The Real Estate Fund Lifecycle Webinar Series | Part 1: Launching Your Real Estate Fund

With over 20 years of legal experience and a client roster spanning institutions to first-time GPs, Yoni brings tremendous depth to the legal and structural questions we'll be exploring today. Yoni, it's great to have you here.

And finally, Maurice Malfatti. Maurice is a co-founder and managing partner of Blue Heron Asset Management, a private equity real estate investment firm based in Raleigh, North Carolina that he co-founded in 2011. He oversees Blue Heron's investment strategy, portfolio construction and fund management and brings over 25 years of real estate experience spanning investment, brokerage, development, and construction. Maurice is going to give us the GP's perspective today and what it looks like to actually go through this process as a fund manager and what that real world lens is going to be. Maurice, welcome.

Lisa Knee:
So with that, I'm going to start with you, Maurice, and making that critical decision that we've spoken to so many people about over the years for real estate managers looking to launch their first fund. They often have a history of working on various deal by deal or JV structures. How would you describe that thought process of whether to launch the fund or to stay in that deal by deal JV structure set up?

Maurice Malfatti:
Yeah, it's a good question. And as I think starting out as with most things in life, there are pros and cons and a lot of things to consider. I would say that kind of starting out with a big picture fund versus deal by deal, I think you need to be very long-term minded. If you're going to go into the fund business, you need to be long-term minded, you need to be patient and be able to delay rewards. There are certainly advantages to once you have a fund established. I think it offers you advantages as an operator that ultimately play out in better returns for your investors.

A couple of examples. By having a fund with discretionary capital, you're raising a pool of capital as opposed to capitalizing deal by deal. So you have the ability to act nimbly and opportunistically because you have discretionary capital at your disposal. This, for us, this has allowed us to often win deals in spite of not being the highest price in the market because we provide sellers or deal partners with certainty of close. Often in a competitive auction process, most of the stuff we do is off market, but we do participate in auction broker driven processes. And so when a deal's on market, if you're in the first round, you get to the second round, then you eventually get to best and final, you might be one of the top five bidders. And in the buyer interviews, they'll often say, "What's your source of capital? Do you have it or do you need to go out and raise it?

" And so that creates ... When the answer is yes, which a lot of groups that do operate deal by deal, when the answer is yes, it creates another risk factor for the seller or deal partner to consider in choosing you versus someone else.

This is, I would say, secondary to what's best for investors and for returns, but also important, I think that the two are tethered. When you have a fund, you have a pool of capital that you're managing for a defined period of time. Usually you've got an investment period and then you've got beyond that, you've got ... So once you have your final closing, you have much greater visibility on the fee income that's going to be coming from the management fees. And so that adds stability to your platform. It allows you to plan for your growth. It allows you to keep people on your team as opposed to having to staff up when you're busy, when you have a lot of deals, but then all of a sudden you don't have the fee income and you need to lay people off. So I think from a firm standpoint, it does provide some good stability.

But the downside is that often, or I think just mathematically, almost always, the payouts on the backend, the rewards are going to be delayed further out because in most fund structures, unless you're doing a deal by deal waterfall, which I don't see that as market in today's private equity fund environment, especially in real estate, most funds are a commingled waterfall, which means typically if you're doing, just pick a number, say 10 deals in a fund, it's probably not until you've sold at least half of your deals before you're getting into the carried interest. And so early in our life, we were watching some other folks doing the exact same thing we were doing. They were buying and developing multifamily real estate assets in high growth markets in the Southeast, same strategy we were doing and they were selling deals for nice two and a half, three Xs getting their promote deal by deal.

And so here they are like driving new cars, upgrading their homes, getting a beach house and we're sitting there like, "All right, well, three, four more years we should start getting carried interest." So I think it's very much a long-term investment, but I think ultimately if you have the staying power and the ability to be patient, it provides for it's a great platform that I think offers many advantages over deal by deal.

Yoni Tuchman:
Can I jump in, Lisa? Absolutely.

