Spencer Hilligoss, Co-Founder, Principal at Madison Investing
Best Uses of Web, Social and Digital Media as a Real Estate Sponsor
My guest today is Spencer Hilligoss, Principal and Co-Founder at Madison Investing and what struck me when I first came across him was his website's main opt-in form.
I like to sign up for everybody's email list, so after discovering Spencer on LinkedIn the next thing I did was to subscribe to his list.
His intake form is not a simple, 'here, give me your name and email address' experience. In most cases, we advise clients to get just the names and email addresses of subscribers first and then ask for more information later. Spencer's sign up form, on the other hand, is a multi-step questionnaire. Spencer immediately struck me as being a serious player and his newsletter signup process alone communicates that.
Today's episode is perfect if you're a developer wanting to know what investors think, and if you're an investor wanting to know what to look for in a sponsor. You'll also learn how Spencer made the transition from tech to real estate and much more. Fascinating guy; great podcast. Enjoy.
What You're Going to Learn
- Understand a 5-Part Framework for Vetting Sponsors in Real Estate Deals
- How to Use Behavioral Interviewing with Real Estate Sponsors
- Explore Proactive Actions to Preserve Investor’s Capital during a Pandemic
- How to Navigate Communication between Sponsors and Investors during Covid
- Why Your Website Should Be Your Calling Card
- Why a Tech Representation of Yourself on the Internet is Important
- Why A Website needs to be More than a Business Card
- How Real Estate Investing is Ancient but You Still Need a Modern Website
- How Social Media Offers a Chance to Build Engagement Online
- Spencer's Advice to Sponsors Who Have Zero Online Presence
- And much more!
Listen To or Watch the Full Podcast Here
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A 5-Part Framework for Vetting Sponsors in Real Estate Deals
ADAM GOWER: One of the biggest hazards of crowdfunding and the way that the world has changed, since laws changed, allowing investors, let's call it retail investors, high net worth, nevertheless, retail investors to invest in real estate, is lack of experience. My personal view, Spencer, I think that there are some tremendous hazards, actually, being completely open book about it, with crowdfunding. The biggest one is that, the danger of a downturn, until you actually go through one, you simply cannot understand how actually risky it is. Unlike a stock, where you can invest in a stock, if it goes down, you know, chances are, if it doesn't come back, if you've got legs, but real estate can be wiped out. If you get it wrong, you can be wiped out. So, what lessons have you applied to what you do today, based on what you saw during the 90s when you were growing up and saw these these big waves? How have you adapted that to the world that you live in today?
SPENCER HILLIGOSS: So what I applied in our own business, for every deal that we looked at, purely when we were starting as LPs, as passive investors, before we even started doing any kind of equity capital raising or co-sponsoring, in the syndication world, I had put together a 5-part framework for vetting sponsors or operators, in real estate deals. Which was, you look at their track record, you look at their team. I'm using my finger gestures, so the podcast listeners are missing out. So number one, track record. Number two, team. Number three, approach. You're looking at number four, coms or communications. And number five, as corny as this might sound to some of the heavy quants, that are out there, I look at values. I'm always happy to go into detail as to how you actually test for that. But, the framework for each of those buckets, has like 6-7 different specific questions that will help me evaluate, if I'm getting to know a sponsor. Are they going to be capable of navigating headwinds, volatility, dips in the market, all those wonderful things. So frameworking is the key, and it just depends on, are you learning from that over time, are you applying it consistently? Are you adhering to those principles? All that good stuff.
Using Behavioral Interviewing with Real Estate Sponsors
ADAM GOWER: In all my years in real estate, I've only intuited, if that's the right word. And that is, testing for values. I've never consciously thought, what are the sponsors values? I do think about them though, just as I sit here and talk about it. I think about integrity, honesty. I look for telltale signs around what they're saying of cracks in integrity. A willingness to do something small and unethical, to me implies, a willingness to do everything. Like, am I being treated ethically? Am I in front or behind of that screen? So tell me a little bit. Because that's really interesting. Tell me how you quantify that? You talked about quants. So, how do you quantify that or measure it, in any way?
SPENCER HILLIGOSS: Behavioral interviewing means, you want to hear, tell me about a time when.... blank. And people, everyone who probably hears that, it sends shudders down your spine, because if you've been through an interview, that's a tough interview. That's a good interview. They've asked you that kind of question. A real one that I've actually asked many sponsors before and it's actually been the determinant as to whether or not we choose to partner with a sponsor is, walk me through your philosophy on tenant relations. And, that is something in COVID that has had increasing relevance. Because now, more than ever, if you are not actively communicating with your tenants and we're going deeper into this, I mean, very unfortunately, we're going deeper into COVID right now. So we're seeing a second wave. We're seeing closures again. We're seeing people, you know, we're probably not far off from another shelter-in-place, all this stuff. So, that matters a lot. And, you can't just go out and play the hard ball with your tenant. So, it matters to me before we put our capital and also put a project in front of our passive investing group from a sponsor that we're going to join, that this person understands compassion and being able to actively collaborate with your tenants is going to be the difference between navigating a hairy situation which has yet to be resolved across the whole world, literally, and probably losing, blowing-up the entire deal.
