September 1, 2022

JF2919: When LPs Decide to Change the Market ft. Michael Episcope


Michael Episcope worked as a commodities trader for 15 years while investing passively before deciding to take things a step further and earn a master’s degree in real estate. Looking back on previous passive investing experiences, Michael and his business partner came together with a simple idea: “We can do this better.”

Today Michael is co-CEO of Origin Investments, a private equity real estate firm serving nearly 3,000 high-net-worth individuals. Origin builds, buys, and lends to class A multifamily real estate in tax- and climate-friendly states. 

In this episode, Michael shares how he found his business partner, his strategy for finding developers and managing them remotely, how the JOBS act served as a catalyst for Origin’s growth, and why saying no is the most important lesson he’s learned thus far. 

 

Michael Episcope | Real Estate Background

  • Co-CEO of Origin Investments, a private equity real estate firm serving nearly 3,000 high-net-worth individuals. Origin builds, buys, and lends to class A multifamily real estate in tax- and climate-friendly states.
  • Portfolio: $2B in AUM
  • Based in: Chicago, IL
  • Say hi to him at:
  • Greatest lesson: Don’t engage in businesses that create a conflict of interest between you and your investors.

 

 

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TRANSCRIPT

Ash Patel: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. I'm Ash Patel and I'm with today's guest, Michael Episcope. Michael is joining us from Chicago, Illinois. He is the co-CEO of Origin Investments, a private equity real estate firm that serves close to 3,000 high net worth individuals. Origin builds, buys and lends to class A multifamily real estate, in a tax and climate-friendly state. Total assets under management, $2 billion. Michael, thank you for joining us, and how are you today?

Michael Episcope: Great. Thank you for having me.

Ash Patel: It's our pleasure. Michael, 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?

Michael Episcope: Yeah, sure. I'm never sure how far back to go, but I'll kind of start... Real estate is actually my second career. I was a commodities trader for the first 15 years after college, and really during college; I started down at the Chicago Mercantile Exchange when I was 19 years old, I stayed down there until I was around 35-36. I was introduced to real estate as a young, I would say 11, 12, 13, working summers with my grandfather, who bought some pretty tough projects on the West side of Chicago. And anybody who knows the West side of Chicago - the Lake is East, and the further you get away from the lake, generally, the rougher it becomes. And so back in the 1980s, the West side, 4000 West was pretty rough neighborhoods. But he bought buildings through tax sales.

So I really got my feet wet there, and just helping him out with his buildings, doing renovations, things like that, summer jobs and it was great. I got to hang out with grandpa, and learn the business, and I think that really stuck with me, because when I was done with my trading career, I had amassed a lot of assets, but then suddenly found myself with no income. And it was sort of for me figuring out what's next. And I was attracted to real estate, I had been investing in it passively, so I went back and got a master's in real estate. My partner and I had already known each other five years, we'd done a lot of deals together... We were just like kindred spirits, and 2007 - the world looked very different. We had, I would say, okay experiences investing passively, but not great experiences. And we just came together with the simple idea "We can do this better. We're better stewards of our own money. Let's figure this out together."

And in the beginning, it was literally just two guys buying real estate. And we knew we wanted to create something bigger, and we knew we wanted to create a better platform, but it was really about preserving, protecting, growing our wealth, turning our assets into income. And then that morphed itself into our network, syndicating deals to our network as we got a little bit bigger, as we got more personnel. And what you realize is that it is expensive to run a platform the way you want it to be run in your vision. Today we have 50 people, and there's no way that we could possibly support 50 people with our asset base alone.

So that was sort of the idea behind the growth, is let's bring in like-minded people, people like us, and build an institutional platform for the retail investor, for the individual investor with a high net worth. And we launched our fund business in 2011, and it's done great ever since. So we went from two investors back in 2007-2009, that timeframe, to almost 3,000 today. And I think a lot of people are just attracted to us for our team, our track record, the fact that we're investing in all of our deals, and our suite of products that they can invest in, regardless of their risk/return profile, whether you're looking for income or growth.

Ash Patel: Michael, your stress level from being a commodities trader, to the worst stress you've had in real estate - compare the two.

