February 6, 2023

JF3077: What You Should Know Before Launching a Fund ft. Matthew Burk

Matthew Burk is the CEO of two companies: Fairway America, a CRE investment fund manager; and Verivest, a CRE software, advisory, and service provider. In this episode, Matthew tells us the biggest mistakes he sees investors make when setting up a fund, how Verivest is working to automate the fund setup process, and why he plans to focus heavily on asset management in 2023. 

Matthew Burk | Real Estate Background

  • CEO of Fairway America, a CRE investment fund manager.
  • CEO of Verivest, a CRE software, advisory, and service provider.
  • Portfolio:
    • $1B in CRE assets across multiple asset classes
  • Based in: Portland, OR
  • Say hi to him at: 
  • Greatest Lesson: What you do when no one is looking defines who you are.



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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, Matthew Burk. Matthew is joining us from Portland, Oregon. He's the CEO of both Fairway America and Verivest. One is a commercial real estate investment fund manager, the other a CRE software advisory and service provider. Matt's portfolio consists of $1 billion in assets across multiple classes, including multifamily, storage and retail. Matt, thanks for joining us, and how are you today?

Matthew Burk: Thanks for having me. Really good, Ash. Thanks so much. Glad to be here.

Ash Patel: Matt, 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?

Matthew Burk: Sure. I started Fairway about 30 years ago; we were a lender for a long time, running a number of private money real estate funds. The last 10 years or so we've done predominantly equity investments, on pretty much all asset classes; we're very active with a co-manager model. We partner up with local operators around the country and take what we think are best in class strategies at any point in time. So we've done storage, retail, a lot of multifamily... So really any type of asset strategy that we think makes sense with a good operating partner. That's on the Fairway side.

And Verivest is an accounting and technology provider for syndicators and real estate asset based fund managers looking to start new funds, grow their funds, scale how they structure them, how they put them together, do the back end admin and accounting, and so forth. So two different companies serving the same groups of people, and it's a lot of fun.

Ash Patel: With Verivest, when you say backend accounting, is it just fund accounting? Or is it accounting for the entire asset?

Matthew Burk: It's just the fund accounting on the investor side. So we do not do property-level accounting. So people generally will do that on their own, or with property managers. But the entity that is the ownership entity that contains all the investors and doing the fund accounting for the waterfalls, and the investor side of the equation.

Ash Patel: Got it. So as a syndicator or fund manager, we would still run our own books. However, when it comes to everything fund-related, including setup, accounting, taxes, I'm assuming Verivest will handle all of that.

Matthew Burk: Yeah, we have done advisory work, Ash, for managers all over the country that want to set up -- people who are looking to move from doing the kind of one deal at a time model, where you're raising money from investors in a single asset, to doing it in a pooled investment fund, we've done a great deal of work helping people structure those funds. I would say that when people are making the leap from the one deal at a time model to the pooled fund model, there's just a lot of different things that go on there, a lot of moving parts. It's kind of an order of magnitude more things to deal with. So we help them structure it properly in the first place, get it all set up right, and then do the backend fund accounting that they can use to provide to their investors. So yeah, they'll generally do the property-level accounting, provide us with the cash transactions, and then we run them through the fund books, and provide that to the manager and the investors.

Ash Patel: And there is a tremendous amount to setting up a fund. What are some mistakes that you see when things aren't done correctly?

Matthew Burk: I could name a lot of mistakes. I would say there are probably 8 or 10 misconceptions that people have when they're setting up a fund, and I'd say the most common one is that people try to extrapolate how it works on a single deal into a fund model, and often confuse the economics. So I'd say setting the fund up improperly in the first place where you don't match the nature of the assets to the type of vehicle that you set up is a very common mistake, and it causes a lot of downstream problems. So I think one of our biggest value props is we help them avoid those mistakes in the first place, which makes it much easier downstream, even if they're not really aware of the mistakes that they might be making.

Ash Patel: Now, let me play devil's advocate... Look, if you're a small-time investor, you set up your funding correctly, how much trouble are you really going to get into?

Matthew Burk: What do you mean by trouble? There's legal issues, [unintelligible 00:05:28.23]

Ash Patel: Is the SEC -- am I going to be on their radar?

