All investors need money. It’s actually impossible to invest without it – by definition. Why wouldn’t you want to master raising money as an investor? That’s what we’re learning from Gene Trowbridge today. Not only does he have an amazing money raising strategy, as he is a syndication attorney, we know he’s giving good, legal advice. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Gene Trowbridge Real Estate Background:
- Experienced participant in the commercial and investment real estate market
- Has sponsored 16 funds concentrating on building and managing self-storage facilities
- Managing partner of Trowbridge Sidoti LLP, a law firm concentrating on syndication and crowd funding
- Based in Orange County, CA
- Listen to his Best Ever Advice in episode 642 titled “All You Need to Know about Real Estate Syndications”
- Say hi to him at https://www.crowdfundinglawyers.net/ or gene@crowdfundinglawyers.net
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TRANSCRIPTION
Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.
With us today, Gene Trowbridge. How are you doing, Gene?
Gene Trowbridge: I’m doing fine, Joe.
Joe Fairless: I’m glad to hear that, and I’m grateful that you’re back on the show. Best Ever listeners, I imagine you recognize Gene’s name, because you’re a loyal Best Ever listener. Episode 642, titled “All you need to know about real estate syndications”, Gene talked to us about that.
Well, we’re gonna get more specific, and Gene’s gonna talk to us about the four step sizzle approach as it relates to raising money in real estate. He is an experienced and accomplished syndication attorney, he is a managing partner of Trowbridge Sidoti LLP, a law firm concentrating on syndication and crowdfunding, based in Orange County, CA.
With that being said, Gene, first, before we get into the four step sizzle approach, will you give the Best Ever listeners just a refresher on your background?
Gene Trowbridge: Sure, Joe. Well, I’ve been in basically three careers in my life. The first one was as a real estate broker, selling commercial real estate. The second career was as a syndicator, where I actually did my own deals, the 16 transactions, primarily in the area of constructing and operating self-storage facilities.
Then as a mid-life crisis, Joe, I went to law school. I’d had enough of the care and maintenance of partners, but I loved the business, so I went to law school and now here I am, running a law firm that does nothing but work with syndicators, in real estate and other [unintelligible [00:03:03].21]
Joe Fairless: And before we get into the specific steps of the four step sizzle approach, can you tell us why you came up with the four step sizzle approach and what it is, from a high level?
Gene Trowbridge: Yes. What I saw from my clients and from my competitors, and probably myself when I was raising money, is that most of us when we found someone who could be an investor, we just went right for the kill, we went right for the close, and we wanted to tell them about our deal, our IRR, our ROI… And I found that was not a very good sales approach, because they weren’t ready for us; they weren’t ready to hear about the deal, and if all you’re gonna do is pitch your deal, there’s another deal out there that’s better than yours. So you need to build the sizzle up to pitching the deal, and most of the money, Joe, as you know, is raised in syndications where we need to establish a pre-existing relationship with the client… And through these four steps I think you accomplish that.
Even in the 506(c), where you can advertise, chances that someone is sending you a $50,000 check if all you do is talk about your deal are slim.
Joe Fairless: Agreed. So thank you for setting the foundation for why we’re talking about this… Now, would you mind talking to us about the four steps?
Gene Trowbridge: Sure. Let’s just take them in order, Joe. The first step is to sell the sizzle of real estate. One of the things I think listeners need to know – you need to develop a database of people you can go to when it’s time to actually pitch your deal… So in this first step, I think you need to focus on the opportunity that’s in real estate. you don’t need people who are interested in IPO’s in medical equipment; you need to build your database, first of all, on people who are interested in real estate… And if they’re not, then you don’t need them in your database; you need to just simply focus on those who seem like they’re interested in the real estate business.
So this is somewhat of a generic pitch, which we can all talk about great opportunities, great stories we’ve heard in the real estate business, and a lot of people are interested in real estate… Don’t you think, Joe?
Joe Fairless: Yeah, and when you say “sell the sizzle of real estate” and you say “develop a database”, I imagine it would be e-mail marketing – is that what you’re referring to?
