What is happening best over listeners? This is Matt Faircloth and welcome to the best ever CRE show. This is my segment called next level CRE giving you all kinds of ideas and aspirations on how to take things in your business to the next level. That's right. We're going there. Come on. I got a great guess for you guys today. I want you guys to listen for a few elements that we talk about in today's show. We're going to be talking about going from a onesy-toosy syndication model and to over to funds, maybe a open-ended fund. I want you guys to listen for what Brian and I talk about when it's time to do that in your business. That's a great element here. Also, I like the overarching theme about this is playing the market timing, understanding where the market is for the asset class that you're in and when it's time to pivot or change strategies and those kinds of things. The market, no advantage in front of my gave me years ago. You cannot change the market. You can only hope to participate in it. I really like that adage and that's really something that is evident throughout this podcast is how to participate in today's market. Let's go ahead and bring Brian Sutton into the studio. Brian Sutton, welcome to the best ever CRE show. How are you today? I am out privilege to be with you today. Yeah, privilege to have you, man. You and I were talking offline and we were talking about the brain damage of doing one onesy-toosy syndications. You probably could share a lot of stories about why doing it that way and your company is transitioning over into funds. What was the epiphany that you had in going from one-offs and we can unpack and I can certainly tell you stories on my side because my company's doing the same thing. I think a lot of folks that I respect in the industry are doing that too. Why did you choose to do it? What was your epiphany aha moment that brought you that way? Super interesting question, Matt. Appreciate you asking it and it's cool that we're in the same eco sphere and doing very similar things and it's always good to find people that are kind of on that same trajectory and path as you. So at two waters capital founded about 10 years ago, we started doing a lot of single syndication stuff like most people do when you start out in this business. You know, getting family friends signing up for individual deals. And honestly, it's a natural progression because when you're getting a base of investors that want to understand what you're doing, you want something, you want to present something that's pretty simple to follow, right? And following a single syndication deal is pretty simple to follow. You have a project. You want to enter the project at X. You want to exit the project at X. They can see where you're buying it like we are here in Atlanta. So we are first deal. We are buying a 124 unit project here in Atlanta. It was a walk up garden style apartment located near the airport. So you get, you can describe the investment to your investors pretty simply. And funds are just a little bit more nuanced. I'd have to say what's our evolution has really got to the fun space because of what the market just did and how we have seen just the unwinding of this last iteration of other market decline and how affected single single significations way more than fund managers. What are you seeing the market just did? Like tell me because it, you know, I think we all have our opinions of what the market just did. But I don't know if anybody's talking about it as publicly as I think they ought to be. What do you think the market? I mean, I get to tell you, Brian, everybody I think is walking around singing the everything is awesome song still, you know? All right. That's what I think from loud. If you got, I don't know if you got kids or not. I got kids and they, I've probably watched or heard and peripheral the Lego movie about three or four dozen times, right? Yeah. And that song does get in your head just like the other songs they play, right? And I feel like our industry is it's fine. It's good. It's okay. Everything's good. You know, we should just keep on going and, you know, keep pretending like it's the past. What what are you seeing in reality happening in the market? That's hilarious. And you can steal it. I know. Yeah, I will. It's, it's, it's happens organically. It's not happened out of people that are in their industry that are bad people. It's just that when you are trapped with literally if you single syndicated deal and the market changes as quickly as it has changed, which nobody saw coming by the way, we could you never, you very rarely ever see a market change. And for those people that I was like, I predicted the 2000 crash, I predicted the L8 crash. I mean, great. Sure. No, you just got lucky. You just, you just pivoted the right way right before, you know, 100%. 100%. There's no, there's no crystal ball magic crystal wall. But you know, once back, I guess it was in in 21, 22, once the fed started running the interest rate up from a zero interest environment to over a four plus interest environment, commercial real estate, our business is very, very tied to the to the debt market. Our biggest investor is debt. Our biggest investor is our banks and our and our debt partners, you know, our debt fund partners. Good. Look at it. So yeah. And so when that ran, you know, it was only a matter of time before the cap rates were then start to expand because we were in a cap rate, you know, compression market for so many years, you know, this debt was cheap, money was cheap, cap rates were compressing because more money was flooding into the industry. And so once you, you tighten and you cut off the money supply, it was inevitable that pricing was going to have to come back down, right? Come back down the earth. So, you know, if you have one of these deals and you say you just started syndicating or you are a new syndicator or a new operator in this space and you started buying in 2021, 22, 23. Imagine that somebody just went to like one of those guru courses and stuff like that. I'm like, hey, man, I'm going to get out into