March 14, 2022
Joe Fairless

JF2750: Institutional Investors vs. Syndication: Which Is Better? ft. Sam Sells

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Sam Sells went from buying his first mobile home park with a credit card to having $66,000,000 in assets under management. In this episode, Sam shares how he scaled his portfolio, along with his experiences working with institutional investors and how it compares to syndication.

Sam Sells | Real Estate Background

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TRANSCRIPTION

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, Sam Sells. Sam is joining us from San Antonio, Texas. He is the founder of Wild Mountain Capital, a real estate syndication firm. Sam’s company has $66 million of assets under management. They have syndicated 21 deals in the last three years, including self-storage and mobile home parks. Sam, thank you for joining us and how are you today?

Sam Sells: Thank you, Ash. Happy to be here.

Ash Patel: Glad to have you. Before we get started, can you give the Best Ever listeners a little bit more about your background and what you’re focused on now?

Sam Sells: Absolutely. We just closed a good-sized deal for us with institutional partners on a multifamily project in Dallas Fort Worth. It was really interesting making that transition from syndicating to institutional investors and the fund transition too. A little bit about myself. I am retired Air Force, I love the military, I love veterans, I love our country, but I’ve been spending the better part of 20 years doing single-family flips way back before it was quite such a fad as it is now. We made it through the downturn and kept on going, because our basis was really low and we kind of brought that into the multifamily space. I started this company with my dad three years ago, and we look at apartment complexes, other assets that we can essentially flip, create a lot of value, and capitalize on that value, and move forward.

Ash Patel: Sam, what was your real estate experience before three years ago?

Sam Sells: 2003 I started flipping single-family homes with a friend of mine, and then since then really did it everywhere I went. Even when I was in Africa or Afghanistan or Asia, whereas, in the military, I usually have some project somewhere going on that I was either funding or supporting in some way or other.

Ash Patel: Take us through that evolution. So single-family homes… How did you transition to multifamily?

Sam Sells: Single-family homes is super-hard to scale. Looking at getting out of the military soon, I knew that was coming, I knew that we really needed to find a way for my family to prosper in a way that would change our legacies for our kids and our grandkids and so on, as well as make a difference in the world. There are lots of different ways you can make a difference in the world. You can do that just by lifting where you stand. The same way that 10 people would all get together to lift the piano that you can’t do by yourself, you would work with other people to lift something heavy and small, or you can create a team that goes out and changes the world through multifamily investing, by taking rundown places, or mismanaged or neglected in some fashion, and turn those around and create value that people are willing to pay for.

I spent a lot of time traveling around the world, focused on health security. That’s what my master’s degree is in, is health administration policy and global health, so I did a lot of global health. I came back and decided I can’t do health security as a person by myself; I need to go do that with an institution like USAID, or one of the many NGOs or IGOs and national non-government organizations that do all these wonderful things… But my family was tired of me being gone all the time, so I decided to switch from health security to housing security, and focus on that. Affordable workforce, anything like that, we’re focused in that game.

Ash Patel: Sam, you started this company three years ago with your dad. Tell me about that. How was that a good idea? How’s it working out? And what was your dad doing at the time?

Sam Sells: Like all really bad ideas, you think it’s a really good idea in the beginning. We did the math and figured out that mobile home parks are much better than single-family was, and decided, “Let’s just go at it, dad.” He had worked in construction for 30 years or so, big firms, but still, they didn’t have any kind of retirement plan, because that’s the construction world. So as he was getting up towards retirement — when I was a little kid, my parents used to say, “Sam, you’re my retirement.” If you’re in the military, you can take care of your family, but you’re not making a lot of money. You have great benefits and you could travel and do a lot of other things, but you don’t join the military to get rich or wealthy, or even really well off. You just join the military to serve your country or to get an education or whatever other reason you have.

I took the $30,000 I had saved up in a Roth IRA, emptied it, and my dad had about 80 grand, and between the two of us, we bought a mobile home park, a small one. Then we turned around and we bought another mobile home park, a 42-unit, doing a master lease, which I think is probably pretty hard to do right now, in the current climate. But we master leased a property and we had come up with $100,000 combined for that one, which meant that I used the credit card and refinanced the car that we had paid off, and doing all the things that you’re not supposed to do financially. Plenty of books out there saying that’s a terrible idea, but that’s what we did… And here we are, $66 million in assets that we own and operate, and we’ve done those with friends, partners, joint ventures, we’ve syndicated, we’ve done all kinds of things.

