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Michael Episcope, Origin Investments

On A Mission to Transform the Way Individuals Invest

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WHITE BOARD WORKSHOP

Michael Episcope, Principal & Co-Founder of Origin Investments

Origin Investments stands out in the CRE crowdfunding space for several reasons; one, the caliber of their communication has always been among the best in the industry, and two, they are among the only sponsors to have wholeheartedly engaged in digital marketing to raise capital from the very start.

A third reason they stand out, and in addition to their deal flow and offerings, is that they understand there are no short cuts in real estate, no get-rich-quick options. Origin knows that true pros have to work very hard to sustain and build a successful real estate business and in today's episode you'll hear Michael Episcope describe how Origin sets itself apart from other sponsors and what exactly they’ve done to become so successful. Tune in today to learn from Michael how to win at the real estate game.

What You're Going to Learn

  • Why to Produce a Great Product and Produce Fantastic Investments
  • Why We Want to Educate Investors – It’s Not Just a Sales Pitch
  • Why We Don’t Have an Invest Now Button
  • How to Transform the Way Individuals Invest in Real Estate
  • The Quantifiable Traits in Our Business that Investors Want to Know About
  • How Creating Content Helps Find New Investors
  • Why Communicating Online to Investors is Very Powerful
  • Why Real Estate Prices Move Slowly In A Private Market
  • Why Preferred Equity Makes Sense in a Market Filled with Uncertainty
  • Keeping Your Team Motivated Through Difficult Times
  • And much more!

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Produce a Great Product and Produce Fantastic Investments

ADAM GOWER: Michael, what a pleasure to see you. Thank you so much for being on my podcast today. I have a question for you — and I know we prepared a little bit for this, so I can't take you by surprise again — but as you now know, Origin and yourself are probably one of the most highly regarded commercial real estate companies in the country crowdfunding real estate deals. And what I wanted to ask you was, first of all, if I told you that, would you believe me? And secondly, whether or not you do, why do you suppose that is?

MICHAEL EPISCOPE: Well, first of all, thank you for having me on the show. Would I believe you? Yes. We have to remember how far we've come. My partner and I are very much wired in the same way in the sense that you always want to be more winning, winning, winning. Sometimes you have to not only look out the front window, but you also have to look in the rearview mirror sometimes and see who you pass.

We didn't really start to become the top firm in the industry and that wasn't really our goal all around. Our goal was really to just produce a great product and produce fantastic investments and produce returns, service, everything that comes along with having a great experience as an investor. That started more than a decade ago. When we started Origin, at the time it was very novel because we were starting a firm around this concept that we were building an institutional firm for individual investors. Today, that's almost cliché because everybody uses that. But I will say twelve, thirteen years ago it wasn't. My partner and I, we both were high-net-worth investors coming out of the trading world, we were investing in different areas and everything we came across we were like, “we can do a better job, we can do a better job,” and so we were kind of forced to build it. What we saw on the market, was just anybody who was going after the retail market they were a very different group, like the non-traded REITs, etcetera, who were going after the individuals versus the institutions. We wanted to really bring them together and build a platform around that notion that individuals just deserve better. They deserve the same service, the same team, the same quality deals. And it was quite easy in the beginning because we were just two individuals who wanted to invest a significant portion of our wealth into real estate and that's how we wanted to protect and grow it. Then over time, that's really what has helped us attract a lot more investment partners to our platform. But that's how it started. We didn't start out to say, “Well, we want to build a crowdfunding business” or “We want to build a fund business and we want to have a thousand partners.” We started out with our own capital. And when you make decisions in hiring the team and service and you're in the seat of the investor all the time, the decisions are actually pretty easy. I think the fact that we started out as an established platform going into 2012-2013, when the Jobs Act had changed the industry, gave us a distinct advantage.

I still remember people calling us up and talking to us and saying, “Origin feels different. It just feels different.” And I said, “Okay, well, it should because we are in that sense.” But it's definitely resonated with a lot of people. We’ve been blessed.

We Want to Educate Investors – It’s Not Just a Sales Pitch

ADAM GOWER: When I first came to America, I used to do housecleaning. I used to clean houses. And I remember that my clients could tell the difference if I had moved the furniture and vacuumed under the furniture and then put it back. There was something that they could feel about the room when I had taken that extra degree of care. Even if I had not moved it, it seemed like it looked good to me. I'd like to drill down on that kind of furniture moving idea from your perspective. When you say people just said you seem different or feel different, what is it? What is that furniture moving? And I've actually got one question for you. You talked about not having gotcha moments. Tell me about those gotcha moments, because that's a bit like moving the furniture and finding some crumbs underneath that.