mulch again, get with the cool kids and buy multi-family real estate. Yeah. 2021 is when they do their first deal. God bless them. And so, let's feel for them. What would you do? Right? What would you do? You would hang on for your life. You're not going to admit that your asset is worth less than you bought it for there's no way. You're awesome. It's fine. Everything's awesome. You're going to kick the can as long as you can down the road. And to be totally transparent and with you, because we're friends now. Oh, sure. We had a deal exactly like this. I bought in the last deal we bought was in 2021. I bought us deep value ad deal. This is like our, you know, we've been doing this for already eight plus years at that time. And we thought, oh, this is going to be one that we can do. We felt like we got in at the right basis. But guess what we did before the rate ran, we had a bridge loan. We had a floating rate loan. Why wouldn't you? You know, 3%, 3.5% right? It's like, it's like free money, you know? Of course, we'll do that. Yeah. And and and literally they'll cap rate. So, you know, the three worst things that you I could have possibly have done. I did. Oh, you mean no rate cap. No rate cap. Sorry. No, yeah. Yeah. So I mean, let's just wait. I'm going to pivot. I'm going to pause your real quick just for the best ever. Lister's what Brian is a rate cap. A rate cap is a quench. Oh, it's all the sense of game show. Right. Yeah. Define. Yeah. So if if you are to get into a floating rate loan, the lender, usually the lenders, now they will. It's almost mandatory. Well, make you basically buy down the interest and put a cap on the amount that you're mortgage industry rate can expand during the life of your loan. So they used to be low rounding years. There's like, oh, 15,000 for like a $10 million property for a little rate cap. It's like an I view to back in the days and insurance policy, you know, it's okay. It's fine. Just in case rates go way up way higher than they are now. It's there to prevent them from going much higher. Right. For sure. I mean, that that was I think like when I noticed things were different, I'll tell you, we bought a value add deal and we had a rate cap for 20k. Okay. We bought the property all good. I think it's a years of rate cap coverage. Not just one, right? Can you believe? And then we sold the asset like two years later and had another year left on the rate cap. And our lender was like, Hey, man, you know, you can sell that, right? I'm like, I can. I can. Is again, you can sell that rate cap to someone else that will want that extra year worth of coverage. Do you know we bought it for 20k, used it for two years and I sold it for $150,000. Right. Can you believe? And that's when I was like, Hey, this is cool. But wait a minute. That's not what if I'm on the other side of that? Right. And Matt, people were people have been and are continuing to do that types of stuff right now. Because everybody, if we're track backs, your initial question was like, you know, what's happening in the market? Everyone's been kicking the can. Oh, yeah. Right. Everyone's been kicked. You've you're pretending. It used to be extended pretend it's, you know, until 2025 survived. Yeah. That was a survive until 2025 thing, right? Well, 2025 came and went. I think most people thought this is going to be a blip. Didn't they? Did the bosses going to be like, Oh, it's just going to just a little bit just to shake off all that COVID money we printed. And we're just going to go, you know, like, right, we'll be back to party time. Right. You know, rates will be back down to 3% in just a minute and everything like that. But, but not, right? Nope. They've kept rate high. They're going to continue to keep rate high. I mean, just Friday, right? The Wall Street just basically baked in potential rate hike. Instead of we were thinking that by December, we get two rate cuts. You know, we got a new Fed share. There's just a ton of uncertainty in the market. And
You know what's cool about that though is uncertainty brings opportunity and And in markets like this. I think it if you know Fortune follows the brave where if you can be brave enough to be an investor in this market I think you're gonna do very very well The time I told you know a lot of our legacy investors You know the time not to invest was back in 2223 at the height of the market when money was flowing into it It was so easy to do to like all you got to do is the third best and final round you know and and and then just have one webinar when you're for the for your ten million dollar equity raise You know have one webinar and by the end of the webinar the ten million dollars is actually in your bank account You know that's all you do right then just go a little hope you're on there cross your fingers and and then and you'll be funded right yeah Yeah, yeah gone are those days. I mean it's it's very it's very difficult to raise capital out there right now You know even from it. We've we've kind of bridged into the more institutional side of things and even the institutional buyers and the Mid-market equity guys that are funding deals at ten million dollars plus are really have a tight win have a tight buy box Everything is really tightened up as it should be I think in a you know in a market where people are being I guess more prudent about their Underwriting and about you know Purchasing assets that truly makes sense day one, you know This is this is kind of the market that we are are living in right now right whereas a couple years ago We were kind of in a euphoric market where it's like hey everybody's made money for so long like to your point It doesn't really matter. We can raise capital quickly. We can get them to these deals quickly and They're just hoping that the music didn't stop so the chair got pulled out from under on yeah, yeah, so We're in a different different definitely different environment, but to me it's it's way more exciting I think it gets back to more fundamentals and it gets you You know it really allows it really forces you as an operator and as an investor To really