capture scale anytime you choose to enter a new market. The value of securing concurrence from both debt and equity partners, the power of aligning strong convictions with a defensible strategy, being more than the work you do or your ability to bring home dollars, and being aligned with your why. There are no shortcuts. Systems and process create efficiency, but there’s simply no substitute for the grind. Knowing that your business strategy is for right now and subject to change. Doing the work to fix impaired relationships. I hope you enjoy the pod.
Welcome, everyone, to another episode of Offshoot. Today I’ve got Jeff Brown, co-founder, CEO, and co-CIO of T2 Capital Management joining me. Jeff and his partner John Southard started T2 in 2011. Since then, as a middle market fund manager and operator, T2 has deployed over 1.5 billion across the entire capital stack, and among virtually all property types. The firm’s niche is swiftly executing value add and opportunistic investments where they can deploy anywhere from $2 to $50 million. With their discretionary funds, T2 actively pursues lending and direct ownership opportunities, which are often complex and time sensitive. Jeff’s team has significant vertical integration with engineering, construction, leasing and property management skills in-house. The company’s most recent investments have primarily consisted of multifamily and student housing properties within the southeastern US.
As CEO, Jeff works on corporate growth initiatives, investment strategies, and providing operational oversight. As CIO, he oversees the origination, underwriting, and day-to-day management of T2’s investments. Jeff began his career in real estate in the mid 1990s working for a national consumer finance company that was acquired by Wells Fargo. That was followed by tenure at a Michigan-based family office, which also functioned as a hedge fund of funds. Jeff’s a native Texan but received his MBA from the University of Chicago Booth School of Business, and his bachelor’s degree from Wheaton College, both in the great state of Illinois where Jeff currently lives and where T2 bases its operations.
Fun fact, while at Wheaton College, Jeff was captain and starting quarterback for Wheaton’s first appearance in the NCAA playoffs. In that season, he passed for 30 touchdowns and 3,247 yards, which if compared to last season’s NFL production places him just under Russell Wilson in terms of yardage, and tied with Gino Smith for TDs. That’s not bad company. Jeff, welcome to offshoot.
Jeff Brown:
Thank you, Kevin. Really appreciate that. It’s been a long time since I’ve thought about those stats, but thank you for the context.
Kevin Choquette:
Yeah. Hey, it’s always good to have a sports celebrity on the show. To get us started, if you could, I know I gave you a little bit of an intro there on T2, but in your words, what’s T2 all about, and what’s happening in the business right now? What are you guys seeing in terms of opportunity and challenge?
Jeff Brown:
Yeah, incredible times. Here we sit mid-April 2023. We’re a month removed from three major bank failures, not just in the United States but globally, with Credit Suisse, Silicon Valley Bank and Signature Bank out in New York. I think three months ago, I don’t know that anybody saw that sort of scale of bank failure coming, but here it is upon us, and we’re all dealing with it. At T2, we’re not much different than a lot of other folks, just kind of trying to make sense of what’s going on in the market and people’s, namely lenders’ and investors’, reactions to these bank failures and the spike in interest rates and elevated construction costs, while also looking at it from an opportunistic standpoint. There are a lot of dislocations happening, some forced sales from existing property owners that we’re trying to pay attention to.
Really get in the weeds a little bit, for the longest time we have been very active. We’ve got a very active bridge lending fund. We’ve got a very active opportunistic fund that really specializes in ground up construction and growth markets around the country, particularly in the southeast. We’ve transitioned a bit from originating debt and doing the ground up construction, to buying debt in the secondary market. And then conversely on our equity side, buying properties that are already existing and just have some sort of balance sheet distress at this point in time, a distressed seller, whatever the case may be. Just different times, and trying to be adaptable as we are as a small company.
Kevin Choquette:
Look, I know you also wear two hats. You’re both CEO and CIO. Just in terms of, I mean in your words, a bit of a turbulent time, what do those two hats look like? What’s got the CEO mandate, and where are you focused as CIO? Because I know you’re both an asset manager with an existing portfolio, you guys have done $1.5 billion of business since inception, and you’re also charged with navigating turbulent times. How does that show up for you in terms of wearing those two hats?
Jeff Brown:
It’s a really good question. They are distinctly different hats, and I thoroughly enjoy both of them. On the CEO side, because of the turbulence that’s out there and the distress that’s out there, and frankly a lot of the headlines in the press that we all see and read, there is a fair amount of, we say a lot around here, just getting grounded in reality. What’s true? What can we act upon? Where can we invest? As opposed to what are major problems that we need to put all hands on deck for? This is not March of 2020, and it’s not September of ’07, either. We’re, from a CEO perspective, trying to put a bit of a more opportunistic, let’s be on offense sort of mentality and instilling that across the company.
From a CIO perspective, it’s similar, I suppose. But again, we’re not trying to be a Pollyanna about it either. There are issues that come with this rise in interest rates when SOFFA rises from five basis points to the four and a half-ish percent that it is today. That is huge, and has material impacts on people’s cash flows and properties. We just witnessed, I think it was yesterday even, maybe earlier this week, a large 3000 plus unit apartment portfolio in Houston get turned back over to the lender, and even the lender couldn’t recover a hundred percent of their capital. That’s the kind of stuff that’s happening today for properties that were likely bought at the height of the market, were capitalized with some floating rate debt.
You’ve got this conundrum of rising rates and fall … I’m sorry, and rising cap rates as well. Some distress that’s emerging out there. Nobody’s immune from it, and so trying to make sure we have a firm hand on the steering wheel from an asset management perspective. Not just protect our value and protect our assets, manage the heck out of them from what we can control. But the macroeconomics that we cannot control, we do our best to navigate that and just acknowledge that we don’t want to sell some things right now when it might be time to sell them per our fund life. Thankfully, we’ve got to be patient and wait this out a little bit, and then we’ll see where things shake out in the next few months. It is very different perspectives, but some similarities between a CEO and what a co-CIO role looks like.
Kevin Choquette:
Yeah, and look, I’ll let everybody in on a bit of a little secret here. Jeff and I did this once before. I’ll blame the technology. It might be just more blaming myself for not operating the technology properly. This is kind of a 2.0 on the recording. But we spoke last time, Jeff, a fair bit about industry collaboration, and that idea of getting grounded in reality. It sounds like you spend a fair bit of time with an ear to the ground talking to other professionals, other people who are active participants in the marketplace, and that that is a material component of, if you will, navigating uncertain times. Do you have any comments on that?
