Top Advice: How to Scale Your Real Estate Investments
What are some top advices for an investor looking at growing their portfolio and taking it to the next level? Chris Rising, co-founder and CEO of Rising Realty Partners, shares his top insights on scaling, delegating and syndications.
Tell us a little bit about you? I've been in the business of real estate since the 90s. I started my career as a lawyer and then worked at a company called Fishman Realty for a guy named John Cushman.
I started my principal business in the early 2000s- 2003 and I built from there. I had a little bit of a two-year window where I worked at a public company and then restarted what we know now today as Rising Realty Partners. My father and I restarted it in 2012. Since that time, we've gone from buying one asset, an office building in downtown LA, and we built that now to over 5 million square feet. We own office and industrial in downtown Los Angeles. We also own between Texas, Colorado, Nevada, and Sacramento, California. It's dynamic and interesting, and at times painful given that we own office.
You have scaled your business to an incredible level. What are some of your top advice for an investor looking at growing their portfolio and taking it to the next level? If you're talking about scaling from a syndication level, that's a different model and it's one that we participate in, instead of doing it as a private investor, partnering with allocators of capital, like private equity firms, and insurance companies. On the syndication level, one of the keys to syndicate in a digital world is that it has all of the fundamentals of syndicating like we did out of your church, or out your Country Club, or anything like that. Those investors do expect, as they should, a lot of hand-holding, and a lot of communication. And there's a lot you can do digitally now that you weren't able to do before. You're really in two businesses, and maybe even three if you're a property manager. You're in the business of identifying real estate that you want to buy, you have the acquisition side, the operation side, and the investor relations, syndication business. That's what our business looks like.
On the operations side, we have asset managers who are more experienced in the real estate business, they have an MBA that oversees, maybe five assets or four assets. We have property managers, we have four or five people in the acquisitions team, and they are finding deals and underwriting deals. And then, we have about three or four people in our Investor Relations team. The mantra of my former mentor, or of my former boss, John Fishman used to say is, “You have to find them, mine them, and grind them.” And so, you have to be able to find the investors, you have to mine them, and then you're grinding, you have to keep communicating and you have to keep growing.
I just walked by one of our Investor Relations people a few minutes ago and said, "Are we communicating with the GPs? I feel like we're only active with the LPs. Let's figure out content, let's figure out ways to communicate with the GPs because they sit on our sites, and sometimes we don't send ourselves content. You're wearing three hats and you're hustling all the time to make sure you're communicating with people.
You can raise millions of dollars from one person if you keep communicating, even if deals don't meet the return that we project. That doesn't happen often, but it does happen. I've been in the business since the 90s, and I have seen at least three full recessions. It doesn't always happen the way we hope it would, but if you communicate with people, they feel like they're part of your team and they understand the issues that you have. If you don't communicate, you'll never hear from that investor again. We live in a world now that you can communicate not just through social media, but you can communicate directly with people. When I first started, I was spending the time every quarter, writing out a two to three-page summary of what happened in the leasing and whatever it was. And these were typewritten letters that would be sent out. Now, there are a ton of software out there, from Juniper square, which is a very popular, very sophisticated software; to IMS, that are portals that you can communicate with people. But have to have the content too because we've moved past a world where someone's okay with just a quarterly report, they want to know you're in the market. So you have to communicate with them that way.
As far as how do you scale, it's a challenge because no matter how much we want to all think that we are exponential thinkers, that we can do things exponentially. Our reality is most of the stuff we do is linear. You find a property, you like the property, you start to underwrite it, you start to talk to the brokers and then you get into this process. And maybe you can buy it off the market, you have to participate in the process against two or three other people. It's very hard to do that, and then you have another property that you're doing the same thing with. Then the teams get bigger, but you don't want to get too big because things go up and down, so how can you use technology? We haven't figured it out perfectly but we talk a lot about thinking exponentially on our acquisitions, so that we have enough product.
I get a lot of pressure from our investors, they say, "We're not seeing enough deals from you". But there isn't enough deals. Your investors want quantity, but you can't sacrifice quality for quantity.