I want to echo what Maurice said. I'm not a real estate fund manager. I've never done it so I just take this with a grain of salt, but I've spoken with a lot of Maurices, right? A lot of guys and gals who have done syndications, who have done funds, I don't think I've ever met someone who said, "I've done syndications. I can also raise a fund, but I will choose not to. " I'm happy with syndications. I'd rather not have a fund. I've had many conversations with people who have the opposite conundrum. I have done syndications. I love to raise a fund, but that's going to be an uphill battle for me because syndications are easier to raise money for because I can go to investors, I could show them the project, they could do diligence it, they could understand it and they could write a check as opposed to, "Hey, believe in me, write me a blank check and let me go run with it for the next 10 years." So there are definitely pros and cons of each, but I think having spoken with a lot of people and maybe on the people who are coming to me are people who want to raise funds so maybe my audience is skewed and biased.

The pros that Maurice was laying out for having a fund, namely fixed capital that you can win deals with, a management fee that you can build a team with and maintain and grow. I would add to that having the ability based on your committed capital to then go borrow against that committed capital, to get credit lines that you couldn't get if you were doing deal by deal, right? Those three things, especially the certainty of capital that Maurice was mentioning that lets you go chase deals with conviction, far outweigh from what I'm told from the real estate folks, far outweigh the drawbacks of a fund. What are the drawbacks? Well, one thing is like Maurice is saying, you have to wait for your carry because every single fund is netted in some way. There's not even one real estate fund that I've ever heard of or seen where you literally have a deal by deal waterfall.

When real estate funds speak about a deal by deal waterfall, they don't mean deal by deal like syndications are truly each one standing on its own. They mean we don't have to return all of your capital from every deal before we get carry, but there's still some netting. You have to always return some level of fees and expenses. You always have to return disposed of or written off deals before you get carry. So that netting is always going to be something that reduces your ultimate payout if there's a loss. I think this is super, super important to talk about as a potential downside to raising a fund. Not a downside that outweighs all the pros, but one downside is if you do three syndications and two of them are home runs and one of them is a total loss, you're making a lot of promote on two deals, right?

But if you do three deals in the same three deals in a fund, two of them are home runs and one of them is a write off, you're making much less carry because the carry that you would have earned in a syndication model on the two home runs are going to be used to pay off the loss from that third deal. But who is a real estate manager among us who's begging against himself or herself? Everyone's going to do great and they're all going to assume we're in this to win it and we're not worried about the netting effect and so we're just going to go for it. So I mentioned one other thing and Maurice, I'm curious, Lisa, not to ask the questions here, but I'm curious Maurice's take on one thing because I've heard one of the downsides I've heard from fund sponsors who moved from syndications to funds is there's a pressure.

When you're syndicating, you have time is your friend, you go find a deal, you raise money for the deal, right? But when you have a fund, you have committed capital, you have a clock ticking. Like you go to sleep at night, you hear tick, tick, tick, tick. How are you deploying this capital during this investment period? That's a limited period of time. Are you chasing deals that you wouldn't have necessarily been excited about because you have that tick, tick, tick in the back of your mind under your pillow at night and I'm curious if that's impacted you, Maurice, how do you deal with that? Because that I heard is like a real drawback. Again, not an overwhelming drawback, but it is like a pressure that you have in a fund that you don't have in this indication. Yeah.

Maurice Malfatti:
Yoni, many great points all spot on and it's real and you're starting to get into a whole other element about when you're doing deal by deal, you really have one job and that's to be a good real estate investor. When you have a fund, you need to also understand the, and I would say it's part science but also a lot art, the art of portfolio management and that comes with J-curve mitigation, which ties back to the need to get some dollars out early. Here's a crazy example that I remind our team about. Let's just use easy math and let's just say you have a hundred million dollar fund and your load between fees and audit legal is about 2%, let's just for easy math. So you're paying $2 million a year in load. If you put out $10 million in your first year because you just can't, you're not winning deals, that is 2% on 10 million.

I'm sorry, I'm sorry, that's two million on 10 million. So it's 20%. If you put out one 10th of the capital, so now you underwrite that deal. Let's just say you underwrite a deal, it's a value add deal and you're underwriting a 16% IRR. That deal is doing nothing more than covering only a portion of your load. So when you think about portfolio management, not just real estate investment, good real estate investing, you have to think about those things and at a macro level at the fund level, that's what people talk about when they talk about the J curve, because it takes you, people put in for every dollar that's called, it often looks like 90 cents, 80 cents, 70 cents and then kind of by years maybe three or so you're starting to creep out and you're back to a 1X because some of your early investments have started to show a return which is enough to offset the fund load.