kind of scrutinize That the the investment opportunity a lot more. Absolutely absolutely, and I think that it's one of those you would talk about I want to touch on one thing that you would say about the market right me like this is kind of like it It's not you know, it's not a you know three best and final rounds and everything like that on deals There's this old adage my father-in-law very very very Italian Brooklyn guy he always says he says Going to lie going into the line at Walmart, right? Because he prides himself that not getting the line with 20 people in it He'll poke around and find the line that nobody's looking at over here For 15 items or less that has three people in it can and he always says observe the masses and do the opposite And it's like it's a good way to live life the problem is that when you are looking to raise equity That's where the masses are like the masses is kind of want to follow the other masses and everything like that right But like that's not what money's and I'm screaming her from the mountaintop too In that like money's not made by observing the masses and doing what the masses are doing You're kind of like a lemming. Everybody's just gonna go walking off a cliff, right? Yeah So I Agree with you and I think that because a lot of a lot of the buyers are on the fence right now and sitting and a lot of the money is too This is the time to get in there's a lot of distress out there a lot of our opportunities to be had a lot of properties to get turned around a lot of Saving to be done of these assets That it I mean for me I see the human side of this business too people live in all these properties, right? And these are people's homes and it could be Made better and it's probably not getting run very well By current ownership because we're out of money um in that. So yeah, I'm I'm all with you Yeah, dad's a smart guy What you're talking about is contrarian capitals what we call it? You you've got to try to be contrary to what the masses and what the heard's doing like that as the oracle of Omaha said Be fearful when those are greedy and be greedy when those are fearful. Yeah, so more people right now are more fearful And I get it if you look watch the news few you know, I mean you would think the world's coming to an end But we don't know that it's not it's not like you know deep down. It's not coming to an end But yet at the same time There's so much fear and uncertainty in the market right now that it paralyzes a lot of people to I stop watching the news man You can't I mean because the news is selling subscription so that you can watch Toyota ads and stuff like that The commercials, you know like that's why they just want you to tune in so you can watch the next commercial In that so they want to sell you on fear anyway. Yeah, man. There's a lot. There's a lot going on right now And I get that I'm not discounting that but why look at that? I can't reopen the straighter humus, you know I can't do whatever it is that the media wants me to be afraid of right? I can't affect that personally So why am I watching it? It's like watching a car accident, but I can't do anything about it You know, so what I can do is I can do it some front of me to do I can you know focus on my local business and if rates go on I can react to it and everything like that and I can be plugged in enough that I can see where the hockey puck's going But why be Merced in all this fear BS that's out there. I'm with you sure or sure. Yeah, so where where are you leaning into what where do you see for your company The opportunities for for this things that are coming up. What is your I know you've got a fund that's leaning into a lot of this distress Yeah, what are you looking at what are you targeting it? How because the other part of it is finding deals because some of these brokers are still singing the everything is awesome song too And they're out here like oh, yeah, it's a five and a half cap no problem like Yeah, if you and you're five and a half cap get out of here. I got a borrow money my my cost to capables more than your cap rate So What are you looking at targeting and how are you finding it? Yeah great two great questions So we we did start back last year in 2025 a discretionary fund that's focused in on distressed cap uh distressed financially broken business plans Not physically distressed. We want financially distressed and when we set out to do that in early 2025 We started to find out exactly what you're talking about Matt, which is man these things are hard to find So it really is just about we've been fortunate that now we're going to close on our third deal within the fund So in November we closed on a deal that it was marketed but it was actually a bridge loan that was coming due The operator actually lost 100% of their equity Um, we just happened to find this deal because it it was smaller and kind of below an institutional equity would look for and we're able to pick that one up and then Subsequently a few months later we were able to because we got kind of back in the market Um and really started focusing on this stuff we we bought another deal and closed in February And that was a REO it was a foreclosed deal um Um 200 units But the you know the owner operator End of a bridge loan with a debt fund the debt fund actually took You know probably a $7 million loss or something like that off of the loan balance So it's it's really about kind of finding the lenders that are willing to make or here's two things It's finding the operators that have deal fatigue that just want to help They don't want to continue to go back to the well and say you know do prefer equity You know do a workout with the lender You know these are the guys that have just given up they're like I've deal fatigue Screw it. I know that my deal is worth nothing But I don't want to hold on to a deal that I'm underwater in for another three to five years Yeah Because I don't even know if I'm going to get my money back I can't keep pouring money into it So you got to look for a an operator who is done once the operator is done The bank will finally admit That they're sitting on an asset that's not worth what it what it was. I don't want it. Yeah And so there's a couple things been happening so that that was a true we went to the second one It was super interesting as it went through a true foreclosure process That takes forever by the way and it's it's a headache and a pain in the butt because you've got Multiple lawyers multiple people and think about under unwinding one of these debt funds There been the debt funds been rolled up and sold and you know, I mean These guys it's someone by Wall Street. Yes, and Wall Street doesn't want the real estate They just want their coupon. It's what their monthly payment like wait a minute. Where's my check? What do I do? You know right and they just throw lawyers around for you know You probably got a bunch of lawyers in the room and everything like that You've got a lawyer to represent every person who's touched that you know Touch that loan touch that credit source and so it's just it's not very fun But it's worth it in the end because you reset the basis for your own investors etc The real interesting one that we're working on right now And we've been doing it directly with a bank. So a bank that we went full cycle with did really well in the past came to us at Hey, Brian. We've got this guy a property that's in your backyard in Atlanta. This guy is totally burnt out He's gonna lose $7 million of equity, but he's just done He doesn't you know that loans coming due. Here's what we're gonna do If you assume the loan, you know, we're gonna give you a creative financing We're gonna fix a rate for you. That's lower than market And we're gonna give you interest only for the next five years if you guys will come in or read it Because what the bank doesn't want to do is take a loss in the balance sheet right now, right? No If it had to go to market It probably would have taken maybe 80 80 cents on the dollar. So maybe a 20% loss Now people would ask well, why don't you just do that? Why don't you just take it you know have the bank to take a 20% loss Well They made it Beneficial for us because if we had to buy that and the in the normal market, right? We would have to get a loan that the loan amounts way lower than that Sure, right? And then now we'd have to get market terms on the loan which as we all know, Brian
and bridge debt, short term debt, or even long term debt, is actually a lot higher. And so even though, and we'd have to raise a lot more capital, put a lot more capital at risk, right? So this is allowing us to one, help the bank out, but also help ourselves out in our investors where we have to put a sliver in, less in, because we're gonna get a creative financing or a financing that's better than market, to even though maybe we're paying a smidge over what, you know, the basis might be today, if we have the reset the basis in reality. So it's been like, Matt, it's been a fun time, man. It's been so much more fun to, you know, negotiate these types of deals. You've got to get creative, you got to stay nimble and you have to just be well-networked and aggressively try to go out and find these things. But when you do, it's like, you know, my wife likes to collect sand dollars, you know, at the beach. And it's like when you get a sand dollar that's totally intact, right? Most of them are just crushed up and worthless and they just chuts in the sibel. When you find that one that's totally intact, you bring it home, right? You bring it home, you put it on the, - And books is in the special. - Right, yeah, yeah. Yeah, I love that. So for the best ever listeners that want to do what you're doing, right? That want to get out there and their own markets, you know, I forbid any best ever listener from investing in Atlanta, 'cause Brian's already called it. He's already got tips, okay? So Brian's got a dibs on Atlanta, you guys go somewhere else. - Yeah. - So, obviously, if you need help, I know, come on, if you need help and your listener contact us. You're in Atlanta, get a cup of coffee with us. We'd love to network with people. - There you go. - We talked about this, we're in the same business in the Southeast as well. - No, I know, yeah. - It was the same thing, by the way. I've got a fund as well doing very similar, you know, at Taro's Cigarette, my company, we're doing a distressed asset fund. Different markets, we're also in Atlanta in that. But also, I've gotten from you already offline that you're very giving and very open and you see, I think that you've got the good psychology as I do in that there's enough room in this business for everybody and that no one's really a competitor per se, you know, it's just someone else in the space. And yeah, they might look at the same deal you are and that's all good, but if you've got a prosperous mindset, there's lots of deals for everybody, you know, and that you've got to have a good strategy. So, for the best over listener listening, that you want to give a tip to, for them to go out there and find some of these distressed deals in their own markets, what give me like one or two actions that they can take to help them find, not everybody's gone full cycle on a couple of deals like you guys have with a lender, you proven yourself to a lender. So if you have best over listener, great tip from Brian, go call that lender and, 'cause they've all got distressed. But if you don't have that yet, what would you suggest they do? - So we've done a couple of things. So we reached out to our lenders, like you said, if you're more experienced, that is the best way, best traction, the fastest way to the deal. If you don't have much that what you can do is lean on some of your broker relationships and that people that have access to things like co-star, et cetera, where you can download everything in your, they have a list of loans that are coming due, that are bridge loans that we're taking out, and 21, 22, 23. And what you want to do is get a list from them of all the operators that are sitting on these deals that are kicking the can. And so what we did early on was, I hired somebody, but if you can't hire