As I advance in my real estate career, I’m beginning to see buddies leave their institutional shop to launch their own venture. A good friend of mine, Benjie Moll, recently founded Arx Urban, an innovative real estate investment firm.
I’ve known Benjie for a while now; we went to college together, we were colleagues for a summer at Atlas, and now he’s a partner in a number of deals. We’ve become good buddies over time and have a shared passion for innovation and technology in real estate. He’s also been a great supporter of the blog.
I give him a lot of credit for taking the leap and going off on his own to launch Arx Urban at a challenging point in the cycle and in a market with a high barrier to entry. He’s a hustler and in a short period of time Benjie’s been able to close a handful of deals and build a well-respected brand.
When I asked him to share the Arx story and provide insights for other aspiring entrepreneurs, he didn’t hesitate. I’m excited to give him the platform to share his story.
Tell me the Arx story. Why did you feel the timing was right to go off on your own?
Arx Urban Capital is the product of 10 years of planning, learning, building relationships and a little bit of luck.
I’ve loved the art of making a deal and negotiating since I was a little kid, a quality that translates to many facets of life beyond just real estate—whether buying a mattress, a car, an airline ticket or selling something on Craigslist, there is something about making a deal gets my blood flowing.
So naturally when I graduated college, I went to work on the trading floor of the investment bank Lehman Brothers in New York (we all know how that turned out). Thankfully I landed on my feet at JP Morgan Global Real Assets, one of the largest real estate private equity groups in the US and spent the next few years learning the real estate business inside and out, partnering with the brightest local operators across various asset classes in different cities. I saw a ton of deal flow and had great exposure to every aspect of the institutional real estate investment cycle.
While I loved my colleagues and couldn’t have imagined a better learning experience, I wanted to get back to the Boston area and try something more entrepreneurial. Instead of joining a smaller firm, I decided to go to business school and spend the next two years both cultivating the perfect opportunity and examining what it would take to build my own platform.
I went to Dartmouth’s Tuck School of Business and scheduled classes so that I could tour deals around New England on Thursdays and Fridays.
When I first started trying to source deals in Boston, the institutional brokers wouldn’t give me the time of day, and rightfully so. I didn’t have a story about who I was and why I could take down and operate these deals or even a company name.
But I did spend considerable time in my first few months at Tuck cultivating my personal brand as “the real estate guy” of our class.
Remarkably, this led to initial deal flow, including the first deal that I was able to tie up: an absentee landlord of a small student housing deal in Vermont less than a quarter mile from campus told one of her tenants (my classmate) that she was thinking about selling the property.
Naturally, my classmate ran and told me and even though the small multifamily property was too small of an investment to jumpstart a real estate platform, it did have a large developable lot that would have been perfect for the development of 10 graduate student townhomes.
Once I had the deal tied up, I ran it by the principals of your firm, Atlas Real Estate Partners, who I knew through the Tufts Real Estate Network (I reached out because I knew they were heavily invested in student housing at the time).
After a few conversations, they convinced me to come to New York during my first summer to work with them and see how they put deals together (and thankfully later convinced me to forgo the Vermont development deal otherwise I still may be permitting a $1M development project 3 years later).
I internalized a lot of the Atlas thinking about value investing, utilizing technology, raising capital and collaborating with local partners when developing Arx’s forward thinking investment strategy (see the below for more on this).
I spent the rest of business school working with Atlas, pounding the pavement in the northeast trying to become one of their local partners. In my first 18 months, Arx was able to complete two deals with Atlas and its partners (a parking lot in downtown Boston purchased as a covered-land play and an apartment complex ripe for repositioning in a rapidly developing urban suburb of Boston) and three smaller deals with my own investor base.
Thankfully, even in this tricky market environment, the proprietary deal flow has gained momentum. It is also really hard to say that I am “off on my own” because we lean on our partners, advisors and service providers so frequently (what we call our Ecosystem).
We consider ourselves general managers that put the right pieces in place to make our deals successful. Knowing that we have advisors who have “been there done that” to provide advice or make sure we are able to capitalize attractive opportunities, is paramount to our success.
What are some of the things that make Arx unique? What’s your competitive advantage?
As the real estate market continues to rip, it is getting harder and harder to find an edge.
We’ve developed two competitive advantages that we think give us an edge regardless of market condition. The first is that we bring deep institutional private equity experience ($2B worth of transactions) to the sub-institutional space with an innovative spin.
We try to be on the forefront of everything in the start-up world that touches real estate, working to make the entire investment lifecycle technology enabled—from our investors’ signing of documents and quarterly distribution reporting to tenants’ signing of leases and overseeing maintenance issues.
Arx was the first sponsor to raises capital on a crowdfunding platform for a transaction in the greater Boston area (which we ultimately believe will reduce our cost of capital over the long run), and we are partnering with several VC-backed technology companies in the real estate space to better operate our deals (and because we are some of their earlier clients we are often able to reap many of the benefits of their technology without a major cost).
For example, we are in the process of implementing a solar energy sharing program across our assets that will reduce electricity costs for both the building and tenants and we currently use an energy monitoring program that compares our buildings’ overall energy consumption to others in the nearby area to provide a blueprint for a future retrofit and cost savings.
We anticipate that the real opportunity for most deals to create outsized returns in our space will be through our forward thinking operations, but Arx’s second competitive advantage is our ability to “collaborate with the crowd.”
