Dr. Adam Gower is the Founder of GowerCrowd and Author of “Leaders of the Crowd” with over 30 years of real estate experience. Dr. Gower explains the importance of understanding debt, and how to utilize digital marketing to grow your presence and also fund future deals.
Dr. Adam Gower Real Estate Background:
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“You will have to go through a downturn, period. It will happen. The only guarantee in real estate is prices will go down.” – Dr. Adam Gower
Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Dr. Adam Gower. How are you doing, Adam?
Dr. Adam Gower: Very well, thank you. Nice to meet you. Thanks, Joe.
Joe Fairless: Well I’m glad to hear that, and it’s a pleasure to meet you as well. A little bit about Adam – he’s a founder of Gower Crowd. He’s the author of Leaders of the Crowd, and he’s got 30 years of real estate experience. He’s located in Beverly Hills, California. With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Dr. Adam Gower: Sure. Ever so briefly, I do have over 30 years of real estate investments and finance experience, both at institutional levels, but also on my own account. I ran a division of Universal Studios during the 1990s, responsible for all of their development in the Asia-Pacific. That was actually out of Tokyo.
Then I came back to the States and developed my own portfolio. In 2007 I sold everything. I managed to get out right before the door was shut. With that, I was hired by a major bank, and then also by one of the top private equity funds, Colony Capital (you may know), to assist them with portfolio divestment.
So I actually saw every possible way that a real estate can go wrong during that time, because I was working on non-performing real estate collateralized loan portfolios. And once the economy picked up after that, all that good distressed stuff went away, so I started doing some seed investments, Joe… And it was through that that I learned a new language, and it was the language of digital marketing. It was absolutely fascinating to me.
And at around the same time, the laws changed. The laws suddenly, overnight – this is what my Leaders of the Crowd is about – changed, allowing real estate investors like your listeners to go out online and to raise money using digital marketing. Prior to that it was prohibited.
So over the last five years I am an old dog that has learned new tricks, and have developed a state of the art digital marketing system for finding passive investors who write checks to developers, so they can go out and buy more deals. My client base is developers who are raising money online. So that’s it in a nutshell.
Joe Fairless: We’ll focus our conversation on what you’re currently doing… But I do want to back-track a little bit and ask you about your statement of you “saw every way in which a deal could go wrong.” I would love to learn about that. So what are some ways that you found most common, and then I wanna talk to you about some more outlier scenarios that you came across.
Dr. Adam Gower: Sure. There is one simple word that defines where people go wrong. It’s as simple as this. Debt. Too much debt. Because people talk about the capital stack… Actually, this is something that I discuss in my next book, that’s coming out at the end of the summer.
The way that people talk about debt is they think of the capital stack, and it’s the language patterns that people use that give the wrong impression. When you talk about the capital stack, people say the bank gets paid first, and the investors get paid next, right? There is an inherent assumption that you will get paid back. But the capital stack does not describe the order in which you get paid back as much as it describes the hierarchy of power in a deal.
The bank holds all the power in a deal, because they can foreclose on you. It’s as simple as that. They can wipe you out, and anybody above them. So if there’s a second-position loan above them, it doesn’t matter that they get paid second. What matters is that if you have equity above you, they have power over you. They can foreclose on you and wipe you out. You can lose everything.
So the biggest mistake that people make is in failing to underwrite the risks accurately enough and taking on too much debt… So when they get hit with a downturn, they’re unable to service that debt, and in kicks that capital stack power hierarchy, and the bank comes knocking on the door and takes your building from you. They’re not friendly partners when that happens, because they’re regulated; they have no option. So that’s the long answer to a short answer. The short answer being debt.
Joe Fairless: What is too much debt?
Dr. Adam Gower: Too much debt is that which you cannot handle, or that which you cannot handle repaying on a consistent basis under a worst-case scenario when you underwrite a deal. When you underwrite a deal, you’ve got to look at three scenarios. So just between you, me, and the 27 million people listening now, Joe, we all know that there are three spreadsheets that every investor concocts. There’s the one that they write for the bank, the one that they write for their investors, and the one that they keep for themselves, that they think is the most likely scenario.
So the best way to underwrite a deal is to basically take those three scenarios but be open about them, especially with investors, and create a best-case, worst-case and most-likely case scenario, and be honest about it. Look at your worst-case scenario, and the best way to do that is to look at how deep the market fell in your location during the last recession, and specifically the global financial crisis of 2008. You can find that data, how far did vacancy rates go up, how far did rents go down – and underwrite to those numbers on your projections, and only take on as much debt as you can handle under those circumstances. That includes terminal values as well, Joe. So you’ve got to also look at cap rates.