MICHAEL EPISCOPE: I'll get to the gotcha moments in a second, but building an investment firm — no different than cleaning the room, the furniture in many ways. There's a thousand different decisions to make along the way. Those decisions are everything from how you address your strategy, what investments you're going to be in, how you build your team, how you build your infrastructure, what terms you put in your PPM, how you market. There are literally, over the last 13 years, thousands and thousands of decisions that we've had to make and they're not all black and white. You look at what your competitors are doing, what you're doing, who's doing well in the market and who you want to emulate, and you come back to doing the right thing.

Really, if you are an investor, how would you treat yourself and what do they want to know? The best investors to us are people who are well-informed because this is a long-term commitment. When you get into one of our funds — and we do funds, we don't really syndicate individual deals, although we do have sidecars deals — but when people get into our funds, it's a long-term commitment and that's why we use the term our “investment partners.” It's not an investment manager, but they're truly partners and it's a partnership. In any partnership, you want to make sure that expectations are set clearly and that in a year or two years or three years, they're not saying, “I didn't know that. I didn't know that. I didn't know that.” We've always decided that everything should go up front and center, everything. And I think that's very different than a lot of firms out there. In fact, we get penalized by it sometimes because people might say to us, “Well, that seems expensive.” And then you dig in. You say, “Why? Why does that seem expensive?”

“Well, because this firm does this” and then there's an education process that you really have to go into sometimes. But sometimes you don't even get to have that conversation. We don't pretend to be the low-cost provider, but we're certainly commensurate with institutional pricing. What is really hard is when you have your competitors who are out there and they're marketing in a way that might be legal, but it's disingenuous. It's really like trying to hook them in, whether it's the way they underwrite and the way they project returns, or their fees or something like that. We've always just established this way of doing business. We don't use the word transparency. We actually have a saying in our business — you won't find that word on our website or anything — it's about what you do and how you do it. And that's what it is. It's really up to the investors to decide if we're being transparent.

Transparency to me, isn't hiding something on page 77 of the PPM and saying, “Hey, it's in there, it's written down. You should have read that.” Any of the really important things we put in our FAQs, we put up front and center. But years ago, I remember somebody working for us — and this really resonates throughout our firm — and he said to me, “I love working here.” Because he had so many conversations with investors and investors who had law backgrounds and everything and there was never one of those gotcha moments. There was never one of those “aha, this is it” on page four or five or eight or 10. And I can tell you in a lot of products, there are gotcha moments. You have to almost be a forensic financial analyst to go in there and understand what you're getting into and get to the bottom of it. We don't want that to be the case. So even with our entire investor relations team, we view it as not a sales pitch, but an education. Our team is there to answer questions so that people understand what they're buying, how we make money, what it is we do as a manager, what our expectations are of them and their expectations are of us.

Why We Don’t Have an Invest Now Button

ADAM GOWER: That must be very challenging because, as you know, a lot of people click the “invest now” button and they don't dive so deep into a 200-page PPM. And even if they did, it's so difficult to really understand what you're looking at. How do you deal with that? And when you talk about having lawyers that come in and read through these things, how do you deal with that?

MICHAEL EPISCOPE: Well, I'll tell you. We don't have an invest now button. We don't want that kind of business. We want our investors to have a conversation with our team, with me, my partner, our IR team, whoever it is, so that we can at least establish a relationship. The investor who is impulsive and gets into an investment, a five-ten year investment, after looking at something for four or five minutes, you're setting yourself up for failure somehow, some way. To us, it's more important to have a conversation to make sure that everything is laid out, that this person understands us, who we are, our team, and that we're building a relationship. Because, quite honestly, one of our competitive advantages is our team on all sides and it's having that direct relationship with us. There are a lot of big players in the market, but there are very few where you can reach out directly to the CEO of the company or the IR team. These platforms today that are going more click to invest and want to be more like stocks, it's interesting, but we've avoided that. Our model is certainly more expensive for us to operate and it's more high touch, but I think in the long run, it's a better way of doing business, especially in private real estate.

Transforming the Way Individuals Invest in Real Estate

ADAM GOWER: Are you not tempted to go off the institutional capital, though, now that you built a firm like this and to pump up — it’s the wrong word —to boost the funds that you have with some big institutional checks?

MICHAEL EPISCOPE: It's a great question. It's very tempting sometimes, but the reality is, like in any business, it's your mission that drives strategy. And our team is very committed to this idea that our mission is to transform the way individuals invest in real estate. It goes back to what I said earlier. It feels good when you are helping like-minded individuals who have saved their whole life, who want a fair shake in real estate, who want to get the most out of real estate. And you have a great product out there. It's not to say that we won't go to the institution someday, but this will always be our core business. When you set up, especially from an infrastructure standpoint, the way we're set up in our IR department and our marketing department and our accounting and everything we do is really catered towards the individual. When you go into the institutional environment, that's almost a company within a company.

