Join co-hosts Jim Maffuccio and Ben Fraser, along with special guest Matt Burk, Founder and CEO of Fairway America and Verivest. We’re thrilled to have Matt on the show, a seasoned real estate executive, Chief Investment Officer, and fund manager with over 22 years of experience. Matt has managed 11 different real estate funds throughout his career. In this episode, we delve into Matt’s background in the industry and explore the fascinating evolution of the real estate syndication space. Matt shares valuable insights gained over the past two decades, offering our listeners a unique perspective on real estate investing.
Connect with Matt Burk on LinkedIn https://www.linkedin.com/in/mwb/
Connect with Jim Maffuccio on LinkedIn https://www.linkedin.com/in/james-maffuccio-77440813/
Connect with Ben Fraser on LinkedIn https://www.linkedin.com/in/benwfraser/
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Transcription
Ben Fraser: Welcome back to the Invest Like a Billionaire Podcast. We’ve got a very special guest for you today. We have Matt Burk, who is the founder and CEO of Fairway America and Verivest. You may have heard his name before. He’s been in the private alternative and real estate space for several decades. He’s a seasoned real estate executive, chief investment officer, fund manager, multi decade career.
He successfully managed over 11 different real estate funds. And we’re going to dive into his extensive background just in the industry, exploring the evolution of this business of private real estate. He shares a lot of very valuable insights that he’s gained over the past several decades. And giving our listeners a really unique perspective of someone who’s been around for a long time and has seen the evolution of this industry.
So tune in, you’re going to really enjoy this. This episode is going to cover some of his story, what led him to get into this space and all the knowledge that he’s gained over the past several decades. So you’re not going to want to miss this. I hope you enjoy it. This is the Invest Like a Billionaire podcast, where we uncover the alternative investments and strategies that billionaires use to grow wealth.
The tools and tactics you’ll learn from this podcast will make you a better investor. and help you build legacy wealth. Join us as we dive into the world of alternative investments, uncover strategies of the ultra wealthy, discuss economics, and interview successful investors.
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We focus on macro driven, alternative investments, so your portfolio is best positioned for this economic environment. Get started and download your free economic report today. Welcome back to another episode of the Invest Like a Billionaire podcast. I am your co host, Ben Frazier, joined by fellow co host, Jim Mefuccio.
And today we’re very excited to have Matt Burk as our guest. Matt is the founder and CEO of Fairway America and Verivest. And he’s been doing this for a good amount of time. So he’s been a seasoned real estate executive, chief investment officer, and fund manager. He’s managed over 11 different real estate funds over 22 years.
And so Matt, really excited to have you on and just bring your kind of breadth of experience to our listeners and just sharing your insights over what you’ve seen over the past 20 years. So give us a little bit of background on how you got started in the business and I know your business has evolved.
Quite a bit over time. So let me share just some of the story here.
Matt Burk: Sure. So Ben, thank you for having me. I appreciate the opportunity to be here. Yeah, I started out in real estate finance by accident coming out of college and learned real estate and finance and all that goes along with those things almost by happenstance, really enjoyed the real estate piece.
Moved around to a few banks and thrift and loans back in the day and then ended up starting my own company in the late early 90s, 1992. And took a pass to get here, but we did commercial real estate loan brokerage in the early days and eventually started our first fund in the late 90s, 99.
In 2000, we launched our first fund and that kind of started me off down a path of fund management that, coming out of the great recession, got into more of a coaching and advisory role, helping other managers get set up and one thing led to another. So I guess, but that’s out of hindsight, it’s always interesting to see how.
Twists and turns that your life and your career and your business take. But yeah, I guess if you’re around long enough, you do a lot of different things.
Ben Fraser: I love it. Cause one of the cool things that you’ve evolved your business into is you’re really serving both investors where you have your own funds, where you’re still managing those, although you’ve graduated, so to speak, or moving up the food chain to more institutional money, but you also.
Have a business that serves fund managers. So you do administration, you do coaching, you help set up funds and syndication. And so you’re really at this cool place where you see the perspectives of both. And I think you have a really unique perspective to share with our listeners who are mostly passive investors.
But before we get there, I’d love to hear, you said you launched your first fund in 1999. And so this was before the jobs act. And it’s so fascinating to me. Here, what it was like back then, because a lot of people are in space now. I’ve been doing it for a couple of years. And so they.