This is common practice in real estate—investors get inside knowledge from the people closest to a property before a sale—but a deal is often consummated behind closed doors in an unceremonious fashion.
We’re working to formalize and publicize this practice such that when real estate entrepreneurs have access to a quality deal, instead of finding a buyer and taking a one-time brokerage fee, they will work with us to better share in the long-term economics of a deal.
With the explosion of crowdfunding, we’re believers that attractive opportunities will eventually be capitalized easily and quickly. We want to be leading the charge as partners for those in the crowd who don’t have all the resources to get a deal done (feel free to reach out if you’re one of these real estate entrepreneurs in our markets via the Collaborate section of our website, Arxurban.com).
What are some of the unexpected challenges you’ve encountered? How have you creatively overcome them?
Trying to fall sleep with everything that is going on! Kidding (kind of).
There hasn’t been a single major setback that stands out, but the many menial tasks that I used to take for granted when I worked at a bigger shop take up a ton of my time—setting up websites, IT systems, bank accounts, accounting conventions, legal docs, service providers, etc. I think your post 68 Challenges of Starting and Growing a Real Estate Investment Firm does a great job of highlighting the issues that take up a ton of my bandwidth.
So many people I speak with think that starting a real estate firm is glamorous and sexy, but they are delusional.
I spend the majority of my time working on these menial issues and in the field overseeing our service providers and construction teams, something I maybe would have done three times a year at a larger private equity shop.
While taking on these additional responsibilities is burdensome from a time perspective, it has been one heck of a learning experience. And it has also allowed us to structure every detail of the investment lifecycle as we see fit and around our mission of being innovative.
One of the other biggest lessons that we’ve learned early on is “you get what you pay for.”
The problem is, as an early stage operator, we don’t want to pay exorbitant fees that top service providers command, so we’ve had to be resourceful about getting best-in-class service providers to work for us without the price tag.
We’re frequently able to do this by finding other like-minded young professionals within larger organizations or seasoned professionals who have gone out on their own and been creative with their compensation structure to align interests and control costs.
What’s been the biggest surprise of starting your own shop?
How quickly deals beget deals, investors and market interest. Once we made our first few acquisitions, momentum and deal flow built much more quickly than I would have anticipated.
Local brokers now bring us numerous deals a week and we have investors knocking on our door to participate in our next transactions.
Getting the first few done was definitely challenging but in this frothy market, it will be even more challenging to stay disciplined and find deals that are truly attractive within our value investment framework.
Also, I’ve been surprised by the growing importance of branding in real estate. This is something that we discussed so frequently at Atlas, but I have really witnessed it firsthand as Arx has begun to grow. As the market becomes more transparent and tech-enabled, tenants, lenders, sellers and investors will definitely be able to follow your track record.
What’s been you best source of advice/encouragement?
The best source of encouragement really has come from the people who thought I was crazy to leave the institutional private equity world (and salary) to go off on my own.
I use the mantra, “love the doubters” frequently to represent this inspiration. Everyone who is building their own business needs to find that chip on their shoulder to help motivate them because you’ll face rejection 100 or more times for every deal you’re able to get over the hump.
Plus it is very tough to actually differentiate yourself from the slew of the other real estate investors, especially in a market like this when it seems like everyone I meet is quitting their job to do something in real estate.
Starting off on your own in real estate is an inevitable roller-coaster. It is important to have people in place who understand the ups and downs of starting their own shop and can help you handle the menial challenges because they’ve done it before (rather than wasting valuable time trying to figure out the small stuff on your own). The single most important factor in Arx’s success thus far has been having this network in place to provide issue-by-issue guidance.
What advice would you give to a college kid just beginning his real estate career? What about a young professional aiming to go off on his own?
For recent college graduates, find an institutional broker or investor that sees a ton of deal flow in the market or asset class you want to work in and just dig in.
It can be a small or large shop as long as you’re able to analyze a few deals a week and meet people throughout the real estate ecosystem (brokers, developers, lenders, capital providers, etc.) to learn where you’d be a good fit. Spend five years learning as much as you can and looking at every deal you can. Look for small stuff in your free time and begin building a capital network so that if you find a small deal, you’ll be able to take it down.
After those five years, your rolodex and ability to evaluate a deal will be way more valuable than whatever salary you will make in the first few years so don’t even think about compensation.
As for a young professional aiming to go off on your own, find an experienced capital allocator or operator that will serve as an advisor (and potential backer if you’re able to find the right deal).
One of the savviest real estate investors I’ve ever met told me that if I wanted to be an operator I should either choose an asset class or a market.
It really is a lifestyle choice.
As a capital allocator, I think you can be successful more broadly if you have the ability to connect with local operators, but it is much harder business model to get started without major capital connections. If you’re enough of a hustler, there will always be someone who will be willing to fund a quality real estate deal.
You just need to make sure you have those capital sources already in your back pocket so you can move quickly when you do find the right deal (and that happens much less frequently than most people would expect).
With as frothy as the markets are currently, especially in gateway cities, I would also advise young professionals to stay in a seat where you’re putting larger deals together on someone else’s balance sheet. Find a group like Arx or Atlas to try and pick off one or two smaller deals on the side every year, building a track record so when the time is more ripe in the market, you’ll have principal investing experience, be able to raise more capital and more easily take the plunge full time.
What do you think?
You can view all investor spotlights here.