Jeff Brown:
You’re spot on, Kevin, and I appreciate you bringing that up. One of the things that we talked about in our prior conversation is just the blessing and the complexities that come with being an entrepreneur, even. It’s not just wearing a CIO/CEO sort of hat among other things in this business, but HR and other sorts of components to running a company that can make or break you in the long run. As an entrepreneur, it can be a little lonely sometimes, especially when you’re starting out. I put a high bar on having trusted confidants that maybe have been there and done that. Others that are going through the same thing right now, maybe starting their own company or in the real estate space as an entrepreneur. There is a fair amount of time of not just comparing notes, trying to apply best practices across industries, but getting grounded in reality. What we’ve talked a lot about among these confidants is just doing sanity checks, making sure what we’re seeing, what we’re hearing, what we’re adhering to, maybe some investment thesis that we’re considering, that we’re not out in left field. Or if we are, at least we know it. So that sort of, again, grounded in reality, note comparison with other trusted confidants who are going through similar experiences or have gone through similar experiences in the past is invaluable to me.
Kevin Choquette:
And look, you brought it up as far as it can be a little lonely out on the front, or getting going on your own. How is it that you actually found your way into T2? I mean, I think you’ve got a pretty significant team, and we’ll get into the different verticals with the debt portfolio and the equity shop. But how did you get here? How did you get from collegiate ball into being a CEO of pretty substantial real estate company?
Jeff Brown:
You’re kind. I graduated from Wheaton College here in Wheaton, Illinois in the mid 1990s, and went to work for a family office out in Michigan. A fair amount of the family holdings for the office that I worked for was in real estate. We were a small shop at the time, so as a really young recent college graduate, I was an analyst, a grunt if you will, frankly doing a lot of work on the asset management side for this real estate portfolio. The portfolio consisted of a wide variety of properties. It was some standard triple net leased properties, but it was also ski resorts out west. Cut my teeth on a wide variety of property types, looking at each property. Defining success for each property was different, as well. I had this incredible exposure at a really young age to real estate, grew enamored with it, and that really propelled my career.
I went from there to work with a small commercial real estate debt shop. Worked there for eight or nine years. We had multiple offices throughout the Midwest. Really got hamstrung in the great financial crisis in ’07, ’08. At that same time I was getting my MBA at the University of Chicago. Again, back to this entrepreneurial thing and wanting to do sanity checks and understand what’s going on, did a kind of that with a couple of my professors at Chicago. They were the ones that really turned me onto the private equity industry.
I had this great ambitious idea to start a private equity real estate firm, but of course a material component to starting that is capital. Thankfully I have a really good friend, John Southard, who’s still my business partner today. John had a big liquidity event. He and I started doing real estate deals on a one-off basis. I’ll never forget his quote to me in, I think it was in 2009, it might’ve been 2010. He said, “Hey, listen, I need real estate like I need a hole in my head, but I trust you. I like you. Let’s do one deal together, see how it goes.” Well, one deal turned into two, turned into four, and so on from there.
Eventually the two of us who were providing our own capital for these deals, we ran out of money, or ran up against our budget. John had the idea of, “Hey, this seems really scalable. Why don’t we just build a business off of it?” That really spawned T2 and emboldened me, frankly, to take that step as an entrepreneur. As of January of 2011, T2 was activated after a long process of, again, cutting my teeth on a lot of different real estate projects around the country, various projects, various property types, and then having the encouragement from a very trusted friend to step out and start a company.
Kevin Choquette:
Let me first see if it’s the case that, as you dipped your toe in the water, what kind of vision existed for what you were doing, if anything? When you first said, “Hey, let’s go do a deal,” was that step one of something that you expected to build? Or was that kind of just a beta, “Let’s see what we got”?
Jeff Brown:
There was certainly a beta aspect to it. I’ll be the first to tell you I did not … I might have had the thought in the back of my head, but I didn’t have the full conviction that this is going to lead to the formation of a company doing billions of dollars in transaction activity. I’d be a fool to tell you that was anywhere within the realm of possibilities at that time. So very, very grateful for John. When we were doing our deals where the two of us were just capitalizing every deal, that was in that 2000 … Yes, 2010 time period in which capital was extraordinarily scarce. The story will be told as if we were shooting fish in a barrel, we could pick and choose our deals. My coming out of the finance world led us to a lot of buying debt in the secondary market. It led us to originating a few loans where we could really dictate our own terms. We just had some really strong, early success that led to the formation of T2, but it was with the wind at our back because capital was so sparse at that time.
Kevin Choquette:
Yeah, perfect. Well, I love that you’re sort of admitting like, “Yeah, I’m not sure there was a lot of vision,” when you started. But as you started to say, “Okay, hey, we could probably build a scalable platform,” how did that vision … I guess two part question. How solid was it, part one? Part two, how does it compare to the reality that you find yourself in 12 years later with a team and a couple different products and strategies that you’re executing?
Jeff Brown:
Sure. I tell you, and you hear this a lot in the big industries, I think Google might have a mantra of don’t be afraid to break things. There is, just from my vantage point, so much trial and error that goes into building a business. For us, when we first got started, again coming out of the finance side of things, the core competence and the expertise was in lending. We rolled out our first fund, we started T2, rolled out our first fund, brought in outside capital for the first time. And because our expertise was in lending, understandably we found ourselves back to buying loans in the secondary market. Maybe originated a few loans here and there at extraordinary terms and economic returns, but quickly found ourselves soliciting feedback from clients, “What do you like? What do you not like?” After a period of time, got enough feedback that said, “Hey, love what you guys are doing, the returns are great.”
At this time, fast forward 2011, ’12, the market’s starting to turn a little bit. Capital’s getting more competitive. It’s a more populated kind of a crowded field. The feedback was, “Love what you guys are doing, but you guys are making loans and generating these recurring coupons and whatnot is great. I’m more interested in swinging for the fences a little bit. I want a big IRR, I want a big multiple on my investment.” Versus others who said, “Boy, I love what you guys are doing, please don’t deviate from this.” And so it led to a new strategy. We really started with a debt strategy, and it morphed into a distinction between starting a debt fund and then having a very distinct opportunistic fund and branching out from there on the equity side.
Just really segregating, again, how do you define success for a different strategy or set expectations with investors? Setting expectations on the debt side with recurring, in our case, quarterly income, a little bit of a premium. Sometimes we’re able to buy notes at a discount, so there’s a little bit of a return that goes into these debt pieces that go beyond just the income component. But people like the steady performance of quarterly distributions. Conversely, there’s a lot of people out there that say, “Hey, the quarterly distributions are fine, but I don’t need the income, so let’s go do a big development project. Let’s go do some opportunistic acquisition or big rehab job in which income is just not part of the equation, necessarily. We’re trying to buy it low, sell high, and generate a big return in that process.” Really, again, not to belabor this, but just being distinctly different with what the strategies are, how you define success, being clear and communicating that to investors, all birthed from a lot of trial and error and soliciting feedback from investors.
Kevin Choquette:
Yeah, listening to the market and sort of providing what they’re looking for. From inception it sounds like, “Let’s do a deal, five deals, six deals,” and then you start with the debt fund, which I think you guys call it your strategic real estate income fund.
Jeff Brown:
That’s right.