Gene Trowbridge: Not necessarily. I just want a database. I want you to be able to have a list of clients that you can inventory, so you can go to them when you actually are ready to have an offer.
Joe Fairless: Okay.
Gene Trowbridge: I think it’s an ongoing project to build a database if you’re gonna be a money-raiser.
Joe Fairless: Okay. So step one is build a database, but how does that tie into “sell the sizzle”?
Gene Trowbridge: Well, you’re gonna have to ask people and talk to people about real estate. Some people will never invest in real estate, and I think for number one you need to not worry about those people in your database. Some people have had some experience, some people need to know more about real estate, and just generically, I think you need to build your database with (number one) people who wanna hear about real estate.
Joe Fairless: Okay, noted.
Gene Trowbridge: Not a terribly unique approach, but let’s ask people if they think about real estate; some people only play the market… They’ll only play the stock market, so why waste your time?
So you sell the sizzle of real estate. Then, Joe, the next step in this is to sell the sizzle of your product type. What space in the real estate market are you going to occupy?
I’ve found over the years that people who are out raising money and don’t specialize one product type in their offerings don’t have the credentials that investors are looking for, don’t have what investors want to be satisfied and confident with you.
For example, recently we had someone who said “We wanna do a fund, we wanna do a client pool. We’re gonna buy retail properties and multifamily.” And I said “That’s never gonna sell”, because multifamily people don’t wanna invest in retail. People who have moved on from multifamily and like what retail offers aren’t gonna invest in a fund that has multifamily.
I think that the important thing that someone who is raising money needs to look at is “What’s the opportunity? Why did you pick this product type? What’s the problem that this product type is trying to solve?” Tell your investors that you’ve picked this product because you have some expertise, you have experience, you’re the go-to person in this product type, and you’re trying to bring just expertise to the marketplace and offer investors who are interested in real estate, who are interested in this product type your expertise.
So I think you have to sell this sizzle. I know, Joe, when I was syndicating – as I said, I was syndicating storage facilities, building storage facilities. So what was I looking for? I was looking for investors who 1) saw the attractiveness of solving a solution for the population in a given area. Where do they store their stuff? Houses are smaller, condos are coming… Where do you store your Ski-Doo’s, your bolts, whatever you have?
I don’t know if you’ve ever had a storage unit for your stuff, but I’ve had plenty of them… People can understand that, so we wanted to show the problem in adequate storage space, show the solution, self-storage.
And then I was also interested in people who were there to build their equity. We were gonna build storage facilities. We were going to get them 50% absorbed and occupied, and then sell them. We were never looking to generate income for investors in a long-term hold.
So I had two things I had defined. I had defined investors who had bought the story of self-storage, and investors who were looking at equity build-up, rather than cashflow. Many of my clients in the law firm are doing multifamily; they’re talking about the problem of housing, they’re talking about how multifamily and rental properties is a solution, and they’re talking to people who want to generate current cashflow, and then possibly cashflow from equity build-up if it’s a project that is a value-add project.
I could also go to other people who are doing mobile homes. We have quite a few syndicators now who are turning their attention to the mobile home park community. What’s the problem there? Low-income housing. What’s the solution? Mobile home park communities. What do you get when you buy a mobile home park community? Generally you get good, positive cashflow; through renovations and upgrading you build your equity.
So in selling the sizzle of your product, you’ve got to find people who are interested in what that product is, what’s the solution that you’re trying to provide to the marketplace, and does it meet their economic goals of either current cashflow, or equity buildup.
Joe, if you’re gonna pitch your deal to a database of retired school teachers, you’re not gonna build properties and only go for equity build-up. They need current income, so now you need to go for properties that are rented, that are producing income… And it’s a matching; I’m trying to match a product with my database. Because if I don’t match the product with what the economic benefits are of the database, I’m never gonna sell anything. Do you agree?
Joe Fairless: I agree.
Gene Trowbridge: Very good. So now we’ve got the sizzle of real estate, we’ve come down to our product type – there must be something that you’re good at, that you know about more than something else, that you really believe in… You’ve identified a problem, you’ve got a solution, you’re gonna take this to the investors.