Matthew Burk: No. I'd say if you're a real small manager, it's highly unlikely that you would be on their radar. Now, if people are criminals, and they rip people off, then even if you're small, then the SEC obviously takes that very seriously. But I'd say it's less about the SEC, Ash, than it is about making it something that actually works for both the manager and the investor, in terms of how they have it set up in the first place. So it's a lot more to do with that than it is about -- look, if you have competent legal counsel, they'll keep you out of trouble pretty much every time, but that doesn't mean they necessarily will structure the fund properly from an economic standpoint.

Ash Patel: What are some of the benefits of setting up a fund?

Matthew Burk: I would tell you this, man - I think not everybody should set up a fund. In fact, more of them than not should probably not set up a fund. There are certain prerequisites in my mind that people need to have to justify the expense, and the time, and the effort to put together a fund, one of which is you have to have sufficient deal volume. It's harder to raise capital in a pooled fund, because investors no longer get to pick and choose individual transactions; they're now investing in a blind pool vehicle, and allowing the manager to pick and choose those deals. But assuming you have the appropriate prerequisites, there's a lot of advantages from both a manager and an investor standpoint.

From a manager standpoint, you have more discretion over the deals that you're choosing; you can act more quickly, assuming you have the capital in that fund. And by the way, that's another common misconception, is that if you build it, the money will just magically show up. You actually have to go raise it, and as I said, it's even harder from an investor standpoint. Among other things, it's diversified, so there's multiple assets in there instead of one. So if you only have one deal that happened to struggle, that's okay in a pooled investment fund, because statistically, not every deal is going to knock it out of the park.

Ash Patel: Are you seeing a certain type of fund trending right now?

Matthew Burk: No, I wouldn't say it's any different than normal. I think it's probably harder right this moment because of what's going on in the macroeconomic environment, with rates doing what they're doing... But I'd say there's always a lot of people in the mortgage pool space, private money lenders that raise capital from high net worths in order to make loans, and not necessarily buy the property. Those always seem to be in demand, and there's always people looking to do that. But I wouldn't say there's anything that's trending at the moment that's any different than normal.

Ash Patel: Matt, you have access to a tremendous amount of data with the two companies that you're running. What are you seeing right now in terms of investor appetites, deal flow? And we're at the end of January of 2023.

Matthew Burk: Yeah. Well, obviously deal flow is down across the board. Interest rates, having shot up as fast as they did, they put a damper on the market. I think sellers have not really capitulated to the new reality, so buyers are looking for really great deals, and sellers are holding on to yesterday's prices... So as a result, you're not seeing nearly as many deals get done. Obviously, things don't cash-flow as well at 7% as they did it at four, or three.

So deal volume is down considerably. I think there's a lot of wait and see at the moment, and see what the Fed does here coming up in February. I think if you see some stabilization, at least start seeing it slow down a little bit, and people can see where the peak is, then I think there's a lot of people with pent-up cash and demand to try to get back in the market. But right now, it's a lot of wait and see, Ash, and a lot of deals not getting done at the moment.

Ash Patel: Did you start Verivest?

Matthew Burk: Yes. We started doing fund admin actually in 2014 at Fairway, and it became its own animal and a little different line of business than doing the investment side, so we spun it out of Fairway at the beginning of 2017.

Ash Patel: What was the void you were trying to fill?

Matthew Burk: Really, the evolution of it was coming out of the Great Recession, we were winding down our fourth or fifth fund at that time, and I had a number of people come asking me "I know you know a lot about funds, and you've set them up, and wound them down, and I've got some questions. I'm thinking about setting up a fund. What do you think of this? What do you think of that?" And after the fourth or fifth one, Ash, we were going "Well, hey, we're looking for a new business model" as we were winding our fund down, so we started doing advisory work for people who raise money from high net worth investors around the company, and coming at it from the position of a practitioner... Because there's a lot of different aspects around your fund, right? Legal, and accounting, and origination, and asset management, and tax, and all of these different things that each of the people who provide those things view it from that lens. As a manager, I understand how all of those tie together. So I think our advice - people found it very valuable, because it was practical, coming from a position of the manager.