Michael Episcope: It's interesting... I always said, "Look, if I can leverage myself 300 to 1 on a daily basis, 2 to 1 leverage seems pretty easy." But believe it or not, when you're dealing with your own money, there is a level of stress to it. I think everybody - there's anxiety over, and stuff. But I will say that there's more at stake today, because we are now representing the collective interests of 3,000 investment partners, and we understand what's at stake there. These are people who've worked hard for their money, people who are trying to achieve financial freedom, trying to retire, trying to do things, and we take that responsibility very seriously.

So when you only invest your own money and you lose it and you make bad mistakes, you only have yourself to look in the mirror. So I think we've built a great team so we can avoid mistakes and limit them, but I think the stress today is probably a little bit even more than it was back in '07-'08, but for very different reasons. I don't stress out about things that are outside of my control. I know there's some precarious things going on in the economy right now. I think we're really well positioned. And I really look forward to seeing what lies ahead.

We talked to our team about this, and there's storm clouds out there... But we're excited about it. We think that we're going to really do well, we're positioned well, we're defensively positioned, we've been that way for three years now... And markets like this make a company.

Ash Patel: Michael, you were a limited partner in deals before you invested into your own deals. What kind of deals did you invest in?

Michael Episcope: I think I was like your typical high net worth investor back then. But you have to understand that this is pre-JOBS Act. There wasn't this proliferation of deals; you didn't go onto the internet and find them, and find sponsors, and things like that. It was all through friends of friends and friends, and people passing the hat... And I invested in institutional deals, I invested unfortunately in Lehman Brothers, in their fund at the time, and I can talk about that... And then I invested in sponsors; two guys in a truck, driving around, local guys, doing that... And I learned a lot. And I use those examples, because what comes to mind is the fact that I invested at that time with who I thought was safe, and the big names out there - "Lehman Brothers. These guys know what they're doing." Well, that didn't go so well. And what was crazy about that is I remember that sort of dog and pony show that they had where they marched all these high net worth investors in the room, ultra high net worth family offices, and they had a great pitch about there's turbulence out there, "We are going to take advantage of the carnage that's coming." And this was like right before I invested with Origin. And I'm telling you, the day I signed up for that fund, they called 60% of my capital, something close to that. And what I realized was that they had warehoused all of these assets since '06-'07. These assets were already 30% lower than what they paid for them at that time. So this idea -- and it just really struck me. I'm like, "Oh my God, there's no safety in these big names." And these are people who are so disconnected from the investor in me, and just don't have an alignment of interest. And then on the smaller side, what you realize is that the smaller guys, they don't have a balance sheet. And when things go wrong, they have to rely on you. And if they have bills to pay, and things like that, sometimes they don't make the best decision if they don't have their own finances in order.

And I look at mistakes, and I try to keep things in perspective, and I know in the moment I'm sure a lot of people on your show have had bad investments. And you always draw on those; those are called experiences. And if I didn't have those, if things went well with the institution, if things went well with these, we would have never built Origin, we would have never said "Enough with this. We're going to change the market." I wish in many ways I didn't have them, but I always think that these experiences lead you to other places, and you draw on them, and you have to take a breath sometimes and say, "Okay, I'm still standing. I'm here. Good things will come out of this", and these are the battle scars that we have from going in. But as painful as it was at that time, and as stupid as you feel from making those decisions, a lot good things came out of it.

Ash Patel: Did the collapse of Lehman -- was that the catalyst to start Origin, or to start doing your own deals?

Michael Episcope: It wasn't just that. It was a combination of just seeing what was out there on the private real estate side and how to take advantage of real estate. And we know that real estate is one of the biggest creators of wealth and protectors of wealth out there. But when you're trying to invest at a passive level, we weren't finding the great opportunities; what you would find is a really good sponsor, but a lot of times really good sponsors, they use that to their benefit and they charge super-high fees. So you're getting into good deals, but you're not really making good, risk-adjusted returns. But then there's also adverse selection, where if you find a new sponsor, and you find good fees - well, you're paying for that experience. So it wasn't one thing, it was a combination of things, and also just coming together and saying, "We can do a better job, and nobody's really a better steward of your own capital than you are." So I decided to retool myself, become educated, do this. And we've always taken the baby steps along the way as we've been learning, but I will say, the best thing that we did is just acquire a really high-quality, experienced team behind us. And we've kept the vision and the ship moving in the right direction. And one of that was like, "Look, we're not going to be one of these sponsors who starts with a high net worth, and then goes to the institution and leaves all these individuals behind. We're going to be an organization that is built for the high net worth investor to bring that institutional platform to them." And that's what we've always stay true to, is that mission of staying at that. Because it's sad, but a lot of the really good sponsors, they want these big checks, and they leave that market, so it leaves the high net worth investors sort of high and dry, and "Where do I go?"