They don’t have the benefit of that long perspective. So what was it like in 99 launching a fund? It’s just so curious. Yeah.
Matt Burk: All the things that people take for granted now, there, there was no jobs act. There was no public solicitation and advertising, right? Everything was a beat.
Now there was, it wasn’t called a beat cause there was no beat. It’s just, it was all the same. And you couldn’t publicly solicit and advertise. You had to have a prior business relationship with all of your investors. And there were ways to do that. It was pretty old school, I think.
And I would say we built our investor base largely one investor at a time, one referral at a time, from the inside out rather than being able to do social media and podcasts, things like we’re doing today. It was a different world, the vast majority of our investors were from the area.
And then, there’s a lot of really word of mouth and one investor leading to another which I still think works really well today. It’s always easier to transfer trust from people that already know and trust you to, to other people that also can. In some ways it’s not all that different, but I think the way in which people market now and do things to try to generate new investors has changed a great deal.
Ben Fraser: Yeah, that’s so interesting. In, you said after the Great Recession, you shifted more towards coaching, consulting with the fund managers, or when was that transition that happened for
Matt Burk: you? Yeah, it was, what happened? I had a fairly good sized fund. It was about 89 in 2000.
Eight through really all the way prior to the great recession. We launched out late Oh seven, which is my fourth bond. And then we, that was the first fund that I ever really used leverage. So we had a large, 50 million lion credit that had a three year term on it. And with the banks not really wanting to be in that business anymore in 2011, even though we met every covenant, made every payment, had every, had crazy good.
Cash Flow coverage and everything else. They just want it out of the business, across the board. So they failed to renew the line, which forced me to have to wind down that fund. That was the first time I ever had to wind a fund down and that whole experience. Yeah, everybody who’s like the, I would say when people set up a fund, that everybody’s optimistic and of course they’re going to grow it and so forth and nobody really thinks about, what’s going to happen three or four or five or 10 years from now when I actually have to wind this down, let’s say in a not very good market.
So as my securities lawyer voted at the time, then he’s Matt, you now have your PhD in fund management, cause I had to wind that thing down. And as we were winding it down, ironically, the bulk of our income was tied to deal fees and asset management. The fund management fees.
If your mission is to wind the fund down and your primary source of income is the management fees off of that fund, you’re in a position where, okay, I’m basically working myself out of a job, right? So we had to decide at that point then, what is the next iteration of what we’re going to do?
Coincidentally, I had four or five real estate people that I knew who came to me during that time period and said, Hey, Matt, I know you know a lot about funds, you built, you’ve done several and you’ve managed them. And I’m thinking about setting up a fund now. What do you think about this?
What do you think about that? How should I do this? How should I do that? And while we were in the process of winding the fund down, and lowering our income. It occurred to me that there are a lot of people out there like I was, who, when you first set up a fund, you really don’t know, you don’t know what you don’t know, and there’s, it’s just, it’s very difficult to launch and set up a fund from scratch, and back then, and even today, for the most part, the only real option A manager has to get that guidance is security lawyers and security lawyers are, they’re great.
They’re important, but they’re only one spoke in the wheel of fund management. And look, and if you don’t have that spoke or the spoke is off, the wheel doesn’t turn. So you need, but it’s not the hub, it’s the spoke. It’s a spoke, right? But there’s capital raising and asset management and investor relations and accounting.
Legal and all of those things have to factor into each other. And the long story short, but it’s not too late already is we yeah, I started saying, Hey, there’s a real business to be ad here by helping people, understand what it’s like to set up a fund, to do it properly in the first place, because you set it up, you match your asset model to your capital structure. You just stand a way better chance. And I think. That’s what launched what we’ve since then done. I don’t even know how many funds, three, 400 that we’ve played the lead role in helping managers all over the country architect that fund.
And there’s always securities counsel involved, right? But we help them think through. And set it up properly to give them the best chance of success in the first place. And that’s the core product that we offer to managers that leads to other stuff. Yeah.
Ben Fraser: And talk about fortuitous timing with the jobs act happening shortly after, right?
In 2012. I think if you’re for listeners, if you’re new to the podcast. And having heard us talk about the JOBS Act, this was, this is a fundamental shift in how the private markets can now operate. Do you want to share a little bit, Matt, of just what that kind of did, and did you see, or did you foresee when that came out oh, this is going to be a game changer, or was it still okay, yeah, just tell a little bit of when that happened, because, I was still in school then, or just come out of school, so it’s, still fresh to me, but.
