July 26, 2023

JF3247: Ruben Greth — Capitalizing on the Build-to-Rent Trend, Navigating Objections from LPs, and Exploring the Benefits of Ground-Up Development




Ruben Greth is the managing partner and full-time syndicator at Legacy Acquisitions, which raises capital for commercial real estate syndications. In this episode, Ruben shares his advice for developing an infrastructure around capital raising, how he deals with common objections from LPs, and the many benefits of ground-up development as it relates to build-to-rent projects.

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Ruben Greth | Real Estate Background

  • Managing partner and full-time syndicator at Legacy Acquisitions
  • Portfolio:
    • 475 doors
    • Three build-to-rent subdivisions in different phases of development 
  • Based in: Phoenix, AZ
  • Say hi to him at: 
  • Best Ever Book: How to Own Your Own Mind by Napoleon Hill
  • Greatest Lesson: Anytime you have the opportunity to keep real estate, do so.

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Slocomb Reed: Best Ever listeners, welcome to the best real estate investing advice ever show. I'm Slocomb Reed, and today I'm joined by Ruben Greth. Ruben is based in Phoenix, Arizona. He is a managing partner and full-time syndicator at Legacy Acquisitions, which raises capital for commercial real estate syndications. They're currently focused on their own offerings, which are three build-to-rent subdivisions in different phases of development totaling 475 units. Ruben, can you tell us a little bit more about your background and what you're currently focused on?

Ruben Greth: Sure. I'm primarily a capital partner. So I focus on bringing equity to our deals; we've raised for some other people, like Matt Faircloth, in the past... But I got my start in small multi families back during the real estate crash, so I was basically following some investors around town here in Phoenix, and asking them questions about how they found deals, how they were going to remodel them, get them back on the market, and cash flow, and profit along the way, depending on their business models... And through what I now understand to be an interview-based thought leadership platform, I was able to bring some investors to town that helped us purchase a variety of fourplexes, and a 12plex... And I thought that I had arrived, but I ended up splitting up with my partner. I kind of went back into corporate America with my tail between my legs, and then many years later I was thinking "I want to get back into real estate", and I came up with this plan to buy a bunch of fourplexes, because that's what I knew, when somebody said, "Well, how many of these do you want to take down?" And I'm like, "Well, I think if I had 32 fourplexes, doubling my portfolio every year or two, that would be phenomenal." And they're like "32 fourplexes - that's 128 units. Why don't you just take them all down right now?" And I was like, "Well, I don't know how to do that." So they introduced me to the concept of syndication.

Then I got very interested, interviewed, some local syndicators, told them that I had some experience raising capital, and they're like, "Really? Why don't you just come join us, instead of paying a guru a bunch of money to teach you this business? We need some help in that space." So I helped them raise some capital for a 90 unit down in Tucson, and then I started a show about raising capital, because that's exactly what I wanted to learn, and found out about funds, and institutional capital, and family offices, and how to raise from limited partners, and decided to go out and launch my own fund. That's when I partnered up with my team at Legacy Acquisitions. We raised for a couple of multifamily syndication deals, and then kind of doubled down into the build to rent space, because we found it lucrative, with a lot less competition. So it's been a crazy ride, getting into raising capital, and then moving into syndications, and then into development... But it's been a lot of fun.

Slocomb Reed: Ruben, when did you go full-time at raising funds for syndications?

Ruben Greth: The last W-2 that I left was in 2013. It's been about 10 years. Some of it has been in real estate. I tried selling properties as an agent for a while, I started a furniture business, but I haven't had a regular W-2 in about 10 years.

Slocomb Reed: Specific to raising capital for commercial real estate syndications, multifamily included - when did that start?

Ruben Greth: 2019 was when I was an apprentice for a local syndicator here, and they brought me on to raise capital, but they didn't really have a database of existing investors, and they're like, "Hey, we brought you on to raise the money. Where's the money?" So I felt all this pressure... And I didn't have an existing limited partner database, so my solution that I created was to go out and seek some co-GPs. And then I brought in a couple of guys that took partial ownership of our LLCs that we were taking down properties with, and that kind of became my forte, is reaching out to co-GPs, because I'm good at networking, and bringing on their databases of investors to partner with us to take down larger deals.

Slocomb Reed: 2019. So you've been at this pre-COVID for a while, during COVID, and now recording and the very middle of 2023. We've experienced about 15 months of the Federal Reserve raising interest rates. So speaking to the market of the moment, Ruben, when it comes to capital raising for commercial real estate, be it multifamily, your experience previously, the build to rent development that you're doing currently, I want to ask, with as acute of a market as we're experiencing right now, what is more difficult than it was before the Fed started raising interest rates, and what's actually easier? Is anything easier?