That's a whole other channel. Certainly, from an acquisition standpoint, they're gonna go after the same deals and you can amortize your team a little bit more over that. But we have plenty of capital at the individual world and we're barely tapping the surface. Quite honestly, Adam, from a brand or an organizational value standpoint, my partner and I, the reason why we want to go here is a company is not just worth, especially in our industry, the assets under management. If we can scale and we can have 10, 15, 20,000 investors, individual investors, that's much more powerful and more valuable from a company perspective than it is having two or three institutions giving us the same amount of money. When we look at this, there's a company aspect to it as well. This came out years ago because we never set out to grow like this. We didn't set out to say we want thousands of investors, we want this. But you get to a point where you owe it to your team to provide them opportunities and continue to grow, especially if you want to retain them. And then you owe it to your investment partners as well to hire the best team you can. You can only do that by having larger sums of money under management. Growth is a part of what we're doing, but it's measured growth and making sure that we don't go from being an organization that really focuses on investment returns to an asset gatherer. That's what you see so often in the market.

Quantifiable Traits in Our Business that Investors Want to Know About

ADAM GOWER: What is your communication edge in a competitive world? What is it that gives you an edge when somebody is out there looking and has never looked at real estate before, but has a half million they want to invest, for example.

MICHAEL EPISCOPE: Generally, people come to us if they've never looked at real estate before. Usually our investors, maybe they're investing for the first time, but they're looking for and they find us in some way. We talk about competitive edge as being quantifiable. What are our quantifiable traits that we can say that nobody else can say? And that's something any business. We can talk about real estate as an asset class, but everybody can talk about that. The things that are quantifiable in our business are when we talk about our team. We have our team, nobody else does. The things that are quantifiable are the fact that our track record and our returns and nobody else can say that. When we talk about those things, those are quantifiable. The fact that we have more than a thousand investment partners, that's quantifiable. More than a billion dollars, so on and so forth. When we're talking about our competitive advantage and we're speaking to investors, it's about the things that are unique to us and not real estate. We will educate them and in all of our decks and our materials and a lot of stuff, we will talk about the basics of real estate, but the world is this big.

Then it has to be about “why us” and those come down to our competitive advantages. I would say the last one, team track record. But it's also alignment and my partner and I, even today — Why did we start the firm? To invest our own capital into real estate — we're still the largest investors in our company today, and I'm proud of that. I hope we maintain that. At some point we run out money, but it's a testament to our belief in what we're doing in our deals. The question we used to get the most when you're talking to investors and this is the ones who just admit, “Look, I don't know what I'm doing. I trust you. How much are you putting in the deal?” That's what they want to know and that is what matters to them. If you're putting in a significant amount of your own capital in the deal and you have a relationship with these people, they're like, “good enough for me. I'm in if you’re in.” That's not something that a lot of people can say out there, especially sponsors, because they're in the business of leveraging their capital. They're trying to put in as little as possible to magnify the impact of other people's money.

How Creating Content Helps Find New Investors

ADAM GOWER: You've described what is your edge, but how do you actually communicate that? I went back and I had a look at our last conversation from I think three years ago actually. And you mentioned — this is totally self-serving, by the way, to my entire audience — but you mentioned the best ROI you had was on the marketing company that you hired to help you communicate very early on. It’s that kind of communication, what is it? Is it because you send out emails or advertise or have good social media presence or good educational section on your website? What is it that moves that needle?

MICHAEL EPISCOPE: It’s all of the above. I'll tell you that I'm not a born marketer. I've certainly learned a lot about it. We have an amazing marketing director who manages a team. If you go back six, seven, eight years ago, my partner and I were the marketers. We were the ones running out there having lunches with everybody. And what we realized is that, look, there's got to be a way to scale this. It can't just be the two of us. We have a great product and the Internet made so much sense because if you have a great product and you put it in front of millions of people, they're going to buy it. Then we hired a digital marketing company to really build our assets. Our assets were our website to rebrand us, design us. And that was the starting point. That really is the starting point, because this is not a business where if you build it, they will come. The unique thing to us was we had great messaging. We had a great story. We had the things that you need to attract people and pique their attention, but then come in and have more depth to it as well. What we've done since then is quite a bit and everybody at Origin has really become a content creator as well. This is something that we live and we breathe. What we tried to do early on is even outsource some of the content and what you realize is that people don't have the domain knowledge that you do. They're not going to write in your voice. They're not going to necessarily be inspired by the same things. We had to write it inside Origin, so everybody has now become a content producer. And that's on our acquisition steam, on our marketing team, on our IR team, in the accounting group, in the legal group. Everybody at Origin contributes to the content in some way, shape or form and the written content. We have more than 400 pieces of original content now.

