Life Cycles, Due Diligence, and Grit: How to Succeed as a Real Estate Entrepreneur

Jonathan Glick:

Thank you. It's great to be here.

SB:

So tell me a little bit about Incu Cap and how you got started and tell us a little bit.

JG:

Our business is a one-stop shop for entrepreneurial real estate investment managers. We are a strategic advisor and principal investor focused on working with up and coming real estate platforms across the real estate industry. We have three core aspects of our business. Our main business is institutional capital raising. We specialize in partnering with middle market entrepreneurial real estate firms. Typically what the market calls emerging managers. Our typical fund client is a 200 to $500 million institutional investment manager, and we work with managers younger and earlier I'd say than many of our competitors in the industry. Our other two business lines are executive search as well as a principal investment arm where we're seeding early stage managers and partnering with them, as we like to say, partner with two guys in a truck and provide a fleet early on to help them grow. Really, our whole business has created an ecosystem around what we look at as really three core competencies, capital people and institutional best practices. And each one of our verticals actually represent that, our advisory arm, our search arm, and our principal investment arm. And what we feel provides a competitive advantage to each vertical is the fact that we bring each one of those three core competencies down to each execution vertical of our

SB:

Business. So I'm really into it. I'm entrepreneurial, I want to get started in the real estate group, and I come to you and I say, Jonathan, tell me everything I need to know. What do I want to know from a real go-getter? I want to dig in, build my first building, do my first deal, what would you suggest that I take a step back maybe and breathe?

JG:

Well, much of our business is really focused on partnering with institutional managers. So I'm going to answer this question from the perspective of the aspiring institutional fund manager. So that usually comes in two buckets. Maybe that's a group that's been a existing operator that's been building the business, develop the track record in a certain sector or something that we are seeing today more and more of Spinouts from a larger firm and being the next generation, the leadership of that organization that's now going out and creating a new platform. In terms of, I think one of the things that is most relevant for that up and coming manager is really answering the existential question of why is there a need or a role or what void in the market is that person going to fill within strategy? And then two, I is truly understanding what entails to being an entrepreneur.

And I think that that's something that is very relevant even in my own business. I started my business 13 years ago and requires a lot of hustle, a lot of grit and ups and downs. That entrepreneurial iceberg is a real thing. And often people who are at firms or if you're going to the fund business as you know, going from an operator to a fund manager or two completely different worlds and it creates lots of opportunities for EA to provide additional services to those operators as you know. But it's a big step. So understanding what that is and stepping back and then understanding what other capital opportunities are there that exist for someone who's either starting a firm or thinking about their next step of growth. Because we get a call every day if someone says, I want to go raise a fund. And the first thing I will tell somebody is ask why they want to raise a fund and tell 'em not to go into the fund business because there's so many more challenges and there's so many more components that go into being in the fund business as an institutional investment manager than just being a real estate operator.

SB:

Someone calls you and says, we want in, we were looking to do this. What's the timeline of really sitting and spending time with them to get them from soup to nuts?

JG:

So I think it's one of the things that makes our process a little bit different For us, we underwrite everything as if we're making a personal investment and we are because whether or not we are actually investing in a client or investing in a deal with someone we're working with, it's an investment of time on mine and my own team's business and it's time away from my family or it's time in the office and it's time with that manager. So it's all about relationships, it's all about people That's real estate as you know. And we're going through that underwriting of is this someone who can, is someone we want to be a partner with? So we are going through a thorough underwriting and when we look at an underwriting, we're really trying to understand marketability, investability and character as someone we want to partner with. So that underwriting for us takes a long time. We are going through the same underwriting as an institutional investor might in making a blind pool commitment to that team and company for being the CIO of an investment company.

Looking back, I have some clients that we've worked with that we've done in underwriting, it's taken three months. Some groups we've talked to for 11 years before we're actually working with them. That might be the longest, but I'd say for the majority of clients we've worked with, we've probably talking to them off and on for a period of five to seven years before we actually go out and work on a fund with them. So that's a big component of the business. The irony is that I think one of the things we're doing differently on the executive search side of the business is actually the same thing is we're looking at doing a, what we call a principle oriented approach to search. And we are encouraging both the company who's making the hire as well as the candidate who's looking for a job to go through that principle underwriting of the opportunity, the candidate of the company, the company of the candidate to say what is unique. It's the same if you basically taking the approach of writing your own investment committee memo, all those factors are very similar. So I always tell people who are looking for a job, treat your job search like you're underwriting a real estate deal

SB:

That makes sense.

JG:

Your biggest investments yourself.

SB:

It's interesting because right now in the world that we're in and hiring people and finding the right match in an environment, it's great to sit there and say, put together not just your resume but your story, right? It's it all about story. Yeah. Who can you connect me with? What do you bring to the table?