Ruben Greth: Well, I think what a lot of people are doing right now - a lot of people, and syndicators included who have stopped, [unintelligible 00:06:16.12] Right now, I think what's easy to do is to start creating systems, and putting together marketing campaigns and programs, and building teams that are scalable... So right now it's a great time to spend time doing that.

What's harder is because people are withdrawn, and there's a lot of negative information on the news and media about investing, it's harder to get people to deploy their funds into real estate. And there's people in multiple industries that are struggling to deal with the economic change in terms of interest rates, to raise the capital... And because there's still a lot of people in the industry, there's a great deal of competition, particularly in value-add multifamily. So unless you're really versed that finding deals, it can be very challenging to find something that pencils, that you would have probably done better at a few years ago when everything was going up in value so rapidly.

So dealing with the lending is a challenge. Even in development, we had a loan that was approved and documents signed, and then the lenders came back and said "The warehouse lines were pulled. We need you guys to do a lower LTV, loan-to-value on this, and raise some more reserves." In the building space, in the development space, those kinds of things - you have to be prepared for those. And we went back to our database, raised some additional money... But that's challenging, working with lenders, having them change their parameters... And some of it is in their control, and some of it is not, depending on when you're trying to close the loan.

Also, in our space, you have to deal with construction costs, changing the price of cement, the price of supply chain, the price of wood; as those things change, the lending parameters a lot of times will change with them, and we have to be able to deal with that. So that's been a tricky part. And then of course, raising the funds, I think everybody's having a harder time doing that in late 2023.

Slocomb Reed: You said it's a good time though to be building out your infrastructure as a capital raiser; your systems, or platforms. Interesting that it's a good time to sharpen the axe, albeit more difficult to chop down trees. Ruben, speaking to the listeners, but also speaking directly to me, give me some advice here when it comes to that capital raising infrastructure. I'm an active real estate investor who has yet to syndicate. I've done a handful of joint ventures, so I've raised capital from other active partners, but outside of some work on thought leadership with the Best Ever podcast, I don't have a capital-raising infrastructure per se. Where should I start?

Ruben Greth: I would start with a lot of educating themselves... Because it is an entire universe that I didn't know existed. It's like a can of worms that you open. Right now I think is a great time to be sharpening the axe... And here's what a lot of people don't consider as they're moving into syndication, they want their GP card, they want to become established general partners... They can imagine running and operating businesses in terms of real estate, but they may not be thinking and contemplating about managing employees, or people that come into your business, getting everybody in a row on the same page... And the fact that capital raising is so diverse in terms of what you have to do when it comes to marketing, running automations, dealing with to technology, and Syndication Pro, or whatever portal you're using, and then branding, and website creation, and creating lead magnets, driving traffic to you, applying SEO, raising for different sub niches... It's just an incredibly diverse array of things that you have to be very good at, not to mention vetting sponsors, learning how to negotiate your share of the general partnership...

So to me, people need to start thinking about - well, it would be advisable, better said, and I invite you to start looking at the legalities; how to find investors, and partnering with, and profiling investors, and partnering with other capital raisers, and studying strategic and tactical marketing... But if you want to start - I mean, if you apply some of the lessons of the book Who, Not How by Dan Sullivan, you want to start (and Benjamin Hardy) delegating to people. And if you don't have money to pay people to do it, try and get creative with it.

But start learning and paying attention to the way other people have scaled their businesses, what kinds of dilemmas they've had to face, and then building out a system that helps you be accountable, that allows you to manage other people that you're growing alongside with, and then really kind of pay attention to what are the issues that can be addressed and foresee what's going to be upcoming in the process of building a full-blown infrastructure for capital raising. And all of that is based on going out and educating yourself, [unintelligible 00:11:36.09] listening to shows like this, or you know, I have my own podcast as well... There's a lot of podcasts. What's kind of interesting is at the end of any multifamily syndicator's podcast, they're always given away their contact information. And so these people - they want to be reached out to, and if it's challenging to find a business partner in your mind, because you have a limiting belief, just understand that if you've networked with enough people, eventually you'll find some people that will resonate with and potentially become partners with. [unintelligible 00:12:09.06]

Slocomb Reed: Transitioning to the difficulties of capital raising right now... Your most recent fund that closed - when did it close?

Ruben Greth: Some people think that a syndication is a fund, because you are raising funds in it...

Slocomb Reed: My apologies. Yes, your most recent completed capital raise.

Ruben Greth: Here's the other thing with development, too [unintelligible 00:12:34.12] If you're not taking down the land with your own money, then you have to raise for that. A lot of times you have to raise for the infrastructure, putting in the streets sewers, better facilities, and getting engineering, entitlement, utility changes... And that is a different risk profile and different capital raise a lot of times than the actual vertical construction, which would be like maybe your third phase of raising money. In our case, we syndicate that last portion, because it's the part that's got the most risk mitigated, and is the fastest time for us to return capital to our investors.

