I’ve said it many times before, doing your own deals and building a real estate is incredibly hard. It takes great timing and some good luck, and even then there is no guarantee of success. Rather than restate it, I’ve asked Arx Urban founder, Benjie Moll, to describe his “typical day” and share the 10 biggest challenges of being a real estate entrepreneur.
Since I last wrote for the blog in June 2015, Arx Urban has made significant progress in our urban workforce housing and retail aggregation strategy. We’re approaching our third year and are beginning to see some “hockey-stick” growth with deal flow and investor interest. Our brand has gained recognition in Boston and, while our preference is to hold assets into perpetuity, we’ve sold a few deals to recognize great returns for our track record.
I spend the majority of my time filling the pipeline by cultivating deal sources and meeting with capital and development partners. I love the work because I spend the majority of my time collaborating and can have 25+ phone calls a day (in addition to the persistent text message chains with a few trusted brokers). I’m never bored. Rather than trying to explain the craziness of a typical day, I figured I’d share what I did yesterday, hour-by-hour:
6:15am: Wake up and go for a quick run along the Charles River stopping on my way back to take a quick look at an off-market deal (a brownstone condo conversion) that a broker sent me the night before. Afterwards I spend 10 minutes at home trying to meditate using the Calm app, unsuccessfully tuning out the 12 new emails about a deal we’re trying to close later this week.
7:15am: Eat breakfast and read the Boston Globe, Boston Bisnow, Real Reporter and the Boston Business Journal headlines. I forward an article about a recently approved development near one of our covered-land sites to a few investors. A call from a lender interrupts breakfast, but she needs clarification on how to structure a term sheet for a small deal that we have under contract.
8:15am: Call a broker on my walk to work to catch up about a neighborhood that we’re targeting for additional acquisitions. I try to connect with one or two deal sources on my walk to work every day.
8:45am: Respond to urgent email requests from the buyer of deal we’re selling. He is trying to get his loan commitment so I shoot a few requests to our property manager and lawyer.
9:15am: We’re executing a 1031 for the same sale and have a call with our tax advisor to check our proposed investor structure. I’m interrupted by text messages from two brokers with off-market deal opportunities. In order to see more deal flow, I try to be exceedingly responsive. I quickly qualify the deals, dismiss one immediately, but throw the other into our acquisition pipeline. I shoot the broker a follow-up email, trying to answer similar questions to the ASotREG 5 Minute Deal Screening Checklist.
10:30am: A retired real-estate executive (and investor) stops by the office for a coffee and to catch up about our pipeline. We discuss a larger deal he’s taken a more active role on. We’re fortunate to have a few advisors with decades of experience involved in growing Arx Urban.
11:30am: Receive an email from a property manager with a property budget. I shoot a few quick notes to the property’s asset manager with the hope I can send our partner the budget in the next few days. I also finish a stack of 1031 paperwork and send it to our lawyer.
12:30pm: Meet with a lender for lunch. He brings along the CIO for a local family office that invests in private real estate deals similar to ours. We compare notes about what we’re working on and about the other types of sponsors that he invests with. I love hearing about the process by which other sponsors operate with their investors.
1:45pm: Jump in an Uber and tour an apartment opportunity in one of our target outer-urban markets. After stepping into one unit, I know the deal isn’t a fit given the crazy pricing expectations, but it is important to see where the market is and see if the Seller is willing to sell any other assets.
2:30pm: It’s nice out, so I walk back to the office, calling one of our partners on the way. We discuss refinancing a property that we’ve owned for a few years and have a friendly debate about what type of debt to put on the property. I follow that call up by touching base with our chosen lender and provide some feedback to get a final term sheet.
3:15pm: Jump on a quick call with a crowdfunding site to discuss raising preferred equity for a condominium brownstone conversion we’re looking at. I love the ability of the crowdfunding sites to bring an institutional capital structure to the small balance equity space.
4:00pm: Put together a “back of the envelope” model for the multifamily opportunity I received earlier in the day which may be a fit for our 1031 replacement property. The deal looks promising, so I send the broker a letter-of-intent to begin negotiations with the Seller. Given the time pressure, finding a replacement property to execute a 1031 exchange may be the most stressful aspect of my job.
4:45pm: Have an introductory call with Mass Housing to discuss their new workforce housing initiative under which they provide financing for projects catered to middle-income renters. The program sounds like an ideal fit for an apartment redevelopment we’re pursuing, so we set up a sit down next week.
5:30pm: We’re working on a rebranding so look through potential new logos and provide my partner, Danny with some quick feedback. We walk through our website and discuss wording changes and bettering the design. Danny is running the construction on an apartment community repositioning, so we also discuss the progress and his plan for several of the major capital items.
6:00pm: Head to two brokerage holiday parties. Make the rounds, connect with a few friends and meet a few people who are interested in learning more about our platform. Put their business cards in my wallet to remind myself to put into our investor pipeline and send a follow up note.
8:15pm: Meet my fiancé for a late dinner at our local usual spot. I’m very thankful that she is incredibly supportive, even of my crazy schedule and work-life balance.
9:30pm: Send out a few emails and try to clean up the inbox. Respond to a few more lender and buyer email requests for our current disposition and follow up on some third party bids for due diligence on a property we have under contract.
10:00pm: Watch an episode of Westworld. Need to take my mind off of real estate for the day and this show definitely does the trick.
My day was clearly all-over-the-place. This isn’t uncommon, but I also have days where I do a better job of tuning out all the noise (usually at the end of a due diligence period or disposition). I enjoy feeling like a general manager, working across so many disciplines and with different types of people. I wouldn’t trade the experience for anything.
Reflecting on my day and our first few years on our own, here is a summary of the major challenges we’ve had to overcome.
10 Challenges of Starting and Growing Arx Urban Capital
- Knowing what to spend time on—there is an infinite amount of terrible deals that float around “off market” and it is easy to let these bog down the pipeline
- Finding the right deal sources and building enough credibility with them to get proprietary deal flow
- Convincing a lender to finance the first few acquisitions—especially difficult in competitive markets like Boston where due diligence periods are extremely short
- Finding 3rd party vendors (property managers, lawyers, accountants, contractors) that are the right mix of affordable and quality
- Overcoming paralysis by analysis—it is easy to do too many sensitivity analysis and talk yourself out of a good deal (especially with an institutional mindset on small deals)
- Creating the right economic deal structure to incentivize investors but allow the sponsor to keep the lights on
- Conquering the inevitable emotional roller coaster that is the first few deal cycles
- Asset managing deals while also trying to grow an acquisition pipeline
- Generating investor reporting that is transparent and builds trust in your brand
- Handling year-end tax reporting and developing the requisite asset-level tracking to do this effectively
As you can see, it’s not easy being a real estate entrepreneur, but there’s also nothing like it. As a real estate entrepreneur doing your own deals you can take the firm in any direction you like, you have the flexibility to outmaneuver the established firms, and you can out-hustle the competition. There is no good time to go off on your own, unless that time is now.