If you are assuming that cap rates are gonna continue to compress, you’re probably making a mistake, especially now, this stage of the cycle. You wanna be looking forward and being pragmatic about where you think cap rates can be, and probably increasing your exit cap rates assumptions, and then underwriting to that, as well as worst-case, and being able to cover your debt under both of those circumstances.
Joe Fairless: How would you suggest coming up with that terminal cap rate or the exit cap projection whenever you do an underwriting?
Dr. Adam Gower: Again, look at historical cap rates. This data is readily available. I hope you don’t mind me mentioning my podcast, Joe…
Joe Fairless: Of course, mention it.
Dr. Adam Gower: So I also have a podcast, The Real Estate Crowdfunding Show, Syndication in the Digital Age, and I interviewed Spencer Levy, who wrote the CBRE Cap Rate Report. It’s their most popular report, absolutely fascinating. They have incredible amounts of data. So sources like that you can go to, and have a look and see “Where did cap rates go during the 2008-2009 recession?” and assume that you’re gonna get back those rates at the end of the cycle. That’s one way to look at it; look at historical patterns. They will repeat.
Joe Fairless: Let’s talk about what you’re doing now. And thank you for the analysis approach for looking at it historically. Because when you said “worst-case scenario”, I’m thinking “Well, the worst case is there’s a nuclear bomb that hits your area.”
Dr. Adam Gower: But then you don’t have anything to worry about… [laughs]
Joe Fairless: That’s true, yeah… But you took a more pragmatic approach for worst-case, and that’s when we had 2008-2009, or whatever timeframe the recession hit your area.
Dr. Adam Gower: Yeah. Look, Joe, worst-case scenario is systemic collapse and military on the streets, locking everyone. When that happens, or if the dollar collapses, then there’s nothing you can do about that. Lawyers, guns and money is what you need. Gold and guns, basically, is the only thing to secure you in that scenario.
Joe Fairless: Well, let’s talk about what you’re doing now. So you mentioned what GowerCrowd does, but elaborate a little bit more on a case study that you have, just to give us a sense of what’s taking place.
Dr. Adam Gower: Thank you so much for asking that. It’s really nice of you to ask such a question. So what I do is I build digital marketing systems for real estate developers who want to raise money online… To go out and raise equity capital. Well, actually it’s for anybody; they don’t have to want to raise it online. You can want to raise it at the country club, or from friends and family in your immediate network. But the law now says you can do it online, so you might as well do that, because it’s very, very powerful.
And again, just let me know – I’m not going to pitch too hard, Joe, but let me know if I can, because I’ve actually put together a free workshop that you can take a look at and you see this whole thing in great detail.
Joe Fairless: Yeah, at the end of our conversation I’ll ask how can listeners get a hold of you, so feel free to mention that.
Dr. Adam Gower: That’s very nice of you, thanks so much.
Joe Fairless: So we have been tracking for the last five years or so, which is as long as it’s been allowed in the United States, we’ve been tracking best practices in the industry. And this is absolutely brand new for the real estate industry that you’re able to do this. So everybody is kind of feeling their way forward. Digital content marketing – exactly what you’re doing, Joe; this podcast is exactly that – has been around for a long time, and it has disrupted just every industry in the world, except real estate, until now. So we’ve been adapting best-of-class practices and applying it exclusively to commercial real estate, so developers can raise more money online. We’ve built and developed a system for doing that, that is largely content-driven.
For example on my podcast, I will create out of a single podcast one or two thought leadership pieces, half a dozen videos, and half a dozen notable quotes. So in an hour I’ll get 15-20 pieces of content, that we will then rotate online. We do this for our clients as well, so we get into your DNA, find out who you are, just in the same way as you’re talking to me, in 20 minutes, but we’ll spend an hour a week with a client, recording conversations and really understanding how they see the world and how they see commercial real estate investing. Then we create content from that, and with that we fuel a machine.
I’m gonna give you a case study your listeners can actually go and take a look at if you like in a minute, but think of it this way… It used to be that it was mandatory to have a business card; how old school is that? That’s number one. Then it became mandatory to have a website. You’re gonna have a website, right? Some kind of landing page that people can go. But nothing’s really changed since the website.