Ash Patel: You have several other family members involved in this company as well, right?

Sam Sells: I do. I have a brother who I thought was a marriage attorney or something. He was an attorney and Houston for a long time. As family members are, you know your family member, but you don’t really know them sometimes. We had a thing we needed to get done legally, and I sent it over to my brother, I was like, “Hey, can you help me with this?” He’s like, “Yeah, sure. I can help you. No problem.” And I made a comment like “I know this is outside of your expertise.” He said, “What are you talking about Sam?” I said, “Well, this is real estate.” He says, “Sam, I’m a commercial real estate attorney.” [laughs] I was like, “Oh, sorry. Why didn’t you say something?” He’s like, “You never asked.” “Okay.” So that was a natural fit…

Ash Patel: By the way, most people know what area of law their siblings practice…

Sam Sells: Maybe so. If you have a sibling who’s a doctor, do you know what their specialty is?

Ash Patel: Yeah, of course. [laughs]

Sam Sells: But I didn’t, I guess that’s what it was. Then we brought on my brother, who – he and I are in the same place in Florida together. We were special operations and he was doing — human intelligence was this thing, and he really wanted to take over property management, and so he took over property management, which is great, right up his alley. A big, strong guy, who loves that human aspect and the opportunity to really make a difference in people’s lives in a very, very personal way… So talking to them, working through their issues with them, and helping them. And I was on the business side of the house, and my dad was on the construction side of the house. So that was a natural fit. Then my other brother was an attorney, and those are all the pieces you need to run a commercial real estate company.

Ash Patel: Sam, you mentioned earlier the switching from the syndication model to institutional investors. Can you dive into that?

Sam Sells: Absolutely. We will still syndicate, and we’re happy to work with other syndicators who want to come to join an operator who likes to operate, like us. There comes some time in your lifecycle when you figure out what you’re really good at. We figured out that we’re good at operating. There are plenty of other things that we’re not good at, but that’s what we’re really good at. Acquiring, getting things under market, then closing those deals even if they get super hairy, and operating it, and really creating the value in a very, very short fashion.

So we had started reaching out, we went into larger deals, and started working and engaging with family offices. Everyone likes to say they have family offices, which by the way, are super-slow to act. So that’s great if you have a six-month acquisition timeline, and if you can find deals where they’re going to wait around for six months while you buy them; it’s either got to be a development ground-up kind of deal, or most family offices we met, they want to sit and have tea and do all those wonderful things to really get to know you. And they should; they need to preserve wealth.

Institutions, however, will move a little bit quicker. You’ll still probably need at least 90 days to get through a deal, and you probably don’t want to engage them for the first time halfway through your deal. But we’ve found that they are incredibly professional, they will do an extreme amount of due diligence on you, personally and on your company, all through your financials, all through who you are, and so forth; [unintelligible [00:11:18].18] very, very comfortable. And then the margins are much thinner.

As a syndication, you’re looking at all these awesome fees that you can collect potentially, and so forth, but institutions – they know those fees, they know what the market is, and they really want to maximize returns for everyone, yourself included. And you also have to have money; you have to have 10% or 20% on the sponsor side, from the sponsors, to work with an institution. There are syndications you can do with very, very little cash, which is why we like them, particularly at the beginning. Have your own personal cash.

Ash Patel: What are the benefits of having an institutional investor versus normal syndication investors?

Sam Sells: Definitely pros and cons. Pros for institutional investors – is it’s one group and one phone call. They may be working with a $150 million funds, but they need to deploy that capital, and so they’re going to write a check for $5 million, $6 million, 10, 15, 20, 30, 50, $100 million, depending on what kind of institution and what they’re looking for. They have target markets, they have target deal sizes, they have target deal types… So if it’s a class C value-add, or a class B value-add, a class A value-add, a core plus, whatever that is, that’s what they’re targeting. So if you’re a good fit for them, the pros are you can pick up the call, you know exactly what to expect, you know that on the other line they’re going to answer. You know what type of capital they need to deploy, you know what their timelines are, you have worked through the legal process, which you’re going to need a very savvy attorney who can help you get through all that stuff. Fortunately for us, my brother gets to spend 18 hours a day going through that litany of legal documents, and so forth.

But at the end of the day, it’s ease, and it solidifies a big portion of the deal, your capital stack, your equity, and how that’s going to work. In addition, when you’re going to the lender now, depending on this institution, they may or may not sign on the deal. A con is that you have to have a balance sheet personally as a sponsor or as a group, that you can take down that 20, 30, 40, $50 million deal.