So we started doing the advisory work, we had quite a bit of demand for doing it, and at this point, 10 years later, we've done in the several hundreds of engagements with folks around the country. Very quickly thereafter, people discovered that when they set up a fund, they didn't really know how to do the pooled fund accounting. Because if you have 10, 20, 30, 50, 80, 100 investors coming in at different points in time, and you have 5, 10, 20 assets being acquired and managed, all closing at different points in time, how do you allocate the income and expenses appropriately to those investors based on when they came in and when they come out? It's more complicated than a single deal, so people started asking us if we would do the admin. And being the entrepreneurs that we were, we said, "Well, sure, we'll help you do the admin. We know how to do it." So we started doing it.

And then as that grew, the demand was just very strong; it grew, and Fairway - we decided like we're really in the investment business. That's when we spun it out. At this point, Verivest is about three and a half billion in assets under administration, which from an admin company, that's fairly small, but we really do cater to new managers that are just getting started, whereas a lot of the fund admin companies focus on huge institutional multibillion dollar funds, which we kind of cater to guys that were just like me when I started out, which is doing it one deal at a time, and building it up from nothing to something larger.

Break: [00:11:59.16]

Ash Patel: What's the difference if I were to set up a fund back in 2010, where I didn't have companies like you available, versus today? What would I have to do back in the day to set up a fund?

Matthew Burk: Well, almost always, and to a large degree, Ash, this is still true today, is you start with a lawyer. You have to have legal documents that comply with securities law. And to this day, people still need to have a lawyer, and you do want to be represented and you want to have competent counsel. But I would tell you that counsel comes at it from a legal angle, and understands how to keep you out of trouble, but they don't necessarily grasp the interrelatedness of all of the other factors that go into putting the fund together that makes sense.

So I think there's more people today that do it than did it 10 years ago. Verivest is actually launching a product here in the next 30 days where we're going to automate that process and allow people to set up their own syndication or fund entirely online. And then they still will need to hire securities counsel to represent them, but it simplifies the process greatly from what's been a very antiquated, offline, 20th century model up until now. Technology is changing everything in the world, and this is no exception.

Ash Patel: And hence the void you've filled.

Matthew Burk: Exactly.

Ash Patel: So with Fairway America, from what you said, you partner with operators like us, and you take an equity stake. How does that work?

Matthew Burk: We've set up a co-manager model. So effectively, we identify the boots on the ground local operators who are the ones that know their market, and acquire the property, and do the leasing and the construction and oversight and management, the operator. And then we provide the creation of the documents, we come in as a co-GP or co-manager. We share control rights in the deal in terms of major decisions need to be made unanimously, and we are truly the co-manager of the deal. We bring a big part of the co-manager capital, and we'll raise the money and bring in the LP capital as well, either through fund vehicles that we have on our own, or through bringing it in from high net worth investors on a deal by deal basis.

We'll partner with, I'd say, Ash -- an ideal client would be somebody who has significant deal flow, because as you well know, the first deal is always the most difficult with a new partner, because you've got to get to know each other. But once you understand how it works, then it gets easier and easier. So we have probably 8 or 10 pretty strong co-partner relationships around the country in different asset strategies - multifamily, industrial, storage etc.

Ash Patel: What's the minimum deal size?

Matthew Burk: I'd say a typical deal size would be a raise between 2 or 3 million would be on the low end, 8 or 10 would be on the high end, and 4 or 5 in equity is the sweet spot. So you're talking total capitalization in the range of $10 to $15 million. We've done some bigger ones, we've done some smaller ones, but that's typical.

Ash Patel: And I'm assuming preservation of wealth versus value-add?

Matthew Burk: We've done a little of both, I would say. We've been largely a value-add. We don't do a lot of ground-up development or anything that we consider to be wildly speculative. But we definitely want there to be a clear component of being able to add value to the transaction. I would say that we're not basic core investors, just going in and clipping coupons. We're definitely looking to find things where we can add value.

Ash Patel: Matt, selfishly, I'm going to ask this... I am a non-residential commercial investor. So for example, a $5 to $7 million strip mall... Would that be appealing?

