Charles Wessel is the principal at Cordell Capital, which focuses on apartment syndication. In this episode, he discusses the ins and outs of raising capital and what he looks for when he vets sponsors.
Charles Wessel | Real Estate Background
- Principal at Cordell Capital, which focuses on apartment syndication.
- Portfolio:
- GP of 786 units, totaling ~$73M in AUM
- LP of 66 units
- Based in: Charleston, SC
- Say hi to him at:
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TRANSCRIPT
Ash Patel: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. I'm Ash Patel, and I'm with today's guest, Charlie Wessel. Charlie is joining us from Charleston, South Carolina. He's the principal at Cordell Capital, which focuses on apartment syndication. Charlie's portfolio consists of being a GP on 786 units, totaling $73 million of assets under management; also an LP of 66 units. Charlie, thank you for joining us, and how are you today?
Charles Wessel: I'm great. As of next week, that'll be 97 million in assets under management.
Ash Patel: Let's talk about that. Before we dive into that, can you give the Best Ever listeners a little bit more about your background and what you're focused on now?
Charles Wessel: Yeah, absolutely. We're a private equity firm; we bring the capital into sponsors' deals, and we take care of all of our own investor relations, all that stuff. We do a lot of due diligence on all these deals, as you know; we travel to the site... I'll be honest with you, we have a good time. That's what we do. Seriously, it's so much fun. We go meet with the sponsors... And it's all guys that I've known for years. I have to know somebody for at least a year before we'll bring capital to their deal. So we've broke bread with them, I've met their teams, we've had a good time... We go out and have a good time together, and play golf with them. So yeah, that's what we do, man. We help investors make money on their money.
Ash Patel: Charlie, I'm guessing on your P&L's, meals and entertainment are probably one of your highest expenses.
Charles Wessel: It's a very high expense, yeah.
Ash Patel: Awesome. Okay, so you guys are just professional money raisers, bringing capital to other people's deals. Why can't the sponsors do it themselves?
Charles Wessel: No, they can. And I'll be honest with you, it's a something that -- I'm just talking about this with some of the guys in this meeting room that I'm in now; they've all cleared the room, but... Some of the guys that we're raising capital for have close to half a million dollars under management. You'd think these guys would be like, "Nah, we've got it", but they're still bringing in capital raisers. It's just, it frees up some of their time, some of their team's time, and they can really focus on quality instead of quantity in some of the areas that they're best in. They might be better at asset management than bringing in a bunch of other capital. Some of the guys that we've worked for, they've brought in a lot of institutional capital. They're just tired of giving it all away, and giving the whole deal away.
Ash Patel: Well, let's dive into that, because it's not cheap to bring in a capital partner, because you're giving up a good piece of that pie, right?
Charles Wessel: Yeah.
Ash Patel: And when you take on an institutional partner, what are you typically giving up, assuming they bring all the capital?
Charles Wessel: They are going to want the right to basically kick you out of the deal. As soon as they don't like what's going on, they can basically boot you right out of the deal. They want full voting rights over everything. I've even known one group, they've brought in institutional capital; the institution hired a designer to send down there. So I tell people all the time, I'm like, "Hey, look, man, even though we're in the GP, I'll never pick your painkillers. I promise. I don't want anything to do with it." But they just interject so much into that deal, that it'll, you know -- is it worth it? I don't know. Because I've never dealt with institutional guys. I do know that some of the guys that we raise for, they've just gotten kind of fed up with the whole institutional thing. So they'd rather have us bring in some high net worth guys, and just some retail investors.
Ash Patel: Yeah, that's interesting, because a lot of people on their way up strive to attract institutional investors, but then a lot of the guys at the top one nothing to do with that. And what you said just makes a lot of sense. So if a sponsor was looking to hire a company like yours, what percentage of the GP are they giving up?
Charles Wessel: What we look for in a deal is we want to take care of our investors first and foremost. Because if they're taking care of in the long run, our long run game is taken care of. But we still have to make some money. So we do want to see right around a 70/30 split. I wouldn't want to see anything a lot heavier on the GP side than that. Now, I don't mind if the waterfall trickles down into something bigger than that, because that means our investors are being taken care of. But we're typically looking for anywhere from a 25% to 35% set aside of the actual GP for capital coming in.
