Brian Adams - Founder, Excelsior Capital
Crowdfunding a family office
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Brian Adams - Founder, Excelsior Capital
Brian is a recovering attorney hailing from a family office background dedicated to providing investors with direct access to institutional alternative investments that can generate passive income in a tax efficient manner.
He pulls on his extensive experience in the legal, private equity and real estate industries to provide a broad market view of the entire alternative investment landscape to deliver strategic and reliable investment opportunities to his partners.
Brian and I discuss the economy, his fund, and why he likes to introduce other kinds of opportunities to his network of investors.
What You're Going to Learn
- Why investors want capital preservation
- How the Excelsior platform works
- The key to marketing to high net worth investors
- How to create opportunities and add value
and a whole lot more.
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Investors want capital preservation, yield, and tax benefits
Adam Gower: What do you focus on. What are you seeing in Tennessee?
Brian C. Adams: Yeah, I mean, we're solving for yield, right? So we work with accredited non-institutional investors. So initially started the company to help a problem that our family office had, which is accessing good quality, direct co-investments that were targeting double-digit yields on a deal-by-deal basis, but that didn't have LPs that were non-taxable. So what we found was, often a lot of the sponsors or fund managers we were working with had big endowments or institutional non-taxable LPs that are really driving the investment decision making process in a tax inefficient manner for the other equity holders that were taxable entities. So we created this platform for, initially the family, and then it became friends and family and now we have a really broad network of investors. But, we still try to solve for those three pain points and we still try to work with just that discrete population set. So right now, frankly, in Nashville, my cost of capital, in other words, my yield that I'm trying to achieve to my investors that we send out in monthly distributions, is not possible to achieve today in Nashville. It's become an institutional marketplace. Cap rates are ridiculous. I think it makes a ton of sense to develop, in today's market here, locally. But if you're trying to buy core plus, value-add, forget core. You're going to be paying a very high price point. And you know, as my mentor has told me over the years, the three most important words in commercial real estate investing are basis, basis and basis. And so when you go in with that price per pound, you're married to it for the rest of your investment horizon and it's just not something that we can accomplish, given our investment strategy.
Adam Gower: Brian, it's an interesting perspective that you shared on the institutional partners that you have. I haven't heard that before and I've heard a lot. That one of the reasons for their cost of capital being so low - I'm trying connect the dots to what you just said. Their cost of capital being so low and therefore their ability to pay up for assets (I'm making an assumption) is because their capital is nontaxable. Is that right? That they are - when they're underwriting to the bottom line, they're underwriting in a different way because of taxes than individual investors or other private equity sources. Can you just elaborate on that a little? It's an interesting observation.
Brian C. Adams: Sure. I think that's part of the equation, is if you're not a taxable entity, then tax efficiency or after tax returns, net of fees, only part of that equation relates to. Right. So, for instance, I get asked a lot what the definition of a family office is. And so for me, it's a corpus of assets meant to maintain a quality of life across a multiple generation time horizon. Now, when you think about, kind of, high-net-worth individuals or families and you talk about asset allocation or return profile their expectations, it's really simple math, right? You've got: inflation, let's call it 3%, even though we've been seeing 7%, kind of. We could talk about inflation if you want, but let's peg it at 3%. And then you've got your spend rate or you know, maintaining your quality of life. Let's call that a 4% overhead spend rate, plus exponential growth of your family. You put that all together. You probably need to be hitting annual 10% plus returns to maintain that quality of life over multiple time horizon generations. But importantly, when you're making these investment decisions as a family, you're looking at net of fees after tax returns, right? Because taxes and inflation will kill you over the long term when you're dealing with a kind of corpus of assets that the principal is not going to change dramatically. Whereas, if you were an institutional investor and you're nontaxable and you're trying to solve for a 3% or 4% return. That's a different mindset, right? And that's a different investment strategy and thesis and that's what we've been seeing play out over this last, call it, since the Great Recession, this search for yield, this liquidity in the marketplace. At first it was driving institutional investors, especially international, to come to domestic US, which then meant the private equity groups had to go lower. And then it's now trickling all the way down to the sponsors like myself.
Create opportunities and add value
Adam Gower: Let's just move to another topic, if you don't mind.
Brian C. Adams: Sure.
Adam Gower: Now, you are raising money for commercial real estate projects. What you done do. But, you also have a capital club. And on your capital club, we've got all kinds of different things - not even real estate related. Right? So I'm not going to say because I don't want to - well, I suppose we already dated this by talking about the Ukraine crisis.
Brian C. Adams: Yeah
Adam Gower: But you've got all kinds of various things going on. Just tell me about the Capital Club. How does pitching somebody else - allowing somebody else to pitch their deal on your platform, help you raise money for your deals?
Brian C. Adams: Yeah. This will go to the bucket of, when you have an idea or a marketing campaign and your peers all say that you're crazy and it doesn't make any sense, you're probably doing something right. And so, what started happening was, I have a great network of investors. And, I'm not a wealth manager, so I'm not trying to get all their assets under management. I don't want all their dollars. I want them to engage with me and obviously invest but - I think the three biggest challenges in the high-net-worth individual and family community right now: access, educational content and affinity networks. And so that's what our marketing is all about. Around solving those three issues because I know it's a problem for people. So, what started happening was, my LPs would reach out and they would say, Hey, I'm looking to learn more about health care, venture capital, private credit, investing in raw lands. I want to invest in the space economy. And I'm like, Oh my gosh, okay, that stuff's really cool. Let me go through my mental rolodex of GPs and sponsors and fund managers that I know and that I like and maybe I can try to make some introductions for you. On the flip side, I started getting my friends, who are sponsors and managers, and GPs saying, can I raise capital on your platform? And I would say, well, we don't do that.
Brian C. Adams: I'm not a broker/dealer, I don't want to be a broker/dealer. I've got a good business. And so I just, at some point just said, screw this, I'm going to make this efficient for everybody. Once a month, I'm going to put on a zoom where four of my friends, people that I know will pitch. I'll open it up to my network. I'll send it out to LinkedIn and the other things. I'm not going to take any economics. No fees. And hopefully my peers, my investors, they think that I'm smart because I'm talking to smart people and I'm addressing these three issues, right? This access, education and networking, in a very safe place so they can learn about niche strategies, different managers, best ideas, best in class, etc.. And I think it just, again, goes to that place where, you know, creating a touchpoint where I'm not asking them for anything other than a little bit of their time. And I think they're getting a lot of value. And frankly, it's not a very heavy lift for us. I mean, I have a lot of people that want to come on. We have pretty good engagement from our investors, and I don't want it to become, like an investment banking/broker/dealer type setup. It's just not what I'm focused on. And it's really - we've been doing it for about a year and it's been really successful.
Marketing to high net worth individuals
Adam Gower: So getting started on this path to meeting total strangers and encouraging them to part with $100,000 minimum, what were the biggest hurdles once you got started?
Brian C. Adams: When I first, first got started? So, biggest challenge obviously is just getting the "at bats", right? I mean, if your conversion rate is going to be 3 to 5% for.
Adam Gower: Say that again. Getting the what?
Brian C. Adams: At bats. Like the reps. Like the pitch...
Adam Gower: At bats.
Brian C. Adams: Sorry the Americanisms of baseball metaphor, but.
Adam Gower: An at bat.
Brian C. Adams: Yeah, like a try. Like a practice - just getting the coffee meetings and the dinners and the lunches and the calls. Getting them scheduled. Getting the pitches in. So, I used to - an old sales mentor of mine. I learned a trick from him when I first started out. I was not allowed to close down for work, for the week, unless I had three meetings and five phone calls set up for every day the following week. And even if it was like, my dad or my brother. Like, I had to have something on the books. And so I used to try to do - at first it was three and five, and then I went to five and ten. I tried to have five meetings a day and ten phone calls a day, and I did that for..
Adam Gower: That is mind blowing, isn't it? I mean, when you describe that, that is exactly the opposite of the world I try to create.
Brian C. Adams: Yeah, yeah, so.
Adam Gower: Minimal calls. Minimal meetings.
Brian C. Adams: Yeah.
Adam Gower: I avoid everything and do it all online and automated. Anyway, go ahead.
Brian C. Adams: Yeah right. So and we've kind of obviously pivoted. But that was the original business model, right? Was, this is what I was going to do every day. And I did that for a couple of years, in addition to travel and conferences and that kind of thing. That's how I first got into the business.
Adam Gower: Yeah, it's a lot of brain damage, isn't it? So. Right. So you started crowdfunding. You built a nice platform over there. You've done a nice job of it. And you moved to marketing, right? So now you've created your mousetrap - for want of a better term. And you start marketing. So what are the most effective marketing methods you have now? In the past, it would be three meetings a day and ten phone calls. What what works well today for you?