Break: [00:13:36][00:15:32]

Ash Patel: In terms of institutional investors, what are some of the cons? They don’t sign on the loans at times. What’s their due diligence process like? Is it way more rigid?

Sam Sells: Their due diligence process is super-rigid, or can be very rigid. They’re really going to dig into your life, they’re going to know about your kids, they’re going to know about your cars, they’re going to know all kinds of stuff. Our institutional partners had reached out and they had listened to the podcasts I was on. He brought up one of the stories and said, “Hey, Sam, I really liked that story about you and your dad, starting with credit cards for your company.” I just thought, “Oh, man, and you still are working with us?” He laughed and he said, “Yeah, it just shows you guys have grit and determination, and you’re going to make it work. Obviously, you haven’t folded, you’re here, so you figured it out.” The cons are – yeah, they’re going to go all through your life. If you’re not ready for that, then syndicate.

Ash Patel: I had no idea. So they do a comprehensive background check.

Sam Sells: Comprehensive, all the way. It’s funny, I’ve gone through a top-secret clearance in the military, all these other clearances, and done lots of different things… And it’s just funny to hear the other person bring up stuff from your past. I’ve had that before, but it’s been in very different settings.

Ash Patel: Military settings?

Sam Sells: Yeah. Military settings.

Ash Patel: Now you have an institution across the table from you asking similar questions, huh?

Sam Sells: Yeah, absolutely.

Ash Patel: Is it true that institutions want a package of deals or properties, or will they partner or buy just one-off deals?

Sam Sells: One of the pros — I guess you could look at as a con, but to me is really a pro… It’s that they’re looking for a programmatic approach. So they’re coming to you to say, “Hey, Sam. I want to partner with you over and over and over again, because we know you, we like you, we trust you. We know what you deliver and we know you’re going to get after it, and we have no concerns.” However, if you’re not ready for that or if you’re you don’t have the momentum to carry through that level of work, then it might be probably something you don’t want to do.

Ash Patel: Sam, in terms of negotiating with them, do they require higher returns than normal syndications, or are they okay with lower returns, since they have so much capital to deploy?

Sam Sells: Returns are all about risk. So if their group  is focused on class C markets, then they’re going to be looking at those 18, 19, 20% IRRs. Really, each institution is — in a way, they’re like the single investors. If they’re savvy investors, they’re looking at different risk profiles and saying, “Okay, I can take a 25% IRR, because this is a development deal. I know I’m not going to make any money for three years, but after that, I’m going to get paid a lot of cash. I’m happy to wait.”

You’ve got other investors who say, “I want dollars day one, and I don’t care what the IRR is. I just want cash on cash return.” So you’re looking at deals in totally different aspects, and deals that made sense on one side don’t make sense on the other side. That’s why ten different investors can walk into a deal, nine of them can say, “This thing doesn’t pencil,” and one of them says, “This is perfect. This is exactly what we’re looking for,” which is fantastic. So institutions have their own personalities.

Ash Patel: Yeah. When you interact with them, do you feel like you now work for them, or do you feel beholden to them, since they’re the Goliath?

Sam Sells: Funny you mentioned that… When we first started working with an institutional partner, we had this conversation a lot internally. Like, “Oh, my goodness. They’re just going to grind us to a pulp,” or “They’re going to do this, or that.” In the end, what we found out is that they’re really good people to work with; they’re very conversational, it’s very easy to say, “Hey, this is what we’re thinking. What do you guys think?” They said, “Well, on these deals, this is how it worked for us.” Every deal is a little bit different, every property has surprises after you close. If you’ve ever bought multifamily properties, you know. Somewhere in one of those doors, there’s a surprise for you. You may not find it for years, but you’re probably going to find it, and you’ve just got to be able to roll with it. Folks who have been doing this for a long time understand there are surprises, but with the institutions at least that we’ve been privileged to work with it, it’s been a very comprehensive, but very partner-led approach.

Ash Patel: Sam, it seems like it’s a lot of people’s goals to work with institutional funds. What do you say to that person and then what tips would you give them on how to get there? Or how to position yourself so that you’re in a favorable light when they look at your balance sheets, assets etc?