The next sizzle I think you have to get to is you. What’s the sizzle of you? Why would anyone give you their money? When you’re a real estate broker, you sell the people property and they buy the property and you’re out of there. But as a syndicator, you have their money; you’ve got to make it work. You’ve got a fiduciary duty, you’ve got to solve their problem, and the investors’ problem is “Hey, I want more current cashflow. I want equity build-up.”
So I think the sizzle of you kind of goes to the fact that you have a core group of people that works with you, that believes in your company and believes in your product type, and believes that they have a plan to make this product type work.
You have to talk about your team, you have to talk about prior results, and you have to talk about your education and how are you ideally suited to take the investors’ money and put it to work where the money will get what the investor is looking for, in a product type that they’re comfortable with in the real estate industry.
Joe Fairless: Thank you so much for going over the examples and the product type. I was gonna ask you to go through a scenario, but you went through three, and that was very helpful – the mobile homes, the storage and multifamily… So first off, thank you for that.
Gene Trowbridge: Oh, you’re welcome. I want to expand on what I did, the storage. I could have gone in the business to just buy and manage storage facilities for the production of current income, but as I was building my database and as I was inventorying my database, I was finding that most of the people who were attracted to me, who I was talking about – they had their current income solved, the issues with current income. They didn’t need to make an investment with me so they could buy groceries; they needed to make an investment with me so in 3, 4, 5 years their balance sheet looks better, their equity position looks better… So I had to go to construction, rather than ongoing property management.
So there are a lot of steps in matching your investor database with your product type, and I always say “What phase of the lifecycle of your product type are you in, that you can attract investors to actually invest?”
Joe Fairless: When you mentioned “sell the sizzle of you”, you said “have a core team of people, talk about your team’s background, talk about prior results…” As it relates to prior results, are you able to say “Hey, we bought the deal down the street, it was a similar property, it generated a 25% internal rate of return to investor on the exit”?
Gene Trowbridge: Yes, we can say that, depending upon how we get in front of the investor… And I’d really like to put that off kind of at the end. I’ve got one more sizzle that’s gonna talk about the deal, and then I’m gonna bring this back to your question, Joe, about the securities laws.
Joe Fairless: Cool, fair enough.
Gene Trowbridge: I think I can tie this together in the time that’s remaining.
Joe Fairless: Perfect.
Gene Trowbridge: So we’ve got the sizzle of real estate, the sizzle of your property type, the sizzle of you… Now we’re ready for the sizzle of the deal. It’s like I envision a pyramid where my sizzle approach takes you up to the peak of the pyramid, with all this foundation… And now you’re ready to pitch the deal. As opposed to having the pyramid upside down, where you start pitching the deal but you don’t have any of the depth of the information for the investors so they actually want to say yes.
So we’ve got real estate, we’ve got the product type, we’ve got the team… Now we’re gonna pitch the deal. You’re gonna be in front of the investors somehow; it could be online, it could be personal, it could be on the telephone… You’re gonna pitch three or four key benefits; how does your deal fit the first three sizzles you had talked about? It’s got to match what the investors are looking for; how will this deal make the investor money in the type of way and in the manner that the investor wants to make money, so you’re matching the investor’s goal and the economic benefit of the deal?
Then you ask the investor questions, because by now the investor knows about you, knows about the product type; what you have to say is in the middle of looking at the deal… You just shut up and ask the investor questions. You have all the information necessary to answer all the questions, and then you ask for the order.
What I found when I was doing this – if I just started out, “Hey Joe, I’ve got a deal” and I ask for the order right now, I’d have to go back up all the way through all these steps anyhow, and somewhere along the line I’d find out that Joe wasn’t interested in real estate. Why didn’t I know that…?
So it’s a great sales approach, getting you down to — everything’s built so the customer is ready to hear about your offer and how it fits in with everything you’ve done.
Now, let’s switch it over to two things of the securities world. We’re selling a security, Joe; I don’t think we need to talk about that. The people I’m talking to are raising money from investors, they’re managing the money… It’s a security.
Joe Fairless: Yup.