JG:

And I think one of the most interesting things today is really where we are going in the sector, because I started my business 13 years ago almost on a fluke. Like many entrepreneurs. I had a real estate networking group in Chicago and I was talking to a lot of my peers who were thinking about spitting out starting their own firms, and I was taking a lot of them under my wings and providing a lot of guidance. And at some point I drank my own Kool-Aid and the whole idea was saying, we're going through a market opportunity post GFC, the opportunity costs are lower, now's the time to go out and take a little bit of risk and we're here again. But there's one big difference between today and the GFC and that's actually, we are going through a generational transition in the real estate business as well as a massive repricing of the markets at the same time.

So now is a better time than ever to a get in the industry, but also think about starting our own platform or taking a little bit of that risk because we are seeing that on all levels. We are seeing that as institutional investors are saying to us, we've been an investor in X fund for 20 years, we're not sure about that company's generational transition plan anymore, so therefore we're looking for the next talent. We're seeing that on the talent level where there's questions about what the companies, the next generation of the company will look like or people retiring and things like that. A lot of the leaders in the real estate industry have been in the industry post since the nineties and they're at the later stage of their careers in many cases. So that was a great time to be thinking about that next step. And one thing that is clear, if you look at history, if you think about the groups that you and I both work with and our networks in the industry is all of the great real estate companies out there, most of them have actually been formed or were created in a down market as we're going through some type of a transition in the cycle.

SB:

Yeah, that's an excellent point in the fact that what's happening and the downward that can just trajectory us back up into a great spot from the real estate side of things, from the opportunities in the marketplace. Do you have a source like yourself to really give that foundation to make sure we're checking all of those boxes to step into the,

JG:

It's hard. I mean, as with anything, when you step into a new job, when you step into raising a fund, you don't know what you don't know. I think it's one of the biggest challenges and it's a lot of work and a lot of effort and it's a lot of persistence and it's years, right? That's one of the biggest misconceptions I think in the capital raising market and that we often have people calling us saying, we want to raise a fund. Well, so-and-so raised the fund and they might be a mega fund. It's a different process, but it takes a lot of time and effort and I don't think there's one fund manager out there I can point to that's been built in a day or a year even when someone is fortunate enough to be in a position where they go out and raise a fund in six months and they raise a billion dollar fund, there's still lots of growing pains in that business, how to think about strategically all the aspects that come in as a rent to people, strategy relationships with investors. And I think that's one of the things that I've seen most over the years working with so many entrepreneurial managers is all of the coaching that goes around partnering and growing that business. That's a big part of what we do. In fact, that's the reason why as we grew our business, it's interesting, we've kind of gone full circle. When I started the business in 2011, the whole idea was to find seeding strategies to partner with early stage managers.

And I was in the placement business before and after a year of my own entrepreneurial interests, found myself back in the placement business, focusing on up and coming managers. Fast forward today, we're doing both of those things again, but it is one of those things where there's just so much that goes into it where we've been providing strategic advice and helping managers source deals and source people. And that's how our ecosystem got built because we were doing a lot of that just by being in a good partner as an entrepreneur, helping grow our clients' businesses. That's how our verticals ultimately formed them when the ecosystem got created because we were in this environment where we were just finding ourselves, trying to help our clients in any way we can grow their business at an early stage.

SB:

But what's your passion? What do you love about what you do? Is it bringing the people together? Is it closing that deal? Moving that? What do you love about what you're doing right now?

JG:

I've always been someone who has always wanted to build something. I've always had this fascination with maps and legos as a kid. And you're a Jersey girl? I'm a Jersey boy. I could tell you every exit off the Garden State Parkway even to this day, which is crazy since I live in Chicago. But the, I've always loved the idea of partnering with people and growing something. And it's funny, I was reflecting on this recently because we launched our executive search practice last year. One of my college roommates actually said to me back in the day, said, click, you'd be the best Jerry Maguire, but not for sports. Which is so true. And there's something to say about that. It's partly why we got into the search business is I've always been a natural connector. I love interacting with people. My adrenaline rush is when I'm out there actually going out and working with a client and getting on the road and pitching to a meeting and the people aspect of the business is something that really is something I enjoy. I love the bricks and sticks too, because again, just being that tangibility and map component and geographic nature that I've always had since I was two, but the real driver for me is that connecting point.

SB:

So it might be why we connect so much. I'm about people as well. That's one of my passions.

JG:

And by the way, real estate's a people business. The one thing that is fascinating, and we see this all the time, we get pitchbooks all, we always tell people that PitchBook has a lot of different purposes, but we get pitchbooks every day and we'll do our three minute flip of the PitchBook and it doesn't tell the story of who, where, why. And that is, that's one of the things we help do because at the end of the day, people are investing in people. And I do have a different perspective on that I think compared to other real estate entrepreneurs because my entire career, whether as a principal or an advisor, I've been in the business of underwriting real estate, people who invest in real estate.