Proactive Actions to Preserve Investor’s Capital during a Pandemic
ADAM GOWER: How do you then balance the investor interests, with the management of the property. This is a very, very difficult time right now. In history, almost unique apart from maybe, like the Spanish flu, whenever it was 1918 or 1919, whenever it was. So, what are you looking for there? Presume you've spoken to a lot of people, and give me some examples of answers that benefit the investors first and not the tenants, that make you uncomfortable and how do you then represent that to investors. Say, look, you know, we're going with this sponsor because he's going to put you....I don't know. It's just tough. I'm just interested to know how you work that. Very hard right now.
SPENCER HILLIGOSS: Yeah, well and I also think that, you know, keep in mind, most investors don't necessarily care about - they don't care to go to this level of depth. They primarily want to just know that, first and foremost, their capital is preserved. That is still their number one thing. So, I would say that, that is still the first question is, like, what actions are you taking proactively, in a pandemic, to ensure my capital is preserved? And, that comes down to occupancy rates, rental premiums. And, you're talking about, keeping the building full. And most of the projects that we have done, are value add. And so, you're trying to, basically buy something and some value with rehab or operational improvement and then sell it at a later time or do a cash out refinance just to return capital to investors and make everyone happy, all that good stuff.
Communication between Sponsors and Investors during Covid
SPENCER HILLIGOSS: Just having a proactive plan and communicating what that plan is, is really the only thing that makes the difference. That's it.
ADAM GOWER: I just completed an investor survey. We sent out 40,000 surveys and we aggregated all the responses then we did some interviews as well. And, the number one response that we had, it wasn't COVID-related, but, number one was principal preservation and communication. And you've said it multiple times. As long as the sponsor is communicating with everybody, including the investor. Everybody knows that these are tough times. They're not expecting sponsors or anybody to perform miracles. They know that everyone's going to be struggling. But, as long as there is communication between the sponsors. Where it fails is when they go quiet. That's the worst possible situation, right, and there's no communication and there's nobody answering emails and no one picking up the phone. That's the worst thing you can do.
SPENCER HILLIGOSS: That's exactly right.
ADAM GOWER: Being proactive. Exactly. Proactive communication.
Your Website Should Be Your Calling Card
SPENCER HILLIGOSS: Technology is just a way to connect people. And, when I look at all the wonderful ways, I grew up professionally in the world of operations and sales, here's the table stakes things that I expect, both as an employee and a professional, but also as a consumer, as an investor and a consumer myself. If I'm about to deploy capital to someone, I expect they have, number one, a clean web presence. They have a website that looks great. And, it doesn't just look great, it's functional. It's actually easy to find the information that I need to make an informed decision.
ADAM GOWER: Do you really? Do you really? I'm sorry to interrupt you but, that is fascinating to me. So why is that important? Why do you not want to get on the phone with them?
SPENCER HILLIGOSS: Yeah and here's probably where I'm going to lose favor with a great many sponsors, and that's OK. I'm not here to win friends. I'm here to earn your respect. So, if you have an AOL.com address, I probably am not going to take your meeting. You know, if you don't have a website, you come across as closed- minded, stodgy and just frankly, I hate to say it this way, as outdated. I mean, it's your calling card. Like, within less than ten seconds. And, I'm not even the fastest person out there. In the tech world, I'm considered a "dinosaur" guys. I'm 37. I'm totally not exaggerating, by the way. And so, if I go to your website and I can't find what you do, how you do it, who's on the team, which is a common problem, I'm seeing very frequently with a lot of real estate folks, that they hide the team, which speaks volumes and makes me run away immediately and try to hide.
Why a Tech Representation of Yourself on the Internet is Important
SPENCER HILLIGOSS: A stat that started floating around, about 5-6 years ago, Adam, at least in the tech world. And it was relevant for building sales funnels and sales groups and sales organizations in tech, is that, consumers in a B2C context have done at least 60. I think the number's gone up since then, so don't quote me on this. But I would say, at the time it was 60% of the information and the decisioning is done before someone talks to a company to consider buying the product. So, the role of a salesperson from the 1950s to the role in 2020-21 is fundamentally a different game. It's your job to establish a real relationship. So the website and social media, which we can certainly get to in a moment. The role of it, is not to replace, at least for our model. I want to have a very real relationship in the real world with 100% of the people that we work with, and we do. I take 3-6 months to get to know the sponsors, before we're willing to put our own money in and also put them through a background check and all this wonderful stuff, even call them friends. But, our investors, they will hit our website because I need to know some compliance information about them because I'm a registered securities professional. So, that means that, I'm held to a bar that I willingly put myself, to be held to. And I got to know, are they actually based in the United States, are bad actors financially, you know, all these things. So we have to know about their goals, their objectives, their backgrounds, all this wonderful stuff. Because, in the end, no matter which type of exemption that you use, whether it's 506(c), 506(b) in these different syndication deals, you're partners. Like, an investor, literally, is called a limited partner. And I take that quite literally. I know a lot of folks out there, you know, to kind of bridge this whole topic of what might sound impersonal, to the old school folks who say, like, oh, I'm a people person. I would challenge them that, that excuse maybe stopped working 5-10 years ago. Having a website and having a social media presence, it's how you connect with more people to then go build the human relationship. Being a people person is no longer a valid excuse for not having a reasonable tech representation of yourself on the Internet.