Now, to stay compliant with the SEC regulations, we say "Okay, 30% of the GP is set aside for capital." We bring in $2 million into their $12 million raise; then they give us a certain percentage of that GP that set aside for the capital. Now, if we bring in two and a half million dollars, we still get that same percentage. If we bring in 1.8, we still get that same percentage, just to stay compliant with SEC regulations.
Ash Patel: Because you can't get rewarded specifically for bringing in capital, right?
Charles Wessel: Right. We're not a broker-dealer.
Ash Patel: Yep. Got it. Charlie, back to operators that don't do their own capital raising, or don't do it all. Do you think a lot of it could be personality or fear? You're a rambunctious guy, you'll probably talk to anybody. You're certainly a force here in this podcast. But a lot of operators, maybe they're introverts or heads-down analytical, and they just don't want to deal with that. Do you think some of its personality?
Charles Wessel: Oh, absolutely. Yeah, 100%. But they've been dipping their toes in this business for so long that yeah, they have people that are gonna invest with them. So they usually still bring some of the capital to the table, especially if they've got $100 million worth of assets under management. They're not hiding under a rock, obviously.
Ash Patel: Yeah. And Charlie, somebody that's looking to do what you're doing, what's your advice to them? How do they get to your position?
Charles Wessel: Preach it from the mountaintops man. Preach it from the mountaintops. We're on social media, we send out email updates, to all our potential investors, all our actual investors... This is what I do full-time. So I tell everybody that I play golf with, we have a golf game every Friday, we ate some... They all know exactly what I do.
Ash Patel: Let's play this out. So let's say we're [unintelligible 00:07:19.29] a golf outing, and I don't know what you do. How do you break the ice? How do you share what you do and try to educate people?
Charles Wessel: Well, I tell them. They ask me what I do, "I own a private equity firm." Believe it or not, most guys, they don't even know what that means. They're like, "What is private equity?"
Ash Patel: It just sounds exotic.
Charles Wessel: Yeah, it does. It sounds exotic. That's why we call it a private equity firm, I guess. So I just tell them "We're an investment firm, a group of investors together, we bring money to multifamily deals, or whatever asset class we're going to, and we're just beating the pants off the stock market, and all our investors are pretty doggone happy about it." And man, that kicks that conversation right off, pretty much.
Ash Patel: Alright. Well, listen, interest rates are going up, real estate's not looking so good in the future... Now what?
Charles Wessel: Oh, look, you don't wait to buy real estate. You buy real estate to wait.
Ash Patel: Oh, I like it.
Charles Wessel: Yeah. And we're still cash-flowing. The cash flows has come down. And I tell everybody, interest rates go up, our cash flow comes down, because cap rates haven't caught up to it yet. But we're still looking at some pretty decent returns here overall. 16% IRR is pretty hard to beat.
Ash Patel: Yeah. So you're screaming from the mountaintops, you're on social media... What's your most effective way of getting new investors to look at you?
Charles Wessel: So far? It has been a direct message LinkedIn campaign. I don't know if you'd mind me doing a shout-out to somebody there, but...
Ash Patel: Have at it.
Charles Wessel: Yes, [unintelligible 00:08:55.09] It's one of his programs that we used. And I have a virtual assistant that's just dedicated to that, and she has just been killing it. So it's like an automated message thing. You're gonna turn some people off, because it's a message that goes out to 1,200 people a week. But we're booking six to eight calls a week from it.
Ash Patel: And who's on those calls? Is it you? Is it team members?
Charles Wessel: It's me. I field all the calls. for new investors.
Ash Patel: Okay. How long does each call last?
Charles Wessel: 20 to 30 minutes. After 20 minutes I start telling them "I've got another call coming up..."
Ash Patel: Yeah. I would imagine you can get carried away with questions...
Charles Wessel: Yeah, you really can.
Ash Patel: Do you dive into the tax benefits of real estate?
Charles Wessel: I do, absolutely. We have a huge chunk of our investors that invest to self-directed IRAs. They don't really get to participate in that as much, but the guys that are throwing cash into these deals, we get cost seg reports done on every property we do.
Ash Patel: Charlie, the high net worth couple, where they're both W-2 employees - what do you tell them about the potential tax implications? They can't really benefit a whole lot, can they?