Matthew Burk: I think with the right partner and the right location, yes. And we've done some things like that. So yeah, we did a lot of retail, Ash, back in like, say, '17, '18, '19. Those have been some of the best-performing assets we've had in our portfolio. I'd say we're a little bit of contrarians if there's a good thesis there, and we understand what the risk is. Not afraid to buck the trend. In those days, everybody was fearful that retail was dead, and Amazon was going to eat everybody's lunch, but these local strip centers, especially grocery-anchored - they've performed extremely well in the last five, six years.

Ash Patel: Yes. And I applaud you, because a lot of people with similar ventures just don't have the appetite for retail, especially retail where you just don't park money, right? The Whole Foods strip mall that's going to be there forever, with four or five cap... But the value-add retail. So good, that's great to hear. What's next on the horizon?

Matthew Burk: Well, I think this year we're focusing very heavily on asset management. I've been in this business, Ash, for 30 years, so I've been through multiple recessions, including the big one in '08 until '10, '11, '12. I think in times like this, you really focus on asset management; you want to make the most of the things that you're already in bed with. I think we're looking at new transactions, certainly, but we're really being cautious about picking and choosing our spots, and focusing on delivering value on the assets that we've already acquired.

Verivest - we're launching the fund builder product here. I think the target launch date is February 15th, and that's going to be the automated process of allowing people set up syndications and funds. I'm really looking forward to launching that and growing that over time... So yeah, paying attention to the stuff in our backyard right now, and launching the fund builder product.

Ash Patel: What's the cost going to be to set up a fund?

Matthew Burk: We're launching first the syndication builder. So it's $4,950 to set it up on the front end, and then it's an ongoing monthly fee associated with the admin, and that varies depending on the size of the deal. So it's tied to the total equity raised and the total number of investors.

Ash Patel: And then for the fund, do you have a ballpark on what that would cost?

2; Yeah, I think we're still playing with that, and that'll be a follow-on launch later in, I'm hoping Q2, maybe Q3; probably in the range of 15k to 20k on the frontend for a pooled investment fund, and then similar basis points tied to the total size of the fund on an ongoing basis for the administration.

Ash Patel: And right now, the going rate for syndication - you're looking at about 15k for a typical attorney to do it all, right?

Matthew Burk: I would say that's pretty accurate, yeah. We've done a lot of studies out there, and the number you just said is exactly the number I would have told you that I think is probably the most common.

Ash Patel: That's what we've paid in the past... So yeah, it's a great deal for investors out there, and it makes becoming a syndicator more attainable, even on smaller deals with maybe not so many investors.

Matthew Burk: Yeah, exactly. It's besides just the creation of the documents. It does include a marketing site, where people can upload the information on their deal, point investors to it; it includes the invest flow, so they can do everything right there. See about the deal, learn about it, click the buttons, press Invest, go through all the subscription documents, the whole nine yards. So for a new syndicator, we think it's going to be a really attractive product, and looking forward to seeing how it meets the public reception here in a few weeks.

Ash Patel: Alright. Matt, you're a unicorn; one, you're a disrupter with 30 years of experience in this industry. What else is ripe for disruption that's so archaic in our industry?

Matthew Burk: Oh, I think the documents. I do think the accounting for the documents is ripe for disruption on the administration side, which I think Verivest is also focusing on heavily over time. I think anything that's done in a old fashioned way is ripe for disruption. We see what ChatGPT is doing to content... I think content creation is going to be disrupted in a big way by artificial intelligence. I think a lot of the processes that have been done historically by humans are going to be done more and more by technology... So I think you're just really seeing the beginnings of the impact to the real estate space of technology that has upended a lot of other industries. I don't think this industry is going to be any exception.

It's kind of wild, man. I'm 59 years old, and to see what's happening, at the pace it's happening right now in this industry is unbelievable... So trying to stay at the forefront of it and not get swept away by it.

Ash Patel: Yeah, finally, things are changing, right? It seems like this industry just lags behind.

Matthew Burk: It does. It's a slow-moving industry. If we think about how slow the assets happen... It's like, a lease takes forever to negotiate, then it's a five-year deal... Everything takes longer in real estate. And I think the pace at which it adopts technology has also been the case; you're seeing more and more things across the whole industry of data collection and how things are done... It's fascinating.