SB:

Are you feeling like the market, I know we said it's a down market and there's some changes. Are you getting more books? You talked about pitch books. Are you getting less?

JG:

So in terms of the number of managers we're seeing, we always are constantly getting calls from people saying, oh, we want to go raise a fund. The one thing that has shifted is we get a call almost daily now from someone who is either thinking about doing a spin out fund or spinning out of their own shop or thinking about that next step. And what's great about our ecosystem is often that conversation is one and the same. It might be someone who's spinning out of a mega fund who's thinking about going and launching their own fund. They might be looking for just a new role. It's something the vet as part of the discussion with them, it might be someone we can partner with as principals to help get their platform off the ground so that we're seeing more of today than we've seen for the past couple years. Because again, as we go through the cycle, the golden handcuffs of things like carried interest have been taken off. We've got demographics at play and things are structurally broken. And those who are willing to put in the effort and be aggressive and hustle, there's rewards to that. Or people who can think outside of the box and find ways to create value where other peoples,

SB:

You sit there at the market and you say, what is really happening? Are people afraid to get out and do their own thing and be that entrepreneur and hearing you say, we're getting more than we ever have. It's wonderful. It's wonderful.

JG:

Well, that said, it's harder than ever raise funds. It's hard to raise capital

SB:

Or knows sometimes it's not bad.

JG:

Absolutely. And one of the things that is also interesting is the fact that we get this all the time where we'll sit down with someone, especially on the job candidate side with some of my colleagues that focus on search. Someone says, oh, I'm looking for the next opportunity. And you can say, well, I want to do something more entrepreneurial. My response to that's very simple. As an entrepreneur, I say, fine, I'll give you a phone, I'll give you a desk, I'll give you a business card and open up my Rolodex, no paycheck, and I'll find a way to partner with you and maybe have a little economics with you on something. Oh, I can't do that. I need a paycheck. But one of the things I think is interesting though today is that they're actually, unlike in the last cycle, there are actually so many more opportunities for a next generation manager to create a platform and have capital early stage that's not a fund. Because over the past decade there's been an influx of platform investors, GP capital, cedars, to a much more different scale. And it existed 20 years ago when I was doing entity level real estate investing.

SB:

For someone out there in the market doing what they're doing, what would you suggest that they might do differently? Or maybe they're not thinking about, it's not top of mind. Yeah. So what would you suggest?

JG:

That's a great question, Sarah. I think one of the things that we often see is everyone out there spending time wanting to build relationships. I think there's really a couple things. One is refine your story. Think about what is your story and why are you unique? I tell all of my clients that they have to answer what I call the four questions, and they're not the four questions that I grow up with of why is tonight different than any other night. But it's the four questions of what is your macro strategy? What is your micro strategy? What am I providing that I am not getting elsewhere? And then why now slash why hire me? Right? That's what we tell our clients to do in a pitch in effect. And the reality is that that's one component, right? Think about what the story is. And then the second thing is use your networks, right?

Real estate's a people network. One of the most fascinating things I've always felt just being a connector in the industry is that people don't know their peers. We are constantly connecting LPs to LPs, right? That might be looking at the same sector. We are constantly connecting operators to other operators that might be doing the same thing. It was always fascinating, even from a job searching standpoint, we've often talked to candidates or I sit down and have a coffee with somebody who's networking and they might work at X shop and they don't know who X's competitors are when they're looking for a new job in that one vertical. So I think it's very important to realize that your peers are your greatest resource. Growing my business, my peers in the industry, in the placement business have been some of my greatest resources.

We see that with entrepreneurs. I think one of the things that we did, and we've actually looked to solve this problem, our core client, is that $300 million younger manager raising their second fund. Well, we talk to all of them regularly, but they don't talk to each other. So then they're asking us questions of what is everybody else doing? And from that standpoint, it's actually really helpful to get rid of the US as the intermediary and only have so much time in the day. In fact, actually that was one of the core drivers of our own entrepreneur summit, that EA is graciously a sponsor of where we are putting, it's called real, real estate entrepreneurs and leaders, where we're putting these up and coming fund managers in the room, not as a marketing conference, not as a fundraising conference, but more of a strategy discussion on the challenges of growing your business and using your peers as a resource. It's all content, it's all peer driven content to allow for people to utilize their networks, to understand where they can create value and how they can grow their business. Because I think one of the things that the challenges of being an entrepreneur is you always feel alone in what you're doing. And if you put a bunch of folks just like you in the room together, you no longer feel that way.

SB:

Thank you to our listeners for joining our podcast today with Jonathan and myself subscribe to stay notified in what's happening in the real estate market on past podcasts, as well as new releases.

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