My advice is that the first thing you have to do is understand that it is never bad to over-communicate, and it is always bad to under-communicate. I also know how hard it is, because you get stuck in negotiating a lease, or something broke, etc, but if that's not consistent, you lose trust, and when you lose trust, you lose investors, and the word goes out very quickly. I think there are some great books out there on syndication. Dr. Jerry Buss, the owner of the Lakers, was one of the first great syndicators in Los Angeles. That's how he made his wealth, buying West Side apartment buildings. He was a professor at USC as a young guy, and he started to put together other professors' money, and then that built on itself. And by the time he got to the position in the late 70s, to buy the Lakers, he sold a bunch of his assets. My point is, syndication has been around a long time. It did fundamentally change in 2012, and I think positively, because they passed the Jobs Act, which allowed people to scale their syndication efforts. And what we that was you could directly solicit accredited investors. Before that, when I was doing any syndication, I had to put together my private placement memorandum, my subscription agreement, I had to number them all, and if I sent it to somebody and if they did not invest, I had to get that back because the SEC would come looking for you if you did this on any sort of scale. The other thing is we had a ton of blue sky laws, and we still do so this is not legal advice, but you have to be careful which states people are in that you solicit from.
Original indicators really were syndicating after church on Sundays, or temple on Saturday, you'd be talking with someone and they would say that they want to be in that deal. And now it has grown to where you could communicate with the globe and take investments from the globe. And by the way, taking investments from offshore investors has its own set of problems. We've done that on our private equity side of the business, but not on the syndication business.
One of the things that people may be aware of is we have two sides to our syndication business. We have our own investors, we call it the Rising Investor Platform, and we have a group of general partners, that's on one side. And the other side is we partner with Realty Mogul, CrowdStreet, Cadre, they raise the money for their commitment. And then, after the investments start, we communicate with Realty Mogul and they communicate all the investor reports to them. For scaling, that's how you do it.
One of the hardest things we're dealing with right now is how do you scale the business in an environment where it's really hard to buy? And I don't have a good answer for everybody. I can tell you that are now in May 2022 and the world in May is extraordinarily different than the world we had in January. Interest rates have changed deals, and forced us to abandon deals that we liked. It doesn't mean that you can't invest in a higher interest rate environment, I've been around a long time, and I've seen interest rates a lot higher than they are today, but I think it's a little scary when, for the first time in 25 years, that they went up 50 bps in one meeting. When people talk about the first quarter of 2022, they will be saying that things started to slow down a little bit, because people are just waiting for direction. But then you have loyal investors who really want to go to the next deal and the next deal. And we're saying, “Sorry". We had two two industrial projects at the best and final where we could have won, and we pulled back on both because we were concerned about where our debt was going to be, where our mortgage payment is going to be. It'll settle down, I think the Fed has said it's going to be 25 bps, and I think the economy is going to slow down a little bit, and you'll see unemployment go up, and then those will present some good buying opportunities. But it's that balance of you don't want to give people a bad deal, but if you don't give them deals, they could go to the next person.
On that one, you just didn't know exactly what your rate was going to be because you couldn't lock it? No, what happened was the rate that we underwrote was different, a lot of these things take a while. You get the offering memorandum, you underwrite it, you go through the process and 60 days have gone by.
What happens then? Do you ask for the better price? Well, you certainly can. In the last two they had other bidders willing to buy at that number and we passed.
How you approach things when you want to delegate things? And when do you want to partner up with people, and what is your process for partnerships? I have enough scar tissue from bad partners, but I don't want someone to interpret bad partners as a bad human beings. I don't mean that at all. When I say bad partners, it's just that our interests and/or expectations were not aligned, and it gets very difficult. The interesting thing about investing is that everybody's nice when things are good. When you lose a big tenant, or there might be a capital call, then not everybody's so nice. And that can also be within your partnership. It's not only outside investors. I wish I could tell you that I have this wonderful method after so many years to identify partners, but I don't. What I do know is that if I'm talking to someone about being a parter, and if I can't make the decision right away, I'm thinking about things, I usually say no. It's not always a scientific method.
The other thing I have learned about partners is, if it's too good to be true, it isn't true, so it's better to run away from it. I had a partner once, who was probably worth a billion dollars, I said, Wow, if I bring this person in and we partner with them, we're going to raise all the money in the world, and it was a total disaster. When someone comes to me to want to be my partner, and it feels too good to be true, I immediately get suspect.
On delegation, the hardest thing you can do is to hire people. And the reason is, you really don't know what people are until they've been in the company for a while. Everybody puts on a great face for the first 30 days, 60 days, or 90 days. One of the things that we've started to do is we make sure that they take tests to know if they can do their job. If you're going to be an acquisitions person, we're going to make you underwrite two or three buildings before we hire you. If you're going to be an asset manager, we're going to make make you do a bunch of tests on how to report to partners and things like that. I used to think that that was kind of rude, but I'm over that. Unless you want to retire or go into a Chairman's role, you never can fully delegate. You have to have systems that allow you to use your time most effectively to make sure some things get done correctly.