So it's definitely a consideration.

Another great point you made was the difference between investors saying yes to a deal that they can see, they could underwrite, they could drive there if they wanted to. Otherwise, they're just investing in a team and a strategy and a belief that you can perform. And so how do we mitigate that? And this also speaks to the J-curve mitigation, you have to have a really good seed portfolio to when you're going out to raise so that your investors have visibility into what you're investing, but also know that the money that's committed that's being charged a fee is actually going to be put to work. The more money that ... So it's definitely like it's a balancing act.

You also don't want to be going into like your first closing and have 60% of your portfolio committed because people are going to say you're just trying to get the money out the door and you're saying yes to every deal. They want you to be selective. So it's a really delicate balancing act. I think you need to have a seed portfolio. You also need to have a seed portfolio that while you're raising, you may be saying, we're about to launch our fund five and we've got a target of 250 million, but it might start out with a first close of a hundred million or less. And so are we allocating to deals based on an anticipated $250 million fund size or are we allocating based on what we have today? And the answer is it's kind of in between the two. You're sort of splitting the difference.

So there's a lot of considerations. Additionally, syndication, you've got your loan terms for that deal and you've got your loan covenants and they're kind of siloed to that particular deal. When you're dealing with a fund, not often, you always have to be mindful of contingent liabilities, liquidity covenants. We do ground up development. So we have in our construction loans, there are often and typically things like completion guarantees and we need to maintain a certain amount of liquidity until the project is completed and then a lower liquidity once you've gotten to stabilization. And so you have to track all that. And as one could imagine, when you start to put together an asset of a portfolio of 10, 12, 15 assets, that can get pretty complicated. So you need to have the team and the horsepower to be able to track those things and be a good portfolio manager, not just a good real estate investor.

Two very different things.

Lisa Knee:
Yeah. So there was a lot there. And so when you talk about balancing and we talk about people when they first come in to talk to us about ready to launch a fund and make those decisions and they say they're ready to start a fund and you sort of have to wonder what comes first. Do I have those preliminary documents where I have a framework of what my fund should look like or do I need to really understand what my core investors look like to be able to manipulate and understand what that fund structure is going to be and what dictates? And so we always say, you can loosely base those fund documents around what you think is going to happen and who you think is going to be your core investor, but what the actual fund documents look like might dictate on who you're looking in terms of your fund investors are.

So Maurice, you had fund five, which is great, but fund one could look a lot different for people who are looking to start to raise capital. And so Yoni and Michael, when we start having conversations with clients early on and start giving them some advice is to say, what are the things that you need to consider structurally before you're launching the fund once you make decisions that you do want to do a fund? And we'll go with Yoni first on the structural side. And Michael, you can add on some tax implications as to how Maurice was weighing those decisions early on.

Yoni Tuchman:
Totally. I'll start and then Michael's going to have more to say because I think structuring is like 90% tax, maybe 98%, right? A fund is a fund until you know who your investors are and what you're investing in and how, and that's all tax driven, but I agree strongly, Lisa, with something that you kind of implied or intimate and that is don't, and I feel very strongly about this because you're right, Lisa, you as an emerging fund manager, until you've finished the fundraise, you don't know exactly what you're building. You know that analogy of like flying the airplane and building it at the same time? By definition, that's what you're doing. You don't have your fund, yet you're building it and raising it in anticipation of having it. So I think the process is super important. And Lisa, you and I have spoken about this, I know you have to be very thoughtful and slow and deliberate in designing the fund for the audience you think you're going to be speaking with, right?

Don't do anything more than that. Just design it. Put a structure chart together, which Michael will talk about. Do you have a need for blockers and REITs and different things? That's going to depend on who your audience is. Are they tax exempt? Are they non-US? Are they taxable US? And I'm sure Michael has other categories within those and outside of those and what are you investing in and how? If you put those data points into the algorithm, the Michael algorithm, right, he can spit out the optimal structure for the fund, but what does that mean? Does that mean you go and form all these entities and incur all these ... No, put it on a piece of paper, put a term sheet together. That's it. Then go have all of your conversations. And you know what, like Lisa, like you were implying or saying, your structure may change because the audience that you think you're going to be raising from may change during the process, may evolve.