Yeah
Matt Burk: When that passed in 2012 and then they didn’t actually implement it until 2013 but I knew right when it passed that, okay, this is a game changer. You can now publicly advertise and solicit, so you’re not limited to people with whom you have a prior business relationship. The trade off was you add to verify the accreditation, which, you know, it became the manager’s responsibility to verify the accreditation.
Whereas in a B or the old school, they didn’t have to verify it. They only had to represent it. So that, that early on, that was a big thing. I remember when that first happened, investors were like why do you need to prove that I’m, worse, more than a million dollars.
Like, why do you need that? Because this is a new regulation. We want to solicit and advertise, we have to do this. So it was a big deal. We recognized it immediately. Every fund that we’ve done since 2013 has been a C. And we verify the accreditation and follow the safe harbor, guidelines and so forth.
But yeah, and more importantly, even than just, verifying accreditation, it’s, it gave rise to crowdfunding, right? And it’s like all these crowdfunding sites that they didn’t exist. Prior to 2013, because it wasn’t legal to put out there that you were running a fund, other than the people that you do.
So yeah, it’s fundamentally changed things and it’s given rise to investor portals and crowdfunding sites and all kinds of stuff. 10 years now, it’s what people take for granted now but yeah, that’s all happened in a very short period of time.
Ben Fraser: Yeah. It leads to the next question I wanted to ask you and all the good of being able to now have more access in, really in 2012 it’s really spawned this whole new democratization of, access to these types of private alternatives, which largely, and we’re probably a little biased but are superior in a lot of ways to the public markets where you have less volatility, a lot of times you can achieve better returns.
Yeah. But now the bigger challenge is not necessarily access to deal flow. It’s determining which operators to invest with and which funds to invest in. So now the impetus is on the investors to be able to know the basics of due diligence. And, I’m not just investing with uncle Jerry who has a couple, single family homes.
He’s doing it now . I’m seeing this. Ads on Facebook and it’s a solid operator. So from your perspective, this is where I really think you got a lot of value with our listeners is just, what are you seeing from the fund management side of this, where you’ve worked out with three or 400 funds, some, I’m sure a very big variance of success around the fundraising.
And what are some of the kind of key things that separate the good from the bad, from the great. And. Maybe layer into that because one of the unique things is, good salesmen may not be good operators, right? And vice versa. Good operators may not be good salesmen. And so there’s this constant challenge as investors of being able to parse between those
Matt Burk: two.
Yeah. And I admittedly, Ben, it is not easy for an individual investor to be able to perform the real appropriate due diligence that they should be doing. It’s challenging. No, no question about it. I think, look, being what I characterize this juncture, professional and this, it’s hard enough for us to do diligence on managers at Duke deep.
Real due diligence for an individual investor putting 50, 000 or 100, 000, which is a lot of money to that investor. But in the scheme of things to a manager, that’s a relatively small amount. Now it’s hard to balance those two considerations, but I think there’s very basic due diligence that people can do.
A lot of what, frankly, our company has tried to do is provide some of that for investors. You can get background checks on managers, ask them if they have track records and verifications, I think even just asking questions is helpful and seeing how the managers respond. At the end of the day, there’s, I think the crowdfunding, and the jobs act has, it’s like a lot of things, life, I think it cuts both ways.
It’s provided a lot more access to investors for a lot more variety of stuff all over the country, different asset types, different locations. But part of the trade offs is. And to your point, it’s very hard to tell the difference between a charismatic marketer, who doesn’t know anything about being a good fund manager or a real estate investor, and a high quality real estate investor who might be a terrible marketer.
So I won’t pretend that it’s easy, yeah, it’s tough.
Ben Fraser: Yeah. What would you say are some of the key distinguishing factors without getting too nitty gritty or, I, there’s a lot of nuance here, but just. Yeah. Obviously track record is important, but when someone comes, you say, I want to set up a fund, do you have a gut sense of, Hey, this is probably going to be a success.
These guys are legit versus,
Matt Burk: Yeah, I do. And I think they have the best bond managers. They have a team. It’s not usually just one person. They have a team of people in the management entity. And generally speaking, they do, they perform different functions. So like a lot of teams, you have complimentary players that each do something.