Slocomb Reed: Ruben, are you saying that you all acquire the land and build out the infrastructure before you raise capital?

Ruben Greth: We do a combination. So we raised from joint ventures a lot of times, we're doing personal loans to put in the infrastructure, or pay for some of that with our own money, and then we syndicate, at least in our current business model, we syndicate the last portion of that development, yes.

Break: [00:13:42.26]

Slocomb Reed: With the three developments you have going currently, have you completed the capital raise for the vertical construction of any of them?

Ruben Greth: For the vertical construction - two of them are still pretty much in the land phase. The one that we started with the horizontal is going through, and the vertical development [unintelligible 00:15:56.14]

Slocomb Reed: So Ruben, going back to your point about what's been difficult lately, and that being the handling the negative portrayal of commercial real estate investing that the media has right now, and the way that's influencing potential investors... With the raise that you have completed or are just about to complete, what are the objections to investing in your deal that you have had to navigate? Which objections are coming up from people who do eventually end up partnering with you all, and which ones are coming from people who end up passing on this opportunity?

Ruben Greth: A lot of what we're seeing, which is common, because I think capital raisers will experience this, and general partners that are raising for the deals... I should say, limited partners in general tend to like trending markets, [00:17:08.08] right now they're not necessarily great places to invest, but they still want those deals in Phoenix, Atlanta, Dallas... In these huge metroplexes where people have had an incredible amount of success.

Now, the sponsors [unintelligible 00:17:23.14] and moving into other markets where limited partners [unintelligible 00:17:29.00] For example, we're in Louisiana and Alabama, and a lot of our investors that have invested in multifamily and value-add with other sponsors, they're not quite as familiar, so that's a huge objection. They're also wondering, "Why are you doing it in those particular markets? How do you do the market selection?" So when we tell them that our team is based in those markets, and that's where they live, and we know, that's where we can buy land inexpensively, that's where the cities are in full growth mode... A lot of times really the investors that are coming on board, they see the vision for build to rent, it's a very hot asset class right now, it's been exploding, but the objection is "I don't know enough about developers. I don't know the differences between this and multifamily syndicators." And in some cases, they may not even know the different risk profiles between multifamily A Class, B Class, C class, and complete gutting, and how that compares to and what are the different risk profiles when we compare it to multifamily building development, or what we call horizontal multifamily, which is a subdivision of houses that are operated as one commercial real estate asset, just like [unintelligible 00:18:43.00]

So the biggest thing I think is educating and nurturing people, and then finding people that have already kind of said, "Very challenging to find a deal in multifamily value-add, so I'm going to sub-niche into something that's a little bit more lucrative, or find something that I can actually even go raise for, or participate in some capacity." And I see as a trend, in general, people are moving out of value-add and going into sub-niches like student housing, or assisted living, or development, or A class...

Slocomb Reed: Passive investors are doing this.

Ruben Greth: Yeah. Well, all of the above, right? Because if the active investors are going there, they're bringing their databases [unintelligible 00:19:27.18] But yeah, it's harder to find a deal, and people that were making a big return as limited partners are saying "I don't want to invest right now, because I can't get what I was getting two years ago." So they can either put their money on the sideline, or they can basically understand the concept that if they invest in real estate with a sponsor that has a very good track record, that their money is likely, assuming sponsors mitigate their risk well, they're probably going to be better off investing than leaving their money in the stock market or in the savings account. And so if they understand that if you invest in real estate and wait, you're going to be better off than if you wait and invest in real estate.

Slocomb Reed: Talking about risk profiles and potential investors not really understanding the difference... How are you explaining to your investors that the risk profile difference between buying existing apartments with a value-add business plan and ground-up development of build to rent?

Ruben Greth: Yeah, I think what people really miss -- a lot of educating [unintelligible 00:20:32.13] people really like about development is it can be more lucrative as long as the risk is being mitigated. But the very powerful part is, when you're in a development deal, you have the opportunity to force appreciation; it's a very powerful term. Anytime that you entitle the land, change the zoning, add infrastructure, add utilities, you're changing the value of the property, just by changing the density, by adding buildings, by adding square footage, by improving the entire subdivision or multifamily... What a lot of people do in the value-add space is they improve the net operating income, they do this by raising the rents, and typically in order to raise the rents, they rehab or refurbish some of the units, little by little, or sometimes in heavier lift properties, they completely remove all of the resident base, restore it, and then put it back on the market.

