JF2008: Raising Institutional Funding With Michael Merideth
Michael’s background was in chemical engineering and after a while, he got tired of the rat race and started to find an interest in real estate. He began by first flipping small duplexes and now has grown the company to millions in assets. His company is now at 300 units, with a mix up of 10-12 buildings. In the beginning, he started out financing his deals with local banks by building relationships with them but more recently have partnered with Goldman Sachs to fund future deals.
Michael Merideth Real Estate Background:
- Co-founder of Verius Property Group, a real estate development company
- His role is strategic planning
- Started flipping small duplexes, has grown the company to millions in assets
- Based in New Orleans, LA
- Say hi to him at http://veriusgroup.com/
Best Ever Tweet:
“Not getting to recreative and out the box to create something because, in the end, you’re protecting an investment whether it’s yours or a co-investment amongst other people it’s to make sure that the numbers are what they are.” – Michael Merideth
Theo Hicks: Hello, Best Ever listeners, and welcome to the best real estate investing advice ever show. I’m Theo Hicks, today’s host, and today we’ll be speaking with Michael Merideth. Michael, how are you doing today?
Michael Merideth: I’m doing blessed, man. Doing well.
Theo Hicks: That’s good to hear, and thank you for joining us today. I’m looking forward to our conversation. Michael is the co-founder of VPG Enterprise, a real estate development company, and his role is in strategic planning. He started out by flipping small duplexes and has now grown the company to millions in assets. He’s based in New Orleans and you can say hi to him and VeriusGroup.com.
Michael, before we go any further, do you mind providing us with a little bit more information about your background and what you’re focused on now?
Michael Merideth: Yes. My original background was in engineering; I was a former petroleum engineer. My partner was, as well. And like you said, we just started out with small multifamily properties here in the greater New Orleans area, and now our focus from a real estate development standpoint is B to C class multifamily value-add opportunities, kind of at 100 units and above.
Theo Hicks: You said you studied chemical engineering in college, before becoming a petroleum engineer?
Michael Merideth: I did, I did. My degree is in chemical engineering, and worked for a Fortune 500 company, drilling deepwater wells. I got tired of that rat race and literally jumped ship, went to real estate.
Theo Hicks: I was a chemical engineer as well. It’s always good to find another fellow engineer who’s gotten out of the industry and in real estate… Right now you’re focusing on B to C class multifamily, 100+ units. Do you mind giving us a breakdown of your current portfolio, how many multifamily homes do you own, and the number of units for each of those?
Michael Merideth: Total we’re 300 units right now. That’s here in our greater New Orleans area. That’s mixed up of 10-12 buildings, some of them as small as four units, and some as large as 124 in that portfolio. That’s the wider range of where our portfolio sits, and kind of our project type.
Theo Hicks: So four units to 124 units. How are you funding these deals, and how has that evolved since you’ve started out?
Michael Merideth: Well, as I was saying earlier, we jumped ship. We had a W-2 income and we were being creative, just like everybody else, is finding bond for deeds, owner finance deals on some of our smaller properties. Then we just gradually started building relationships with our local and regional bank, and started off with small projects and grew those. Those have been a solid foundation for us, providing construction financing, and semi-perm financing into our deals. On the equity side – we were gonna syndicate the equity. Much like any other real estate deal, it’s putting together PPMs, going out to high net worth individuals that we know and raising that capital in pools to fund that stack. Also, co-investing ourselves into those deals.
Then more recently we’ve got more into the institutional funding. We recently partnered with Goldman Sachs to roll out a debt facility here locally, centered around our strategy and value-add plan, B to C class assets.
Theo Hicks: Do you wanna walk us through a deal that you did, that was funded by Goldman Sachs? Because I’m interested in that. I haven’t talked to someone on the podcast yet… I’ve talked to people that have raised money from people that they know, which is what you did, but how did you get into contact with Goldman Sachs, how was presenting that deal to them different than presenting the deal to your investors that you knew already? Things like that.
Michael Merideth: It definitely is a little bit different. Just for more clarity, Goldman provided us a facility — basically, the idea is there’s a box, and this is a more recent venture for us… So a part of that box is creating this pool of money, which is for us 40 million. We’re the first product that goes into that box.
The relationship started with just an introduction, and that was probably about 2,5 years ago. I was very persistent and being able to get a meeting with those guys, which included me flying up to New York, going into their headquarters and basically pitching our company and what our vision was. It took me a couple times to get back up there and get in front of their face again… They actually looked at funding a few of our deals in their process, so their terms to work on those deals, so we just decided as a team “Hey look, let’s establish a long-term partnership here, and we’ll give you guys some bandwidth to be able to go and do deals, as long as you kind of commit to us.”