Ash Patel: "Thanks for playing, but now we're gonna move on to the institutional investors", yeah.

Michael Episcope: Exactly, yeah. Taking all that risk when we were young, but see you later, right?

Ash Patel: I want to dive into how you started Origin, but I want to start at the beginning. How did you find your partner? And what were the deals you were taking down initially?

Michael Episcope: Well, my partner and I just met -- it's funny, because we have a very similar background. We were both in trading, but I didn't know him through trading. And we had a friend group... I had heard things about him, he had heard things about me... We met one night, we were at a get-together dinner or something like that, and we would just really hit it off. We were talking for like hours, and it was just like one of these things where you connected on so many levels.

So we got together, and then at that time, he was doing a little bit of real estate, but he was also in a nonprofit. He pulled me into the nonprofit, we worked together for a long time on that. That was sort of our first foray. But we also shared investment ideas as well during that time, because we had the same problems. We were high net worth individuals - it's a first-world problem, I get it - and we needed to figure out how to make our assets work for us. And we didn't want to be two guys who said, "Hey, I used to be rich." And I had a family, he had a family... So that's kind of how we came together in the beginning... And it's been great. I'm looking at it now, it's almost 18 years later since we've known each other; we've been partners for 15-16 years.

Ash Patel: And what did that napkin look like when you guys were drawing out this real estate company?

Michael Episcope: I wish I could tell you we had this grand vision... We didn't. We were first investing -- we were looking for edge. And I'll tell you, the timing was perfect, because as we were going around trying to figure out where we wanted to play, we wanted to protect our assets, so we were looking at the lending market. Okay, what about mezzanine? What about preferred equity? And we started in that business. And what we quickly realized is that there were a lot of bank loans that were starting to deteriorate. And we learned quickly about how banks were selling loans at a huge discount. And so we quickly pivoted; we didn't even put any money out in the common equity or the equity markets, and we started talking to banks right away. And that's where we found a lot of edge.

And what you realize though, is that banks don't get rid of bad deals, they get rid of, a lot of times, bad borrowers. And we ended up doing some things, and we weren't having fun. We were dealing with the worst of the worst, and taking on great properties, huge edge... And it was a lot of work at the time. But we did well. But what we learned about that is what we were gravitated towards at that time was the value-add market; it was buying good properties at great discount, fixing them up, holding them, cash-flowing them... And then after that, in 2009-2010 the bank loan market started to dry up, so we went into more of the traditional value-add area. And at that time we were asset-agnostic, because capital had all the leverage, and we just wanted to find good deals. And it was about doing good deals and building the team at the same time.

1Ș So what asset classes were you investing in, and were these all around Chicago?

2Ș They were predominantly around Chicago, but we were looking all over the United States, and we didn't have a cohesive or coherent, strategic plan at that time about what we wanted to do. And again, we were agnostic. So it was student housing, it was industrial, it was multifamily, it was retail strip centers, it was everything.

And as the market had shifted, capital had all the leverage going back to 2010, I would say even through 2016-2017; that has shifted now, because so much more capital has come back to the market that we have become a much more specialized organization. We started to do this early on, in 2014-2015, [00:15:29.27] the world down, but today we're only in multifamily. And you had mentioned in my bio that we build, buy and lend to multifamily. Well, we're only in today's environment lending and building to multifamily properties, because we just think that the risk/reward in buying properties or doing value-add today is not worth it. We're seeing 20-year old properties trade above replacement cost, and it might work for the next year or two, but when that relationship changes, and it will (replacement cost is generally the governor of fundamentals) that's going to flip, and flip hard, and we don't want to be caught with the bag on holding a 20-year old property at 40k-50k per unit above replacement cost.

Ash Patel: Well, let me play devil's advocate... So yes, replacement costs - properties are trading well above that. However, build costs are through the roof as well. How do you have a competitive advantage in building?

