JF2082: Four Decades of Raising Capital With Ken Holman
Ken has over 40 years of real estate investing experience and has done all types of real estate deals like self-storage, industrial properties, golf courses, retail lots, and apartments. Ken has had to raise money multiple times and during this episode, he shares some advice on how he raises capital and the insights he has learned over the years.
Ken Holman Real Estate Background:
- President of Overland Group and National Association of Real Estate Advisors
- 40 years experience in real estate
- He has brokered, developed, constructed and owned over $500 million in real estate assets
- Experienced in owning commercial, industrial properties, self-storage, golf courses, retail, and apartments
- Based in Salt Lake City, UT
- Say hi to him at: https://overlandgroupinc.com/
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Best Ever Tweet:
“Make sure every deal you do is a good deal. Don’t settle for mediocre projects because you’re anxious to get started.” – Ken Holman
Theo Hicks: Hello, Best Ever listeners, and welcome to the best real estate investing advice ever show. I’m Theo Hicks, and today we’ll be speaking with Ken Holman. Ken, how are you doing today?
Ken Holman: I’m great, how are you doing?
Theo Hicks: I’m doing great as well, thanks for asking and thanks for joining us. I’m looking forward to our conversation. A little bit about Ken – he is the president of Overland Group and National Association of Real Estate Advisors. He has 40 years of experience in real estate; he has brokered, developed, constructed and owned over 500 million dollars in real estate assets. Experienced in owning commercial and industrial properties, self-storage, golf courses, retail and apartments.
He’s based in Salt Lake City, Utah, and you can say hi to him at OverlandGroupInc.com. So Ken, do you mind telling us a little bit more about your background and what you’re focused on today?
Ken Holman: I’d be happy to. I guess the primary thing that I’ve been involved with over the years has been apartment development. I think I’ve done a dozen or more large apartment projects, ranging anywhere from probably 150 units up to 440 units. Along the way, that’s led to other opportunities. We’ve done several retail projects, mainly Dollar Store type investments… And built a golf course, done some other industrial and office properties. But the core business has been primarily apartments, and also self-storage projects.
What we’re doing today is we’re building an apartment project in St. George, Utah. 116 apartment units. We’re really excited about that. We raised about six million in investment capital on that real estate syndication… And we are doing a couple deals over in Mesa, Arizona. One’s a 580-unit self-storage project. We raised about 2,5 million on that project. It started construction this week, so we’re excited about that.
We’ve got a 240-unit apartment project we’re doing over there, and a 100-room hotel that we’re doing also in Mesa. We raised about 15 million, which has been fully-subscribed, on the 240-unit apartment development… And then the hotel – we haven’t started that raise yet, but… That’s what our company does.
We’re a fully-integrated real estate company. We do brokerage, construction development, capital raising through our syndication, and also property management. So we try to cover the whole gamut of real estate projects, from beginning to end.
Theo Hicks: Thank you for sharing that background. I think a lot of our listeners are gonna be interested in some of your money-raising tactics. You talked about a six-million-dollar raise, a 2.5-million-dollar raise, a 15-million-dollar raise… Do you mind giving us a few tips? Firstly focusing on someone who’s just wanting to get started raising money. And we’re gonna also talk about some tips on scaling to being able to raise over 15 million dollars for a deal.
Ken Holman: Yeah, that’s a big deal actually, to be able to raise that much on a single project… But I started out with my first deal being a little family Dollar Store that we were gonna build in Thermopolis, Wyoming, of all places. I needed to raise $150,000, and I started thinking “Okay, how do I do this?” You get a little reluctant going to family and friends, and trying to beg money from them… So what got me started was I had a self-directed IRA company approach me and ask me if I would give a presentation to them on that particular little family Dollar deal.
So we went over to Boise, Idaho, of all places, and gave a presentation, and walked out of there with 150k in commitments… And I thought “Man, this is pretty fun.” That was a cool way to raise equity capital, so we started getting pretty familiar with how to do self-directed IRAs. Then that branched into self-directed 401K’s, then we developed our expertise in doing 1031 tax-deferred exchange deals.
Then we started getting a reputation for being able to raise discretionary income, and that’s how it all began… It just started evolving. In fact, I don’t know that there’s anybody else out there doing this, because it’s a pretty sophisticated model. But we can take people with discretionary investment capital, with 1031 exchanges and with IRAs and 401K’s, and marry them all into a single project. It gives us a capacity to raise a lot of investment capital that way.
And then we’ve tied in with a couple money-raising funds that really love our projects… And that’s just expanded our capacity to be able to raise equity capital. So it’s been kind of a fun ride, and you’ve gotta have some good people around you to be able to put those deals together… But I think we do, and we’ve developed a really nice product.