That made sense for us, to say “Hey look, let’s be a long-term partner. Allow us some bandwidth to go out and do the deals, knowing the funding is there, and being able to grow our portfolio.”
Theo Hicks: So they said that they wouldn’t fund the deals you were working on at the time, but then after a while they changed their mind and they would fund those deals, or did you have to find different types of deals that fit their criteria?
Michael Merideth: They offered to fund a few of our deals. We had to choose between our local banks relationships, which the money was a little bit cheaper and less institutionally restrictive; it closed a little bit faster. So we chose on those deals to go with our local lenders, just because it made more sense in that specific moment. But as we came back and looked at the totality of our long-term strategy, it made more sense to solidify a long-term partner to provide our debt on these projects moving forward.
Theo Hicks: So you said they provided 40 million dollars for that deal?
Michael Merideth: No, that’s the part of the facility. The facility itself is 40 million dollars. Imagine a line of credit for multifamily deals. As those things come into play, those funds are already boxed off for VPG to do deals.
Theo Hicks: Okay, I see. So how did they get to that 40 million dollar number? How did they decide that “Okay, we’re gonna give Michael and his company a credit of 40 million dollars”? Why not 20, why not 100?
Michael Merideth: Well, obviously, for guys like that, the numbers – as they are bigger, they make more sense for them. But a part of it was looking at our track record over the last 2-3 years and what our volume was. It’s kind of a 5-year runway that we’re looking to roll these funds out… And saying “How much are these guys developing? What does our pipeline look like?” and then also what does our group look like, and bandwidth that we can handle internally to be able to say “Okay, this makes sense.” All those factors I think were put into play, as well as this overall strategic and absorption in this market too, and what we think we could do.
Theo Hicks: So you said your role right now is in strategic planning… Could you walk us through — I don’t wanna say a typical day, because I’m sure it’s flexible, but what are some of the things that you do as the strategic planner of the company?
Michael Merideth: Well, I am a strategic planner. My official role is CEO, but for me it’s kind of looking past our current deal and how do we fill our pipeline, it’s managing the pieces of the puzzle that have to come together to get a deal. We have a director of acquisitions and we’re working together to find the deals. I’m working with our people in the field to find our equity sources, to find our service providers, to look at market trends and say “Hey, where are we going next?” I work directly with our other founder, Andrey, on identifying what our strategy is, what our acquisition models look like, and then kind of disseminating that down to our acquisitions team, so we kind of know what our prey or our property looks like that we’re going out to get.
For me, it’s looking past the operations on a day-to-day basis, but really trying to find those lanes and those market trends that lend best to what our acquisition strategy is.
Theo Hicks: How are you guys finding your deals? Maybe give us an example of how you found that large deal, that 124-unit.
Michael Merideth: We’re very active in the street. When I say that – we don’t necessarily depend on realtors and brokers to bring us deals, just because we’re in such a very competitive market. Our acquisition team, and even us as owners, we’re out and about, we’re constantly looking for these signs of motivated sellers, whether it’s a cheap For Rent sign, or a dilapidated property, and we’re engaging them directly. That means getting out of your car, finding the property manager, dropping off a card, establishing a relationship… This is how we found our best deals.
That 124-unit portfolio – that was just getting out of the car, talking to the maintenance guy and saying “Hey, does he have the contact to the owner?” He gave us a contact for the owner, we worked with her closely probably for 18 months before we closed the deal, but when she was ready to sell, we had already established that relationship and we were able to avoid that back and forth between brokers and save her some money on commission, as well as step in and close fast when she needed to.
Theo Hicks: So you’re saying this is kind of like door-knocking, in a sense… Identifying these properties that are motivated sellers, and then going there and either talking to the property management company, talking to someone who’s there to get the information of the owner… Right?
Michael Merideth: Exactly. In our market, all of the submarkets are 92%, 93% occupied. There’s not a lot of people who have a real motivation to sell. There’s usually something outside of financial that’s pushing these people to wanna sell or relinquish the property… So we’ve also got a tracking tool with the Parish Assessor’s Office that gives us a map of all those properties and we’re tracking on a weekly basis, “Okay, which properties have you rolled by? What did this property look like?” Then we’re able to get in contact with the owner and then we flow those back into our CRM to make sure that we’re constantly touching those people… Because those are the deals that we want. We don’t want the deal where we’re competing against 4-5 people in best and final. We wanna be able to sit across the table with our potential seller and make a deal that works for both of us.
Theo Hicks: Alright, Michael, what is your best real estate investing advice ever?