Charles Wessel: Well, if they're high net worth people and they're W-2, they probably have some kind of passive income coming in from somewhere else. Or else they wouldn't be high net worth. Even doctors, they don't have time to dive into stuff as deep as we do. That's why we're here to help them out, and help them place that money. But if there's a doctor somewhere in that hospital, or somewhere in that practice, you should come invest in this. I know even dentists that have recently just bought their own building. And they were over the moon on that; they were like, "Man, I'm a real estate investor." I was like "Yes, you are, buddy. Let's go."
Break: [00:10:55.18] to [00:12:01.09]
Ash Patel: Back to vetting sponsors... You have to know them for a year. You have to build a relationship with them. What do you look for in terms of their team and their deals?
Charles Wessel: Right now as far as the team goes, we're really looking for the vertically integrated guys, where they can have their thumb on the whole process. They have their own property management company, they have their own in-house guys doing a lot of stuff... The group we're bringing capital to right now, Lonestar Capital, they're very vertically-integrated. They even have a construction arm that [unintelligible 00:12:34.03]
Ash Patel: What are some red flags where you just won't deploy capital into?
Charles Wessel: I guess it would be tertiary markets.
Ash Patel: What if it's a killer deal?
Charles Wessel: I'm just not interested. I'm not interested in the killer deal. We're the tortoise that wins the race, man. Seriously. I just want to play it as conservatively as possible for our investors. I really do. And I feel like our beliefs and values have gone a long way into playing into that conservative return. We've been pretty good at it so far.
Ash Patel: So what markets are you focused on?
Charles Wessel: Right now, like I said, we're with a group out of Houston; they're just focused in Houston. Well, I was actually in a meeting earlier today about a fund that we're setting up, and that's going to be a debt fund. So what that's going to do is it's actually going to be a hard money loan fund to a company that flips 100+ houses a year. And that's going to be called The Stock Alternative.
Ash Patel: What area is that in?
Charles Wessel: That's gonna be in Augusta, Georgia, Atlanta, Georgia, and Columbia, South Carolina.
Ash Patel: Alright, so when you evaluate a sponsor, how far into their track record do you go?
Charles Wessel: I want to see everything they've done.
Ash Patel: And what if they've had a couple of losses?
Charles Wessel: That's fine. I tell them, "Send me your crappiest deal, and I want your best deal, too. I want all of them." As long as I see what kind of communication they have, that's really more key to me than anything, is the communication part. I want to see monthly emails to us, we turn around, we can reconfigure that email and send it out and kind of pull things out, and not send back emails... So how about this? What are you guys doing about this? And we get that feedback back, and then we send out our monthly email... I'd rather have over-communication than under-communication.
Ash Patel: What kind of financials do you want to see in those monthly emails?
Charles Wessel: As far as a 13-page P&L on the property - I don't mind you sending that out once a quarter. But we want to see occupancy rates, we want to see the rents collected... We want to make sure that this property's healthy; so anything that'll show us that, and there's a number of things.
Ash Patel: Charlie, what's an example of a deal that didn't go very well for you?
Charles Wessel: Oh, man, we had one we closed on in February 2020. Everything shut down in March 2020. So it took us about a year and a half to make a distribution on that. That was rough.
Ash Patel: What was the communication from the sponsor, and in turn, what was the communication to your investors from you?
Charles Wessel: It wasn't real great from the sponsor out of the gate. So we hopped on him pretty quick. We needed questions answered, and we were making sure that we responded back to our investors quite a bit. And the investors that invested in that deal - they invested with us in other deals during that period of time where they weren't getting any money. They weren't getting any distributions from that.
Ash Patel: What did the sponsor say? "Hey, things aren't going so well..."
Charles Wessel: It was about like that at first. But it was just that whole COVID thing. COVID just hit and shut the whole world down. So we were kind of in a frenzy there for a while, but it picked back up.
Ash Patel: And did that deal turned around and was it successful at the end?
Charles Wessel: It's still ongoing. But yeah, it's alright.
Ash Patel: Okay. Are you asset agnostic, or is it only multifamily?
Charles Wessel: I'm definitely asset-agnostic. Like I said, we're starting a debt fund for a particular company that flips a bunch of houses.
Ash Patel: Okay. So how about strip malls, medical office buildings?
Charles Wessel: Yeah, I personally haven't dove into that. But I do know a bunch of my buddies have. There's just going to be a need for more and more medical as there's more and more people. So more and more people who are older, we need more medical.
Ash Patel: Yeah. So I'm going to push you... I do a lot of retail. Why not consider investing in retail sponsors?