Michael Episcope: Great question. And here's how we view the world. If you're looking for edge, and you're looking to play - and I don't have a crystal ball, so I don't know where we're going... But if we are looking at -- I'll use an example of a 10-year old property, right? We're not going that far out. A 10-year old property right now - let's just assume it's trading for $300,000 per unit, and there's a value-add to upgrade, and yo'veu got to put $15,000 per unit, and you're at $315,000 a door. Plus, you have to sell it for a profit, so your exit in four or five years might be $360,000 a door. Well, the property at that time is going to be 15 years old. If I can build today For $280,000, I'm in a much better position, because I have a brand new property at a lower basis. And yes, real estate is about location, but it's also about basis. And I would way rather be in the brand new, shiny, updated, upgraded state of the amenities project, than something that's now 15 years old, that I have to sell it $360,000. If that 15-year old property does sell at $360,000, my ground-up development, the one that I'm delivering right now, is probably going to be worth $400,000, or even more than that. And that's kind of how we look at the world, is "Yes, it might work", but we don't like the risk/reward, because we think it's asymmetric. If you're wrong, you're losing half your equity. And if you're right, you're maybe making half. And in ground-up development if we're wrong, it feels like we're just giving back some of our profit, or making less money rather than actually losing money in that situation.

Ash Patel: What areas are you building in?

Michael Episcope: We're focused in Southeast Texas and Southwest markets. There's some markets that we're more excited about than others, just because of supply demand fundamentals. Colorado Springs is an exciting market. We're one of the largest developers in Colorado Springs right now. We have four projects going on there. And Colorado Springs - it's an MSA of about 500,000 people, its occupancy is 99%. There are people on waiting lists there... It has everything that Denver has to offer, without the crowds, without the traffic. The city there has really gone from anti-development in the last five years to pro-development, and welcomed developers in; they've given great tax abatements as well to incentivize us. So we couldn't be more excited about a market like that, and going deep into it.

Denver is also a really good market; certain sub markets are overbuilt, we're there... But all the charm of Denver and what it made a great 10 to 15 years ago - it's now seeing some of the stress of big cities. Denver used to be a small city, but now you're getting traffic; if you want to go skiing and enjoy that, you're going to sit on I70 sometimes on the weekends for three hours.

The other market that we are going deep in is Jacksonville. We love that. In Florida it's all about affordability, and we've seen Tampa run up, we've seen Miami run up, we've even seen Orlando, but Jacksonville has some really good fundamentals that we like a lot, so we're going deep there as well.

Ash Patel: I was in Colorado, speaking with some of the locals... Before, if they'd go skiing during the week, the slopes are theirs. And they said now it's packed beyond belief every day of the week, all the ski resorts. So yeah, I get what you're saying. Let's go back to your first hire. You and your partner - what was your first hire?

Michael Episcope: The first hire we got right? [laughs]

Ash Patel: Let's do a deep-dive now.

Michael Episcope: We'll talk about the first hire we got right. So our very first hire --

Ash Patel: No, no, no, let's go back and talk about the mistakes and the lessons learned.

Michael Episcope: Oh yeah, it's so funny, because I do think about mistakes, and it's so easy... I try not to get too caught up in that, because you have to realize, for all the hiring mistakes I've made, I look at the great team that we have today, and I remind myself, we've made some really good hires as well. And you're not always going to get them right. First of all, our controller has been with us for 12 years now today, and I remember we just celebrated her anniversary last week... And she has been a fantastic hire. And I remember like it was yesterday the day she came in and interviewed with us. So she has been fantastic. Obviously, you need a really good accounting group when you're dealing with as much money as we are...

The second hire who's still with us today is Tom Bryan. He's our Managing Director out in Denver. And it's really been, I think, from a management perspective or an owner perspective, watching him rise through the ranks from an analyst to a senior analyst to asset manager to deal professional, and even watching him get married and have a family and go through these stages in life... It's really been satisfying to watch that, from my perspective.

The other hire who was very early on and instrumental was Dave [00:21:06.01] is our managing director of acquisitions. And I actually went to graduate school with him. And he was just a rock star, and I loved him. He had an awesome demeanor, and we did projects together, and I used to drive him home at night, and I don't think he realized it at that time, but this was all an interview for me. And Dave, at that time, was working at Deutsche Bank RREEF, which is their real estate arm... And when we had an opening, I just did a beeline to him and I said, "Hey, come work for us. Here's our vision, here's what we're trying to do." And that was in, I think, right around 2010. So he was in there from the early on, and he has been just an absolute rock star, and a big part of producing our track record, but also training our team, and he's just a really good human being.