These are all things that when we get questions from investors — what's confusing, what do they need to know, is it catch ups, is it waterfalls — all this lingo that you never thought you wanted to know. But then you have to distribute to them, you have to get it through them and nurture campaigns, you have to create videos, etc. You have to build a database. You have to have calls to action. You're in the business as well and you know what a holistic view this is to making it work. It's not simple. You say, “I'll build it” and then give it three months and it's not working. You have to make a commitment to this. And we did in the beginning. Once we went down this path, we went, “We are committed” and we started out with getting two to three to four leads a week. And that went up to 20 leads to 50, 100. We’ve had weeks where we've had thousands and thousands of leads. It's certainly been a building process and within the group of leads that we get, there are people who are just interested in learning more about real estate. I would say that we educate quite a bit of the student community. I get emails on my LinkedIn all the time from students thanking me for this. “This is great. This is better than the materials I get at school, from the real estate community.” They feel like we're the gold standard of information out there, but it's because it's written by experts who know what they're talking about and who are in the weeds and go to another level. Then we get investors and, whether they invest with us or somebody else, they're just appreciative of the depth of information and the amount of information and how we put it out.

Real Estate Prices Move Slowly In A Private Market

ADAM GOWER: Let's pivot a little bit. We would be remiss if we didn't talk a little bit about the world today and how we see the short term post-COVID. I would love not to date stamp this podcast, but we have to do that. What are the biggest challenges today for Origin and for you? And I would preface that by saying I read your email today on preferred equity, which is very interesting. Tell me about it.

MICHAEL EPISCOPE: There's a long form of that coming out this week on Origin Insights and it's all about how we're navigating. The challenge in today's market is that you have had the economic fundamentals that have changed drastically for the worse. You've had unemployment go from four percent to 13 percent, you have all of this uncertainty with the virus now acting back up, they don't know if there's going to be another shutdown. On the other side of the equation, you haven't really had any price movement because real estate prices move slowly. This is a private market. In the public market, they're down significantly. You can say that they were much higher before they started, but we sort of look at all of these different markets together in tandem to get to pricing. But the private market, there's not a lot of opportunity on that side because if your fundamentals have deteriorated, but your prices haven't and you choose to transact at those prices today, then your go for to IRR is going to be incredibly low. You're paying too much for an asset and one of our core propositions is buying right. When we see value and price really diverge from one another, if it's a market like this, you either sit out or you find a way and an investment strategy where you can make money.

Keeping Your Team Motivated Through Difficult Times

ADAM GOWER: What are the biggest challenges of today for you? What are you finding dealing with the market now, but also navigating short mid-term as well?

MICHAEL EPISCOPE: The biggest challenges are what we've talked about, where you have the virus that's still here, you have the market opening, you haven't had prices readjust, you have a slowdown in transactions. I think most firms are in our position as well. We were having an amazing first quarter and record volume and there was some equilibrium in the market. Now that has come to a standstill. For our firm itself—

ADAM GOWER: What's come to a standstill?

MICHAEL EPISCOPE: Transactions. They're starting to pick up, but we are a fund. Our acquisition team is out there and they're looking for deals. And when there's not a lot of deals out there or at the right price and you're not doing anything. I think that the challenge, if I have to really call it, it's about keeping your team motivated even through difficult times like this. Our team has been amazing through this time and they've been great and they've been keeping it up, but clearly, everybody in March and April and even May they took one on the chin a little bit. We as a firm, even when you're fine from a revenue standpoint — and we don't have private equity at our firm, we've always believed in measured growth and we're going to do fine — everybody loves growth and they thrive on growth. We had all of this energy in January and February and everybody was on cloud nine. Literally, I was about to take the IR team to Vegas the week of March 9th to celebrate January and February and the end of December and we had to cancel that trip. Then it was just, holy cow, batten down the hatches, the storm is coming. The marketing had to stop, the fundraising had to stop, the acquisitions had to stop so that's been challenging. And we're a microcosm of the economy. Then you have to start that back up again. That, I think, has been one of the challenges. And we will and I was thinking about this today for some reason, we have an annual event and I can't wait to stand in front of just hundreds of people who are at our annual event and talk about and have a time when this is in the rearview mirror. It will eventually. It will be in the rearview mirror and hopefully sooner than later we get life back to normal.

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