Kevin Choquette:
As I understand it from reviewing your website, did 24 loans last year with over $225 million in origination. It’s become a fairly significant platform. Before we start talking about the more opportunistic strategy, what are you guys looking for there? What markets are you lending in? What types of loans are you doing? Is it construction, is it bridge? Is it land loans? Do you have full discretion? Are you leveraged internally? What’s that business look like for you guys?
Jeff Brown:
Yeah, you’re right with the name, the strategic real estate income fund. That is our longest … It’s an open-ended fund. It was started in 2014. We’re about to come upon our nine year anniversary of the fund. I’m sitting here in Chicago. We just signed a lease a couple weeks ago to open an office in Nashville, Tennessee. That’s largely because our focus for not just our debt fund but our opportunistic funds and all that we do really is focused on growth markets, which lead us in our case down southeast. We’re very active in markets like Nashville, Knoxville, Orlando, Atlanta, Huntsville, Alabama, trying to get it to a hold down in Texas, in the Carolinas, et cetera.
That geographic concentration leads us to opening an office down in Nashville. But it is a very deliberate geographic concentration, just because that is where the population growth, the job growth, the relaxed tax burdens, et cetera, lead to greater demand, lead to the need for greater housing. That’s a great space, great geography for us to be. The debt fund is very concentrated. We try to concentrate our efforts very distinctly in the southeast region of the US.
Kevin Choquette:
And then as far as loan product, are you guys doing-
Jeff Brown:
I’m sorry.
Kevin Choquette:
… just primarily bridge loans? Are you doing construction loans, do you guys do land loans, kind of loan sizes? Are you doing retail, office multi? What’s the strike zone? If I’m talking to you as a capital advisor, which is my day job, what kind of product is it fit for the fund?
Jeff Brown:
The debt fund is also our biggest box, if you will, as far as what we look for. Certainly there’s geographic targets that I just alluded to, but we have full discretion over the capital. It’s cash on our balance sheet. We constantly take investor commitments and deploy that capital. It’s all bridge lending for us. We say it’s three years an end on the term side. That can lead to a fair amount of construction lending. It’s also a fair amount of even pre-development, site acquisition lending. Folks looking to take advantage of a short fuse. Maybe a seller has to sell and really wants to sell quickly. Conventional lenders may not be a able to accommodate that short fuse. We can, so we jump in those situations. We’re not afraid of messy situations, partner buyouts, litigation liens, et cetera. We’ve been there and done that. It’s not to say that we can do them all, but if we can wrap our arms around it, understand it, kind of box the risk in, we’re not afraid of messy situations.
Three years an end, all kinds of property types are considered. We do try to be specific with our geography. We lend anywhere from $2 to, biggest loan we’ve done historically is $60 million. Even pushing that a little bit with some new opportunities coming our way. And like I said, we’re very active and originators, which is consistent with what we’ve done historically, but are getting more and more opportunities on the opportunity to buy debt from other lenders that are looking to raise some liquidity in the market.
Kevin Choquette:
When you’re buying debt, does that stay in the debt portfolio? Or do you do that opportunistically where you might have a basis and a value add play that puts it on that side of the ledger, if you will?
Jeff Brown:
Great question, and it is something that we wrestle with. It’s very dependent on the situation. The vast majority of debt that we buy we do keep in the debt fund, but there are enough messy situations where maybe foreclosure has been filed, it does appear imminent that the lender is going to take title to the property. It’s those types of situations that we would consider more strongly for opportunity equity funds.
Kevin Choquette:
Probably if there’s sort of a tangible business plan to be run, as opposed to picking something up on an attractive basis, right?
Jeff Brown:
Exactly.
Kevin Choquette:
If you guys are going to execute the business, it goes on the equity portfolio.
Jeff Brown:
You got it. Right on.
Kevin Choquette:
Okay, cool. Well let’s switch to that side so people can understand that part of the business. On the equity side, are you co-GP, are you GP, are you LP? How are you putting dollars into deals?
Jeff Brown:
It’s funny, going back to one of your earlier questions, Kevin, in the evolution of T2 when we got started in 2011, really a lender expertise and listening to the market, getting feedback and then kind of segregating strategies. We’ve got a dedicated debt fund, dedicated equity fund. When we first started in the equity space, it was as an LP. We tried to find really good operators that were expert in their space, in their field, had a pretty tight business plan or expertise, and then latched onto them from an LP side.
Just speaking frankly, in the mid to late 2000 had a couple of episodes in which being that passive capital partner wasn’t working very well. We could clearly observe some deviations in business plan or a material slowdown in construction, and it just didn’t seem like there was the urgency necessary from our sponsor’s perspective to address the situation. Got frustrated, exercised whatever rights we needed to and saw a project through, but that really lit a fire under us to transition from LP capital to sponsoring GP.
As we sit today, and really as has been the case since 2018 and ’19, we solely buy or develop properties at this point as sole GP or co-GP. There are still a few partners with whom we co-GP deals and seek to work collaboratively to get things done together. But it has been a transition. We’ve staffed up, we’ve got a couple of general contractors on staff, a civil engineer, property manager. We don’t self-perform in anything, not to get into the weeds too much, but we don’t self-perform on any of those aspects of a project. I take great solace in having that expertise in-house so that we really can be fantastic asset managers, watch every penny, make sure schedules, budgets are strictly adhered to, are involved in the conversation, or if there are any deviations, change orders, whatever may come, and make sure that we’re equipped to jump in and take over to the extent that it becomes necessary. That has been a bit of an evolution here at T2.
Kevin Choquette:
Okay. Is there a fund or two funds on that? What does that side of the business look like?
Jeff Brown:
We’ve done one dedicated GP fund, and we’re rolling out our second here in the latter half of this year is the plan. Our prior funds were a little bit more LP-centric. We started to dabble in the GP, co-GP side like I said in maybe 2017, ’18, but really went all in on the GP side of the ledger three or four years ago now.
Kevin Choquette:
Okay. I understand it’s, as you said, sort of the opportunistic stuff in the growth markets of the Southeast, and it sounds like that could be both. Well actually, why don’t you tell me, but I do understand you guys will do some development as well as adaptive reuse. What kind of strategies are you executing there?
Jeff Brown:
Sure. For us, contra to our debt fund, which like I said is a really deliberately big box, all property types, really all geographies. We like to focus in the Southeast, very sensitive to stories, et cetera. Our equity funds are much more tightly focused, and that is we’re very focused Southeast, all the markets that I mentioned earlier. And then on as far as the property type goes, we call them needs-based real estate. Really what it boils down to is all housing related. Our core competence and what we develop and look to acquire are class A multifamily on the development side. We buy workforce housing, we buy and develop student housing, and then we do a little bit of for sale condominium product as well. I should say, I’m leaving this out unfortunately, but a single family home build to rent is a growing portion of our portfolio. But all in this space of residential living needs-based real estate in the southeastern US.