The website, to pick a metaphor, is like the body of a car in your driveway. It looks gorgeous, but it doesn’t go anywhere without an engine. It’s got to have an engine. And that engine is, in the digital marketing world, sophisticated communications like autoresponding emails, auto-posting to social media, tracking visitor behavior on the website etc. That’s your engine. That’s what powers the investor journey to getting to know “I can trust you enough” that they send you money. But there’s one vital part of that machine – your body and your engine – that you also need, and that is content. Content is the fuel that powers that vehicle, that investor acquisition system is what we call it, that vehicle to raising money – you have to have content.
So the biggest problem I’ve had, Joe – it sounds whacky – since I’ve been doing this… I’m frequently asked, “Can you give me references?” So when I first started doing this, I would ask my clients “Can I please give this guy your name as a reference?” And the reaction I got was not one that I had expected. I was afraid they would actually cut me off, even though I was doing an amazing job, because they didn’t want to give a reference, because they didn’t want to think that I was actually building these systems for anybody else; they wanted to think that they had exclusive rights to it. This competitive edge.
But there is one client who very kindly has let me point to his business… So if you go to Feldman Equities — in fact, we’ll even give a link to the podcast on his website; I’ll give you a back-link as well, Joe, as well as on my site. FeldmanEquities.com. They’re out of Tampa. Basically, 100% of everything you see on that website – the website design itself, and layouts and structures, entirely GowerCrowd. And the entirety of the education and video pages. You can also go and have a look at YouTube, and then check out LinkedIn and Twitter and everything and just see how this machine works; you can see it in action.
And then if you also want to go onto my website, on the podcast page I actually interviewed Larry Feldman. Just to contextualize, they actually own four million sqft. of downtown office buildings. Third-generation family office out of Tampa, Florida. They built Chicago Apple, basically… Huge family in the 1960’s. And the interview that I did with him, on that podcast page there’s a before and after look of his website, where I describe basically the moving parts and everything that we do. So that’s the answer… A bit longer than just the debt answer.
Joe Fairless: Yeah, it’s interesting, because it’s not what I thought your focus was, so I’m glad that you explained it. I thought that you were a crowdfunding platform, but really – and I hope I’m not trivializing this – you’re a marketing company that focuses on building out content and doing best practices on behalf of your clients, who are in the real estate investing space, who are focused on bringing on investors. Is that accurate?
Dr. Adam Gower: [laughs] I love that you say you hope you’re not trivializing it… I’ll tell you something – there was an expression I learned on my Peloton the other day… It’s one of the expressions I like, and I tell everybody: “Perfection is the enemy of the good”, and what I’ve come to realize actually is that progress, not perfection, is a better catchphrase. You’ve gotta constantly move forwards. It’s really important to do that.
So it’s funny that you used the term “trivialize” in the idea that what I am is a digital marketing agency. The reason that it amuses me is because it’s taken me a while to accept that yes, that is actually exactly what we do. We are a digital marketing agency. But the techniques that are used by the best of the best crowdfunding platforms like Crowdstreet, RealCrowd, Fundrise etc. – those are the techniques that we have been tracking for the last five years, implementing on our own stuff, GowerCrowds (we test everything on my website first) and rolling out to clients.
So those platforms had to learn how to do this the hard way. No one had ever done it before in real estate. So what you get working with us is you get that five years of learning curve on day one. So if you start with the absolute best–
Joe Fairless: Got it. So let’s talk about some tactical things that some of our listeners can implement after listening to this conversation. So you mentioned auto-responders on emails… If someone wants to implement an autoresponder within their marketing process, which one do you use and what tips do you have for that?
Dr. Adam Gower: So the first tip I would give you is that none of them are perfect. There’s a bunch of them that you can use, but none of them are perfect. That’s the first tip. So don’t expect not to have challenges with any of them. I am ancient, Joe; I told you I started this business in the early 1980’s; unbelievable, really. And I’ve found those platforms that I personally find the easiest to use.
The one that we use for auto-responding is ConvertKit. It is not without its problems, none of them are. I can say I’ve tested all of them. But that’s the one that we like, and we use, and we’ve actually developed some integrations that allow us to track user behavior in a far more advanced way than they can provide their customers. We’ve built some systems on top of that. But as a starting point, that’s really easy to use.
The key to an auto-responding email system is you’ve got to feed it. It’s just a small part of an investor acquisition system. You’ve gotta think of it as being part of a sequence of events that have to happen to draw investors into your orbit and educate them. And the first place that starts is on social media, with posting. Then direct people that you don’t know to your website. And on your website, you have to have a lead generation form or two, that says “To get our whitepaper, to get a case study, or to learn more, or to get access to our deals, or join our waitlist… Give me your name and email address.”
