One of the many great things about the real estate business is diversity of people and backgrounds. Throughout my series of Sponsor Features I’ve highlighted individuals who were born to be entrepreneurs and others worked at best-in-class institutions before going off on their own. The commonality, however, is their passion, resilience, and hunger to succeed.
Brad Minsely, co-founder of 10 Federal, was born to be an entrepreneur; as a kid he bought candy in bulk and sold it individually at a mark-up, he then spent the first 13 years of his career at an entrepreneurial real estate firm. He viewed starting his own investment firm not as a choice, but something he had to do. Brad was going to be success, no matter what it took.
Here’s his story. Enter Brad.
Tell us a bit about your background. How did you break into the real estate business?
I ended up in real estate by chance. During my freshman year of college I had grand plans to spend the following summer working on a cruise ship. The pay would have been $20/hour and I would have floated around to exotic destinations…sounded nice. Instead, my strong-willed mother landed me an internship through a co-worker’s brother. Next thing I knew, I was making coffee in an office in Durham, NC not knowing the first thing about real estate. The guy who provided me the internship was Donald Phillips. Donald is the most charismatic, creative, and risk-loving person I have ever met. At 18 years of age, his style and approach was exciting and I went on to have the enjoyable experience of spending the next 13 years working with him and eventually became the only partner in his firm. Together we grew his company into one of the largest multifamily development firms in the country. We were levered to the hilt, owned a jet airplane and fast cars and went off the cliff in 2008 with +$500M of short term construction loans. The company reduced in size dramatically, which was a painful learning experience, but we saw it through the recession and Donald is in better financial shape than ever.
While at Phillips Development, we were effectively a merchant builder of class A multifamily properties across the southeast, Texas and were getting into Arizona and Iowa when the recession hit. I ran a team of three guys who did nothing but get the land entitlements put the financing together for al deals.
Tell us a bit about the 10 Federal story and brand.
I have always had the entrepreneurial bug. In grade school I bought Blow Pops at Sam’s and sold them to other students for a quarter. In college I co-founded a dot.com called StartEmUp which connected student ideas with Venture Capitalists (this was around the time of Napster, etc.). At StartEmUp we raised angel money, had Arthur Anderson and Bank of America as sponsors, and we even had Elon Musk speak at one of our events (he had just done PayPal).
Phillips Development was also a very entrepreneurial environment, so it filled that passion while I was there. Ultimately the decision to leave and start 10 Federal was for a couple of reasons;
- I had started a family and crazy as it sounds, starting a firm felt less risky than staying on the Phillips Development roller coaster and
- You only live once. There is no dress rehearsal for life. If you ever want to be your own boss, then you need to go do it. By June 2010 we had Phillips Development back on track and I felt I had fulfilled my part to Donald and the company’s investors and could move on with a clear conscious.
- With the 10+ years I had spent working at Phillips, I felt confident that I would succeed. I knew there would be stressful moments and challenges, but I had been preparing my whole life for those moments!
I started 10 Federal in 2010 with my brother Cliff. It was still in the depths of the recession and we did what was necessary to survive starting mostly with some brokerage transactions to keep the lights on and generate some working capital. We then raised equity and started acquiring and managing multifamily properties. The multifamily space has provided us the bedrock we’ve needed to launch more entrepreneurial ventures such as our self-storage development platform. The self-storage platform is exciting for us as we are implementing new technologies with success and vertically integrating through the development and construction scopes. In fact, Cliff and I are now Caterpillar certified to operate a D5 Dozer, Tracked Excavator, and Compact Loader. What sets 10 Federal apart from the competition in both multifamily and self-storage is the implementation of technology to do all aspects of the jobs better. We have great people on our teams that have also embraced the technology and climbed the learning curve with us and collectively we are succeeding. Examples of the technology range from fully automated self-storage operations, to GPS surveying, to big data analysis for optimizing advertising.
What was the defining moment where you knew the timing was right to go off on your own?
Truth is the timing is there well before you ever jump. If you are even thinking about it, then you are ready mentally. You may still need to get your financial house in order to go, but fact of the matter is that necessity is the mother of invention. I have spent many a fretful night sitting in a dark room figuring out how on earth to solve the current problem facing us and every time we figure out a way. If you need some inspiration, I highly recommend reading Rebel Without a Crew by Robert Rodriguez. The book chronicles Robert Rodriguez’s efforts to make his first film El Mariachi which he did so for $8,000, most of which he covered by subjecting himself to medical studies. The film made it into Sundance and launched his career. Long story short, you can succeed, you just need to start and then don’t stop at any cost!
10 Federal touts the principle “Embrace Technology”. What are some of the tech tools the company utilizes?
Here are some examples of utilizing technology that have direct benefit to the bottom line:
Electronic Work order systems on our multifamily properties. First let me describe the legacy system. The only way a resident can submit a work order is by calling the office which requires the office to be open. The office personnel write down the work order and put it into the ‘work order basket’ which is exactly that, a basket in the office which holds the work orders. One work order stacked on top of the next. Then the maintenance man cycles through the office and generally picks up the work order on the top of the stack, which means that the maintenance guy may be out changing a light bulb when some poor resident is melting to death because their A/C is out.
By contrast, here is life with our electronic work order system; a resident can submit the work order through their smart phone, through a computer, by calling the office, or by hitting our call center if after hours. If the resident uses the smart phone or computer then the work order goes directly to the maintenance man’s smart phone. The office staff and call center do the same, no more work order basket. The work orders show up on the maintenance man’s phone with color coding so that he knows which ones need attention first.