Kevin Choquette:
Okay. I know you’re in a bunch of different markets, and I think if I go too far back you would tell me, well, that’s before you had narrowed perhaps some of your geographic focus. How do you guys think about penetrating specific markets? You had just mentioned Knoxville, Nashville, Orlando, Huntsville. How do you guys think about, “Okay, if we’re going to go into this market, then the following”? Just in terms of it takes a while to learn a market, to figure out where pricing is, to figure out where rents are, to understand who your team’s going to be. Maybe on the property management side, the general contracting side, I just wonder how you guys go, “Okay, let’s go after this market,” and then what has to happen?
Jeff Brown:
Yeah, you’re spot on, Kevin. It’s easy to identify. It’s not terribly easy, but easy enough to identify markets on paper that makes sense. It’s a different ball game to get into a market and be effective on executing a business plan on the real estate side. For us it does start, if you think of it as a funnel, really high level, some target markets, where is their population growth, job growth, corporate expansions are taking place? Generally the companies with a lower tax base, great schools. There’s all kinds of filters that we run things through to identify markets that we want to be in.
After that, once we do find a market, we’ve got folks on staff here that are doing nothing but, call them business development or origination folks, be it on the equity side or the debt side, that then go into those markets and it’s time to make inroads. Thankfully at T2 we’ve got well over a thousand different investors from all around the country. When we do identify a market, say Orlando for example, we’ve got a few already very solid contacts in Orlando that might know that perspective, be an attorney or accountant or even real estate folks, that might be a real timely introduction. We just try to make inroads from there. It doesn’t happen overnight. It often takes years to really build a sufficient rapport, build some credibility in the real estate market in a given city, and then to really have a presence down there.
But once we do get into a market, identify a site, the goal is to go there in scale. These target markets that we have, I could count on two hands. We’re not trying to go into a market, do one project, Lord willing go through a big liquidity event, sell it, and be done. If we really like a market, we want to go in at scale, do multiple projects, get to know the city real well, get ingratiated with the community and with the market as a whole. And then oftentimes we find that deals find us at that point in time. That’s certainly the case.
A market that you’re familiar with is Kissimmee, Florida, right there where Disney is. That started in 2019, identifying a hotel property for conversion to multifamily. Once we started that project, started to have some early success, it wasn’t long thereafter that other hoteliers or certainly other brokers, but other third party professionals down there in the Kissimmee market were reaching out to us saying, “Hey, I saw or I see what you’re doing at this one property. I’ve got a client, or I know somebody, or I am that person that’s looking to sell a comparable property and would love it if somebody would contemplate what you guys are doing over there.” That rapport goes a long way toward developing deal flow, and something that we’re very mindful of and grateful for at the end of the day.
Kevin Choquette:
Look, my awareness of T2 and you individually is through Cloudstreet. I am an LP investor on that, I think it was your second hotel to multi conversion down there. Obviously on that deal you went out and secured LP equity. Does the GP fund and that strategic orientation to be GPs on the equity platform, do you always accompany that with a third party LP, or how do you guys structure capital for the top part of the capital stack above the debt?
Jeff Brown:
Yeah, for our GP fund it is just as you described, Kevin. We come in, the fund is the GP that’s sponsor in the deal, and we’re raising not only debt for a given project, assuming that we do want debt, but also LP capital to come alongside us. There’s a couple different real positives to that that I see, the major one being the concurrence that’s involved. It’s back to seeking feedback from the market, doing sanity checks and making sure that we’re not completely out in left field. I do value the fact that we’ve identified a market, we’ve identified a property, we’ve got a business plan, we have pro formas, we have all the spreadsheets you can imagine to effectively present and underwrite something. But now to go to the capital markets in the debt space, to go to the LP field and test the waters for a given project is really valuable to me. I like the concurrence that comes with having two sets of investment groups, lender and LP, looking at each deal of ours, ultimately signing off and going forward with us. I think that’s a concurrence I really value.
Kevin Choquette:
Understood. Kind of a check your own underwriting, right?
Jeff Brown:
That’s right.
Kevin Choquette:
Yeah. I want to go back. You mentioned at least on the equity side having staffed up a bit. In particular, you mentioned having a couple GCs who can serve as an effective owner’s rep, and maybe in a downside scenario step in and take over some things if things are kind of falling apart. What do these two strategies, the debt portfolio versus the equity portfolio, look like from a headcount perspective? How many people have you got on each of these?
Jeff Brown:
Short answer is growing. As we sit today, we have 15 employees at T2. Just hired somebody last week, actually have another offer letter going out today. We are historically … Let me get some exact numbers for you. I think in 2021 we were 11 people strong, and all of us were for the most part generalists. There were a couple specialists on the debt side, on the equity side development, whatever the case is. But for the most part we were generalists. All of us have a really good … I’m biased of course, but a really good handle on the real estate market as a whole. They can transition really quickly from talking debt to talking equity, talking development, talking rehab, whatever the case may be.
As we’ve grown, particularly in the last couple years, we’ve started to focus a little bit more on building teams dedicated to the debt strategy or to the development strategy. Still have a fair amount of generalists which are invaluable and help us to get a great purview of what’s going on in the market. I’m really grateful for us as lenders are able to talk about deals and whatnot, and that translates really well to how we’re able to perceive what a equity or development deal might look like. That sort of purview across the landscape is really invaluable. As we sit now, 15 people, really four on the debt side, about an equal amount on the equity side, and then the rest of us being generalists that navigate between the two. The intent, particularly with the opening of our Nashville office later this year, is to grow both the debt and the equity team, really build a robust asset management platform, and continue to do what we’re doing as best we can.
Kevin Choquette:
Look, we’re all of us in this industry subject to cycles. They happen. We’re all driving by the same data, and we all sort of pull on the yoke of the airplane the same time the same way. Because of that, we overshoot and we undershoot. How do you think about building a team with some scale and the fixed operational overhead that comes along with that, when it’s sort of juxtaposed against the inevitability of cycles? How do you guys resolve the potential conflict between those two?
Jeff Brown:
Yeah, such a good question, Kevin. It is something that I wrestle with a lot. It’s funny, looking back after 12 years now, I do kick myself a bit for being probably too conservative, too careful not to hire people when we should have. We were growing, we were young, still figuring stuff out, still getting a lot of feedback from the market as we’re trying to figure out what strategies to build upon going forward, and missed some opportunities frankly to hire some really good, skilled people that would fit in really well culturally here.
Now we’re trying to overcome that. We feel very good, very highly convicted about the strategies that we have in place, what we’re executing on, even in this turbulent market that we’re in. Trying to take a bit of a counter approach. Where layoffs are the topic du jour in the press and across the tech sector and whatnot, we’re building, we’re staffing up. It’s not to say that we’re staffing up indiscriminately, that’s far from the truth. But we are staffing up with ambitions of growing our platform, and probably making up for some lost ground over the past few years as I was too conservative to hire people.
