Today’s episode might be particularly helpful for entrepreneurs who are looking to improve their social media or content marketing game, and for those interested in the property investment space.
He is also an extremely savvy Twitter user and has successfully leveraged that platform to build meaningful relationships, many of which have led to massive investment deals.
Moses joins us this week to talk about his strategies for social media and content marketing, the principles he has used to drive the success of his real estate business, and so much more.
Listen to this week’s show and learn:
- How even a small audience can make a tremendous impact on your business. (5:08)
- Tips for people who are looking to get into real estate investments in 2021. (9:58)
- Why it’s important to look at things with a “differentiated lens”. (16:22)
- How Moses was able to scale his real estate ventures without using any debt. (28:01)
- Moses’ advice for entrepreneurs who are in the early stages of their journey. (38:15)
Mentioned in the episode:
Before the Exit – Our New Book
Partner With Us
The Dynamite Circle
Tropical MBA on YouTube
Post a Remote Job
Dynamite Jobs – Remote Recruiting Sales Page
Let’s Talk High-Level Podcast Strategy for 1 Hour
Moses Kagan on Twitter
Permission Marketing by Seth Godin
Risk Game by Francis J. Greenburger
Investing in Real Estate Private Equity by Sean Cook
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Dan & Ian
Moses: The way that I think about Twitter, and social media more broadly, is – this is an incredibly powerful tool. But the incentives built into the systems are somewhat misaligned with my incentives. And so I need to remind myself that I need to act in a way that aligns with my incentives, not in the way that the system is designed to get me to act.
Dan: You’re back. We’re back. Let’s do this thing. Today we have an interview that I hope will appeal to both entrepreneurs seeking insight on how to make content and social media work for them. And those looking for both strategies and business opportunities in the property investment space.
Dan: It was actually a former guest ‘Sweaty Startups’, Nick Huber, who mentioned how influential Moses had been in changing the whole way he thought about Twitter, and content marketing in general. And look, we saw it worked. So we’re going to the source. So we’re going to start there, and then move on to Moses’s property insights in the second half of the show.
So just a bit of context about Moses. His background is actually in investment banking via Princeton and the London School of Economics. He got into property sort of by chance, as you’ll hear, and as mentioned, he’s incredibly active on Twitter, and has a great blog over at kagansblog.com which I very much encourage you to check out.
Moses: The person who taught me about this was Seth Godin, he wrote a book called ‘Permission Marketing’ that I read must have been, like, I don’t know, 14 years ago, or something that really opened my eyes to this. The examples that he uses are kind of out of date, but the insight isas relevant today as it ever was. I think a lot of modern media misses the power of tiny little niches. Obviously you have commercial consumer media – MTV or CBS or, you know, gigantic audiences full of, not particularly other consumers, people who buy beer and Fords and whatever, those are not particularly valuable customers, Then on the business media side, and that we used to work with these kind of companies when I was in banking, there are all these like, traditional sort of business to business publications, Advertising Age, Marketing Week. Pest Control Monthly or whatever. There’s a million of these very boring business to business publications. And the reason they work is even though the audience is much smaller than the mass market consumer media because they’re so niche focused they are valuable, like, advertisers want to reach all the pest control companies. So you advertise in, you know, Pest Control monthly and you can reach all of them.
What content marketing allows you to do with social media, blog, and then Twitter and Instagram and all that stuff, what it allows you to do, as a creator, is to define a very narrow niche, potentially a niche that’s so narrow that it even wouldn’t support a traditional b2b magazine. So a tiny, tiny niche. And your audience numbers are going to be small. I think at the peak, I had 5000 people a month reading my blog. No normal marketer looks at that audience and sees anything, they’re just like, this is ridiculous, it’s tiny. But it turns out that if you write an extraordinarily detailed blog about the nuts and bolts of buying and renovating apartment buildings in Los Angeles, yes the audience for that is going to be small. But those people are highly likely to hire you as a broker to help them buy and sell buildings, or to hire you to manage their buildings or want to invest in your deals. It’s an extraordinarily specific audience that happens to, generally speaking, have a lot of capital, and be very interested and be very likely to transact with someone who they regard as an expert. So the insight is that by speaking very specifically about a topic that is of interest to people who have means you can create for yourself an enormously powerful audience, even though that audience is small, Adaptive Realty, we own $200 million worth of real estate. The total number of people who have invested in an Adaptive Realty deal, to build that $200 million portfolio, the total number of people is like 100.