somebody, you can do it yourself. And then, you know, Nara down, you can have these guys that, you know, broker relationships that'll print you this stuff off, you don't have to pay for co-star, they can do it for you, right? And you Nara down to, hey, I'm looking for, I don't know, between five and 50, you know, in Lexington, Kentucky, where it is, right? And say, can you get me a list of anybody who's taken out a loan for any of these assets, right? That has a bridge loan. And so they can help you kind of narrow it down that then you then call, right? Start reaching out. We've actually still been talking to a bunch of owners. Now, nothing's come into fruition because here's the problem with owners. Like I said before, they have to get to the point where their hands, they've put their hands up and say, I give up, right? And so we haven't run into any of those just yet, usually by the time they get there, they're usually going back to their lender and giving up with their lender. So then you're going to be negotiating directly with the lender because the owner has no basically involvement at that point. - Yeah, my tip for the best ever listener is to get in front of the lenders and to try and find the asset manager, 'cause although we use the term asset manager in our business, the lenders do too. And that means something else on their side. Like the real estate's our asset, the loan is the lender's asset. - Correct. - So there is a person that manages a portfolio of loans called an asset manager at a lender. And so if you can locate the asset manager, I mean, you know what guys, look on LinkedIn. You'll probably call the wrong person and they'll say, no, I'm not the right person, but call this person and then you kind of do, play the seven degrees of separation game. That one person knows the next person, that knows the next person. Then you want to get in front of the asset manager that is over the loan on the property you're talking about and they will talk straight with you if they're willing to, if you can get them on the phone, they'll be very straight, but what they're dealing with and opportunities and what they can do for you. 'Cause they want to clean it, they're mission as an asset manager right now is to clean up that balance sheet. If that loan's not performing or if it's not meeting its debt yield covenants or if it's in, you know, ugly town will wear another, they will know immediately that, yeah, that property's not doing well. And here's what we can do if you want to buy it. Maybe get in front of the owner, you know, that kind of thing. - Yep. So. - Yeah, no, I think that's honestly a probably faster and better direction than we were doing. - Yeah, well no, that's fine. You can do what you're doing too. Here's my two cents Brian, tell me you think of this. My thought is I don't think the real estate brokers like the, you know, the markets and millichaps and all those guys of the world not just picking on markets and millichaps just people knew I'm talking about when I say broker. I mean, the real estate broker is not the mortgage brokers. The real estate brokers I think are no longer in control of this market. They used to be. They used to be the ones that were driving things up and up and up and up and up and all this best and final, best and final, final, final, final, final, final, final, final. You know, they were part of the run up. They were part of the problem, you know. And I think that they are no longer able to play that game. And I don't think most brokers that I talk to have figured out how to play this new market yet. And so they only want to list stuff. It's 95% occupied and is like a, you know, $25 rent bump value ad play. Right. Like that's, they still know to play that game. But that's not the game. That's not where the real money is anymore. And so by thesis is that the brokers, until they start being willing to list a 65% occupied property that's sucking win that has to close in 30 days, when they're willing to list that, then you got a conversation. But I have not seen that yet on the open market, you know? Yep. Yeah. And the ones you do see are lender driven. You know, yeah. It's lender forced. Right. The lender's got either a gun to the owner's head or that's an REO, already owned by the lender. And the lender called their favorite broker up that they work with nationally to put it on the market. You know, so best overlisters, we're going to see a quick break here from our sponsors. We're going to be back. And I'm going to talk to Brian because I'm here on Brian's website. He established in 2016. And his company has half a billion with a B under management already. How did he do that? What? How did he scale that quickly? How did it all of the scale stories, some of the origin here from Brian on about how he's able to build such a successful company as two orders capital so quickly? So stay tuned. We'll be right back. All right. This is going great, by the way. One thing I've noticed over the past years that almost everyone says they're using AI. 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When AI works where your team already works, people naturally use it, less friction, more consistency, and more time spent on the work that actually moves the business forward. If you want to see what that looks like for your team, check it out. Find out more at superhuman.com. All right, best of all, let's just we're back here with Brian Sutton from Two Waters Capital. I have a great conversation about the distress in the market, wiling into funds and everything like that. I'll bring it home in the fun conversation real quick, Brian, why we decided to get into funds is, I just too often, I would talk to an investor, get him to the finish line, and be like, yeah, man, you know what? I'm in. I'm great. I got 100K for you. And I'm like, awesome. You sit right here. I'll be right back when I find a deal. Don't you move. OK. And then I call him a month later when I got a deal. So I gave that money to Joe Smith or to whatever. And I, man, you can mean. I got you all that I convinced you about real estate. I got you all these calls. And I got you real estate. It's amazing now and all of a sudden you're in. And then I don't have a deal. And you're going to go through my somewhere else. I wanted to start having evergreen funds on the shelf that went into the market.