And so you thought you were going to be all US taxables so you designed the structure that way, but then a door opened for you and one dot connected to the next and now you're talking to non-US investors and tax temp investors. So your structure's going to change. So I would just say before Michael talks about the nuts and bolts of how to design it, what are the factors and how you treat the factors and respond to them, I would say process wise, take it slow. Don't build anything until you really know your audience, until you really know them, but you have an image of them, just design something slim, light, maneuverable for them in mind and then you can pivot.

Lisa Knee:
I think people will find that refreshing from the attorney to say that is don't start drafting your documents too early.

Yoni Tuchman:
100%. Can I tell you a secret? Here's a secret. Clients, emerging managers are nervous about fees, about legal fees, about all kinds

Lisa Knee:
Of- That's not a secret. That is not a secret.

Yoni Tuchman:
Okay. That part wasn't the secret. Sorry. So that was a prelude to the secret. The secret is the partners you're working with, the law firms, the ones you owe them money to, they're the ones who are really nervous because look, people want relationships. We're not in the business and I speak for, I'm sure this is just routine for all law firms and others. We want our clients to thrive. We want them to succeed and if they have a failed launch, we know they're still doing other things. We want to work with them. We want them to come back to us. We want them to tell their friends about us. So the last thing in the world that a law firm is going to do, this is a total digression, right? But we're not going to go have a fight with a client who had a failed fundraise.

So who ends up eating that? The law firm does, right? Of course, we'll try to work something out that everyone feels good, but the risk is not on you emerging manager. If you partner with the right groups who are backing you, the risk is on us. And that's why we're super careful also to stage this intelligently, that we minimize our risk as we're maximizing your success. But Michael can talk about all the nuts and bolts of how you construct this based on who your audience might be.

Maurice Malfatti:
And just to latch onto what you were just saying, someone told me this was early in our existence, try to be middle of the fairway. When you're an emerging manager, you don't want to come out with terms that are way out here, like study the market, see what the fat part of the bell curve is on where funds are and cross off the first ... Don't create reasons for people to say no because you're different. And also, I think it's very important, this is not a plug for Eisner or DLA, but I think it's important to choose respected brand name, maybe it is, service providers in the industry because chances are if you're talking with institutional LPs, they have probably seen the work of certain law and accounting tax advisory firms far more than others. And so I do think it's important to ... Someone told me that to choose brand name service providers as opposed to choosing the local guy down the street that you have a relationship with that may not be known to institutional investors.

I think that's important too. They also have so much more visibility because of their breadth of experience in the field that I think the chances are only enhanced that you're going to be down the fairway with terms and legal terms and structure.

Yoni Tuchman:
Michael, can I say one thing before-

Lisa Knee:
No one wants to get to tax. No one wants to get to the tax.

Yoni Tuchman:
Everything everyone's saying is resonating so strongly. 5% of what I do is law, 5%. 95% is the type of coaching like Maurice was saying, stay in the middle of the fairway, okay? How do you as an emerging manager raising fund one, how do you know what the middle of the fairway is? You have no idea what the market is, what the options are, what your competitors are doing, what investors of different sizes and geographies are going to think, but your partners know Michael knows we know. So that's what we do. It's like, oh, you're building fund one. Here's all the options and by the way, here's what you should do. Okay. We're not going to defer to you like, "Hey, what do you want to do? " We're going to tell you, and you can override us for sure, but we're going to guide you.

There's a lot of options here, let's explain what all them are, but if you want to be middle of the road, take the brackets off our form and just stick with it. Don't start being creative until fund five, right? Then you can be creative. I want to agree with

Lisa Knee:
That's the perfect jump into it because we've been having a lot of discussions, Michael, lately about open versus closed end funds talk about middle of the runway and people convincing us that they want to do an open-ended fund, not to discourage it, but really having to explain to people the difference between an open-ended fund for real estate and a closed-ended fund. And so Michael, this is a great time to sort of say middle of the road versus not, and some of these decisions we're having. So it's a great tee

Michael Torhan:
Up. Yeah, no, and I appreciate it. I think a lot of great points, Maurice and Yoni, Maurice, thank you for the plug. Again, it wasn't pre-planned, so I appreciate that. Again, a lot of what I do is tax, but there's a lot more to tax than just filling out those forms every year and paying your taxes. I think a lot of what Maurice and Yoni are saying are so important at the stage that many of you may be at, whether you are launching a fund for the first time or launching fund two or three or four or five or whatever number it might be and that's thinking from an aggregate perspective rather than an entity perspective. We always talk about you're launching a fund and so maybe it's a partnership, a limited partnership, but the first question and the first topic that always comes up when Lisa and I or when Yoni and also whoever was talking to a fund manager is, who are your investors?