Keith Wasserman who runs Gelt, which is .. I’d love to be guilty of I think they have like about a billion and a half under management right now. I think he’s got 400 investors or something, 500 investors. There’s so much power in these very small, specific niches – I mean, I watched my Twitter following, because it’s like, there’s some ego involved, but like, the truth is that of the 45,000 people who follow me. I’m always happy to talk to people, it’s cool. I love talking about real estate, like educating people, but only 1% of those people or whatever, are ever going to make a meaningful difference to my career from a financial perspective. So Twitter acts as a funnel, where I can talk to a lot of people and then a very small number of those end up being investors. But that’s enough, because of the power of niches.
Dan: Somehow this fundamental insight occurs to people, but somehow they bobble it in the writing of the blogs, maybe they tried to mimic what they’ve seen in mass media, rather than when you were describing like this very specific demonstration of your expertise. It’s incredibly powerful.
Moses: I think that’s right. I think one of the gigantic mistakes that people make on Twitter is that they become so focused on engagement metrics and followers, how many likes they get, how many retweets they get, how many followers they have. They engage in behaviours that are designed to maximise those engagement numbers. And the way you get lots of retweets and likes and whatever else is often by writing things that are very superficial because more people can engage with something that’s pretty superficial. They engage in controversy, they say intentionally provocative things and get in fights with people because the algorithm likes that. So that gets you distribution. But if you’re trying to build an audience for a serious purpose, and you’re trying to show people that you’re an expert, and attract serious human beings, those are horrible mistakes, like no one do smart wants to read, like, surface superficial bullshit, and they definitely don’t want to read you getting in stupid arguments with people. Yeah, you’ll get a lot of followers, but they’ll think that you’re a moron. In any case, the way that I think about Twitter, and social media more broadly, is an incredibly powerful tool. But the incentives built into the systems are somewhat misaligned with my incentives. And so I need to remember to remind myself that I need to act in a way that aligns with my incentives, not in the way that the system is designed to get me to act.
Dan: I beat this drum all the time, because I’ve experienced that time and time again, as a content marketer. And just one small glimpse into it is I just think of all my wealthiest friends, like, they’re always looking for high quality information on the web. They’re digging everywhere. And they don’t like to leave trails of where they’ve been. So they don’t like to retweet, they don’t like, they don’t want to be on the radar.
Moses: I’ve had multi million dollar checks written by people who are grey circles, like on Twitter. In other words, they don’t have a picture. Their name is like, you know, Ben 82579. And they have two followers who followed them by accident. And they’ve never tweeted ever once. It’s always interesting. And whenever I have a spare second, and I see some one of those grey circles Follow me. I click on who they’re following. And I can tell from who they’re following, often, how serious they are. Because you can tell that they’re using Twitter exclusively as a means of becoming educated. I’m sad to say, I guess I’m maybe like a judgmental person or whatever. But I see they’re following this person or whatever and it allows me to triangulate and say, ‘Okay, that person is highly likely to be a serious human being, someone who is a partner, a private equity firm, or runs his own hedge fund or whatever’. And honestly, like, those are the kind of people who invest in our deals.
Dan: We’re a bunch of entrepreneurs listeneing to this show. Maybe thinking about ways we could help folks like you people in the real estate niche. If we’re not capital partners, we can’t write checks, how might we get involved in the space in 2021?
