11 lessons from my NYC trip

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11 lessons from my NYC trip

Welcome back everyone!

This particular article is dense and far reaching. I was fortunate to meet with 11 people at prominent firms on Monday. I highly recommend coming to NY if you have never been, I think this is the only place in the world where something like that is possible. The concentration of talent and geographic proximity of Manhattan is just impossible to beat.

Here’s a screenshot from a video I sent my kids showing them the “big buildings” 😊

Although the topics below will cover a lot more than LP investing, I have a hunch that some of the lessons I personally learned might apply to you also. Several of you have directly asked for market commentary on here, and I would appreciate any feedback on this post (i.e. was it helpful, or not) so that I can figure out whether I should do more of these based on phone conversations or other meetings that I have throughout the year.

If you don’t mind, leave a comment with what you found most useful!

Without further ado, here are 11 things I learned from my trip:

• Debt market seems to be recovering, which is great in terms of lender appetite to lend (which of course impacts interest rates and terms offered to GPs). It appears that securitization terms are getting better as well, a market that has been struggling for some time.

• Public REITs are interesting, with the main thesis being that they overcorrected (unlike their private counterparts that don't truly mark to market unless there's a transaction) … this isn’t investing advice, but I definitely think that you should at least look into REITs as a compliment to your syndication investments. They’re different, but both are great places to invest your money as I’ve described in a full pro and con analysis here.

• I spoke to the founder of a massive (don't want to disclose but in excess of $10b) real estate owner that started in the 80s. Three lessons from this far reaching conversation:

• First, incredible things can happen over time if you continue to improve and commit to a given industry. This is nothing new and I use the 1% rule, but for some reason this stuck out to me so much. All big things start small, and if you stay on track and continue improving incredible things can happen over decades. Here’s a relevant tweet I saw on the same point this today.

• Second, I asked him which one thing helped him grow to this size and he didn't hesitate a second before saying people. He said he hired those who were either smarter than him in certain areas and/or were just excellent at something he didn't want to do. Delegation and scale was a priority early on. Moreover, he noted that he has always overpaid for great talent and the organization wouldn't be what it is today without these employees.

• Third, take advantage of what's going on in the marketplace. During the Savings and Loan Crisis banks were desperate to get good property managers for properties....so he pitched a bunch of banks on management (even though he admitted to not knowing what he was doing at the time, he said he "hired someone who did" and they figured it out together). When it became clear that the banks needed to offload the properties due to capital needs, he offered the buy the properties from them (and, needless to say, got an incredible deal on top of having insider knowledge since he was also the property manager .. which is - reminder - legal in real estate). What I took away from this is that you have to stay lean and be able to adopt to the market needs. If he was obsessed with the principal (investing) side day one, he never would have had the opportunity to manage those properties. On the other hand, if he decided to stick to management since he had an existing portfolio already, he would have been closed to the idea of offering to purchase the properties from the banks. So in short, seize the moment and be flexible - a lesson applicable to so many businesses, including mine.

• If you have something valuable to say and there's a market that appreciates those thoughts, I continue to think that one of the best ways to set your business apart is publishing online. You can choose to monetize that content or not, but regardless the vast majority (if not all) of your competition has not woken up to this reality

• As a society, we went from consumers that transacted based on relationships, to transacting online using reviews...and now we're turning to a new normal where many will make decisions about purchasing something from you based on your public persona and how much value you've provided to them. Fortunately, as we sit here today, the bar for creating value to your consumers online is extremely low across a lot of industries, since there’s nearly zero competition.

• I get asked a lot about whether the expected rate cuts will "save" the challenges in the syndication world. My personal view on this is no, and a few of the people I spoke to agreed. I'll share some of my thoughts on this at length in the coming weeks.

• I learned from a large allocator (a firm that's placing $50-250 million checks with GPs) that many large institutions overcommitted themselves. They expected to fund future expected capital calls (as opposed to the unplanned capital calls I usually discuss) with cash flow from other investments.

• Here comes the problem: those expected distributions have stopped due to market turmoil and some of the largest investors in the world have to either fire sell an asset to use those proceeds to fund a required capital call, or just forfeit any equity they've funded to date (a typical but not always enforced penalty for committing to a fund but not willing to follow through on the commitment). Fortunately there are managers who can provide something similar to a credit line for such challenges, but that money doesn’t come cheap.

• What I found interesting here is that fact that some of the most sophisticated investors in the world are in a difficult position. So, when you think to yourself “why isn’t investing easy” or “why is it so hard to find an investment I like,” I hope you can remind yourself of this anecdote.

• I didn't get the sense that macroeconomic distress is a big concern from anyone I spoke to. In fact, it seems like distressed GPs continue to have a hard time finding opportunities that fit their mandate after raising distressed vehicles.

• I continue to think that a significant amount of retail (think sub $1mm checks) money invested in real estate investments over the past 5 years will be impacted. Many of the people I spoke with agreed with this sentiment. Of course this depends on strategy, geography, asset class, etc but I do think it's a good time to make sure you understand where your LP investments are in terms of health and valuation.

• As I wrote about in 26 questions for your GP article, you should ensure that you're being selective about your questions but also aren't afraid to ask. This is your money, and you deserve to know (as opposed to being surprised) it's condition. As I always encourage (see #1 here), have a healthy dose of skepticism when you're reading the answers and make sure the questions you send are well worded (see example here).

• From my experience (and my trip to NYC where I heard other perspectives) there's a very significant population of LPs who think their investments are healthy, but in reality they're impaired. In the vast majority of LP situations, knowledge isn't power since you're a silent investor...but(!) I prefer a small probability of power as a result of knowledge than no power at all.

• On a related point, many retail LPs are hurting and if there’s only one lessons from this, it’s the following: if you’re going into an investment thinking there’s no chance you’ll lose money, step aside. A corollary to this is that you shouldn’t invest into anything if you can’t afford to (truly, not hypothetically) lose that money. This should be the prerequisite to spending time on diligence on any deal (unless you’re just doing it for fun/education obviously). I’ve found it be the case that many LPs over the past few years didn’t think that their investments carried much (or in some cases any) risk.

• I spoke to two large Twitter accounts and they're both extremely bullish on the platform long term. I personally agree, and I've changed my mind on this particular opinion in the past few months. More on that here

• Talk to people around you. On the way home, I ran into an NFL player I knew (from Twitter) at the airport (in case you’re wondering, I still don’t know all the football rules haha). Then, I struck up a conversation with the person next to me prior to landing, and it turned out he’s playing for the Chicago Cubs. I asked him what position he plays, but then told him (before he answered) that I didn’t know all the positions .. we both laughed and talked for the rest of the flight.

• My point is that there are incredible people all around you and “even if you don’t know the rules” of whatever the other person is doing professionally, it’s still worthwhile to meet others and have a conversation because you simply never know where it’ll go.

• This reminded me of a post I wrote about back when I was writing about networking as well as another one where I compare networking to seed investing.

Thank you for reading! I genuinely hope you found this helpful - the best way to say thank you is to spread the word.

I have dozens of topics on my list for 2024 and I’m very excited. If you have a topic you’d like me to cover or have any questions on this article, please leave a comment.

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