Who's going to be the makeup? And you may not know, you may think it's going to be all high net worth individuals, but there's a foreign investor that comes into the mix. Or you may think it's going to be all foreign investors and you have some large university endowment that comes into the

Lisa Knee:
Tax is really driven- Don't forget the IRA you're going to get Michael.

Michael Torhan:
Yes. Yes. And I think so much of, again, of what you do upfront, even before you go out to the market or before that final close is thinking about who your investors are, it's changing that mindset from I'm creating this partnership. It's you're really creating a collective of investors. And it's actually, again, I'm not going to go into the technical concepts because that's probably a five hour separate webinar, but there is a concept called entity versus aggregate and it's really an aggregate from what everybody should be thinking about. You're creating this collective of high net worth individuals, tax exempts, foreign investors and how do you accommodate Yoni, you made a great point. You shouldn't go into this thinking you're going to accommodate all of them upfront because as much as Yanni is going to love the legal fees, we'll love the accounting fees and tax fees, that's not your goal.

Your goal is to really be mindful about cost and really create a platform that will accommodate those potential kind of outcomes. And whether that's just creating kind of a regular partnership and creating the availability for blocker entities or parallel investment funds. And again, all these technical things again, which we can't cover in a 45 minute webinar, but it's creating flexibility and that's what's key. The flexibility is really going to let you stand out from the pact. So if you're doing your final close and you get a big check for $20 million, I mean, this is another thing we always talk to prospects and clients is your structure is going to be driven by your investors. Again, upfront you're trying to accommodate what your population is going to probably look like. If you get an investor that's going to give you $30 million or $50 million, guess what?

They're going to tell you what the structure needs to look like if they're going to give you that check. So again, but you want to be sophisticated enough, like Maurice was saying, that you want your investors to recognize that you've created this platform and that you understand what's out there in the market. And again, we always tell our clients, we don't expect you to be tax professionals or to know everything about tax or legal or whatever, but we do like to educate you and make sure that you understand enough to have good conversations with LPs because during those due diligence, and I'm sure Maurice can speak to this more, you might not be speaking about technical tax matters, but blockers and REITs and tax exempt UBTI, I mean, these things do come up from what I've been told.

Maurice Malfatti:
Yeah. And in addition to the structural aspects to consider, which are so critically important, from a business standpoint, I'll share some insights from the GP shoes, choose your partners wisely. And this is something that I think we were advised to do early on and I don't think it really resonated at first. I understand it and appreciate it much more viscerally today than I did then, but having like- minded partners in the fund is so important. I'll give you an example. Most of our capital is endowments, foundations, family offices really looking to just build ... They're investing in an opportunistic fund. It's a total return fund. They're not looking for ... They're less concerned about a coupon or a high IRR. They're frankly more multiple driven. And so there's a lot of investors say, "Look, I'm less concerned about how long it takes me to get there, but if you can deliver me a 2X in the life cycle of the fund, that would be a great outcome." And it certainly would.

But we had one, we were coming up on our last closing and we had a group that was a fund to fund that would have almost doubled the size of our fund. They came in with a really sizable term sheet and we talked with some of our longstanding partners who were endowments and kind of healthcare institutions looking, managing their portfolios like an endowment. And we talked with them and they said, "We think that this could be problematic." It's not necessarily like when things are good, but if things aren't good, they're going to be pressured because they're a fund of funds. They're more concerned with mark to markets and showing their investors a strong IRR, whereas a lot of our investors are like, "Look, I don't care what the IRR says the first three or four years." I'm confident that the value creation strategy that you guys are doing is going to pay dividends long term.