Michael Merideth: Know the numbers. Spend the time to know the numbers. You can get caught in a [unintelligible [00:10:21].02] and push the numbers to where you want them to go, but the big thing is that the market is what tells you what it bears… And not getting too creative and out of the box to create something, because in the end you’re protecting an investment, whether it’s yours, or you’re co-investing amongst other people. Make sure that the numbers are what they are.
Theo Hicks: I should have known the engineer would have said “Know the numbers.” I’m the exact same way.
Michael Merideth: Of course, of course.
Theo Hicks: Alright, Michael, are you ready for the Best Ever Lightning Round?
Michael Merideth: I am.
Theo Hicks: Perfect. First, a quick word from our sponsor.
Theo Hicks: Alright Michael, what is the best ever book you’ve recently read?
Michael Merideth: It was Crushing, by TD Jakes.
Theo Hicks: If your business were to collapse today, what would you do next?
Michael Merideth: I’d look at the pieces and figure out how to pick them up. Real estate is my passion, and Robert Kiyosaki says “If I fail, I’ve got the knowledge to do it again.”
Theo Hicks: There you go. What deal did you lose the most money on, and how much did you lose?
Michael Merideth: Oh, man… We did a townhome condominium project and we lost over a million dollars.
Theo Hicks: What are some of the lessons learned from that deal, so that you don’t repeat that again in the future?
Michael Merideth: Know your numbers… And also, have a plan B, and plan C. Also, understand your contracts as well, too. Understand liabilities, and as you kind of take those steps up into different realms, there’s a different level of attorneys, there’s a different level of funding, and those type of things that need to be put in place to make sure that those risks are reduced.
Theo Hicks: What is your best ever deal?
Michael Merideth: The best ever deal… I would say the 124-unit portfolio was really strong for us. It took some time for that to mature, but it’s provided some very long-term and stable returns for us and our investors, and we were able to find the worst property in the best area. So that was a very good deal for us.
Theo Hicks: What is the best ever way you like to give back?
Michael Merideth: My best way is time. We take time to mentor other guys that are aspiring real estate developers, and provide that advice and the ability to not make the same mistakes that we have… So really pouring in to other individuals who have those same aspirations, and also pouring into our communities as well. Some of our apartment complexes – our latest one we created was called [unintelligible [00:13:23].29] but it allows the kids to come in and have access to computers, and tutoring, and Bible study…
Sometimes during the year I take time for six weeks and teach a music class. Those are fun things that allow me to give back.
Theo Hicks: And then lastly, what’s the best ever place to reach you?
Michael Merideth: You can reach us on Instagram at @vpgenterprise. You can definitely contact us via our website, www.veriusgroup.com. And I’ll even open it up for email. I’d love to engage with people that are doing deals, so my email is email@example.com.
Theo Hicks: Alright, Michael, thanks again for coming on the show today. It’s always great to talk to a fellow engineer, and even better to talk to a fellow chemical engineer. Just to summarize what we’re talked about – you’ve got a portfolio of 300 units in the greater New Orleans area. We talked about how you’re funding these deals – started off being creative, seller financing, using your W-2 income. Eventually, that transitioned into building relationships with local banks to get some flexible financing.
For the equity side you were raising money from people that you knew that were high net worth individuals, and then more recently you transitioned into institutional funding. So we talked a little bit about that, about how you got a 40 million dollar line of credit from Goldman Sachs; how it was a long process – two years – but you were very persistent, flying out to New York, pitching the company, and ultimately got that line of credit.
We talked about some of the things that you do as a strategic planner of the company, just overall looking past the day-to-day operations, looking past the current deal and figuring out how you’re gonna find that next deal, how you’re gonna find the next money, the next service providers, what markets you should be looking at…
Then we also talked about how you are actually finding your deals. You’re very active, you don’t rely on brokers and realtors to find your deals, and you have a hybrid driving-for-dollars/door-knocking strategy where you are identifying properties that will have motivated sellers – cheap for-rent signs, dilapidated properties. Then you’re finding the property management company, finding someone that works there to get the contact information of the owners, so you can get face to face with them.
You gave the example of your 124-unit where you talked to the maintenance guy, who gave you the contact information to the owner, and then after talking back and forth for 18 months you were able to close on that property. Then you mentioned your system for tracking what properties have you looked at, who have you talked to, who is interested, who is motivated.
Then lastly, the best ever advice is to know your numbers, make sure you’re spending time looking at the numbers, and do not push the numbers where you want them to go, because the market will dictate that.
So again, Michael, I really enjoyed our conversation today. Best Ever listeners, thanks for tuning in. Have a best ever day, and we’ll talk to you tomorrow.