Very, very mindful of not overstaffing. Understand that again, we can’t control macroeconomic variables. Inevitably there will come time where there’s just not the right time to be doing development. Arguably that’s the case right now, even. It’s just really hard to make numbers work. But what I don’t want to do is be confronted with layoffs. We’re going to maintain a strong balance sheet, we’re going to maintain a great culture that people want to be at and show up to work every day, and be proactive about not overstaffing. But it is a delicate balance. That’s a interesting point that you touch on, there.
Kevin Choquette:
The other thing you mentioned that just sparks curiosity for me is getting to a point where it’s clear to you that having specialists is an intelligent move. I wonder what has transitioned for you that you would go from having a team of athletes who can all potentially fill in different roles across the entire value chain to, say, “I just need a javelin thrower,” and you go out and you hire that sort of specialist. What was the catalyst, and what do you expect to get from putting a more narrowly defined expertise into the team?
Jeff Brown:
Yeah, I think it comes with scale, to be honest with you. When we’re young and growing and still trying to figure out how big do we want to be, where do you want to be when you grow up sort of thing. I think having that nimble athlete type person that you’re describing is invaluable. You got to be able to wear multiple hats, you got to be able to see things from different perspectives. But as you scale and as you build conviction around a business thesis or an investment thesis, whatever the case is, and you can see how success is realized. In the debt space, having really quality underwriters, and I mean even folks to help on the loan closings, just to coordinate loan closings, to service the loan post-closing, to provide invoices, all those things that might seem a little bit trite or too specialized when you’re still building a business become really important down the road.
Again, I say it’s with scaling because with scale becomes a broader audience of, in our case it’s investors and it’s borrowers on the debt side. There’s a level of sophistication that comes to the table. Especially in a market like today, our debt fund is really countercyclical, and so we’re as active today as we’ve ever been despite the chill in the lending market that exists right now more broadly. Our folks that are really adept at underwriting, the folks that have lived through distress in the past and have stories to tell, have anecdotes to share and apply to how we structure or underwrite or service something today, I think becomes more and more valuable. Certainly I would say it is valuable, but then the market would tell you just from a perception standpoint it’s more valuable. Thus, the very institutional borrower that may not have borrowed from us historically takes a little more comfort in borrowing from us knowing that we have that sort of skillset in-house, and ready to service and help them to get from A to B on the bridge lending side.
Kevin Choquette:
Yeah, I love it. And look, in my business we have conversations just kind of around cognitive load. How much diversity of thought and spectrum of, I’ll just say the caseload, can any one person address successfully before simply there’s just too much, right? You’re switch tasking too frequently across too much bandwidth, and it dilutes you. When I hear you talk about this specialist, to just give them a lane that’s narrowly defined where they can be exceptional, I don’t know, it sounds like a really good fit.
Jeff Brown:
That certainly resonates with me, Kevin. I would tell you our best hires, every single one of our employees are incredible hires, but there’s just this … I find this consistently with my friends, and then even at T2, there’s a general reticence to hire somebody because you don’t want to let go of a given task. You either really enjoy it, you’re really good at it, or in your mind it’s just that important. However, when you do find that right person that you can ultimately entrust to carry that weight, the load like you’re describing, and you watch that in action, it’s an unbelievable just sense of satisfaction that comes with, “My goodness, look at us grow. Now that I have more bandwidth, I can think more clearly. I need to do these other things.” Particularly as a CEO or a CIO and somebody in that sort of role, there’s enough on your plate already to do stuff and have to do it quickly or to do it in the wee hours of the night or early in the morning simply because there’s no other time in your day. It’s very, very satisfying to see in action where you’ve hired somebody for a skill, they do it really well, and they’ve removed that from your plate. I can’t echo what you said enough.
Kevin Choquette:
Yeah, I mean the visual that comes up for me, and I’m probably hamstrung by speaking in analogy too much, but you started this fire and you were running out into the woods and getting every stick and making sure that thing kept burning and burning and burning, and it’s gotten bigger and it’s gotten bigger. All of a sudden you can step back and there are other people putting the wood on there for you, and all of the sudden you have a business that’s considerably bigger than you. I don’t think we can call you … You’re probably on the bubble between a small and a medium business, but it resonates deeply with me where you can step back and actually see that there’s a business that has a going concern value proposition that is no longer necessarily requiring you to put the wood on every single day.
Jeff Brown:
Yep. Couldn’t agree more. That ultimately driving value for the company is just an ancillary benefit as well. It’s just learning to let go is a really key component, I think, of a lot of leaders and entrepreneurs.
Kevin Choquette:
Agreed. Slightly different tech here. What do you think is the one thing that’s most holding T2 back right now? Wave your magic wand, remove that constraint, and what is the constraint?
Jeff Brown:
Yeah, that’s a great question. Honestly, I’d have to think about that. There’s certainly a lot that does preoccupy my time. I’m very grateful. I’ll give you a real life anecdote again here. I sit in Chicago, this is where our headquarters, if you will, is, that 12, 13 of us reside every day. Being in Chicago and being swept up in all that’s going on in the Chicago market, in Illinois as a whole, has been hard. We’re certainly not immune to that. Like I said, we’ve repositioned our focus to be in growth markets, which have led us to the Southeast. For the longest time that was true, and I struggled to pull the trigger on opening an office down south. And frankly a lot of us even talk about moving. Not pulling the trigger on moving, but I’m very grateful to have identified an office in Nashville. We’re going to dress that up and it’s going to be really nice when we open up later this summer.
But I think that that has been a hindrance for a while, is to be in a market that we live in, yet not be really active and investing in that market, despite the fact that our deepest, best relationships emanate from this Chicago market as well. That has been something that preoccupies a fair amount of my time. Beyond that, really it’s just being well-informed and taking it a day at a time, knowing full well the market is … An adjective we keep using here is turbulent. It’s very, very fluid. And just being smart and wise and nimble to take action when we need to take action, and to step back when we need to step back. That sort of discipline is imperative every day, but especially magnified in times like this.
Kevin Choquette:
Look, just speaking to your success and that idea of stepping back right. Early on, I suspect everything’s on the line, that deal one, that deal two, that deal number four, they have to work out. You alluded to a little bit of adversity when you were backing LPs, and so you probably skinned your knee a little bit here and there in the journey. Clearly at this point it doesn’t seem like there’s a lack of opportunity flow that’s coming to T2. I wonder how things have changed for you. The visual I’ve heard explained in the beginning of your career, you’re putting messages in the little glass bottle from your desert island and sending them out, and you’re just hoping for one or two to come back. Later in your career, there’s just all these bottles with messages washing up on the shore, which is where I envision you guys. How are you managing that kind of condition, as it seems like you guys are transitional kind of hockey stick point in the evolution of T2?