Sam Sells: Great question. I think what I would say is, “Come talk to us.” We’re happy to provide some coaching or mentorship on how to do that. I used to talk to my troops a lot about trajectory in the military. What trajectory are you on? Where are you going? 20 years is going to happen, 10 years is going to happen, where do you want to be? You may say, “I don’t know where I want to be.” “Well, great. Let’s set a trajectory somewhere. At least you’re going forward.” For institutions, they are looking for certain things, and you do need to set yourself up in certain ways. For us, one of the big things that they really liked about us is that we were vertically integrated. We had property management in-house, and we had development in-house, which allows us to have cost efficiencies and speed. Trying to say this without using military terms, but your speed to action is just really quick. If we want to make a change at a property, I can send a text message and I know that my brother’s out there and he’ll make the change right then. I don’t have to file a change order, I don’t have to go through all these processes. We can just change.

Ash Patel: Sam, the million-dollar question. On your next deal, would you prefer an institutional partner or a normal syndication investment partner?

Sam Sells: My next deal, one of each.

Ash Patel: Really? Interesting. So you’re not 100% one way or another; you just look at all the pros and cons.

Sam Sells: I look at all the pros and cons. Syndicators are guys who have grit, determination, they’re out there, they’re risking it all. Institutions have this huge backing behind them, and we are happy to work with institutions and provide that military-grade level of integrity, action, speed to the fight, understanding that no plan survives first contact with the enemy; it’s just gone. But we understand that, we know how to flex, and we know how to get after it. Myself, my brother, the other team members who are veterans, we work in very agile, small units that we’re able to do really cool things.

Ash Patel: So you want the action with the boots on the ground?

Sam Sells: I love the action with the boots on the ground. And as a syndicator though — look, I started with 30 grand and a couple of credit cards and a whole lot of hustle. So we always want to give back, we’re happy to work with other syndicators who — look, they are not vertically integrated, they haven’t done all these things, but they’re really good at raising capital, or cash. We’ve done I think four deals, we’ve syndicated with other people who were very new to this process, and we’ve helped them through that process. There were some speed bumps in that process, absolutely, but we’re here.

Ash Patel: Awesome. Sam, I’m going to ask you an off-the-wall question… Would you consider looking into retail, different asset classes, industrial, warehouse?

Sam Sells: Absolutely. I built probably 12 medical facilities, overseas clinics, I led the team on a $64 million rehab, a 500-bed, largest wartime facility in the world. My dad has done a lot of industrial builds. I apprenticed as an industrial electrician, so there’s some inherent capability in those spaces that we would love to do. And we’ve talked about it; there are some nice gains. We’ve kicked around some deals to ourselves, and — I don’t know that I have a partner who would want to raise cash for this industrial deal… We understand the location, the site; this is North Houston, or this is wherever. Yeah, we would definitely entertain that.

Ash Patel: Awesome. Sam, what is your best real estate investing advice ever?

Sam Sells: Find a partner and create as much value as you can.

Ash Patel: Sam, are you ready for the Best Ever lightning round?

Sam Sells: Absolutely, Ash. Give it to me.

Ash Patel: Sam, what’s the Best Ever book you’ve recently read?

Sam Sells: The Mission, the Men, and Me.

Ash Patel: What was your big takeaway from that?

Sam Sells: It hit home, because I’m a boot on the ground guy. Analysts who are sitting behind that computer desk looking in Excel love deals and hate deals. The guys who have boots on the ground love deals and hate deals, and usually they’re completely different; so you need the boots on the ground.

Ash Patel: Sam, what’s the Best Ever way you like to give back?

Sam Sells: To me, it’s all about how we structure our lives and what trajectory we’re on in our lives. When we screen a deal, the first criteria is can we make a difference to the residents there? The second is can we make money doing it? Because this is a capitalistic paradigm that we operate in.

Ash Patel: Sam, how can the Best Ever listeners reach out to you?

Sam Sells: LinkedIn is a great way to reach out to me. Find me, Sam Sells, Wild Mountain Capital, or send me an email at sam@wildmountaincapital.com. I’m very responsive most of the time, except when we’re closing on a deal, working 18-hour days to get it across the line and [unintelligible [00:25:29].26] on it. But if not, I’ll get back to you as soon as I can.

Ash Patel: Sam, I’ve got to thank you for being on the show today and sharing your time with us. Your amazing journey, starting out with single-family homes, buying a mobile home park on a credit card, and now dealing with institutional capital, $66 million of assets under management… Incredible story. Thank you for sharing that with us. Thank you and your family for your service and your sacrifice.

Sam Sells: My pleasure. Thank you, Ash, for having us.

Ash Patel: Best Ever listeners, thank you so much for joining us. If you enjoyed this episode, please leave us a five-star review and share the podcast with anyone you think can benefit from it. Please also follow, subscribe, and have a Best Ever day.

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