Theo Hicks: That was another question I was gonna ask you, it was about your team… But I do wanna ask one follow-up question. Well, I guess two. One will be quick. So we talked about how you’re able to take 1031 exchange investors, IRA investors, 401K investors and wrap them into a single project. You mentioned that is very sophisticated… Just very quickly, if someone wants to do something like that, where can they go to learn more about how to do that process, or is that something they should talk to their securities attorney about? What advice do you have for that kind of person?
Ken Holman: I’ve had to educate some securities attorneys and some 1031 intermediaries on how to do this… So I don’t know that you can go to one single source and get some guidance on how to do it. I’ll give you a quick overview of how it’s done, but that’s where the secret sauce is. That’s why I want everybody who come to our company to be able to do that.
LLCs have the ability to sell basically units, ownership interests in the LLC, and you can bring in investor capital that way. Self-directed IRAs and self-directed 401K’s – the same thing; they can buy units or ownership interest in LLCs. But 1031 tax-deferred exchanges don’t have the ability to do that. They have to do like-kind exchanges; so you’re selling one investment property and buying another investment property.
We see a lot of people with smaller single-family homes, duplexes, fourplexes, that are kind of tired of doing management themselves and would like to get into bigger projects that have more potential, and the possibility of higher returns… So often we see them sell their assets and 1031 into one of our deals. I usually limit the amount of 1031 capital to basically the value of the land. So they can 1031 into the land that we’re acquiring or have acquired, and then we marry that all into what’s called a tenant-in-common agreement, or some people call it a TIC agreement.
TIC agreements in the past have been a bit of a dirty word for 1031 investors, just simply because they’ve been mismanaged, or you get somebody in there that doesn’t know what they’re doing. In our case, it just becomes the mechanism that we use to blend the 1031’s with the LLC investors. So that – you’ve got more than I tell anybody else almost.
Theo Hicks: [laughs] I really appreciate you sharing that with us. Okay, so my other question is you mentioned that one of the reasons why you’re able to do a sophisticated process like this, able to raise so much money is the team. Let’s say I’ve got a business and I’m ready to bring on my first team member; who’s the first person I should bring on?
Ken Holman: That depends… You’ve gotta have a good acquisitions person. That usually is me. I like to handle the acquisition side of our business. And then the supporting cast… I’ve got a son who’s a CPA, and he runs our accounting and our investor relations department, and he and I team up on the development side… So you’ve gotta have somebody that understands acquisitions, somebody that understands development… Reporting is a big deal when you’re raising investment capital. And I didn’t understand that early on, and that’s probably one of the bigger mistakes that I made – I just raised the money and thought “Okay, we’ll do this deal and I will tell everybody when it’s done and we’ll get going, and we’ll make distributions as the project stabilizes.” And we did that, but I have found that investor communication is a real key.
You’ve gotta keep them informed and let them know what’s going on every step of the way. If you do that, they begin to trust you and you develop a relationship with them where they not only wanna do one deal with you, they wanna do several deals with you. So that’s been a side of the business my son Mike brought into the program.
And then because we also do construction, you’ve gotta have a good construction team. Our model is we don’t try to self-perform all of the scopes of work on a construction project; we just oversee the whole project. So we do project management, project engineering estimating and superintending. So we put our superintendent on a project, but we don’t try to self-perform all of the sub-trades. That’s made it so we can move around the country and work in almost any state, which is really good. We’ve been in probably seven or eight states now that we’re licensed in, which is good.
Then you need a securities attorney, and there are different types of securities attorneys, frankly. There are some that throw more roadblocks up than actually are helpful in getting the private placement memorandum done. And/or they’ll make the private placement memorandum, which is called the PPM, so darn difficult, and with so much legalese in it that it scares away the investors.
So you’ve gotta be able to work with a securities attorney that understands investing and how to work with investors, so that you get all of the disclosure in there that you need to, but you’re not putting so much difficult language in there that it scares people away.
And then obviously you need to develop several sources of fundraising. That includes doing your own webinars, things like what we’re doing here today. Also, any other funds that like to invest with you… And they’re out there, but they’re also looking for really experienced people. So they generally won’t work with a newbie right out of the gate.
Theo Hicks: Perfect. Okay, Ken, so for someone who wants to be in your position and have been involved in over 500 million dollars in real estate transactions, what is your best ever advice?
Ken Holman: Oh, my gosh… Best ever advice maybe is two or three-fold. One, make sure that every deal you do is a good deal. Don’t settle for mediocre projects because you’re anxious to get started. That would be number one. Number two, do what you say you’re gonna do. When you’re raising equity capital, do the very best you can to inform them on what they need to do and how they need to do it and what your timeframes are, and then work really hard to stick with those.