Different, I think they come in with a plan, they have a specific asset strategy that they, or thesis that they’re committed to, and you can really tell their enthusiasm about it, and why they articulate a strategy for raising capital. So they’re not just coming into a blind and have no idea how they’re going to do that.
So I could tell generally pretty quickly who has a pretty good chance of being successful and who’s just dreaming. The, cause it, cause a fund is sexy, right? A lot of, for a lot of managers, the idea of setting up a fund and having their own discretionary vehicle that they can use to have the money sitting there is something that they want to try to do.
But from an investor perspective, I think, track record T if I can get background checks, I think that’s always helpful. If managers are willing to provide it, what have they done before, how long have they been in the business? What sort of deal velocity do they have, if they’re not sure how they’re going to originate deals or they’re only doing one or two, they probably shouldn’t be setting up a fund, but if they’re at a point where they’re, raising significant, have they raised money before, from other investors on a syndicated basis, almost always, they need to do that for some time period before, Jumping straight to a fund.
They really don’t want to jump from zero to a fund straight away for the most part. So things like that are things that we look for initially. And then, part of our business is making seed investments in the manager to help capitalize the fund. And for us to do that, we go through very deep due diligence that is really not practical for a high net worth investor to be able to do.
So I do think that investors sometimes can leverage off of. Off of the capability of some managers that they could invest in and certainly having experience asking around and knowing somebody that is invested with those people is always, an excellent way, to get, and ideally not somebody that the manager provided you, but somebody that you know, that, that you’d have on your own to get the real scoop and, not hand, handpicked.
So those are some of the things that I think can be applied fairly easily for investors.
Ben Fraser: Yeah. I think that’s great. I think what they just said earlier, which was not even a quantitative metric, but just the qualitative of talking with someone on the team and asking the harder question to see how they respond.
And, previous podcasts, we’re talking about what happened recently with Crowdstreet and how they were, a big platform raising a ton of money, I think 4 billion of equity they’ve raised over the past few years. And it’s come out now that they actually explicitly excluded bad deals from a sponsor’s track record because they thought it was not essential to the investors to see that one deal went through bankruptcy and another deal was given back to the bank.
Matt Burk: That’s not material. It’s not
Ben Fraser: material. It’s, yeah. Yeah, but part of that goes to ultimately you’re only going to see what they’re going to show you. And so there has to be a level, like you got to ask the right questions, you got to look at the right things, but then ultimately, ask them about, if a manager’s been operating for any length of time, they’ve had a couple of deals that didn’t go according to plan, right?
And if they, if you ask them, tell me about the deals that didn’t go according to pro forma. What happened? What did you do? And how did I mitigate that and rectify it? They say, Oh, we haven’t had any deals go bad before. That’s probably red flag number one, right? But then are they transparent about it?
And are they, sharing about, what they did and, Hey, we missed it here, but it was out of our control. And here’s what we did to fix that. And we actually did a, a manager loan to, bridge the gap until we got back to stability or whatever it was. Like those are the kinds of things that can really.
The character of someone is really shown in a challenging situation, and sometimes you can’t always get the actual quantitative data you want, or it may be withheld, but you can get a decent gut sense, I think, so I think Just wanted to make that point because I think it’s important to have those conversations and have a face to face or at least a, virtual face to face with the managers.
Matt Burk: Yeah I think the more that you can talk to people the better and I do think that to your point, it’s not always absolutely quantitative that sometimes you can get a good feeling just by having conversations. So I would encourage investors to talk to people and talk to others that have done business with them and get a sense of it.
That could go a long way.
Ben Fraser: Yeah. One of the things I’d love you to share a little bit is just, you’ve mentioned funds a lot. So for those that maybe are more familiar with syndications, can you just break down at a high level, what are the kind of differences between the two, maybe pros and cons of both?
Matt Burk: Yeah, so I would define a syndication as a single asset. So one piece of property, or one loan, or whatever it is people are investing in, but it’s one asset and multiple investors. So typically you’re forming, the manager’s forming an entity, pulling in money from 3, 6, investors, but the proceeds of that money are going into only one transaction.
So that’s fairly simple. It’s complicated in the sense that you have a bunch of investors, but they each own a pro rata share, but it’s a single asset, right? A fund is this multiple investors, 6, 8, 10, 20, 50, 100, 500 investors, but multiple assets that are being acquired at different points in time. So it’s not, the money is all being put into one identifiable asset that the investor can see before they invest in it.