Moses: There’s a million things. One key thing to understand about real estate is that it’s both probably the biggest market in the world. If you think about the total value of all the real estate in just the United States, it’s trillions. Unlike almost every other major market, it is enormously fragmented. There is no Nike of real estate. There are 30 million apartments in the United States, the largest owner of apartments owns a few 100,000. Even the biggest firms are minnows. And we can talk about why that is but because there’s so much market fragmentation, there’s an enormous number of owners and managers of real estate, and there’s a million these little management companies floating around. I mean, we’re tiny, we manage 100 buildings, manage like 750 apartments, grand scheme of things, that’s tiny. And that’s in every city in the country, there are these, there are 1000s of firms just like mine. None of those firms know what they’re doing vis a vis marketing because they’re focused on real estate, they’re not focused on learning about modern marketing methods. Marketing for most of those firms is putting a sign up when they own a building, or when they’ve got a building for sale or whatever, maybe they have a website now. Some of them don’t even have .. they tell you their email address. And it’s like, you know, Bill’s property [email protected] I’m just trying to give you a sense of the overall sophistication of many of the market participants. So there are opportunities all over the place to help those owners and firms to sort of join the C21st with respect to marketing and up and technology more broadly, in their operations. You don’t need to, like take them to Google level, when you don’t, they’re not, you don’t need to be that sophisticated. All you need to do is help them get to normal C21st small business levels, and that’s already super helpful to them.
Dan: So marketing agency, and marketing products like funnels, and newsletters and social media, Twitter stuff,
Moses: Basic marketing. And then the other thing to say is, from an operational perspective, there’s a lot of change right now, in the technology that’s available, in particular to management companies. There are all kinds of systems available to help you do various things like accounting, leasing, and management and all that stuff. There’s Onfolio, and Yardi. And there’s a bunch of these companies, and there are a bunch of little side ones that are doing other stuff around them. Your average 30 year old property management company has no idea which of those they should use, and God help you try to instal a system like that in a company that’s been around for 30 years, and they’ve got all their stuff in filing cabinets. There’s a whole opportunity around helping firms select which of the different technology services and systems they should use, and how to implement them within their own business and their own business practices. Can I give you one more?
Dan: Yes. We are greedy for business ideas.
Moses: So let me start off by saying property management in particular is a very difficult business. No one gets up in the morning and calls in and says, ‘My apartment is great today’. No, they call you and say ‘F-you, my toilets are broken’, like, it’s not a fun business. You know, it’s a necessary business, but it’s not a fun business. It’s really hard to find in most of the United States, high quality people who are okay getting yelled at by tenants, And so, increasingly, management companies are going to be hiring offshore. The economics of the business are just not good enough to support paying the kind of wages and a lot of places that are necessary to get someone good to take that phone call from the tenant. And so there is absolutely room for consultants to help these companies figure out how to offshore. Which country should I go to? What communication system? How do I handle payroll, and what are the legal implications and all that stuff? Or actually you could set up a business, I don’t know acting as an outsourced call centre or whatever. So there’s a whole world of that, that’s going to be over the next 10 or 20 years, that’s going to be an enormous change, it’s going to happen in the domestic property management business. And there’s just all kinds of opportunities for people to make money helping firms do that.
Dan: I’m living in the states for the first time in many, many years in a large managed complex, and I can see the amount of salaries walking around and the halfway it’s online right now and why am I complaining to them instead of complaining .. so I get where you’re going with this. We’re a very bookish audience here too. And I was impressed reading your suggested reading list. I hope the readers or listeners will go over your blog. Not a lot of books that I’ve read before. And I’m wondering, you have some biography there, you have a lot of real estate books. If you could maybe take us into one book that is a little bit of a curveball for our listenership that has taught you or brought you insights into business.
Moses: So this book called ‘Risk Game’, Francis Greenberger is an enormously successful real estate developer. He also owns among the most successful literary agencies in the United States. This guy is just a crazily successful, interesting polymath who started working in his parent’s literary agency when he was like, 14, and basically running the place. And then he got into real estate and made himself a billionaire. It’s a memoir, it’s about his career and what he’s learned. And without getting too into the weeds, the concept that really resonated with me, and I think, we were already doing this, but I had never put a name to it. And I think it’s also relevant across every kind of asset and actually, probably every kind of business as well, is this concept of a ‘differentiated lens’.