So we've got some wrong over the years, but with hiring, it's your hire slowly and fire fast. And that's all it is. And we're all humans at the end of the day, and you want to get it right, and they want to get it right, and when it's not a fit, you have to show them the door in a kind way and help them move on... Because there is a firm for them out there.

So we've done pretty well. We've gotten close to 45 team members, we're growing to 50 this year, and I kind of just pinch myself, and the group of people we have, and the culture we've created.

Break: [00:22:17.09] to [00:24:03.25]

Ash Patel: Michael, you never anticipated having this big company... So when it was just you and your partner, were you apprehensive about your first hire?

Michael Episcope: No, not really. My partner and I - I think one thing that made us good traders was making quick decisions on both sides. So when we made our first hire - I mean our hires have always happened sort of organically over time, and filling people into positions we need, hiring ahead of growth... But we've never been shy about hiring. And I think we have a very good process now, where we include a lot of key members in the hire. And it really has to be unanimous for them. And I generally have pulled myself out of the hiring process, and I only meet people sort of when it's at the end and it's somewhat perfunctory, and very rarely does somebody get to me and I veto them and say "No, this isn't a fit for us."

Ash Patel: And how are you finding land to do your development today?

Michael Episcope: We have a regional framework, so we have people in our markets out there. We're also more of a joint venture model, so we partner with a lot of organizations out there... Because we operate in a fund format, so typically, what we're doing is either finding land directly, or we're joint-venturing with another group and looking for sort of shovel-ready deals in those situations... Because for us, we want to be geographically diversified, and most sponsors are concentrated within a single geographic location. But for our fund investors, being in the Southeast, the Texas markets and Southwest, it's a way for us to scale very rapidly and have a view of a lot of deals out there. So we've had long-standing partners for 5, 6, 7, 8 years, that we do multiple deals with, and then our team is also looking for land directly, and we will bring in a developer into the project.

Ash Patel: How do you find the developer and how do you remotely manage them?

Michael Episcope: Well, finding the developer is really about relationships, and that's what our team does. That's why we have somebody in Charlotte, why we have somebody in Nashville, in Dallas, in Denver. That is their job, is building those relationships... And managing them - a good partner doesn't have to be managed, and I think there's a responsibility on our side to be a good partner; we're bringing the majority of equity, so we follow the golden rule and he who brings the money makes the rules. And we're bringing 90% to 95% of the equity. We have the right to remove them, we have all the control rights. But candidly, in any good partnership, you don't want to pull out the PPM; you want to have a partnership where you have dialogue, where you have open dialogue, where when things go wrong, you have to ask yourself "Is this the person who I want to be in the trenches with?" And that PPM should not even come out, or that agreement, until you're figuring out what the profit splits are, at the end, generally. And things will go wrong, but that's where you really see people's true colors, and how they come out. And I think that we've done some really good partner selection, and we like our partners lot, who we've done multiple deals with. And it's really about those repeat partners, and building those deep relationships.

Ash Patel: In the money raising world for people that bring capital to someone else's deal, they typically get between 20% and 30% of the GP shares. Is that similar with development? So if you bring the majority or all of the capital, let's say, to a partner that has the development resources, the track record - is that a fair shake, 30% or so with the GP, or is it much higher?

Michael Episcope: Generally -- so for us, because we're bringing so much capital in... Let's just say a typical deal requires $30 million, and we're bringing 90% of that, so $27 million. We are going to negotiate a waterfall with that sponsor that's very different than maybe an individual investor would negotiate if they were going there directly to raise that on their own. Your waterfall is going to have different tiers, so it might be [00:28:00.07] meaning you're equal up to 10%, and then from 10% to 15%, there could be a 20% disproportionate to the sponsor, above 15% to 18% they get 30%, and above 18%, they get 40%, which is more like a hope note if things go unbelievable. And that's over generally a four to five year lockout period.

Today, your development deals are penciling out to 15% to 17%, maybe 16% to 18% over a four-five year period; that will double your equity generally over that period, and that's what we look for. That's the bogey.

So what you are giving away to that sponsor is generally anywhere between 10 to 20 basis points in dilution. But for that, they've been working on this deal for a year; they put the entitlements in place, they earned their money. And a lot of times, especially today, when we're tying up a deal where they tied up land a year ago, and their cost basis is $20,000 per unit, but the prevailing market rate is $40,000 per unit, we're happy to pay them that promote and those extra dollars, because they've earned it to get the deal to shovel-ready, to front all the soft costs, the hard costs, taking down the land etc. And they should get a disproportionate share of the profits for all that, plus guaranteeing the loans.