There it’s got, there’s multiple assets being bought pursuant to some articulated strategy. Or a box that the investor or the manager puts in their offering documents that the investor doesn’t know exactly which investments are going to be acquired, right? Because they haven’t been acquired yet.
They know what kind of strategy the manager is going to pursue, but they don’t know which assets. So and that’s how people call it a blind pool fund because from the investor’s perspective they’re buying into the buying shares of or investing in an entity that’s going to acquire multiple assets at different points in time that they’re not clear on what those are.
So that’s how I would characterize it. Fund that a syndication, as to which is, I always tell people, neither is better than the other currently, right? Some, sometimes a syndication is fine for certain instances and sometimes a fund is fine, but they have basic differences that are important for people to understand.
And there’s pluses and minuses, pros and cons to each. And from an investor perspective, I always encourage people to be really clear on what your objectives are going in. Cause that may influence whether you choose to invest in a fund or a syndication, do you want diversity? Are you looking for concentration?
Do you want income? Do you want growth for tax benefits? Do you want to know what you’re investing in specifically, or are you content to pick a jockey and then let them run without knowing exactly where they’re going to run ? Again, not neither is better, but the other, apparently they’re different, they each have their pros.
I guess as
Jim Maffuccio: a, if I was coming from the investor’s perspective. It’s one thing if somebody new to the game comes and says, look I’ve got this, let’s just say in the apartment world, I’ve got this fantastic asset tied up, put together a proof and all in a race of money, I want to do a syndication as an investor.
I might look at that person and say, okay, I can overlook or I can factor in the inexperience. Maybe it’s the first or second rodeo, but that’s the asset. So at the end of the day, at least I know what we’ve acquired. Whereas a fund, it’s like, Hey, let’s go do apartments, let’s go do value add apartments.
And I’ve never done one yet, but I’ve been to some classes and it looks really good. And we have a kick butt team and know how to raise all kinds of money. To me, that’s a bug looking for multiple windshields. I would think that, investing in a fund as we’re experienced. And not even just necessarily the experience at doing deal after deal, because there’s a whole operational aspect and executive aspect to it that, and even things like, can you trust the person to make.
As good of acquisitions as he would have if he only had the money to buy one, address what do you
Matt Burk: see there? Yeah those are all absolutely on point observations, Jim. There’s and there’s an infinite number of things like that, right? So I would say managers to part of your question earlier than managers that tend to make good syndicators.
I would say the typical progression is people start off on a syndication. They do deals a lot of the time and eventually they reach a point where it becomes operational inefficient to try to raise money one deal at a time because you have to create an offering document every time you’ve got a tight timeline to close.
And if you’re doing any volume of that, it becomes very inefficient. So raising, doing it in a fund can be much more efficient and effective for a manager, but along with it come a lot of other operational requirements that syndicators don’t necessarily have, they haven’t adopted yet. So people need to learn.
So to Jim’s point, I think, certain people, you need a certain. Level of sophistication and size and understanding of what it’s going to be like in order to be effective and as a fund manager. And it’s not, the two words I use the most sort of character and competence, right?
Character is like the absolute foundation. You have to have people who fundamentally view themselves as stewards of other people’s money so that they don’t, they’re not likely to go out and just start making dumb decisions because. Frankly, they can, they’re, the investor doesn’t really see what’s going on most of the time.
And so they’re relying very heavily on the character of that manager. And it, how do you judge character from somebody you’ve never met before? It’s very hard, but if you do it and you pick the manager wisely, there’s a lot of advantages to investors. They don’t necessarily have to pick and choose.
Some people just don’t want to spend time reviewing all those documents, or they don’t even have the expertise to do it in the first place. Or when they get the money back from the deal that paid off, they don’t want to have to turn around and do it again. They’re content to just. Let it ride.
So there’s all these reasons that would drive people from one to the other. But to Jim’s point, not every manager is cut out to be a fund manager. In fact, I’d say the subset of total syndicators who really make good fund managers, it’s not 80 or 90%, it’s probably more like 10 or one.
Ben Fraser: Yeah. To your earlier point at the fund, now you have created, if you’re raising a lot of money, that’s great, but now you’ve created an additional problem of. You’ve got to go and invest that money. And if you don’t have a great deal flow, and if you haven’t identified a really tight strategy and what you’re doing, you could actually be incentivized, maybe unknowingly, but just have the feeling that I have all this cash.