Greenberger made most of his money, buying these fucked up old apartment buildings in New York City in the 70s. And Co Op converting them. So he figured out that you could, instead of keeping them as rentals, you could sell the apartments effectively, like condos, to individual owners. So at that time in history, the apartment buildings were super cheap, New York was really screwed up in the 70s. So it was really cheap to buy buildings. And yet people really wanted to own apartments. And so there was this incredible arbitrage where he could buy cheap buildings and just immediately turn around and sell the apartments off to the individuals and make a fortune. And what that did for a very long time before other people caught on to what he was doing is it gave him a differentiated lens. A shitty apartment building would come up on the market in New York. And he and all of his competitors would see the same deal, same building. Because Greenberger was going to do something different with the building than all of his competitors – they were going to run it as rentals. So they’re evaluating it like rentals, and all of them are like crabs in a bucket squeezing out little margins. And he’s like, ‘I’m not running this as rentals, I’m going to sell it as condos. So the building is worth way more to me than it is to all the crabs in the bucket’. He had a differentiated lens and he was looking at the same asset in a different way that caused that asset to be considerably more valuable to him than it was to anyone else.
And the power of a differentiated lens in business, and particularly in private equity, and especially real estate private equity is you can see the deals that everyone else is seeing and you still win the deals and you still produce good returns? Because you’re doing something different because you have a differentiated lens.
Dan: So coming up is the second chapter of this interview with Moses Kagan where we get a little bit into his backstory, and where he dives in some detail into the strategies and frankly the mathematical principles he has used to drive the success of adaptive reality.
Moses: So I’m in London and I graduate from London School of Economics, get this job in banking and do a couple of years there. I was involved in a deal that brought in a big chunk of our firm’s revenue one year, and I basically went and I was like, ‘Look, you guys got to give me a really big bonus’. And they were like, ‘We don’t do that because you’re Junior, and we’re not going to break our whole salary structure for some Junior guy’. And I was like, ‘I’m gonna leave if you don’t’. And they were like, ‘We’re not bluffing. We can’t give you the bonus that you’re asking for’. And I said, ‘I’m not bluffing either’. And then they called my bluff and so that I felt like I had to quit. So I quit banking. But I knew I wanted to do something entrepreneurial. And I also knew that my network was all back in the States. So I came back here in 2007 and in September started a tiny little crappy SaaS business.
Dan: We’ve all had a crappy SaaS business. What did y’all do?
Moses: Well, let me give you some advice. Do not attempt to create a recurring revenue business that is based on actors’ credit cards not being declined. We were providing technology servers, services to actors and casting directors and charging the actors, basically. And like, we were like, we had this recurring revenue model, which is like a really good idea. And I think we were actually early in thinking that. We had the right ideas. The problem is that actors’ credit cards would get declined at 30% a month or something. So we had a recurring revenue business and you instantly have 30% churn, I mean, it’s a disaster. Anyway, in the course of that, my brother and I were looking, this is like, pre crash. So my brother and I are looking for a real estate bug just like everyone else. And we’re looking for a duplex to buy like two apartments. And we would love I would live on one side who live on the other and
Dan: And by real estate bug. I mean, I lived in California at that time. Maybe a little bit like you’ve seen the last six months in terms of people just doing whatever it would take to get into a house.
Moses: Yeah. And I think but even crazier than the last six months because the loan companies, they just didn’t care. No one was like doing credit checking or checking your income, it was crazy. II think it’s good for your younger listeners to hear this. As crazy as everyone thinks things are right now it does. It’s not even close to the way it was back then. Because now at least the banks actually care if you can repay the loan. Back then. It was like pandemonium, no one cared. So we’re trying to find a duplex. But my brother ran across this guy who had bought a derelict 16 unit building and renovated it. The guy’s was super entrepreneurial, but he was not well capitalised. And so right as he finished the product or was finishing the project kind of ran out of money. And so he was desperate to sell. So even though the market overall was really inflated, this particular deal was actually kind of reasonably priced. And we had help from this residential agent who was like a buddy of my brothers who didn’t know anything about apartments. And our parents gave us almost all the money. And luckily, we found some bank that was willing to make the loan, mostly because we were putting down a large down payment. So they figured, like, ‘Hey, you know, chances are these guys are not gonna like default, because they put down such a big down payment’. Anyway early 2008, we found ourselves owning this empty 16 unit building. Actually, we still own it, it’s ight around the corner over here, with a gigantic mortgage payment coming due. And so we so so the bank had forced us to hire a management company, we hired them and like we started leasing the building.