Brian C. Adams: Yeah, and one comment to your statement about the brain damage. It is a lot of work. It was. It's not supposed to be easy. And I think, people who aspire to be a GP or a sponsor, they want to avoid that sales part of it. Right? They want to be able to just circumvent it. But there's a lot of lessons to be learned there, in terms of getting the meeting, having the meeting, doing the pitches, getting the feedback. Going to Tulsa for that lunch meeting that you just never know what's going to happen there. I mean, that's kind of how I came up in the business. So, I would embrace it if I were people. But, there certainly is a better mousetrap out there. And so, from a marketing perspective, I think the best thing that we've done is - oftentimes sponsors, and this is certainly the case for me early on. When I meet a prospect or have a current LP and we're going to have a conversation, it's going to be a transactional binary conversation. I'm going to offer you a widget and I'm going to ask you for your time and money in return for that widget.
Brian C. Adams: And you're going to say yes or no. Now, the way that we've created things, from a content perspective, is we give people educational content. We give them access to resources and we give them a community of likeminded investors, peers - an affinity network. These are all things that, what I call, can allow them to be in the neutral zone or the parking lot. So, once they enter into our ecosystem, they can spend time at these places through LinkedIn, through collaborative content, through my podcast, through some of the webinars that we do and some of the networking events that we do. These are all places where I'm not asking them for anything. I'm just giving them things, giving them resources, giving them connections, giving them access. And over time, it's going to become well. Ok, I've gotten to know Brian. He's been really helpful to me. Let's now initiate this next level of the conversation. So it's really taken away this very transactional, binary type dynamic and created more of, what I would call like a lead nurturing type of space where people can get comfortable, get to know you, and then it turns into a logical conversation of, okay, well, let's talk about investing.
Adam Gower: Yeah. I mean, that's what's interesting, isn't it, Brian, about moving your efforts online from the in-person world. Your time is levered. Before you can only engage with one person at a time. One phone call, one meeting. That's why, you know. What was it? What did your mentor say? Three meetings, ten calls. Tangles. Figure, that's 8 hours a day solid. Just one on one. Whereas now, you put a podcast out, you know, in my case, at least three or four people hear it all at once.
A crowdfunding platform
Adam Gower: So you chose to expand your investor base and look at private individuals or individual investors, individual high-net-worth accredited investors, and build, want of a better term, build a crowdfunding platform over there at excelsiorgp.com. Tell me about that process. First of all, why did you choose to do it that way. If your're a family office. You've probably got some good personal connections. Your father's an attorney. Probably got a decent database. So just explain the logic behind why you did that in the first place and actually how you got started. What was the first thing you did?
Brian C. Adams: Yeah. So, like I mentioned, I'm from New York originally. I met my wife in college, in New England, and she's from Nashville. So, we did the New England thing for a little bit. We both went to grad school in Boston, moved back to Nashville 15 years ago now. And, like I mentioned, my wife's family has a single family office. I had no idea what that was or really what private equity was when I joined the family. But, during the course of the prenup negotiations and then onboarding as an ex-officio member of the board, I got exposure to all these things. I started learning about GP/LPs, funds, private equity, commercial real estate, etc. and wasn't entirely enamored with being an attorney for the rest of my life. And so, started exploring real estate, thought it was a great asset class, a great business, and very clearly saw a problem in the marketplace. Kind of what I referred to earlier, where individuals and families, when they wanted exposure to commercial real estate, they had to go through a big fund with a really high minimum or even a fund of funds where you're paying two or three levels of fees and you have no relationship with the GP or you had a one off deal from your country club friends that wasn't professionally managed. Or you could go to the REIT market, which I think is really suboptimal proxy for direct real estate investing, on a number of levels.
Brian C. Adams: And so there wasn't really good optionality. Crowdfunding was just starting to come onto the scene. But, I saw flaws in the systems. Deal flow quality was hit or miss sometimes. There was certainly a friction cost involved in that where that cost of capital, that the sponsors and GPs were going to pay to have access to that database of investors was really going to flow through to the LPs themselves, in terms of how they were going to capitalize that cost. And so I thought there must be a better way to do this. I built up about a $250 million portfolio, recapitalized that. I made a bunch of mistakes the first time around. And I launched Excelsior, three years ago, four years ago to try not to repeat those mistakes, to really streamline it, and to create a better investor experience across the board.
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