So as a fund manager, you need to be patient and if building out a fund portfolio requires patience, it requires patient investors. I think you could have misalignment if you just take the dollars and don't choose like- minded partners that are maybe more transactional and more IRR driven as just an example.

Lisa Knee:
So let me follow up on that one. So a first time fund manager, when you talk about that anchor investor, it could be the 30 million or the 40 million check, what should you have a conversation if someone comes to you and says, "I want a side letter. This doesn't work for me. " What are those things that you're thinking about, Maurice and Yanni when somebody has that and say, "Do I offer that as a first time fund manager? What's the conversation I'm going to have with that side letter?"

Yoni Tuchman:
From my perspective, that's very easy. I've yet to see a client that's raising fund one that has an anchor investor that they said no to, or they even ... If someone's going to give you $40 million of fund one, you say, "Yes, how high?" That's just the answer. But one thing I also like to temper what I'm saying is you don't go offer carrots. I always advise clients, don't appear so weak that you have to go offer handouts to get anchors. "Hey, you want to anchor my fund? I'll give you a piece of my GP, I'll give you a piece of my management company, I'll reduce your fees, your carry, I'll give you co-investments. "Let them ask. What you have to offer is your skill, not like all these economic carrots. If they're interested in your skill and then they come to the table to negotiate, okay, we can write a big check, but we want a side letter that has X, Y, Z, A, B, C, then you engage.

It's never a no. It's always a let's talk. And more often than not, you give because you have to give to get. That's just how it is. So if these guys are going to get behind you and really help put you in business, that's worth a lot. That's worth a lot. So that's my view on the dynamic with anchors and big investors.

Lisa Knee:
So on the topic of.

Maurice Malfatti:
I agree with that. I would say it's important to ... I think it's very important to remember it's a partnership. And so if someone is about to park 30, 40 million dollars with you, it's because they want to do business with you, it's because they like your strategy, like your team. And so we've always been, and this is more critical now we've kind of got an established, this is our structure and we remain competitive, we remain down the fairway, but early on we were arguably a little bit higher than market on fees and we had transparent open conversations about our operating budget and what it cost to run the firm and our partners they were very good partners, especially the early ones who engaged in that conversation and our anchor investor actually allowed us to go from ... We increased our fee from fund one to fund two because they said," We get it.

"By that point we had demonstrated a really good track record of doing everything we said we were going to do and working hard and starting to show some proof of concept. And so they said," Look, we get it. We're more concerned long term and whether it's one and a half or 1.75%, that's not going to make or break us even though optically some investors get really fixated on a lower fee. As we've grown, it cuts both ways. So we continue to be transparent and as your AUM grows, there's economies of scale. So we just proactively have reduced our fee and created a tier fee structure where larger investors get the benefit to those economies of scale. So that's what's worked for us.

Lisa Knee:
So on the theme of giving to get, carried interest is huge on both sides. It's either can be on your investor side or even sharing it with your team and what you feel comfortable with on the onset of the carry within your team and what you're willing to have an investor be sitting on the GP side of that. So Maurice, why don't you talk a little bit about your approach on what you did with your team and then Yoni and Michael, you can talk about what we see from a tax and legal perspective

Maurice Malfatti:
Yeah, I think selling off a piece of the GP for an anchor investor, I know people do it and people do it successfully in my experience that I think you need to be careful about that. We've had some ... If it was one fund, if it was like the equivalent of like reducing the carried interest deduction on that particular investor's return for that fund, that's one thing. But I think when you're ... We have some investors who we have prohibitions on ever selling a piece of the GP firm. They want the people that are driving the value creation of the portfolio managing their money to be all in and not have an external voice that's going to have sway over decisions. So that's kind of basically preserving the carried interest for our team as opposed to for somebody else. We do something that we've been told is not typical in the industry.

We share carried interest. We're proud of it. We've been told this is not normal. You might want to consider having the carried interest more concentrated in your senior team, the folks that are more driving the value, finding the deals, raising the capital, posting the GP commitments. And we said, thanks for that feedback and we are going to continue. We share carried interest with every single person in our firm. And so obviously it's scaled according to a number of factors including GP commitment, how much role you have in raising the fund because the size of the fund dictates the size of the carried interest, driving the returns. All those things come into play, but even like first year analysts that are there when a fund is launched, they're getting a piece of the carried interest. And we also will typically allocate 75 to 80% of the carried interest at the start of the fund, but then we leave as sort of like treasury stock that we can then adjust.