Then, that’s when ConvertKit auto-responding email systems kick in. But again, you’ve got to have content to fuel that system. You’ll have something to [unintelligible [00:20:01].25] on social media, and then you’ve gotta have something to send out in those emails when you send them out. And that’s all content-based.
Joe Fairless: Based on your experience as a real estate investor, and now someone who works with real estate investors directly on their marketing approach and execution, what’s your best real estate investing advice ever?
Dr. Adam Gower: I have to go back to your first question, and that is “Don’t over-extend on debt.” It will kill you. Period. That is the best advice. If there was just one thing you wanted, that’s it. Do not over-lever. Make sure you can survive a downturn, because you will have to go through a downturn, period. It will happen. The only guarantee in real estate is that prices will go down… Whether you’ve seen it in your lifetime or not, it will happen, so don’t over-lever.
Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
Dr. Adam Gower: Fire away!
Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.
Break: [00:21:11].04] to [00:22:00].22]
Joe Fairless: Alright, what’s the best ever tool that you use in your business or for your clients that we haven’t talked about, that you think they should start using?
Dr. Adam Gower: Authenticity. Create content that is truly you. Don’t try to be somebody else. Just be you. You said lightning round, so have I got like 60 seconds to answer this?
Joe Fairless: Yeah, sure.
Dr. Adam Gower: I have clients come in the door, wanting to portray themselves as a major private equity fund. They’re not. I know private equity, I’ve been inside private equity, and I’ve done a huge amount of business in the private equity world. The problem is that if you create a persona online, when it comes to actually meeting your prospect to raise money from them – which you have to do, by the way; no one’s gonna write you a $100,00 check without at least one phone call. They’re gonna have to meet you at some point. If there is a disconnect between the persona that you put out online and the reality of who you are, you will lose that prospect and you won’t raise a penny. So be confident in who you are. You are an expert, don’t ever doubt that.
Joe Fairless: Best ever way you like to give back to the community?
Dr. Adam Gower: Two things. It’s the second time I’ve been asked this recently on a podcast… And I got the answer wrong the first time, so I’m gonna get it right this time. This is what I said last time, and I forgot the important bit. Number one, I produce massive amounts of high-value free content. I really do put a lot out that is very valuable and useful, and I love doing that, actually. And then the second thing, on a slightly more pragmatic level, I actually donate exactly — well, I actually donate more; it depends on the year, but cash – 10% at least of my income to charity. I write checks. A lot of checks. Don’t call me for one though. [laughs]
Joe Fairless: How can the Best Ever listeners learn more about what you’re doing and get in touch with you or learn more about your business?
Dr. Adam Gower: Thanks, Joe. The one thing that I would recommend you do is go to GowerCrowd.com/waterfall. Naturally, I gave it a whacky, completely unrelated landing page… But go to /waterfall and watch my whiteboard workshop, where I walk you through the entire system. It’s one of those value-add things… The entire system that I built for private clients, in detail. I stand at a whiteboard and walk you through that. That’s GowerCrowd.com/waterfall, and you’ll get on my mail list if you sign up for that workshop. Then you’ll get an email from me sooner or later. Just go ahead and reply to it if you’ve got any questions.
Joe Fairless: Well, thank you so much for being on the show, talking about how to think about debt, and – it’s not a matter of if, but when prices go down… And how you provided your thought process for the amount of debt that is the right amount. What you mentioned is look at the three scenarios that you might have already – one with the bank, one with investors, one where you keep for yourselves; then take a look at what is the worst-case scenario based off of where the vacancy rates were, where the rents were, cap rates during 2008, 2009, 2010, whenever the recession hit your area. Then underwrite to those and take on the debt accordingly.
Not everyone will have the three scenarios, where they’ve got bank investor [unintelligible [00:25:35].19] I know we don’t have that… But the thought process for how to think about that certainly resonates.
And then on what you’re doing now – as you said, you’re a digital marketer, focused on working with real estate companies that work with private investors, and building out the content and making sure that you have the fuel and the engine that are running the car working properly, to use your analogy. Thanks for giving your tips on that and your thought process for that, as well as getting into the weeds with some tactical stuff like auto-responders.
Thanks for being on the show. I hope you have a best ever day. I enjoyed our conversation, and we’ll talk to you again soon.
Dr. Adam Gower: Joe, thanks so much.Follow Me: