JF2136: Syndication With Family Offices | Syndication School with Theo Hicks
Theo Hicks will be sharing with you other ideas to help raise money from institutions and more specifically family offices. Typically you will raise money through family, closest friends, and outside investors, but through the time you will need to branch out and raise money to outside individuals. Theo shares different ways you will be able to go about this in the future when you are looking to raise money with institutions.
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To listen to other Syndication School series about the “How To’s” of apartment syndications and to download your FREE document, visit SyndicationSchool.com. Thank you for listening and I will talk to you tomorrow.
Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process, but how to actually do each of the things, and go into it in detail… And we thought “Hey, why not make it free, too?” That’s why we launched Syndication School.
Theo Hicks will go through a particular aspect of apartment syndication on today’s episode, and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to apartmentsyndication.com, or to learn more about the Apartment Syndication School, go to syndicationschool.com, so you can listen to all the previous episodes.
Theo Hicks: Hello, Best Ever listeners. Welcome to another episode of The Syndication School series – a free resource focused on the how-to’s of apartment syndication. As always, I am your host, Theo Hicks. Each week, we air two podcast episodes that focus on a specific aspect of the apartment syndication investment strategy, and for a lot of these episodes, we offer free resources. These are free PDF how-to guides, free Excel template calculators, free PowerPoint templates; these are all free resources that will help you along your apartment syndication journey. These free documents, as well as past syndication school series episodes are available at syndicationschool.com.
Today, we are going to talk about raising money. More specifically, we are going to talk about a more advanced money-raising strategy, which is raising money from institutions and more specifically, raising money from family offices in order to buy your apartments.
So the typical progression for raising money for apartments goes like this – for your first deal, 99 times out of 100, every single one of your investors is going to be a combination of family and your closest friends. So people you’ve known for years, people who trust you as a person, those are gonna be the ones that invest in your first deal. Maybe those are the people that invest in your second deal or your third deal, but eventually, you’ll get to a point where you will continue to raise money from those family and closest friends, but people who are less familiar with; maybe you’ve known only for a few years, or six months, will begin to invest in your deals. So these could be friends that are a little bit less close, these could be work colleagues, these could be people you’ve met through your journeys to meetup groups and conferences, these could be people you met at volunteering. We got some blog posts and syndication episodes about how volunteering is a great way to attract investors. Essentially, you’d raise money from more people, but that aren’t necessarily people you’ve known for decades.
And then eventually, you might decide after you’ve built up a strong enough track record, then next, you will start to raise money from referrals. So those are people who are connected to close family, close friends, then there’s less close friends, work colleagues, things like that. So then you start to get more investors coming in through referrals, and of course, the best way to increase quickly the number of investors you have is through word of mouth referrals, because you’ve already got that social validation factor in play.
Then eventually, you may decide that you are going to transition from doing the 506(b) or you need to know everyone that invests to 506(c); that way you can advertise your deals to a larger audience. Now, the common thread between those four steps in the progression is that you’re still raising money from individual investors or jointly couples, so one or two people at most. So family, friends, work colleagues, referrals. Even through advertising, so you’re raising money from individuals.
Now, the next step in the progression, that not everyone necessarily gets to, is to raise money from private institutions, and one of the most popular private institutions that you’ll find that people are raising money from are family offices. So family offices are private wealth management advisory firms that serve ultra-high net worth investors. They are different from your traditional wealth management shops, in that they offer a total outsource solution to managing the financial and investment side of an affluent individual or family.
So essentially these are– think of when you go to a bank – PNC, for example, is my bank – and they’ve got the personal finance person there who you’ll talk to, they’ll help you set up your bank account, maybe they’ll help you with some other programs for people who have a little bit more money, maybe six figures in their bank account, but typically you’re only meeting with them, I don’t know, maybe once a year, and they’re pulling together a bunch of money to invest in something that gives you a little bit better of a return, but they’re working on behalf of hundreds of people, most likely thousands of people.
The difference with the family office is that they are working full-time for one family. So imagine if you had an entire PNC Bank working on your behalf, that is what a family office is. So family offices can be a great source of equity for advanced apartment syndicators. So you connect with a family office and they will use some of the ultra-high net worth of their family to invest in your apartment syndication deals.
Now, I actually interviewed someone, his name’s Seth Wilson, on the podcast which is not going to air until September. So you’re gonna get a sneak preview at some of Seth’s tips for raising money from family offices because that’s what he does for his company. So he gave us five things that you need to do in order to maximize your chances at attracting family offices.
So the first one is that you need to have relevant experience. So before you even consider raising money from a family office, you need to have experience. So if you’ve never done an apartment deal before or you’ve never done a large apartment in the past, a family office isn’t gonna take you seriously. Even if you’ve done a handful of large apartment deals in the past, maybe you’ve been actively doing syndications for a few years, a family office still likely is not going to take you serious. So when I talked to Seth, he said it took him 12 years and $65 million worth of real estate in order to begin raising money from family offices. So this is an advanced money-raising strategy.
We talked about the progression in the beginning. You’re going to need to do a lot of successful deals and have them be successful over a long period of time before a family office entrust you with their capital. So if you want to raise money from family offices, then your first step is to have years of experience successfully buying, managing and selling apartment buildings.