I got to go deploy. And now I’m going to go and just. Maybe bid on assets that are overpriced because I just have to deploy this capital. And if you’re inexperienced, you don’t have the deal flow, if you haven’t managed, that kind of, chicken and egg scenario at a larger scale, it can be can be not good from a capital
Matt Burk: standpoint.
And you think about incentives, right? If they’re going to earn their management, say they need to get the money out. So are they incentivized to get the money back? I’ve seen plenty of really good quality managers that just say they didn’t have the deal. They get the money back where they never deployed in the first place.
But how does one do that? If that’s the primary source of revenue that pays their bills or allows them to, I’d say another characteristic then would be. Good fund managers, most of the time they have another operating business that fundamentally pays their bills and they’re not reliant solely on the fund management fees to exist, right?
Because if they are, then, these disincentives or these lack of aligned incentives can definitely. Play against the investors’ tape, right? Yeah,
Ben Fraser: That’s a really big deal. You just said that.
Jim Maffuccio: It’s a really interesting situation because you’re, you’re managing, back to Ben’s, chicken and egg point.
It’s, you don’t want to be sitting on too much capital for too long because your IRR goes down the tubes for your investors, but you also don’t want to. Spend everything you got just because you need to earn the fees or you have to do deals. And now you’re, now your quality of deal analysis goes down the tube.
So it really does take a level of sophistication. And we live in an interesting time when, you could, you can get online and find. A thousand and Experts at showing you how to become the most popular face on any platform, pick your platform and which usually can correlate into making sales or raising money from the maybe less educated people.
And how many are there on, on, and can you even learn? How to be a good operator without some bumps and bruises and years of experience. I think the right kind of person can learn to be an operator out of the gate and how to do some things where are all the courses on how to be a good seasoned honest integrous operator with character and
Matt Burk: competence there’s not very many of us trying to put on as much, Educational material as possible where you don’t see all that much of it, And to your point too, man, it’s like when the crowdfunding stuff came out It’s like a lot of these crowdfunding sites who shall remain, right?
They would brag about that. These deals would show up in what, 30 seconds or a minute or two, right? How is an investor supposed to do any due diligence when the whole game is that they’re like to click invest as fast as they possibly can so that the deal doesn’t fill up. And then what are these investors, the problem too, is that the number one thing they’re looking at is what’s the IRR, right?
And you guys know as well as I do, a manager can put out any number for an IRR, right? So the incentive then is to put the highest number you possibly can, because they know that’s what’s going to drive the clicks, right? And get the people to click as fast as they can without doing any homework or due diligence.
That’s just a totally messed up system. It is. That, that is the way that it worked for, in the study of the hay day. From the mid to late teens, all the way up through, 20, 21, 22 that’s how it worked. Now it’s finally getting to the point where, okay, people are not treating it that way.
And they’re waking up to see that, that was just a dumb idea in the first place. But it’s
Jim Maffuccio: aggravating because, it’s the reason we have, we need regulation. Like we all, I think we all would agree to that, but we also probably would all agree that regulations can be onerous and usually are.
And they punish all the wrong people, but it’s exactly just, it’s exactly what you just described, which, there’s gotta be regulators foaming at the mouth, looking at the crowd street thing and looking at, all of that kind of thing you described, and say, man, we ought to be, we ought to be regulating this industry a little more.
We have all these people out raising money. Wait a second.
Matt Burk: Stop the hard part. Jim is that exactly to your point is like the regulations end up. Penalizing the people who are fundamentally artists and fundamentally still compelled to try to attempt to comply with the regulation, then only exacerbates the operational burdens and costs on those people.
And then the people who really don’t care about the regulations or who just flat out ignore them are the ones who end up raising the most money. Which was super frustrating, let’s just go find a mold, beat them up. I just think like for the investors listening to all of this, it’s what did they do?
If you’re in an environment where people are chasing the yield and deals are filling up super fast, it’s like you feel like, Hey, I want to get on the game. I got to move. Super quick. And I need to compromise all the standards I should be adhering to, to actually try to underwrite the deal.
That’s frustrating, right? But really they should not fall prey to that and they should take their time and they should do some homework on whatever they’re investing in and they should walk away from a deal if the pressure to invest inside of seconds or minutes is so great that, that forces them to try to do that.