Dan: At what point were you, ‘This is what I’m going to do with my life?’ Because essentially, you’re at this moment, you’re just trying to get a piece of this incredible pie that you see all around you.
Moses: So we buy this building and we go through a bunch of pain to get at leased up but we do. And then and it’s working out okay, it’s more than covering the mortgage, cash flowing are in good shape. Then the economy falls off a cliff. This is now 2008/9 and the writing was already on the wall from Lehman Brothers I think in Fall of 2007 but it took a while to work its way down to like tenants in Los Angeles. Anyway, the rent started going down, all over the media, there’s like, you know, an apocalypse is happening, people going out of business, bankruptcy, all the stuff. Foreclosures. So real estate goes on sale. And a couple things to say. One is, a lot of the people who were experienced real estate operators at that point, had two things working against them. One, all the pros had been buying up real estate in 2004/5/6/7 and got their asses handed to them in 2007/8/9. And so all of these pros are licking their wounds. They’re dealing with their own problems that their banks and their investors and their tenants, so they’re distracted. And then the other thing to say is that a lot of those pros remembered that things had gotten really bad in the early 90s. And this incredible buying opportunity emerged in the early to mid 90s where people made absolute fortunes. And so the real pros were waiting for that to repeat itself. And because of government policy it never did.
Dan: Didn’t go low enough, basically.
Moses: The serious gangster real estate people, who really know what they’re doing and could have got capital, even though it was very hard to raise capital then were saying, ‘Wait, let me wait until it gets really cheap’. And I never got that cheap.
Dan: This is when that invisible force whose power we often touch on the show – your network, and one of the reasons that Moses had indeed returned to the US from London – came into play. And in this case, it came in the form of an old school who had made a killing, running a hedge fund.
Moses: The problem that he had was if you’re making tonnes of money in 2008/9, what do you do with it? Do you give it to Lehman Brothers? You give it to Goldman sachs and Goldman Sachs had to convert to a bank holding company to get federal support so that they didn’t go out of business. So anyway, real estate goes on sale, including in the neighbourhood that we’re interested in. My friend has all his money. And we went to him, my brother and I were doing business together. We go to my friend, we’re like, ‘Listen, there’s this deal we want to buy. We don’t have any money for it, but we think it’s a good deal’. And we bought the first building. And we screwed up in about a million ways. But fundamentally, it worked. And so he saw that, and he just backed us for another deal. And another deal and another deal. And in the course of a few years from early 2009 until early 2011 we bought our second through 12th deals. All on his moneyAnd so because we were iterating really fast, we just learned a tonne. ‘Okay, that didn’t work. Like let’s fix it next time. Okay, that worked. Let’s do that next’. And it’s a complicated business. But because we got so many reps so quickly, we went right up the learning curve very fast. And the other thing to say is we didn’t have anyone telling us what to do. It’s crucial. We weren’t working for anyone else. And he was not on us day to day about the decisions we were making. There’s a lot of mistakes that we made that we could have avoided.
But we also avoided being unduly influenced by conventional ways of doing things, we had to figure it out ourselves. So we figured it out. And the way that we figured out how to do it was just different than what other people had done. I’ll give you an example. My friends one stipulation was that we not use debt, which if you ask someone who does real estate? should you do real estate deals with no debt, they’ll fall out of their chair. But he was thinking, look, if they don’t have mortgages, how bad can it get? If there’s no mortgage, no one can take the building away from you. It’s a very profound insight. A lot of real mediocre real estate deals can be made to look better by using a lot of debt. So to make things good we actually had to add value, they had to be good deals, they couldn’t be mediocre deals where we use debt to juice the returns for everyone. Those insights are fundamental to how I think about real estate even today, 100 deals later.
Dan: You also mentioned that using leverage puts your deal to the mercy of the debt markets. And we try to avoid putting ourselves in our investors at the mercy of forces that we cannot control.