If someone outperforms or if someone goes from being a VP to a director and they're just knocking the cover off the ball, we want to be able to give them commensurate additional carried interest or if someone else joins the team, we want to always ... And promoting alignment across all stakeholders is just so critical in this business. And it's amazing how much ... There's no hesitation from one team member to the other to help out in other areas. Someone's on acquisitions, but we're doing development, there's additional needs for horsepower over here. It's not even a question because everyone's rolling the boat together.

Yoni Tuchman:
I think that's fantastic. I tell clients all the time when I'm asked, not always asked, "Be generous with economics, but be less generous with control." So I think decisions should remain with the senior kind of founders, right?

Yoni Tuchman:
But economics, I love Maurice, what you're saying, give everyone a stake, right? Make them all stakeholders. And by the way, giving someone a stake for those who are raising this question in their mind, who are listening, that doesn't mean it's theirs to keep without strings attached.

Yoni Tuchman:
Always strings attached. There's investing. They got to stick around to keep it, to earn it. There's buybacks. If they do something bad, they lose it. So all of those strings have to also be the same way when you're designing your fund vis-a-vis your investors. Before you put pen to paper and run up a big bill and everything, design it thoughtfully, slowly. I'd say the same thing about your GP. Before you build your GP and do your carry grants and design it, who's getting carry and what are the terms of that, Carrie? What are the strings? But I think the more you share, yeah, that's amazing with the proper strings attached.

Maurice Malfatti:
And I agree with you wholeheartedly. Generous with economics, very stingy with control because it would get messy. Yeah. Yeah. Yeah.

Lisa Knee:
So I want to do on piece of advice that you would give somebody to launch, but I'm going to give mine first and then we can go around and give the one piece of advice. And mine would be use AI as a tool, but don't forget the people and relationships that you need to manage that AI is going to be here and it's a tool for all of us to use going forward. But the type of things that we've seen and have dealt with over the years, you still need that personal relationship to be able to manage it and for the advice. So I'm excited for AI as a tool for all of us to figure out how we're going to use it going forward, but please don't have it be your tax professional or tax advisor or your legal team or somebody who's looking for due diligence.

And so that would be my one piece of advice for there. Michael, we'll jump to you for yours.

Michael Torhan:
Yes. And I think I want to echo a common theme throughout this session, is having a long-term growth kind of partnership perspective, whether it's with your LPs, your attorneys, your tax advisors as you kind of go on this journey, like Yoni was saying earlier, we're kind of all in it together, even though we might be your accounting firm or Yoni might be doing your taxes, sorry, your legal work we grow when you grow. I always tell any client I talk to, we're all growing together and the goal is to, again, go along this journey with that mindset so that everybody kind of benefits

Lisa Knee:
Maurice

Maurice Malfatti:
Michael kind of stole my thunder, but I had think long-term. I love the mantra success is a marathon, not a sprint. And so being okay with organic growth because it takes time, like you can't catapult to a huge fund without having a track record. So you might have to settle for a smaller fund and establish the track record. As you're getting your team in place, getting all of your consultants and advisors in place, you're building a team and you're building a platform and that takes time.

Lisa Knee:
Great. Yoni?

Yoni Tuchman:
My one piece of advice for anyone who's syndicating deals and is thinking about raising a real estate fund, my advice is you got this. You can do this. Don't be hesitant. That’s wise. Be hesitant. But if you build, like Maurice was saying, and like Michael was saying, if you build the right team around you, you can do this. Everything that you've done is going to lend itself to the next chapter. These are not apples and oranges. These are two apples, on is a little bigger than the other, one is green, one is red. Choose your analogy. You're already doing 90% of what you're going to be doing when you raise a fund. So you can do this.

Lisa Knee:
Well, thank you. That 45 minutes went really fast, didn't it? Thank you. Thank you. Thank all three of you for being here with us today. Thank you everybody. We're sorry we didn't get to any of the questions, but we will respond to them and send notes out after the webinar. Thank everybody for being here.

_{Transcribed by Rev.com AI}