Next is that you must be an expert as well. So if you meet the experience requirement, you likely meet the expert requirement as well, but you need to be educated on the process. So the reason why you need the relevant experience and you need to be an expert on a par with syndication — so there’s two reasons. The first one is that these family offices are entrusted by an individual or a family to invest on their behalf, and then more importantly, preserve, conserve their net worth. So this individual or their family did a lot of due diligence on the family office prior to using their services, if not creating one from scratch, and then the family office themselves did a lot of due diligence before hiring their employees. So the family hires a family office with a ton of experience managing family wealth. The family office, in turn, hires a bunch of individual employees who have a lot of experience at family offices that have experience managing family wealth. So you are with the third person in the chain who is also going to have a lot of due diligence done on you and your business. So if you don’t have experience, then you’re not even gonna get in the door. If you don’t have the education to get you in the door, you’re not going to be able to win them over.
Secondly, and because of reason number one, the individual or families themselves depending on– we’ll get to that in a little bit later, because sometimes these offices are set up a little differently. So the family office or the actual family or individual are going to be most likely more sophisticated than the people you’re used to raising money from. They’re gonna be more sophisticated than your parents or your siblings who are investing in your deal, your good friends and other people you’re raising money from. Not all, but it’s likely that they’re going to be a lot more sophisticated. So they’re gonna ask you a lot more complex and detailed questions about both you and your business plan. So when you’re an expert that you’re able to hold your ground when these questions are asked, which means that they must have confidence in your ability to conserve and grow their clients’ investment. So if able to answer all their questions and you check all their boxes, then you should be good to go.
So what happens when you are good to go? What happens when you have the experience and you have the expert? So there’s really three things you need to do to, in a sense, court family offices. The first one is or number three in this episode is that you need to put together the right look. So Seth says that whether you like it or not, whether you agree with it or not, in this industry, a book, you, are going to be judged by your cover, how you actually look. So a family office is likely not going to invest in your deals, thus seeing you in person or as you might have a lot of investors now or in the future who have never seen you invest. Therefore, you need to understand what the proper attire is going to be when you go to these business meetings, and there’s not going to be a one size fits all approach.
So this is what Seth was saying – that the acceptable attire when visiting a family office based out of Denver is going to be a lot different than the one in Manhattan. So he said that in Denver, it’s a little more casual, people are wearing Patagonia type of clothing. So if you go in there with a three-piece tuxedo, probably not gonna go over very well. Whereas in Manhattan, at the very least, you need to wear a full suit with a tie. So Seth says the best way to learn the dress code is by asking. So if you have a meeting with a family office in Denver or a family office in Manhattan or somewhere else, give them a call, speak with the receptionist and ask them what the dress code is, and once you know the dress code is, dress with one notch higher.
So once you’ve got the look down, the next part is to know who to speak with at the family office. So how do you get in contact with a family office? Speaking with the right person is going to maximize your chances of success. So if you’re reaching out to a family office who manages the wealth of a second-generation or later families– so this means that the wealth created by the parents or the grandparents, the great grandparents, but the family office is working on behalf of the kids or the grandkids or the great grandkids. So the person that the family office is representing is not the person or the generation that made the actual wealth, and the best person to speak to there would be the Chief Investment Officer.
So most of these established family offices will have an investment committee who must sign off on all investments and a Chief Investment Officer is someone who sits on that committee. So be able to win over the Chief Investment Officer, you will have them on your side, you will have your inside person to argue your case on your behalf. Then if you’re reaching out to family offices who manage wealth for a first-generation family, which means they’re managing the wealth for the actual person or generation that created the wealth and that person individual’s still alive, then the best approach would be to speak to the actual patriarch or matriarch of that family, because since they are the ones that made the money, they’re likely going to be heavily involved in the investment decisions.
So once you know who to speak to, once you dress right, once you talk to them, step five, which is really the tip for anything that you do, which is to take massive action. So like all things in real estate, raising money from family offices requires lots and lots of action. So Seth recommends having at least one to two great phone calls with family offices every single day, and then use resources that you already have to add value and take care of them. Focus on building a business relationship as well as a personal relationship. For example, if you come across something that you think they would personally be interested in, like some news article that you can text that to them. You also want to make sure you are physically meeting them in person, which we’ve already mentioned. So Seth says that he has no issue flying out in the morning, having an hour or so meeting with a single-family office in the afternoon and then flying home in the evening.
So once you’ve got your foot in the door, you have to stay in front of them. You don’t want to be constantly calling them for business-related things, you want to constantly be reaching out to them, sending them stuff that’s valuable to them personally, and then you have to also fly out there, drive out to the actual physical location and meet with them in person.
So those are the five tips. Again, raising money from a family office is a really good way to take your apartment syndication business to the next level to double the amount of money you’re raising, but it’s a strategy that takes time to work up to. As I mentioned, you need to first establish a relevant experience and expertise before making the jump from family and friends to family offices, and once you have that track record, then you need to make sure you know how to dress the part, you know who to speak with, and that you take massive action. So that concludes this episode. As I mentioned, Seth’s episode airs September; the exact date is September 16th. So definitely check that out. Plus, you could go to his website that he lists out. I think he lists out his website. Maybe he lets out his email, I’m not sure. But however he says to get in touch with him, you can learn a lot more about how to raise money from family offices.
So that concludes this episode. Make sure you check out some of our other syndication school episodes, as well as the free documents that we have. Those are available at syndicationschool.com. Thank you for listening. Have a best ever day and we’ll talk to you tomorrow.
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