What I've learned over time is, when you buy off market, it doesn't mean you're getting a discount, it usually means that you're probably getting a higher priced property than a cheaper one. But you never know, the best way to buy off market is when there's distress because you may get a discount. Today, most sellers are going to hire a broker to have a deal fully marketed because that's what you want as a seller. You want the market be creative, which is why I put so much value in brokers. I'm not cynical about brokers, they earn their fee, I think a lot of owners discredit brokers and I think it's totally unfair and inappropriate, because the owner doesn't know about the 15 times a person spent their time and did all those things and didn't get paid.
For us, what we're trying to do is come up with technology, ways to get the funnel as wide as possible for all these deals coming in, and then filter them without human beings doing it, to get down to deals that we think we would like. It's work in progress. But in terms of how we get more deals you have to have systems in place. There's a theme in our business that we didn't have when we started which is called SOPs, standard operating procedures. My partner Scott says all the time, do you think people came up with a flight check for flying airplanes out of thin air, do you realize that every step at a flight check is because someone crashed and died, and they said this is what you have to do next. That's why in our business, anytime something gets goes wrong we say, what's the SOP, where do we store it? And that gives you grounds to terminate somebody if they don't follow the standard operating procedures.
If you want to create wealth for yourself, and you want to do these things, it's not easy. Anybody who thinks, Oh, that guy has made so much money sitting on the golf course, I can guarantee it, he's not a great golfer, because his mind, or her mind is thinking about every deal. It's in their head, you're in the game. If you want to get out of the game, you're out of the game, but you're not one foot in one foot out.
Can you give us a day in the life? It does vary. I do have three kids, two 17 year olds and one 12 year old, so a lot of my life is dictated around what their schedules are. Every morning I walk around the Rose Bowl, that's been something that I find very important. I also discipline myself to not check my phone first thing in the morning. I need to get my time done early. And then, I have a routine about the first thing I do is, we use a project management software called Asana, which I can check from my phone or anywhere else. That'll be the first thing I do before I go to email. I see internally what are the things I have to get done, then I compare that to my calendar, and I make sure that I have the time in the day. I really only try to get three things done in a day, it doesn't mean I don't touch 15 other things, but I try to get three done, then I go to my email. To me, email is what everybody in the whole world wants from me. And if you start there, you're starting your day trying to please everybody. And it's such a hard thing to learn.
The other thing I found as I've gotten older, and more mature in the business, is that it's not about getting the work done, even though that's my first reaction, I'll write the response, or I'll write that letter. I have to gather everything, and then I have to start delegating things. We don't allow email internally because you can't track it, if there's some task that comes out of an email, we forward that email to Asana, and we start assigning it. What I feel is my most important time is when I'm in Asana, delegating tasks, overseeing what tasks got done.
The other thing I would say is I need time to think because I can't be the one who's reactive all the time, we have people that that's their job. And that's really hard to schedule in, I try to find an hour or two in my day where I'm trying to think about the problems, these are all skills that when I was hustling, when I was a young broker, I never thought about. And now that I'm getting older and I'm trying to scale well, and when you scale, you have to be able to delegate, you have to think rationally about all the things that need to get done, and how they need to get done.
I've also had a personal coach for 10 years, I also did a program called Strategic Coach with Dan Sullivan, which was really helpful and he talks about how you break up your days, you have focused days, and you have off days and all that. I can't tell you how valuable it has been for me, once a week for an hour, to meet with a coach to talk through what happened, and this person is not in real estate, they help you with things like, Have you thought about these things? Are you holding yourself accountable? I was an athlete in college so I like having coaches. It's been really valuable when I think about scaling issues or dealing with employee issues because they're not always necessarily specific to real estate. independent voice. I know some people say that that's the last money I want to spend, on a personal coach, but it has made a huge difference for me.
That's why masterminds are so popular. Is there something else you think we should have touched on? The only other thing I didn't talk about which I'm a huge believer in and I evangelize a lot is, you have to read. So many people don't read, find books, listen to them, and don't feel like you have to finish every book you start, you're not in grade school anymore. Read as many books as you can because so many of the ideas I have are because I read books or I read magazines. You can learn everything about the world, there are so many books out there, spend the time to read. So many of our ideas usually come from something I've read, whether it's through Twitter, whether Twitter leads me to the next blog, and that blog leads me to a book, and then I try to go through the book. And if I get bored with a book, I don't feel like I have to read a book from start to finish. I get a few ideas and move on. But don't get so caught up in your business life that you're not spending time reading.