And then I guess the last piece of advice is communicate. Just keep them informed every step of the way; whether you’ve got good news for them or bad news for them, make sure you’re always there, telling them where you are and what you’re doing, and if it’s bad news, just be straightforward with them and let them know where you’re at. They’d rather hear that than not hear anything.
Theo Hicks: Okay, Ken, are you ready for the Best Ever Lightning Round?
Ken Holman: Oh, my gosh… I guess. Let’s try it and see what happens. I may fail, but you never know.
Theo Hicks: Okay. First, a quick word from our Best Ever sponsor.
Theo Hicks: Okay, what is the Best Ever book you’ve recently read?
Ken Holman: What did I really like right now that I’m reading, I’m kind of excited about is a book called “Start With Why” by a guy named Simon Sinek. He talks a little bit about how great leaders motivate and inspire other people, so that’s been kind of a fun book to read.
Theo Hicks: If your business were to collapse today, what would you do next?
Ken Holman: I’ve been in this business 40 years, man… I’d retire. I’ve had some people already tell me I should retire, but I’m having too much fun, so I don’t see any reason to stop yet. But if my business were to collapse, I’d probably take a little time off, buy a new suit, and then I would probably get started again, doing exactly what I’m doing… Because I’ve learned how to do it, and frankly I’m pretty good at it, so… I think it’d be possible to do it again.
Theo Hicks: What deal did you lose the most money on? How much did you lose, and then what lessons did you learn moving forward?
Ken Holman: Well, I’ve been in the business enough years that I’ve been through more than one real estate cycle, and probably the hardest real estate cycle that we dealt with was back in the Resolution Trust Corporation days, when the 1986 tax reform act happened… And they didn’t even have what was called passive losses; they didn’t have those. But the losses that you generated in real estate through depreciation, you could write off against ordinary income. They disallowed all of that; it completely changed the business. 5,000 savings and loans went out of business, and we really struggled with properties. During that era, occupancies went from 90 down to 50, and we lost some properties back then, as did everybody else. Some of the big players went out of business… So that was just not a good era.
Today I see this Coronavirus and I see a few things happening, but what we’ve got going on right now in terms of its impact on the real estate business is just not that great compared to what some other downturns have had… So that’s my worst situation; it’s a long answer to a short question, sorry.
Theo Hicks: I didn’t know about that, so thanks for sharing that. So what is the best ever way you like to give back?
Ken Holman: I have two or three ways that I give back. I’ve been a member of Rotary International for a long time. I was one of the founding members of my club here that we formed, and they have a program called the Paul Harris Fellowship, which is with the Rotary Foundation, and you can contribute money to that, and then that goes into all sorts of humanitarian efforts.
I also contribute to a humanitarian program with our local church. And then I’ve helped organize several Blood Drives with the American Red Cross, which has been cool.
Theo Hicks: And then lastly, what is the best ever place to reach you?
Ken Holman: Probably the easiest place to reach me is on my email address, which is kholman [at] overlandcorp.com. You reach me there at any time and Natalie, my assistant, just keeps on top of that, so we’re pretty good at responding when we get emails.
Theo Hicks: Well, Ken, I really appreciate you coming on the show today and sharing your advice, and I also appreciate you sharing your email address. So Best Ever listeners, make sure you take advantage of that. It’s rare that a guest with this much experience gives away his personal email address… So make sure, again, you take advantage of that.
Just to summarize some of the biggest takeaways that I had – you kind of gave away your secret sauce a little bit about raising capital…
Ken Holman: Don’t tell anybody, okay?
Theo Hicks: I promise I won’t tell anyone. So you wanna relisten and listen to that. You also gave us some advice on what to do to get to the point of being able to raise such large amount of capital, and sort of how you started with a small $150,000 raise, and obviously are up to 15+ million dollar raises… It sounds like it is just slowly stepping your way up and gaining reputation, and as you do more and more, you learn more, you know more, and you attract more and you attract more people to you, assuming you’ve been successful.
Ken Holman: Yeah.
Theo Hicks: And then also you mentioned how you eventually were able to work with funds as well, so I’m sure that was also helpful.
Ken Holman: Yeah.
Theo Hicks: You broke down the different team members that someone would need to do what you do, and then you gave your three-fold best ever advice for someone who wants to grow up to doing 500 million dollars’ worth of transactions. Number one, make sure that every deal you do is a good deal, so don’t settle just because you’re anxious to get started into your first deal. Number two is to do what you say you’re going to do in raising capital; whatever you say that you’re gonna do to your investors – make sure you stick to that. And then number three was to communicate with your investors. Keep them informed every step of the way, with the good news and the bad news. They’re rather hear the bad news from you than not hear it until it starts affecting their money.
Ken, again, I really appreciate you coming on the show and joining us today. Best Ever listeners, as always, thank you for listening, have a best ever day, and we will talk to you tomorrow.
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