So there's that place where you can force appreciation and value-add, but in development, you can do it at every single phase along the way, and have multiple exit strategies where you can buy the land, get it approved for engineering and then resell it; or you can do zoning changes and resell it for a profit. You can start putting in horizontal infrastructure, streets and sewers, and then sell it. So that's an exit strategy. You can take it to full completion, or even in the process of building out the houses or whatever, building or developing anything you're doing, sell it in the middle of that. And after you've stabilized and built out the entire property, you can either sell it at that point, or keep it and sell it off in chunks.

So with multifamily, you can't sell a piece of the building. But when you have a subdivision, you can sell 10 houses, or you can sell each individual house, or you can sell the entire subdivision to one institution that can run it as one commercial real estate asset, with one property manager and one leasing agent.

So when people see the forced appreciation plays and how much power there is in that, and how many places you have the ability to force appreciation, I think a lot of times they see that as something that they can't have in other types of investments.

Slocomb Reed: That makes a lot of sense. Are you ready for the Best Ever Lightning Round?

Ruben Greth: Let's do it.

Slocomb Reed: What is the Best Ever book that you've recently read?

Ruben Greth: I've read a book by Napoleon Hill called "How to own your own mind." It was recommended it to me by [unintelligible 00:23:03.17] It was very powerful. It reminded me of Napoleon Hill being a podcaster, asking Andrew Carnegie direct questions and having him answer, and they put it into a book format. So that's probably my favorite book that I've read.

Slocomb Reed: Nice. What is your Best Ever way to give back?

Ruben Greth: I like to do staffing at personal development... We go on trips sometimes... I've been to Costa Rica to rebuild a school. I've also helped rebuild some schools in California... And what I want to get into and what I'm doing at a very small scale is just helping local animal shelters. In fact, I'm going to see the Children's Hospital Canine Division. So I'm really big animal lover; I would like to help by going to shelters and giving some of these dogs that are on death row some company, and then hopefully get them to get adopted. That's some of the things that I've been doing.

And then of course, on a bigger scale, as I get larger and larger in syndication, I'd like to help the poaching situation. I don't really like all the hunting that's going on, and the ivory trade in Africa. I've seen some very graphic illustrations and videos depicting elephants getting mutilated for pieces of bone that can be traded on the black market, and it's very discouraging. So I'd like to help in that capacity, but for now, what I'm doing is local animal shelters with a focus on [unintelligible 00:24:30.12]

Slocomb Reed: Ruben, focusing on projects where you have raised capital for commercial real estate syndications, what is the biggest mistake you've made, and the Best Ever lesson that resulted from it?

Ruben Greth: I saw some people that seemed very resident-focused and spiritual in nature with a good track record of previous deals, and then started working with them and found out that in reality they had some upset investors, they had poor communication infrastructure, the things that they claimed were not true... So I would say the biggest learning lesson for me was just because someone seems like a good human being doesn't necessarily mean that they're a great business operator. And it makes a lot of sense to do background checks, or get references before you partner with somebody... And it can be very scary if you find yourself in business with somebody that has some shady track record. Because if they get investigated by the SEC, you can lose your ability to capital raise. And if that's your lifeline, that's your bloodline, that's what you want to do and focus on, you've got to be very careful about who you partner with. And even as a limited partner, you have to be very careful about investing with the first sponsor. So definitely do a lot of due diligence there. Those are some of the biggest lessons for me.

Slocomb Reed: On that note, what is your Best Ever advice?

Ruben Greth: I had this gentleman, Sam Freshmen come on my podcast. He's been through like six real estate cycles; he started syndicating back in the 1960s. He said he bought a million dollar building, a high rise in downtown Los Angeles for a million dollars, and about a year or two later he sold it for 2 million. Looking back on life, he really wishes -- because that property now, that building is now worth $100 million, is that he would have just kept it. So when I look back at my early fourplex days, when I was buying stuff at $20,000 a unit, they're now worth $150,000, $175,000 per unit. So I would say anytime that you have the opportunity to keep real estate, do so, and I would give that advice to my younger self.

Slocomb Reed: Last question. Where can people get in touch with you?

Ruben Greth: If they want to just network and hang out with me, they can follow me on -- LinkedIn is probably my preferred social media platform. If they're interested in build to rent, they can find me on Legacy Acquisitions. And if they want to hear about capital raising, they can check out the show at capitalraisingshow.com.

Slocomb Reed: Those links are in the show notes. Ruben, thank you. Best Ever listeners, thank you as well for tuning in. If you've gained value from this episode, please do subscribe to our show, leave us a five star review and share this episode with a friend you know we can add value to through our conversation today. Thank you, and have a Best Ever day.

Ruben Greth: Slocomb, this has been a blast, man. Shout-out to Joe Fairless. You guys are doing a great job.

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