As he completes the work order, any materials he uses (i.e. sink faucet replaced) ties back automatically to our inventory system which automatically orders new parts so that we are never out of parts. Now, here’s the impact. When we turned on the system, we managed 640 units and there were 45 open work orders in the system. We now manage over 2,500 units and rarely have more than 30 open work orders at any time. Our average response time is down from 22 hours to 5 hours. And most importantly has been the impact on customer satisfaction. Based upon our ApartmentRatings.com ratings, we are often the highest ranked apartment community in our market and never out of the top 5%! As more and more renters ‘shop’ online for their next apartment home, the rating/reviews are ever more crucial to success.
Pricing Algorithm: Our rents are priced using an algorithm that takes numerous variables into account; everything from the amount of leasing traffic we are receiving, to the time of the year, what the competitors are doing with their pricing, how long a unit has been vacant etc. It adjusts prices to manage lease expirations to keep us from ending leases in the slow leasing seasons and it adjusts prices for different length terms. The power of this algorithm has become a value-add proposition in and of itself. We are buying from mom and pop operators who may not have changed rents in a year and generally only have a 6 or 12 month lease options. When we unleash the algorithm we have grown rents 5% to 15% in the first year.
Kiosk + Janus Securguard Lock: On our self-storage deals, we are converting facilities to wholly unmanned, automated operations. On a self-storage deal that is 20,000 SF to 40,000 SF, the single largest operating expense item is the Property Manager. Between the Kiosk and Janus Securguard Lock, we can perform 95% of the tasks performed by the property manager and even do them better!
Here are some examples: The Property Manager is typically on-site 40 hours a week (there are 168 hours in a week) compared to the kiosk which never sleeps, never takes vacation, and never gets sick. Hence, just by going to the kiosk we have quadrupled the amount of time that we are able to sign a lease! The Janus Securguard lock is where the magic really starts to happen. Typically rent is due on the 1st and late by the 5th. On the 6th the property manager has to go ‘overlock’ the units that have not paid.
By comparison, the Securguard lock simply does not unlock if the system is showing a renter is delinquent (the Securguard lock is an electronic lock on the inside of the door that is connected to the kiosk ‘brain’ Renters still put their own padlock on the outside of the door). The next thing that happens during the month is a delinquent renter makes their payment and immediately wants the overlock removed. With a property manager, well, first the property manager has to be present to take payment, then they have to go out and remove the lock. Neither of those are going to happen during evenings or on weekends and this results in angry renters. By contrast, payment can be made at the kiosk and access is immediately restored! There are several other benefits of the automated system; for example, no office, no bathroom, less utilities, less construction costs, etc. But I think you get the gist. The technology saves money upfront and operationally and does many things better than a property manager.
What’s been the biggest surprise of starting your own investment firm? What’s been one of the biggest challenges?
Biggest surprise is that there is so much opportunity! When we got into property management and self-storage we looked around and there are giants out there (Public Storage, Equity Residential etc.) and we thought, “How can we compete with these groups?” They have unlimited funds, access to immensely talented individuals, and impeccable brands. What we have found is they are like huge ocean liners. They have the big business and access to deals we won’t get, but like a band of pirates, we can move quickly and pillage opportunities well before they can maneuver to respond. Hopefully we don’t get whacked doing it!
The biggest challenge is capital. I am pretty sure I have raised money from about every source on the planet; from credit cards to public REITs and I have raised a lot of capital (probably $200M of equity and $500M of debt over my career). Every source has its pro’s and con’s. Some sources are expensive from a rate of interest standpoint while others are expensive from a control standpoint. You learn that old sayings are true, such as “it’s better to have a good partner in a bad deal than a bad partner in a good deal.’ I have had some wonderful partners over the years and am grateful for the capital they have provided. There is no doubt 10 Federal would not be where it is today without them. That said, the best capital is your own. The problem is there is not enough of it, but you can make more of it by tightening your belt and reinvesting the capital you create. Two amazing things will happen; first, you will save an immense amount of time because raising capital and maintaining capital relationships is very time consuming, and secondly you will force yourself to find solutions. Having easy access to capital dulls the drive to find the creative solutions and that can make all the difference.
What advice would you give to a real estate professional just beginning their entrepreneurial journey?
Figure out what you are good at and start from there (and make sure you are actually good at it first!). If you want to do brokerage, or construction, great, but go learn the discipline on someone else’s dime. When you know what you are doing, then launch. There is NEVER a perfect time. I launched 10 Federal in a recession with no money, two kids and a pregnant wife. With that amount of stress on my shoulders, who is going to win a deal? That version of me or the version of me sitting in some cushy job trying to win a deal for someone else’s benefit?
What has you the most excited about the real estate industry today?
I am excited that the current real estate market seems healthy and growing. Personally, I am most excited about the freedom to fly with 10 Federal. As a business owner, we can take 10 Federal in whatever direction we want, even if that means pioneering into uncharted areas with technology and operations. Working for the man would never had availed that freedom to us.
I want to thank Brad for sharing his story and advice, but most importantly for innovating and serving as an inspiration for future real estate entrepreneurs. The real estate business is full of opportunities, but you have to go after them. You have to be willing to fail, you have to be persistent, but most importantly, you must start. The one thing every successful real estate entrepreneur has in common is that they started. The time is now.