Ash Patel: Thank you for clarifying that. In the beginning, how did you start recruiting investors?

Michael Episcope: Oh, that was friends and family. And again, David and I were fortunate enough to come from the trading world, high net worth... So there were a lot of individuals at our same age, early 30s, mid 30s, late 30s, who had a lot of money, and who were looking for investments... And I think they trusted us with their capital. And a lot of times the deals spoke for themselves. In the beginning we would never bring a deal out to an investor group unless we knew it was going to be good. We never had 100%, but in the beginning it was like "Look, we're putting in a lot of our money." We would do 30%, 40% of the deal. "Here's why we like it. Here's our plan", et cetera. And you build trust by doing the things you say you're going to do, and more.

And I think we were really conservative in the beginning about how we were marketing deals, our proformas... And when you consistently outperform and outperform and outperform, what we were hearing more and more is, "Man, if you would have told me that, I would have put a lot more money into it." And that's not our job. Our job is to protect the downside, let the upside take care of itself, and talk about the risks of the deal, how we're mitigating them, what we think is reasonable upside... But we're not here to convince you to do something with your money you don't want to do, or show you something that we don't think that we can achieve.

And that trust has just been built up over years and years, and what you realize is that when somebody gives you $100,000, and you show them a really good experience - and I don't mean just the returns, but also in the service, also in the reporting, everything else you say you're going to do... When you write them a check back for $200,000, or $250,000, they then turn around and write you a check for $500,000 for the next deal. And you have to prove yourself, and that takes a long, long time.

The inflection point for us was really in 2015, when we were still a very small organization, but we had a great track record. We were tracking in the top decile of managers for fund one, fund two... And it was just literally looking at what happened with the JOBS Act, the ability to find the market... We saw what others were doing out there, and we said, "Look, we've got a great product here, a great team. Let's put real marketing behind this. Because the more people we can get in front of, the more people who will buy our product." Very simple idea, right? That's how every company operates. But before that, it was meeting people; network, network, having lunches, things like that. So once we did that, we went from 80 investors at the end of 2014 to 500 investors by the time we closed our third fund in 2017. And then it's just taken off since then. Today we have 3000. We're adding 50 to 100 every month. But it was really about scaling operations and getting a broad message out, and being able to deliver really high-quality returns to our investors, with great service at the same time. That's been the challenge from an operational standpoint.

Ash Patel: You mentioned the JOBS Act twice. Is there a certain part of that that was a catalyst to your growth? Or was it just the overall inflection of capital?

Michael Episcope: Just the ability to market, to go out onto the internet. Because pre-JOBS Act - and a lot of people may not know this, but the legislation was written in sort of a post-Depression era, that was meant to protect investors. And so accredited investors - you could only transact behind closed doors. Well, think about the environment that created for non-transparency when all you could do - you didn't have the ability to go search out there, you didn't have the internet, you didn't have the transparency that exists today, or the proliferation of deals. So it allowed a lot of organizations to exist that were subpar, just because they can use marketing tactics, and there wasn't this flow of information that you had today, where people can do a lot of due diligence and choose between numbers and numbers of funds.

So it transformed the world of investing as we know it... And today, if you go online and you google "private real estate investing", you'll have 30 companies that come up. 2007-2008 you wouldn't have had one come up. And if you did, you had a website, a generic one that said "Contact us." You couldn't get any information on there. So very, very different... So we use that, and we were one of the early pioneers to take advantage of being able to market our track record, our team, our strategy, everything online, directly to investors.

Ash Patel: I did not know that. Interesting. From my experience, people that invest in stocks stay with stocks, people that invest in real estate don't really put a lot of money into stocks. How did you convince a lot of your former colleagues to leave equities and put money into real estate, when their whole world is stocks? Especially with the run that the markets had; you're competing against a 10-year plus bull run?

