One Invests in the Guy behind the Deal, Above All else

Joe Stampone Start a Company 7 Comments

Reading the January edition of Bloomberg Magazine, I came across an interesting quote from a segment titled “Advice from Billionaires”

When asked “what’s the best advice you’ve received”, one billionaire replied, “good deals are like bus stops; there is one on every corner.” This advice illustrates that the investor is not as interested in the deal as in his dedication to it. One invests in the guy behind the deal, above all else.

Working for a real estate owner/operator, I’ve witnessed this a number of times. The fact remains that wealthy individuals have their pick of investments. Many times however, ultra wealthy individuals don’t just want to hand off their money to a Blackstone or Carlyle fund; they want to be active in their investments and have a personal relationship with the person actually handling their hard earned money. This is the major selling point of smaller real estate operators. Small owners provide LP investors the opportunity to have an actual say in the operations of the asset and interact with the general partners.

Owner/operators therefore must rely, not just on relationships, but on their reputations as operators and businessmen. How do you get a great reputation? As Peter Linneman says, “always do the best to fulfill what you said you would do, help others simply because you can rather than because you believe it would indirectly benefit you, and do this for the next thirty years, and you will have a great reputation.”

What do you think?

  • Justin Chu

    Joe – this post couldn’t say it better.  Real Estate is such a relationship business and I think most people know that people do business with people they like.  And as Peter Linneman points out, doing things ethically and with integrity will do you right in the long term

  • Adam Davis

    This is a topic that I am familiar with and is close to my heart. Having been involved with and worked for a number of ultra high net worth families I can say first hand that they place a much greater emphasis on the sponsor than anything else. 

    There is no doubt that high net worth investors avoid funds like the plague. Particularly real estate as opposed to other investments. RE is tangible investment where you can touch and feel the project. If they wanted to stick there money in an investment and let it ride there is a stock market for that! When it comes to RE particularly HNW investors want to feel close to the asset and the control of it. This is a fact that will never change. 

    While they will always want to get comfortable with “the deal”, HNW investors place much greater emphasis on relationships they know, like and trust. Take for instance an investment that goes south. If the sponsor conducts himself with high integrity and morals as well as being openly transparent he will gain great respect from his investor who will back him again purely on the way he conducts himself. This is very important to keep in mind. 

    Im always amazed when I attend networking events in the US where people are so blunt and to the point of what they do and what the other person does. They believe that if that finding that out immediately will translate into a potential prospect for a business relationship. The best business relationships you have are ones forged not in a “contrived” environment but ones harnessed through general relationships and trust. Things like playing golf with someone for 4 hours and not talking business is much more likely to yield you a business relationship than finding the investor in the room and pitching yourself to him. 

    In terms of attracting HNW investors there is no doubt you need a bit of luck. I have been fortunate in this respect to have known and dealt with some of the biggest Australian HNW investors there are. It takes a lot of time and patience. You need to be prepared to spend countless months (even years) talking and building a rapport before it comes to fruition. Be prepared to make sacrifices along the way knowing it will come back in spades. 

    If you don’t have immediate access to these types of investors, slowly build a track record with other investors (friends / family) so when you do come in contact with HNW you have a track record on which to start from. 

    If all else fails take up golf….It works!

  • Justin, thanks for the comment. Beyond doing things ethically and with integrity, I think people need to spend more time helping each other and as Peter states, helping because you can and not because you think it will indirectly benefit you.

    There’s a lot of smart people in real estate, but only few are able to garner success because they are able to forge meaningful  relationships.

  • Adam, I think this is up there with the best comments ever written on ASotREG.

    I couldn’t have said it better, this is a relationship business. Almost all of the investors you have will not be investing with you because they need the money, but rather because they believe in you and believe you are a good option for them to maintain and grow their wealth.

    The reason they believe in you is because you’ve taken the time to forge a strong relationship with them. This is exactly why friends and family are usually your first investors – you already have an existing relationship. Or maybe you’re just a golfer golfer. 

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