Ash Patel: Yeah, we've just signed up for a placer.ai subscription, where -- it's incredible.; they triangulate cell phone data. So we know how many people go to different locations... It's so valuable having that data.

Matthew Burk: Yeah, we looked at that. It's crazy the things that can be done now. Even the way in which our salespeople work with customers, and the way in which we engage and contract information... It's accelerating at an increasingly fast clip.

Ash Patel: Yeah. Matt, what is your best real estate investing advice ever?

Matthew Burk: Make money on the buy. Real estate is all about making money on the buy. Don't overpay, don't get carried away, don't fall in love with the deal, because there's always more deals. And maintaining discipline when everybody is chasing deals is very difficult. But somehow, someway, you have to do that if you want to survive in the long run.

Ash Patel: Here's a question that's coming up a lot now... Obviously, you have the Dave Ramsey's that tell you to buy for cash flow, and then you have a whole different -- well, Dave Ramsey doesn't tell you to buy anything, but there's a group of people that tell you to buy for cash flow, another group that wants you to buy for appreciation. You've seen market cycles... What are your thoughts on that argument?

Matthew Burk: Well, I think it depends on the investment objectives of the specific investor. I think you can make money either way. But I think at the end of the day, it depends on what the investor is looking for. So I don't think there's any one right way. I think it depends on the individual manager and what their tolerance is, and where their expertise lies, and then also what their investor base is looking for. It's kind of like you like chocolate or vanilla. They're not the same for everybody.

Ash Patel: Matt, I wanted a more definitive answer... [laughs] I wanted the wisdom [unintelligible 00:23:01.19]

Matthew Burk: I'm pretty good at [unintelligible 00:23:03.23]

Ash Patel: You've been hanging around attorneys way too long to set up this fund...

Matthew Burk: Yeah...

Ash Patel: Awesome. Matt, are you ready for the Best Ever lightning round?

Matthew Burk: Sure.

Ash Patel: Alright, Matt, what's the Best Ever book you've recently read?

Matthew Burk: I'm a big reader, I listen to a lot of Audible. I think the one I'm working on right now is called "Customer Success: How innovative companies reduce churn and create recurring revenue." That's a really good one. But so many of them, Ash, that usually it's like whatever I'm happy to be listening to at the moment.

Ash Patel: Matt, what's the Best Every way you like to give back?

Matthew Burk: Community service; we're fairly big with a number of projects around the office. We try to do regular things; we bring in interns and young people, try to teach them real estate. We've got partnerships with Gonzaga and Portland State University and things like that, actively involved in the community cycling center, which is a charitable group that teaches kids about bikes. I'm a big cyclist, so I like to participate in that.

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

Matthew Burk: Our websites, FairwayAmerica.com or verivest.com. And to reach me, my email address is Matt.burk [at] either FairwayAmerica or Verivest. Either way is fine.

Ash Patel: Matt, I've gotta thank you for your time today. 30 years of wisdom. You're disrupting some parts of this business that drastically needed it. You're lowering costs of entry for funds and syndications... So thank you for what you've done for this industry.

Matthew Burk: Yeah, my pleasure. I look forward to being on the judge panel with the Best Ever Conference coming up here in a few weeks.

Ash Patel: And if you would, share some details on that, on the pitch contest.

Matthew Burk: Yeah, so at the Best Ever Conference coming up in Salt Lake here in early March, we're having what's called The Verivest Best Ever Pitch Slam. We're gonna have 16 presenters come and present their deal or their company to a panel of five judges, and myself and yourself, along with Joe Fairless, and [unintelligible 00:24:57.03] Dan Hanford.

There's two different categories. The winner of the experience category, looking at a $350,000 commitment from a panel of judges, and we have a category of new managers. So these are newer, more emerging folks that are just getting started, and they stand to get an investment commitment of $150,000. So yeah, looking forward to it. It'll be a lot of fun.

Ash Patel: Yeah, that's gonna be a lot of fun. Well, Matt, thank you again for your time. Best Ever listeners, thank you for joining us. If you enjoyed this episode, please leave us a five star review, share this podcast with someone you think can benefit from it. Also, follow, subscribe and have a Best Ever day.

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