Jeff Brown:
Sure, yeah. I appreciate that, and I tell you it’s another real learning moment, learning period of time to skin your knee, like you said. There are a lot of scars on these knees from doing things wrong, and having regrets and wishing I could go back in time. But you can’t, obviously. You got to get up on your feet, you got to brush yourself off and go forward and learn from past mistakes is the approach that we take. Thankfully we’re still standing here, despite those scars and despite those skinned knees. I think, while super grateful for these proverbial bottles coming on the shore and the inbound inquiries that we get to provide financing or to buy a property or to consider developing here or there or anywhere, super appreciative of those invitations and those requests.
I think the greatest discipline that comes, a lot of it for me anyway, born from the pain of not doing things as well as we could have in the past is the discipline of saying no. It’s hard, and some people don’t take it particularly well, but it’s best for you and the team in the long run. Again, super grateful for what we’ve got today, and it is a flood of inquiries coming our way as the capital markets are largely just really tepid, if not really chilled right now. But trying to be disciplined to say, “Hey, just because they’re knocking on our door just because it’s in the right market, just because it is that person or something like that doesn’t mean it’s an automatic yes. There’s a scrutiny that we all have to go through. There’s a collaboration, there’s a concurrence that needs to take place that we’re all comfortable with before we give a firm green light to something.” That discipline to put an opportunity through its process, build consensus, and then proceed with a fully informed decision, yes or no, is a great discipline that we try to adhere to here.
Kevin Choquette:
The people that you just mentioned who sometimes don’t like to hear no, are those partners, investors, employees, clients, maybe all of the above? I’m curious where that shows up.
Jeff Brown:
Yeah, it does cross the gamut. On our debt lending side, of course borrowers don’t like to be told no. I will say we do try to start on the lending side with, start with yes and then have to defend it. But no is the conclusion that we come to like 98% of the time. We do try to start with an optimistic perspective and cite the merits of a deal before really poring through things to cite some weaknesses. Borrowers of course don’t like to be told no. Certainly there are employees, many of whom just speaking frankly might have some compensation on the line if we do or don’t do a deal don’t want to be told no.
Kevin Choquette:
Production [inaudible 00:54:09].
Jeff Brown:
I find the real rockstar employees are those that can, as hard as it is, if not impossible to be objective about something, they’re even keeled and they get it. We’re trying to do things for the greater good of T2, of our investors, and try to trying paint a multi-generational picture here for a sustainable company. Not just trying to do a deal so that we survive today and tomorrow, but in two years, boy, we’re facing the music and on death’s door at that point in time. It’s a rare employee that can get to that phase, but I know that we have them here at T2 that can maintain a bigger picture in mind. But it is hard. It’s not terribly hard, but it’s hard to hear no for a lot of people.
Kevin Choquette:
Is multi-generational part of the culture that you alluded to before?
Jeff Brown:
That is, and it gets into some of these business and these investment thesis that we’re so bullish and convicted on. We’ve talked at length about the debt fund, it’s perpetual, it’s coming up on its nine year anniversary. I’m thrilled with where we are, what we’ve done and where we’re going. Our opportunistic GP fund in which we raised the LP capital and seek lenders for each deal has tremendous legs. We’ve done extraordinarily well on the GP side of the ledger. We’re just coming out of the chutes with a workforce housing dedicated open-ended fund that could very conceivably be a public REIT someday. But the notion is to build a business to scale it.
It’s like what you alluded to earlier, Kevin, you got to do these first one, two, three, four deals really well and provide a springboard to doing additional deals down the road. I wish I could tell you I still feel a little bit like Chicken Little. We’re still dealing with deals one, two, three, and four where we just try to box in as much risk as we possibly can see and underwrite and generate great returns, and know full well that it’s a self-fulfilling cycle. If you do well now, chances are the snowball builds and you’re going to do have at least an opportunity to do really well down the road as well. Yeah, but building something generationally on those three legs of a stool is the plan at this point.
Kevin Choquette:
Success definitely begets success. You guys have shown to be very effective at raising capital, which right at the very beginning of it you said, “Well look, the first step if I’m going to run a real estate private equity firm is I’ve got to be able to get capital.” What has been your approach? What has been your mindset to raising capital? What sort of pitfalls or tips or tricks? I mean, it is not an easy thing to get a thousand people to say, “I like Jeff Brown, I like T2, here’s $25,000, here’s $250,000, here’s $2.5 million.” I’m sure you have them all across the spectrum. What’s working, what doesn’t work? What would you put out there for the other real estate entrepreneurs, whether they’re creating discretionary funds or they’re just looking for their first LP on their first project?
Jeff Brown:
Sure. I do think it’s that, too. Like everything else, it is a bit of a learning curve. It has been a learning curve for us. There is an unquestionable need to be trustworthy, and part of that manifests itself with … It’s easy to report the wins, it’s easy to report the big gains and whatnot. It’s not so easy to report when things are not going according to pro forma, or even losses and whatnot. I’m always mindful of trying to be proactive about communicating everything clearly and plainly, trying to drain emotion out of the picture and report objectively. Lots of phone calls, certainly lots of emails and whatnot, but just being communicative, being trustworthy.
Adhering to a strategy. If you know told me that this is what the fund is targeting is going to do, then stick with that, don’t have some style drift that’s suddenly comes into the picture and cloud investor’s perception of whether or not you’re trustworthy at the end of the day. It’s a lot of those kind of foundational sort of components. It’s really hard to replace success. Success in the terms of economic returns and financial returns. I have found, and I think we have found collectively at T2, if you can be trustworthy, do what you say you’re going to do, be communicative, and then deliver results. That’s really what it boils down to at the end of the day, and I’m confident that any other fund manager would tell you the same thing.
Kevin Choquette:
Because I have the benefit of a previous conversation with you, you had also mentioned just doing the work. If you want to touch on that, I don’t want to put words in your mouth, but you had mentioned the early mornings and all of that.
Jeff Brown:
I think part of it is being an entrepreneur, part of it is CEO, and really trying to do as best you can for as many people as you can. Getting into my day a little bit, I’m an early riser. I like to be at the office really early. I like to get calibrated for the day and get to work, like you said. The days of nine to five are long gone, and have been for a long time for virtually everybody. But there’s a handful of us that show up early that really get after it. Our office is very intentionally open and collaborative, so a lot of talking and sharing going on. But it’s well before sunrise, and sometimes working late at night after the kids are in bed as well, just to make sure you’re staying on top of things.
Again, staying communicative and making sure people are in the know. It’s not to say that it’s overbearing by any means, it just comes with the turf and it’s part of when you have aspirations of building something generationally, that’s just what what’s required, at least from my vantage point. That’s what we’re trying to do here, and I’ve got a great, incredible team of people that share that vision and share that work ethic as well. I feel very fortunate.
Kevin Choquette:
Yeah, that’s fantastic. Look, thanks for sharing so much on the business side. Let’s move over to the personal. What about the end of the day? What makes you feel relief? How do you kick up your feet and unplug, and what’s the juice outside of business for you?