Moses: That’s right. There are a tonne of loans that are called balloon repayment loans, where there’s a set date on which you have to repay the loan. In general, your choices are: you either have to refinance the loan, like go get another loan that pays off the first loan, and then you have your new loan, or you have to sell the property. So one of the things that we learned very early on around 2009 was, because even though we weren’t allowed to use debt by 2010/11 we sort of started to talk about it. So that taught me this lesson, which is to say that it doesn’t matter what rationality shows you on your spreadsheet, sometimes you’re not going to be able to borrow.
Dan: Banks are irrational. Well, they can be.
Moses: They can be, they are not necessarily irrational, they might have an institutional prerogative where they’re just like, ‘We don’t care that the numbers make sense to give you a loan. We’re not making loans right now’. This happened during COVID. This past year COVID happens. And the debt markets go: closed, no loans. So the problem is if you have a balloon repayment that says you need to pay off this loan at this date, and you find yourself in one of those crises where the debt market is just like, ‘Sorry, we’re not loaning’. Those are also the worst times to sell. And it’s totally preventable. You don’t put yourself in situations where you are dependent on the debt market operating the way that it normally does. Don’t do balloon loans, or only do balloon loans where you’ve got a big multi year long window before you have to refinance so that you’ve got enough of a shot that the debt market will heal itself over a year or two, and you’ll be able to get your loan. Fundamentally, you just don’t want to be in a position where someone else can dictate, or other forces outside your control can either take your building away from you, or force you to sell it.
Dan: And it’s especially important for you because you’re modelling this approach that wealthy families have long used essentially, on behalf of your LPs, you’re not looking to flip this stuff, you want to hang on to it. And there’s a couple interesting ways you approach that. So you have this formula. I’m going to try to read it to you. So you take the forecasted annual rents of your buildings minus the forecasted annual expenses, and you divide it by the cost to buy plus the cost to rehab that equals your unlevered yield.
Dan: Describe to me what an unlevered yield is, and how you structure the deal such that your LPs participated in it or your wealthy friend who runs a hedge fund versus you as the guys who are pulling it together?
Moses: Those are sort of two different questions. There’s the question of what’s unlevered yield on cost? That’s a metric we use to evaluate deals and how profitable they are. And then there’s: how do those profits get divvied up basically, among us and the investors?
Dan: So on that first with unlevered yield, that’s that core number that you’re looking for to find quality, essentially?
Moses: Yes, because that gets at the heart of like, are you doing something that’s mediocre? Or are you actually creating value? That’s kind of what I was talking about before. Unlevered means, or unlevered, means no debt. Rents minus expenses in the numerator. And in the denominator, it’s the cost to buy the building and the cost to rehab it. Nowhere in there, does anyone mention mortgage payments. In other words, it treats the whole project like it’s done in cash. Assuming you buy the building and fix it up with cash, how much cash should you expect to get each year? How do you decide if that’s reasonable or not? Well, you always know that you can go into the market today, you can go there’s a bunch of buildings for sale in Los Angeles, you can go pick one out that’s a reasonable location, that’s a reasonable shape, and you can pay cash for it. And you can expect to receive somewhere between three and a half and four and a half percent on your money every year from buying that, again, no mortgage, no nothing. You go buy a fixed up building. You pay a million bucks for it. You will collect your rents all year, you’ll pay your expenses all year and what will be left over at the end is 35,000 dollars, or $40,000. So if you’re going to go through a bunch of brain damage to renovate a building, city permits and construction and god knows what else, squatters. I can tell you the stories that will make your toes curl. The question is, what is the yield going to be because you get the $35,000 without just doing any of that. You can get it from just buying a building.
So the answer is, you want to make sure that that yield materially exceeds what you could get by just going out in the market and buying a building. It kind of depends on the capital source. In other words, who the investor is, who’s going to partner with us in the deal, and what they want, and all that kind of stuff. But generally speaking, if you can buy a three and a half or a four, just in the open market, for us to have a job, for our company to exist, we need to be able to create yields that are five and a half or six.
Dan: That leads to the second part of how you’re structuring the deal then with the LPS.
Moses: So in general, we use a very plain vanilla structure, real estate private equity structure, and that is – investors give us money, we owe the investors a set preferred return on that money every year. So like 6%, or 7%, whatever the number is. And before we participate in any of the cash flow from the building, or profits from the sale of the building, or proceeds of the refinancing of the building, we first need to give the investors back all of the preferred return that we owed them, all that 6% or whatever, and all the money they invested.