investor shows up and they're ready to go and they're ready to put them in to work. They can because I can tell you, we syndicateers forget this because we think we're the hottest things ever in the world. We are not the top 10 of their thoughts, you know, from a syndicate or from an investor. They're thinking about their family, their job, your investments they have, other stuff they're dealing with, trying to lose five pounds on the treadmill, all the things they're dealing with in their life. They could care less whether or not Matt has a deal for them. All they know is they want to invest in real estate and if Matt doesn't have a deal, they're calling Brian, they are. And so that's why I wanted to have something available when people are seeking an investment. It's there always. So that's why I did a fund. Is that a similar story for years? No, but it's, it is a great. It is a great, but that's a good idea too, right? What you're talking about is in a roundabout way, part of why we have the fund is exactly what you're talking about. You have investors that know like and trust you, right? Yeah. Then what you should really be doing is investing on their behalf. And that's what you're doing. You're saying, look, you know like and trust us, our company has proven, we're, you know, we've been dedicated to these markets and if you like our business thesis, then here's what we want to do. You invest with us and we're going to invest on your behalf. The opposite way is if, hey, I'm going to go run around, try to find a deal, then try to market it the deal, right, towards some investors and just saying, okay, well, now if you like the deal, just come on and, right, it's nuanced, but it's different, right? There. So when you have a fund, your building loyalty towards your company, not just if that makes sense. I like that. Okay. So they're investing in you and your brain power and your thesis as an operator. Yes. Over, over the deal. And it's like, I don't want, I want Lexington, I want, you know, whatever it is to pick a Kansas or whatever it is, that they're investing in your brain cells and what you're capable to do in, in your company and your ability to operate, to find and operate in fund deals. 100%. Love that. And Matt, that's more important than the deal itself. That's why I guess I got to tell you, Brian, I think that that's probably why as a best every listener, it's probably a good lesson to not go jumping in in your first for a, uh, real estate investor to go and start a fund because you don't have what Brian just referred to, which is the track record. I'm on Brian's website and it's great. And there's not a bunch of stock photos of multi family. These are real properties that his company has gone full cycle on. And so it's important. I think it's a good graduation point to graduate to a fund once you've proven yourself a bit to the market, but maybe not something you want to walk in, walk in with. Yeah, potentially not what we really part of it was what we wanted to do. What you're doing, which is your invest on behalf of our investors, but really what I wanted to do after seeing a bunch of these syndications get into trouble and these individual deals getting any trouble. And we had our own troubles. We had majority went really, really well. Some we had trouble on what I started to think was why do the biggest companies in the world, the black rocks, the black stones, why do they all invest in funds, right? They don't go out. I mean, they put money and individual deals, but they're all pooled capital into one big fund. And the biggest thing is because it's downside risk protection, justification. And so you can, you met, if somebody invests a hundred thousand with you right now and you, in your fund, you go by a property in Lexington, a property in Topeka, a property in wherever I don't know. Wherever. Yeah. Atlanta. Yeah. You're going to give them immediate diversification immediately downside risk protection because if one of those deals doesn't turn out as great as it should, and that could happen for multiple reasons, it could be, um, it always happens. Man, when you put a deal out to the single syndication out to the market, your single syndication paperwork, it's just funny. It says, I'm going to do 15.37% IRR, right? Yeah. Well, unless the wind blows another direction or unless anything happens that your assumptions point to that number, we stopped quoting exact IRRs like that a couple years ago. I do a range now because it's like, I have no idea what IRR is going to look like. You know, I can tell you we did the past. I can give you historical data. But what I predict this deal is going to do, there's too many variables that affect real estate. And so that's why I love your point in that there should be a blend. I mean, there's investments we had. There were smack out of the park single syndications. And there's investments we had that sucked a little bit of wind. They came in less than what the IRR target was, right? Would it have been great if I could have blended the two, you know, imagine your investors, right, that got in on the ones you hit home runs on versus the ones that maybe that they ran out of capital and they're said, they don't have capital. I've been giving you all I have. And they didn't get to participate in the ones that did even better. And then imagine the ones that didn't do well, right? That they just happen to be the timing, the market timing for them was like, and it didn't do as well. Man, I wish I could have pulled this all together so that everybody would have participated, you know, in some of the ones we hit home runs on. So that ones that we maybe just barely missed or we didn't do as well, it all blends out to be an amazing return. And that's exactly your point, right? It's like, I've never on an individual deal. We've never exactly