A Website needs to be More than a Business Card
ADAM GOWER: A website needs to be more than a business card because a business card has a logo, maybe a picture, unlikely, an address, a name, a phone number and an email address. It is non-functional. A website today needs to do more, doesn't it? What does a website today need to do? Tell me about that and how that rolls into social media.
SPENCER HILLIGOSS: So, in a review of a website, I mean, if you think about it right. Like, let's say you're just getting to know me and you're going to our website: www.madisoninvesting.co, like, when you hit that website, you're going to want to know answers to who, what, where, when, why, how. Basic stuff. I mean, everyone knows those words in that context, but just doing a discovery, of some sort. Call it whatever you want. Research, discovery, due diligence, the rest. And, you have a chance now. I mean, literally on your phone, you have in your pocket, like the resources to do something like recording a video of you explaining, here's who I am, in 30 seconds. Here's what my business does. Here's some reasons to believe in why I think you should do what we do, with us. All of that can be done, literally with the phone you have in your pocket. You don't need a recording studio. And so, over time, sure, maybe want to invest in a couple of very polished ones. But, if you don't like that, you can even hire people that are now based in a totally different country who would be happy to do animated videos, for a very reasonable price, which will probably shock most people. So, the website needs to answer those questions in less than a minute and if it doesn't do that, they're gone. You would look at our website and you'd say, OK, well, if they can't figure out how to do this well, then how are they going to figure out how to do something as sophisticated as manage a 40 million dollar real estate project?
Real Estate Investing is Ancient but You Still Need a Modern Website
ADAM GOWER: Coming to this, from the world of tech. Y ou're talking to a world that is ancient. Real estate is ancient and has never really used these tools and so there's this mentality that says: First of all, why do I need it and then, how the heck am I going to do that? It's overwhelming.
SPENCER HILLIGOSS: We're having a conversation about, you know, like, the level 101 conversation as to, how do search engines work, and a URL of a website is like a billboard in the desert. You know, it really is that. And, if you don't know how to get people to it, it's not useful.
SPENCER HILLIGOSS: So, I just wanted to share that because, it doesn't always come across as so dire where it's like, I also don't want this to be snarky, because the intent is not. I will say that the best learning lessons are typically ones that hurt the most. So I will just say, hopefully this is the right kind of sting if you're sitting out there kicking the can down the road about, oh, I don't want to go build my social presence, oh I don't want to go build a website, just do it. You know, it's really not that hard if you hire the right partner. I'm probably talking to one right now, by the way. And so, just go do it. But, it is critical, and you are late to the party.
Social Media is Your Chance to Build Engagement Online
ADAM GOWER: SEO and social media. So you talked about the, I know it's a big topic. The Internet, it's a big topic. But, you talked about the website, the importance of having an informative website. When somebody lands there, I'm going to put a little bits of words into your mouth. All the questions that you might have, as an investor, are answered on that website so you can spend your time there, learn who it is, make your decision about whether or not you want to connect, right? It's very important. But, what is the importance of social media? How does that dovetail into this?
SPENCER HILLIGOSS: At a high level, it's so easy to get lost in, which platform and frequency and type of content. I would just remind folks that it helped me immensely and hopefully it does for them too, to think about it like this. That is your chance to build a relationship on more of an introductory level and for them to hear your take on things. And just to give you a specific example, Adam, briefly, people on there now have a sense as to like, how do I view topics such as financial literacy, personal development, entrepreneurship. We occasionally get to crack some bad jokes, and dry humor, similar to the style that both you and I laugh about, you know, and humanizing that thing. People want to engage with you that way.
Advice to Sponsors Who Have Zero Online Presence
ADAM GOWER: So, what would be the number one advice, piece of advice that you would give to any of those sponsors that may have an amazing track record and experience, but a zero online presence. That just are invisible online. What would be the advice you would give to them?
SPENCER HILLIGOSS: I would take 10 minutes. If you can get it done in less, great. If you need more, take it. And I would write down, what are the characteristics and qualities you want to be known for. And I would do that, and then I would go and find the youngest people that are over the age of 18-20, in your network, and ask them how your online presence reflects these. And then, buckle up. All change only comes from self- awareness. And, until you understand how far off the mark you are, no one's going to be open minded. You could have the simplest, best playbook in the world, that's worth millions of dollars on how to go to scale a business. A stodgy, resistant, closed-minded, old school professional, of any industry, who thinks that it's a joke, well, I hope they don't waste their money on something because they're so closed-minded, they ain't going to do it. So, I would encourage them to go hold up the mirror, as it were, to themselves first and reflect, because that's actually where most people fail. I would start there.
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