Charles Wessel: I've never even underwritten a deal from retail. I really haven't. When I first got into this in 2018 there was a broker in Charleston that told me "The best bet out there is multifamily." Because I asked him about an office building he had for sale, and I was like, "How do you buy that? It's a $20 million office building? How do I go buy that office building?" He's like "Man, office buildings like that are owned by guys like you every day." He said, "You've just got to go get your buddies together, get some money, y'all pool it together, and somebody needs to manage the asset." He said, "But the safest bet out there is gonna be multifamily."
Ash Patel: Yeah. I would agree with you. I just like the returns a lot higher, a lot better in other asset classes.
Charles Wessel: Yeah.
Ash Patel: Awesome. What is your best real estate investing advice ever, Charlie?
Charles Wessel: Don't quit. Just keep going. Keep reaching out to people. As long as this is what you're ,doing is raising capital, just keep reaching out, keep pumping out social media, and keep sending out emails, keep talking to everybody...
Ash Patel: What pain points have you had scaling your business?
Charles Wessel: Oh, man, I've had several pain points. A lot of them have been resolved through virtual assistants. Virtual assistants have come in and saved the day for me as far as technology goes. Setting up any kind of Active Campaign automation - it just would have taken me forever. But I have virtual assistants that come in and they set this stuff up in no time at all, and we've got a series of emails that go out, and if they click on this link, they get this email, and if they click on that link, they get this email... It's just the automations and the technology part. That was a pain point at first, until I got a virtual assistant.
Ash Patel: What is your staff look like today in terms of virtual versus physical?
Charles Wessel: Today, it's just me and a virtual assistant right now.
Ash Patel: You've built this business pretty much single-handedly.
Charles Wessel: Yeah. Well, I work a lot.
Ash Patel: Okay, so back to that, back to scaling... What else should you be offloading?
Charles Wessel: Within the next year, I would like to have two other people doing investor relations. We need two other virtual assistants that I can really laser-focus them in on several things. We've kind of planned this out, to where within the next couple of years it'll be a pretty strong machine that just kind of rolls right along.
Ash Patel: Awesome. Charlie, are you ready for the Best Ever lightning round?
Charles Wessel: Let's go, man.
Ash Patel: Alright. Charlie, what's the Best Ever book you've recently read?
Charles Wessel: A lot of people are gonna give you all these self-help books and all this stuff on real estate... I just got a little too blown away, so Operation Joktan. It's a book about Israeli Special Forces. It's just a cool book, man.
Ash Patel: What was your big takeaway from that?
Charles Wessel: Well, it's a fictional book. It's not really about the Israeli Special Forces. I just had to get out of the business world for a minute... So I'm like, right in the middle of this book; I just picked it up two nights ago.
Ash Patel: Good for you, because I think it's been over 25 years since I've read a fiction book.
Charles Wessel: Yeah, it's probably been two years for me... And I was sitting there talking to my dad, and he reads fiction books, and I was like, "Man, I'm just so burnt out. I just haven't read in like the past two months." And he's like, "Really? I thought you were a pretty big reader." I was like, "Well, I am. I'm just like..." And he was like, "Dude, go read this book." He said, "It's an awesome book, and it pull you right into all the action and everything..."
Ash Patel: I've gotten that advice from other people, is pick up a fiction book. Stop with all these self help and real estate books and try something different. Awesome. Charlie, what's the Best Ever way you like to give back?
Charles Wessel: I'd say [unintelligible 00:20:24.05] We have a good bit of nonprofits that we give to in Charleston. Soldiers Angels, Lowcountry Pregnancy Center... That's a big part of me, is giving back to our community and our church, and things like that.
Ash Patel: Charlie, how can the Best Ever listeners reach out to you?
Charles Wessel: CordellCapital.com
Ash Patel: Awesome. Listen, I know you were in the middle of a meeting and you had to clear out the conference room to have this podcast... Thank you for your time today. Thank you for sharing some of the ins and outs of raising capital and what you look for to vet sponsors. I appreciate your time, Charlie.
Charles Wessel: Absolutely, Ash. Thank you, man. Have a great day.
Ash Patel: You too. Best Ever listeners, thank you for joining us. If you enjoyed this episode, please leave us a five star review, share the podcast with someone you think can benefit from it. Also, follow, subscribe and have a Best Ever day.
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