hit our performance. I just help investors that I've never actually hit it. We think you're done really, really way over it. Or we've done, you know, maybe a little bit under it, right? But I never exactly exactly what you thought when you put on paper. And that's because that's because that's the world's and assumptions best over the list was when you underwrite a deal. You have to pull out your crystal ball and mine's broken. Mine's been in the shop. Many, many years. You know, I had to put mine on the shelf and I said, okay, I really have an idea of ranges. And that's why we do more stress testing for our deals and say, okay, what's the worst and best case scenario and the way things could happen and stuff like that? You have to play inside those inside of a spectrum versus like, okay, what if rents go up 5%, what if they go up 2%, what if they go down by 3%, right? What is it? Was it a deal? What if rates change that kind of stuff? But I think it's a full zaran in some ways to predict exact performance of a deal five years into the future. I can show you an underwriting package for a deal that we bought in 2021 that showed rates going up a full 1% prime. They were going to go from 3 all the way up to 4. Yeah, but I didn't expect them to go to 9. It's an AI chat that's already up to speed right there when you need it, and it works inside the tools and websites you already use without switching apps or losing your place. It's from the makers of Grammarly and whether someone on your team is drafting an email, summarizing a long thread or getting ready for a meeting, the help is already there. And here would have nobody was doing it. No, thanks, you're doing it. And that's a perfect example on why single, single deals and single speculation on exact performance is a fool's errand. It's just you're never going to get it right. Yeah, move it on. Growth, growth, years of business and a lot of real estate. Gimme your, was it, I wrote down here something about a, I think, 120 unit deal or whatever was that your first, did you walk into real estate investing, getting into multi-family already with that is your original investment thesis or did you, as I did, my wife and I, our first investment was at Duplex. And then we, yeah, we just started to, like, then there was this unit, then, you know, for you know, I'm buying a 10 unit. And oh, hey, look at us in double digit land, right? So we worked our way up into bigger and bigger real estate as we grew. Other people, friends of mine, and I'm not knocking the gurus, went and took a class, you know, a course on how to buy multi-family, got educated. And then, and then jumped right into the three digit multi-family space. Did you, did you do one of those, or did you have a different path? So I've been investing for 25 years. Very more similar to what you did was, my dad started, kind of got me hooked in high school. I would help him with his rental properties, right? He can't kind of solve what he was doing. Once I got out of contact college, she basically sat me down is like, I was renting an apartment, like most out of college, 23 year olds, whatever do it for you for not living in his basement. You're right. Yeah. Okay. Well, that's a whole other story there, man. Yeah. But we'll be next to the next podcast. Well, the kids nowadays that live in their parents' basements, but, you know, he was like, look, what are you doing with your money? You can't just blow this on rent and beer and girls, right? Like, let's go out. Let's find you a place. And so that's what we did. I bought my first like condo and I rented out rooms to my buddies, you know, that were, and so then I got hooked. And then it's just, it's a small, it's a small progression. And then you look at the kids.
back you're like, man, things happen quickly as you compound. Yeah. But I was doing that for a while, 1031 exchanging into bigger properties, due Plexus, four Plexes, then eventually got into the multi space, right? And then when I moved out here, got in a partner and operational partner that I've been doing, you know, 100, 200 unit plus like management of properties and just started kind of building out that network and being able to kind of grow and compound on all that. So it's been kind of a, it's been a fun journey, you know, it's been a fun journey over the years. But, you know, they're, it's been ups and downs, right? Like any 25 year journey, you go through multiple market cycles, you go through ups and downs. And then what you hope to do is just continue to learn from those times of adversity so that you can better your business, better your life. What do you do with the biggest, what are your biggest lessons in the down cycle? So I mean, that'd be, that's all another podcast too. Which by the way, you and I could go on your lessons, the hard way show up and that, which is another show best ever, you're allowed to listen to after you listen to mine, you can listen to Brian show us the hard way. So what, what are some of your lessons that you got in during those down blip moments? And I think those are the best teachers, man. The successes are great teachers for your ego. They make you think that you're better off than you're better than you really are at this thing. And the lessons are really in the failures and they can be very humbling, but they stick, you know, yeah. So what did you get out of it? Well, there's so many. And so I like you said, if, if people want to join us on lessons, the hard way podcast, just look us up. We're on Spotify and all your normal, you know, podcast venues. But the, you know, just to give you for like, you know, one example, I guess would be that you don't want to be the hero, right? And when, in times, when times start taking down and you get the first indication that the market is changing, selling it out early, the first loss is your lease loss, right? And I think that's been the biggest issue with this latest downturn is that people have kicked the can and kicked the can and kicked the can and, you know, it's like getting run over by a train, you know, you just get drugged down the