Gene Trowbridge: So you’re either going to raise money by developing a pre-existing relationship with someone… I submit that if I’m talking to you, Joe, and we are talking about the sizzle of real estate, and I gather that you like real estate, you’re interested in real estate, you wanna hear more… Now I’m gonna tell you about the area of real estate that I’m specializing in, what’s the problem I’m trying to solve, what’s the solution I have to offer, how does this property match your economic goals… Hey, have I done this before? You have a chance to talk to me about my track record, my education and my team. Joe, I’m telling you after those three steps are completed, you and I have a pre-existing relationship. Now I’m gonna pitch the deal.
Now, how do you do that? That’s a topic for another discussion, how you do that. But I think if you go through all those steps, you meet the definition of a pre-existing relationship, which isn’t really a red line definition, but it’s something like this: does the investor know enough about the product and the sponsor of the product to make an informed decision, that the risk fits the investor’s profile? And does the syndicator know enough about the investors to know that what they’re offering fits in that investor’s risk profile? And you figure all that out during the first three sizzles, and then you have a wide open field.
Now, if you’re gonna go 506(c), which allows you to advertise and sell anyone into the world, I bet you’re gonna have to build a web page, and I bet that the first page of the web page is gonna talk about the real estate industry. As they go into your web page further, you’re gonna talk about your product type, what’s the problem, what’s the solution, how does it benefit investors… You’re gonna talk about your track record, your company, you’re going to invite one-on-one conversation with the investor, so you can give specific information, and then you’re gonna pitch the deal.
There are a lot of steps to that in the 506(c), but if you go online and look at people who are trying to sell their product through the advertising, it always starts with some generic sort of presentation, and then the presentation of a product type, and then a story of the track record, and then we get down to the specific deal.
It’s the mistake in marketing, in my opinion, Joe, to just start with the specific deal. A lot of my clients — me, when I was a syndicator, the minute I had my offering documents, I was out talking to people about my deal… And they weren’t ready for me. I’d say, “Oh, I’ve got a 25% ROI and a 14% IRR”, and the next thing, they come back and say “Well, I saw a deal yesterday that was 30% and 16%.” You can never win the sales argument if all you’re gonna do is sell an ROI or an IRR out there, because the investor doesn’t know what it’s built on… So you’ve gotta build that up to get to that level.
Joe Fairless: That’s very helpful.
Gene Trowbridge: That’s it. Sizzle!
Joe Fairless: That is very helpful, and thank you for walking us through these four steps. Just to summarize, when we have a deal, we definitely should just talk about the deal itself, and only about the returns and that’s it – is that correct?
Gene Trowbridge: When you’re ready to do that–
Joe Fairless: I’m kidding. [laughs]
Gene Trowbridge: Yeah, good. I would just simply go to Facebook and I’d put on Facebook that I have a deal that guarantees 40%, and then I would just not answer the phone, because that’s gonna be the SEC guy who calls you… Because you know, they don’t have a travel budget anymore, they just search keywords.
Joe Fairless: [laughs]
Gene Trowbridge: So it’s the sizzle of real estate, building your database, the sizzle of your product type, does it really match the people in your database, what do they want, the sizzle of you, and then the sizzle of the deal.
Joe Fairless: Well, I usually summarize, but you’ve just summarized it for me. Thank you so much, Gene, for being on the show. How can the Best Ever listeners get in touch with you or your company?
Gene Trowbridge: My e-mail address is a good way. It’s gene@crowdfundinglawyers.net. Or I’m pretty accessible by phone, 949-855-8399. I’m in California, Joe.
Joe Fairless: Well, we will approach accordingly if we were to give you a call. And just for the record, we were definitely kidding about that Facebook post, by the way… [laughs] I was getting a little nervous, like “Well, maybe someone wasn’t following the joke.” Okay.
Gene, thank you again for being on the show. We really appreciate this… Wonderful to talk to a securities attorney and get their insight. I hope you have a best ever weekend; I appreciate you adding so much value to the Best Ever community, and we’ll talk to you soon.
Gene Trowbridge: Thanks for being invited, Joe. Bye.