The humans are, we’re. People follow the hurt and it’s, as you guys well know, it’s, and like right now what’s happening is, I see some really fantastic investments that people don’t want to do because they’re afraid, but what it is like reading is afraid and then be afraid when others are greedy.
That’s great advice, but it’s very hard for the average unit here.
Jim Maffuccio: FOMO is a real thing, isn’t it? It is. It’s not good , it’s really not a good funnel point for evaluating your investments, how much fares?
Matt Burk: But, good capital raisers and charismatic marketers understand FOMO and they use it to their advantage.
Ben Fraser: I think those are really incredible points. One thing I would, I’d love to just round it out here with is, you talk about alignment of interest. You talked about what the incentives are, right? And I always talk about reviewing the PPM. These things can be, they can feel a little bit overwhelming if you’ve not read them before.
They can be a hundred pages long. It’s all this legalese. What should I focus on? The place I always go to first is the fee section of the waterfall section, right? Because it gives you a really good sense of. What’s the alignment of interest and what are the ways or the incentives that the manager has in this particular fund or syndication?
So can you talk about from the passive investor standpoint, what is maybe like yellow flags? If you’re reviewing a PPM and you’re looking at the waterfall and this seems to be a little bit off and you’ve, I’m sure you’ve reviewed a thousand of these. So we’ve got a pretty good sense of things.
Are good at things that we should just at least ask questions more on. So could you just give some of those highlights if you have them off the top of your head? Yeah
Matt Burk: I agree with you that there’s four sections I would look at. What is, what are the assets they’re investing in the investment strategy?
And fundamentally as investors do it, does that resonate with me? Like the bios and the experience of the manager, who are these people? How long have they been doing the fees and waterfalls? What fees are they charging and waterfalls and so forth? And then the risk factors. 40 pages long and it’s everything under the sun, and so forth.
But if I know who they are and I know what they’ve done, I know what their investment strategy is, fees are reasonable, that’s a great place to start. And so to, to your point, I think, I’ve seen PPMs where the manager can do anything and everything under the sun. So that’s always a red flag to me when the manager can just do anything they possibly want to, right?
And they aren’t fairly defined. And that’s always an issue for a manager. How tight do you make that box, right? Cause I might want to do that much and make it too tight. I’m going to miss out on deals. I might otherwise do. But if you make it too broad, then the investor has no idea what the manager’s man, investing at.
And I’ve seen some PPMs from places that I’ve watched blown up where he could do all kinds of things that they shouldn’t be doing, including. Appointing themselves managers of the things that they’re doing, or investing in and then paying themselves fees to do it in undefined amounts.
Those are just crazy. So I think an investor should also learn what they are, I get this question all the time. What are normal fees, right? What is the range of fees that I expect the manager to charge? And what is the range of what’s normal? What’s good? What’s bad? So an investor should familiarize themselves with that in my opinion.
And those are going to be very asset management. If it’s a loan based. Or a loan strategy, fund management fee, construction and development, override fees, acquisition fee, disposition fee, property management fees, how much fee should a manager be charging and shouldn’t they charge?
Now that’s something an investor I think needs to familiarize themselves. So if I can look at the management strategy and the fees that I can go 80 percent of the way toward, yes, I want to spend more time looking at this or no, I don’t just off of that. No,
Ben Fraser: I think that’s really good, really good advice.
And, for me, I’ve talked about this before, but one of the quickest proxies to just get a good sense of alignment of interest is skin of the game, right? How much are the general partners putting in as LP capital, right? Right alongside you on the same waterfall and how much of their own personal capital they put it in.
Cause that’s a pretty good proxy for, they believe in the strategy, believe in the offering and are putting their own capital risk. They have something to lose. Now. Things don’t go according to plan. But I love that. That’s really helpful. So now what’s the best way I know you serve fund managers is your core business where you have legacy real estate funds for those that are curious on either side of those. What’s the best way to learn more about what you’re doing and just the companies that you run?
Yeah,
Matt Burk: I think LinkedIn is probably my best spot if people want to find public information on social media. LinkedIn is where I’m most active. The company is https://fairwayamerica.com/. You can learn more about the company there. The other one is https://www.verivest.com/. And either of those can give you information about the company and my contact information.
Awesome.
Ben Fraser: Thank you so much for coming on. I definitely got a lot out of it. I’m sure our listeners will as well. So thanks for sharing all your wisdom.
Matt Burk: It’s my pleasure. I appreciate you guys having me. Thank you very much. Have a great one.