tracks, right? Instead of just getting off as soon as you can and maybe taking a smaller loss or maybe breaking even, but then being able to take that capital and then reinvest it in more opportunistic things later. We're thinking bandaid off rip it off. You know, don't, don't, you know, don't try to be the hero. And I think that it's again, I think for a lot of these gurus indicator things that you were talking about and that guys that have just gotten to the business really quickly, I think some of them have been very well. Some are very smart people don't get me wrong. But also, I think it, you know, think about it. If you raised, I don't know, $56, $7 million from one of these groups or something like that. And this is your first deal that's, you know, your first cycle you've been going through, you're more likely to hang on as long as humanly possible, right? Yeah. And not admit it and just say, look, we bought it the wrong time. We bought it to peak. Let's go ahead and get out, get as much capital out as we possibly can and reinvest in more opportunistic, you know, opportunities down the road. Yeah. No, I mean, it's, it's, it's, we don't know what the future is going to look like, you know, they're talking to feds, going to pump right, we're going to increase rates again and everything like that. That certainly takes this whole business the wrong way and I can't control any of that, right? But what I can control is how I react to today, you know, selling, buying that kind of stuff. So I really commend you for your pivoting and getting into the distress stuff. And also the lesson you learned, you know, earlier in your career about like, hey man, rip the bandit off and everything like that. And yeah, maybe it's 11% return versus a 15% return or whatever, but at least it's, at least it's an exit. It's clean and in the 11 didn't turn into a five or something like that. Yeah. So, okay. So best of your listeners, if you guys want to hear more from Brian, you guys want to go to lessons the hard way podcast and Brian, how else do people want to reach out to you to hear more about what two waters, capital is all about? Yeah. Visit our website. It's the number two waters, capital spelt out, downcom. If you are an email person, just email us at
[email protected]. And then if you're a phone person, your old school like me, you can always call us 404 500 6876. That's 404 500 6876. You can even text us. If you want to text us something fun, like deal, we can send you some information on our deal filter, like what we do to filter out deals and in this, you know, terminal, you know, market. So that checks the word deal to that text number and it'll send in maximum information. Yeah. For instance, information just our other seven point deal list. So just some free information and then love that. Yeah. Check us out network. And again, I'm dead serious. If you're a listener and you're in the Atlanta area, even if you do what we do, we'd love to connect. We just never know like all the joke on the side. And I love your prosperous mindset about it, about being willing to share and being willing to collaborate with others and everything like that. So Brian Sutton, thank you for joining us on the best ever series show. I look forward to chatting with you further about all the things you're up to at two orders capital. Appreciate it. Thanks, Matt. You guys have a good day. Guys, create episode with Brian Sutton from two orders capital. Really enjoyed the conversation. And I like talking about where he thinks the market's going and where I think the market's going and a lot of similarities between both of our growths and everything like that. Really, really enjoyed a lot of the episode. And I wanted you guys to make sure you brought home that conversation about when to start a fund. I really got from that conversation that a lot of folks make the mistake of starting a fund too early before they've got that track record built. It's important to note that there is a time once you've got the track record in pocket that it's that. That's the time you want to start a fund, but not earlier than that. Hope that landed for you guys. If this show lands for you guys, do yourself and do us a favor. Get at your favorite podcasting app and subscribe to this program. Share it with a friend. You got to follow real estate investing friend down there in Atlanta. Brian said he would have coffee with a local investor in Atlanta. You know why? Because he's open minded and open to new prosperous relationships. So I'm throwing that out there as a tip to you guys to send this to someone that you know that's an active operator in Atlanta. Because we've got a very forward thinking operator who's looking to share ideas. So send this to someone else that you know in the Atlanta market that's going to reach out to Brian and take up on that offer for coffee. I wonder how many coffees Brian's going to have. Is it more than or less than 10? How many people are going to take action on his offer? I wonder if it'll be you. Let's find out. Until we find out guys come join me on the next best ever CR show until I see you guys then have yourself a best ever day. Hey, best ever listers. Are you looking to get more great commercial real estate content? Check out the new shows in the best ever C R E network. The next level income show with Chris Larson is about helping investors grow their income. Build their wealth and achieve financial independence through smarter investing. Multifamily insights with John Casmon takes a deep dive. A passive multifamily investing with practical strategies from experienced operators, syndicators and investors. And Carson's corner with Carson Jones explores the long game of wealth creation covering commercial real estate, private deals, business acquisitions and the mindset behind building wealth across generations. Check out these shows whether you listen to podcasts, subscribe and leave a five star of you to support the best ever C R E network we are growing the premier community of commercial real estate investors.
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