So basically, you give us like a million bucks, we need to get in, we’d have it for two years. And the preferred return is 6%, that’s $60K on the first year, second year, $60K again. So at the end of year two, if we’re going to give it back to you, we need to give you back $60K plus $60K is $120K plus the original million. So once we give you back the $60K plus $60K plus your original million, then typically the investors get 70% of the future profits, and we get 30% of the future profits. One way of thinking about it is the investors are sort of renting us their money at 6% or 7% a year, whatever it is. And in exchange for doing that. They also get a perpetual 70% ownership share in the building, and we get a perpetual 30% ownership share
Dan: They get paid dividends on that 70%.
Moses: Yeah, exactly. In the beginning, there’s usually refinances and cash flow from the rents. However we can we’re funnelling money as quickly back to them as possible to try to get them back their preferred return and their principal. And depending on how good a deal it was, that will happen sooner or later. The fastest we ever did this, I think, was 18 months.
Dan: Are you competing then with other PE firms in terms of those deal structures in particular? Is that how you compete? Or is it more like a trust and relationship thing?
Moses: That’s a good question. There’s certainly a market for different terms. Some firms will do 80/20, and some firms will do 50/50. And sometimes the pref is zero, and sometimes it’s 10. And there are all kinds of fees, the structures can actually get pretty exotic. If your listeners are interested, there’s a book called ‘Investing in Real Estate Private Equity’ by a guy named Sean Cook, it’s actually a pseudonym. He walks through all the different ways that these deals get structured. We happen to use, as I said before, a very vanilla version. And so there, so yes, there is a market in terms of the terms, but I would say that, within reason, if I were someone looking at investing in a deal, or not, the things I would evaluate are like: what do I think of the sponsor? What do I think of the deal? What do I think of the terms? You’re never going to know the deal as well as the sponsor. The sponsor is going to know a million times more about that building than you are. You’re at such an informational disadvantage. So way better to find sponsors, who you trust, who you think are smart, and will treat you fairly. And if you find sponsors who you think are smart, and will treat you fairly, I’m not saying you should ignore the deal or ignore the terms. But those things are of much, much less importance than: is this a smart person you’re investing with? And is this person trustworthy?
Dan: Very cool. Well, Moses, there’s maybe 10,000. You know, entrepreneurs are busy working day to day, most of them not nearly as far along as you, folks that are heading on your path, what sort of maybe a standard piece of advice that’s helped you over the years that might be valuable to them today, while they’re walking around listening to us talk about real estate.
Moses: I guess I would just say that it’s incredibly rare in business that you start doing something and immediately itt’s awesome. It takes off, blah blah, particularly in more traditional service type businesses. It takes a while to get the ball rolling, get the wheel turning. And it has to do with referrals, and your name getting out there and a reputation developing and you getting better and people understanding that you’re better. And those things, there are ways to accelerate them but fundamentally, it’s a compounding process. It’s a slow, steady thing. It’s so easy to get discouraged one year, two years in and three years, you’re looking at everyone else, your friends, your contemporaries are making more money than you and you feel like a failure. And I can’t tell you like .. some businesses you should give up. It’s not like ‘stick to it come hell or high water’. But if you’re seeing real progress, if you are like, even at a small scale, if you’re delighting customers, in this case, our investors and our tenants, if you’re generating good returns, if you’re growing, just keep trying stuff and don’t stop. Just keep crawling. And eventually, all of those little improvements compound and your reputation compounds, and you get referrals. So anyway, this is a long way of saying, if you are seeing improvement, and growth, do not give up. Just keep pushing through and you will be amazed what you can accomplish through focused effort over a sustained period of time.
Dan: Big shout out to Moses Kagan, co-founder of Adaptive Realty. Check him out on his insanely wonderful Twitter account at Moses Kagan. And to echo Moses, we are not going to give up to that and we’ll be back next Thursday morning. 8am New York time. We invite you. We invite you, as always, drop us those emails. We invite you as always to drop us your emails and comments. We’ll see you then.