Jeff Brown:
Yeah, thanks for asking. I’m grateful to share. I’m married for 26 years. I have five incredible kids. Part of the beauty of being an entrepreneur and part of what I try to foster here at T2 is the understanding that none of us are defined by what we do at work, or in my humble opinion, shouldn’t be defined by what we do at work. No doubt it is a meaningful component to what a lot of us do. But at the end of the day, I want people to have adequate time with their family, with their spouse, with their kids. We talk all the time about … Just yesterday, as a matter of fact, one of my kids is a golfer, he said, “Dad, the weather’s pretty nice out. I think I’d like to golf today.” I’m like, “That’s great, buddy.” And he asked me, “Would you like to caddy for me?” Are you kidding me? That freedom to go caddy for my son who wants to go golf.
I encourage the same of our staff here. Again, I understand the importance of work and there are no shortcuts. Work is a grind, and you got to build systems and processes that are as efficient as possible. But at the end of the day, a lot of it boils down to grit and tenacity and creativity and figuring out better ways to do things. But certain personal things, be it family, faith, travel, unplugging, all of it is just part of who we are, and I think what a lot of us need to do, and I want to encourage that to provide more of a holistic perspective for all of us, at least here at T2 and hopefully more.
Kevin Choquette:
Look, clearly you guys have been successful. I mean to go from, “Hey John, let’s do a deal. Let’s do two. Let’s do three,” to, “We’ve put out several hundred billion, or sorry, $1.5 billion over the past 10, 12 years.” What in your mind does it take to be successful in this business?
Jeff Brown:
That’s a great question. This is part of what I wrestle with with our advisory board, is how do you define success? I tell you, there’s just such a piece about, again, and conviction about what we’re doing. Our business strategy is right now. Albeit balanced with I won’t be the guy that works a hundred hours a week. My kids won’t let me. But I’ll take it to the max. We know what we need to do. For us that raise discretionary funds, it starts with really a fund thesis and setting expectations for prospective investors. Our goals are always to meet or exceed those expectations, whatever that means. We’ll work as long as possible, as hard as possible. Like I shared earlier, we might fall short. There’s some stuff that is just out of our control. We want to be forthright.
I’ve always said in any sort of conflict, you want to understand the issue, own your part of it, and then do whatever possible that you can do to amend a broken relationship. We;re about meeting or exceeding expectations, setting clear expectations on the front end, meeting or exceeding those over the long haul. And if something does fall short, owning it and trying to make it right. We’re having a lot of fun here at T2. I’d be remiss not to share that. I don’t take other people’s words and just throw those out there, I get affirmed by that a lot. That’s really, really meaningful to get the token emails or texts or even words that people share with me about the fun and fulfillment that they find here. I don’t take that lightly, and intend to build on that for the long haul.
Kevin Choquette:
Look, set your strategy, set your thesis and expectations, and then do the work. If you find yourself stubbing your toe and kind of in a bruised relationship. But go to the other side. We probably all know plenty of successful people. Anything pop to mind if I ask you, “What’s the most common mistake you see successful people make?”
Jeff Brown:
Huh. Again, every person’s so different. I do spend a fair amount of time … I love reading about the titans in business that are out there. Probably the names that you’re thinking of are the very names I’m thinking of. I tell you what I do see over and over again is they reach this pinnacle status. They are widely revered around the country. They have incredible amounts of wealth. But it is back, to me, it’s things like how is their family? Are they truly happy or joyous at home? And that’s where, I guess, I can get way too philosophical about this, but I do think about a big picture and a holistic picture of yes, it is awesome that so-and-so built this company and sold it for X billions of dollars and they now own this many houses and drive this car, this boat, or whatever the case is. But how are their kids? Do they have fun with all those toys? Do they have a peace about them internally, that are they truly satisfied?
I’m certainly not going to be any sort of type or anything like that, but I do, and in my own very, very small way, want to balance worldly business success with success at home, and among my friends and whatnot as well. I just try to be big picture oriented, and know full well that things can change on a moment’s notice and be grateful for what we’ve got. Every day is a gift.
Kevin Choquette:
Yeah. And it’s also losing … Well, actually that’s an interesting topic. It may be the case that those titans’ objective was simply to win and the scorecard is money, in which case hey, more power to you. But what I’m hearing you say is if your why is something other than that, then how are you feeling when all you end up with is money. Trying to have the why in alignment with your professional pursuits.
Jeff Brown:
That’s a great way of putting it. I’ve heard that before and I obviously didn’t articulate it, but making sure you’re answering your why and managing each day accordingly is a big part of what I try to do.
Kevin Choquette:
Look, you’ve alluded to it a couple times in the conversation in terms of your outlook and beliefs. On the daily routine side of things, for myself personally, I just try to get my head in the game and align to what I’m up to as a person. If I can start my day that way, I feel like I have a better chance of staying on track to the end of the day. If I can string a bunch of those together, I might be a better person and have a sort of better trajectory. How about yourself on any daily routines you might have to kind of excel in your own way, if there is anything?
Jeff Brown:
Sure. I’ll tell you again, some of these titans that we all think of certainly share publicly what their day looks like. I’ve tried to glean and learn from a few of those. My day personally is I’m an early riser. My best thinking typically happens quickly after I wake up, so I’m generally at the office pretty early after a time of just calibrating, thanking God that I woke up and that I have this special day of life and getting in the office and getting to work, setting the table. There’s a few other early morning warriors that join me at the office, so it’s pretty fun, the two or three of us that are generally here each morning before the sunrise.
Yeah, it’s hard work throughout the morning. I generally take my lunch to read and to catch up. I love stuff like the Wall Street Journal, some industry periodicals that come out. Just again, staying grounded and checking in at home, that kind of thing. Finishing the day, it’s not uncommon for me to be out by four-ish or something like that to get to one of my kids’ events. I try to be proactive about exercising each day. It’s in the afternoon when my brain is starting to turn to mush.
Family dinners are important. It certainly doesn’t happen every night, but all of us being around the table as much as we can as meaningful. It’s not uncommon for me to kind of plug back in. As an entrepreneur, you’re always plugged in the phone, if you wanted to, it will keep you fully tethered. But really plugging back in at night, say nine o’clock or something like that where I’m back on and just making sure things are good, tying up what needs to be tied up and being ready for the next day before going to bed. I’ve got a house full of late night people, so by the time I’m cashing out, everybody else is still awake and so I get to hug him goodnight or something like that. Little things like that are meaningful, but that’s generally what comprises a typical day for me.
Kevin Choquette:
That’s great. Look, you’ve had a fruitful partnership, it appears, with John. Not all partnerships are built for 10+ years of collaboration. Any principles you have that have guided that or continue to guide it, and keep you guys on the alignment?
Jeff Brown:
Yeah, and I’ll tell you, it’s been really fun with John. We went into this, John in particular has had incredible business success. He started a company called Power Shares with another partner, had a big liquidity event when they sold to Invesco. It’s that liquidity event that helped in a small way really start T2, and doing those one-off deals that he and I did before starting T2, even. John is just completely selfless. He wants me to just run T2. He likes being the passive owner and whatnot. We’ve had some, I’d say just some fairly tense conversations through the years on various topics, but always with this common bond of like, “Listen, we’re very, very good friends and that’s not going to change. I’m not going to let business stand in the way of …” It’s back to trying to keep relationships intact, not letting them break.
We’ve had some meaningful, necessary conversations, but John lets me run the show. And conversely, I’m a partner with him on a different business that I completely let him run the show. We’re very, in healthy ways, I think, very passive cheerleaders for each other. There’s an incredible amount of trust that comes with that. Thankfully we live within 10 minutes of each other. We get together for breakfast fairly often and always catch up. Our kids are similar ages. It’s a friendship first. It’s being able to deal with tough questions when they do come up, and they’re not always easy, but coming to an understanding of, “Listen, I need to let go of this, or I need to be in charge of this,” and having a mutual understanding of who’s doing what that has led to a very, very great partnership. And more than that, just broader friendship.
Kevin Choquette:
That’s solid. Like I said, I don’t want to keep you too, too long. A couple more questions here for you. You have mentioned, you’ve alluded to the fact that you guys have really good deal flow across the different platforms, and obviously you’ve been active in different markets, which makes me think there must be a significant network that’s been established over the years. What are your thoughts on the whole network aspects of your business, growing the network, maintaining it, utilizing it? How does it land for you in the day-to-day, both as a person and within the business?
Jeff Brown:
Yeah, it’s a great question, Kevin. It is a bit of a $64,000 question in real estate too, is how do you generate deal flow? And not just deal flow, but really compelling, actionable, viable deal flow? Again, it’s back to relationships. Certainly any of us can get the email blast from brokers around the country, but our best deal flow is with really unique relationships. It’s not to say that we’re exclusive. We are on some. But we are amongst a handful of groups with others. Generally it does start with, brokers are certainly helpful, but it is attorneys and it is accountants.
I’ll give you just a real life example of something we’re working with right now. We are finishing a very high-end residential condominium project in Naples, Florida right now. We have made it known. We’ve been trying to do more down there where we bought another piece of ground, but we’d love to do more for sale product down in Naples, Florida. We have gotten to know some of the residential brokers that brought buyers to our project that we’re about to deliver down in Naples. One of those brokers, through conversation, just kind of building rapport and whatnot, reached out to me just last week and said, “Hey listen, after months of holding out for top dollar, I’m under the impression that this property that you might’ve been looking at a few months ago, the seller is now realistic. Would you want to re-engage?” We are re-engaged in a conversation on a property that was just … It’s back to the conversation we had earlier, was priced according to March, 2022 parameters, not ’23. That has set in.
But were it not for this almost serendipitous relationship with a residential broker on a property that we’re about to deliver down in Naples, were it not for having that relationship and him feeling confident enough to reach out to us at T2 and to start that conversation … This is a complete off market deal, which is how many deals are, I think, for seasoned real estate investors. Complete off market deal that we’re going to take a hard run at. We already know the property, we know the market, and I think there’s a decent probability that we’ll execute on a purchase down there because of the relationship with this residential broker.
That’s not how the most deal flow happens if you look at your email traffic or something. It’s very serendipitous. There’s just a ton to be said. There’s probably books to be written about the value of relationships. You touched on it earlier in the bridge lending space. Being somebody that honors your word and keeps a relatively simple process simple. There’s no trip wires. We’re not looking to claim default on somebody. We’re trying to be a bridge to get people from A to B, and we truly just want to high five at the end of the day and celebrate when we’re paid off because somebody executed on their business strategy. Just adhering to that, honoring your word, being approachable, being available, those kind of little things that seem pretty trite really matter, I think, at the end of the day, and have led to great deal flow for us at T2.
Kevin Choquette:
Yeah. Awesome. All right, you have left a lot of kernels on the table here for the entrepreneur who will undoubtedly be listening in. Any message you’d like to provide to the real estate entrepreneurs regarding either personal growth or business growth? Anything maybe that you wish you would’ve learned sooner?
Jeff Brown:
Boy, Kevin, your question are so good. I’ll tell you a couple things that jump out at me. One is from one of my professors at University of Chicago. He’s very technical data-oriented, which I love. He would be the first to tell you that, and his words still ring in my ears today, “Vintage matters.” If you’re thinking about in terms of real estate and being an entrepreneur, maybe there’s some out there that are contemplating, “Boy, I want to go try my first fund, or even get into the business at this point. Is now a good time?” I would argue that whether this is an aberration in time or not, now is a really intriguing time to get into the space and take advantage of what looks like a really compelling vintage 2023, ’24, where there is enough distress out there and people can get really compelling properties at pretty compelling basises, and Lord willing build a business from there. I think vintage really matters.
The other thing I would say to prospective entrepreneurs, and something I’ve had to get comfortable with, is there’s just this ambiguity and this kind of living in the gray that comes from trying to build and lead a company. Nobody has all the answers. Again, books are written and the management experts are out there holding conferences and whatnot. But anybody that tells you they have all the answers, I think, is not telling the truth. There are always situations that come up where I feel completely overwhelmed and out over my skis, and I’m so grateful for sounding boards that I have in my life to bounce things off of. YOu do your best to make the wisest, most unselfish decision that you can. Lord willing, you wake up the next morning and you get after it.
There are no perfect answers to very difficult questions, or what many are confronted with right now with prospective layoffs. Those are just horrible. But you got to deal with it. You got to, again, kind of welcome and acknowledge reality. But being comfortable living in that ambiguity where you’re not going to have a perfect answer for every question is a big part of being an entrepreneur. I would just encourage people to not let that hold them back from taking that step, if that’s what they’re considering.
Kevin Choquette:
Yeah, that’s awesome. Andreessen Horowitz, it’s Marc Andreessen and I can’t remember the Horowitz first name, but he has a book called The Hard Thing about Hard Things, which is what you’re talking about right there. It is hard, and all you do is do your best and get up and do it again.
Jeff Brown:
Yeah, I got that book. Yeah, that’s a good recommendation.
Kevin Choquette:
Jeff, thank you very much for your time. If you want to leave contact info for the company, the website domain, obviously everybody’s got Google as well for T2 Capital Management. But anything else you want to leave here in closing, I’ll give you the mic. And then for anybody who’s listened along thus far, if you would take the time, my production guys always tell me to hop in there and offer a review on the podcast, of course, it’d be very welcome. But Jeff, thank you for sharing your time with me.
Jeff Brown:
Happy to do it, Kevin. Really appreciate you opening up the forum and being able to share this. A lot of stubbing your toe along the way, to be able to share that with others and hopefully encourage them is meaningful. I appreciate that.
Kevin Choquette:
Yeah, great. Hey, thanks again, Jeff.
Jeff Brown:
Thank you.