Michael Episcope: Yeah, I think the message that we always tell people -- today, we're very defensively positioned. We've been this way for a while. What we're seeing today is really concerning. But this is not 2008 all over again. I know many of us have that in the back of our mind. The message that we always tell people is "Look, we don't have a crystal ball. You don't have a crystal ball." And I had a conversation with somebody yesterday, because they're like, "Okay, well, the market's going down, it's very clear..." I said, "Well, hold on there a second... If I would have told you that three years ago we were going to have a global pandemic, that the world was going to shut down, that there was going to be a war, that Russia was going to attack Ukraine, all of these things would have happened, what would you have done?" She's like "I would have pulled out of the market and bury my head in a pillow." And again, it would have been the exact opposite of what you should do. Because even when you have all of the available information, markets behave in a very weird and strange way, that we don't quite understand. We always explain it after it happens. "Oh, that makes sense", right? But in it, we don't know what's going to happen.

The message that we always tell people is "Look, real estate, and especially multifamily, over any 10-year period, has never lost money." And when we're looking at how we're positioning ourselves through development, through preferred equity, how we're protecting ourselves through bases, through capital structure, most people that makes a lot of sense to. And we also preach, "You always need real estate in your portfolio." And it's not public OR private. It's really public AND private. And what private real estate does is it exposes you or gives you access to alpha; that's the excess return that we create as managers. It reduces portfolio volatility, and it makes your portfolio just perform better.

I actually got a call from an investor the other day, and it was so cool, I shared this with the whole team... It was unannounced; so I was talking to my partner, I was in the car, and I said, "Hey, let me get this call really quick. I'll call you back." I answer it, and he says to me, "Hey, Michael, I wanted to reach out to just thank you and your team, because I just had my portfolio review, and the only thing that kept my portfolio being down 20% were my investments with you; these private investments in real estate." And it was just great. And by the way, the RIA, his wealth manager, didn't recommend us; he found us directly. We do work directly with RIAs, but in that case, we didn't. And that to me is sort of the reason why you need private real estate; you have no idea if it's gonna go up, if it was gonna go down, today, tomorrow, but over a long period, it will continue to rise. But we know that over a 5, 10, 20, 30-year period, real estate has actually outperformed the S&P 500. And I don't think that's going to be any different for the next 5, 10, 20, 30 years. We could have a whole show on why that's the case, but it is proven over and over to build substantial wealth and generate tax-efficient income for investors, you have to have this in your portfolio, somewhat.

Ash Patel: What is an RAA?

Michael Episcope: Sorry, registered investment advisor. It's a wealth manager.

Ash Patel: Okay. And the reason they don't recommend people like us is because they often can't get paid on deals that they bring to us. Is that the case?

Michael Episcope: Kind of, yes. I use the term registered investment advisor for a reason. These are true fiduciaries; these are people who work on behalf of their customers. And our motto is that good products are bought, they're not sold. We do work with a lot of RIAs out there, just in this case, our investment didn't come directly from them. What we steer away from are the advisors, the individuals who sell products on behalf of companies. So when you are getting paid to sell a product, there's an inherent conflict of interest, because even if our product is superior to the one they are selling, they cannot recommend our product, because we're not paying them a commission. And the reason why we don't pay them a commission is because ultimately, we as a company are trying to be as efficient as possible, and we want to put 98% of the capital that we raised into the project. When you're paying the channel, the advisory channel, the wholesalers, everybody else in the middle, when you're paying them 15 cents to distribute your product, you can only put 85 cents into the project; fees destroy returns. So direct-to-consumer is really important with us, but we absolutely work with RIAs, just not the advisory channel.

Ash Patel: Got it. If you had to start all over again, and you don't have a network, you don't have a net worth... What would you do?

Michael Episcope: Wow, great question. If I had no net worth and no network... First of all, I would educate myself. I would go to school, and I would go and work for somebody and build my resume. I would go find the best -- whatever vertical you want to go into, whether it's development... Go find the best developer; you can and go work for them. Even if it's free for a few weeks to prove yourself. It could be investment management, anything. Build your resume in that way. Because ultimately, that's how you build your network. And you can really ostensibly build a track record on the backs of somebody else, and learn how they do it. But to go out there, if you don't have a track record, if you don't have net worth, if you don't have a network, it's next to impossible to start on your own.

Ash Patel: Your masters in real estate - would you recommend others pursue that degree?

Michael Episcope: 100%. Yeah. For me, there's not a lot of schools throughout the nation that offer a master's in real estate. There's certainly many that offer an MBA in a concentration in real estate. But what I loved about it is it was 100% real estate; even the marketing classes, the accounting classes, the tax classes, the law classes - they were all around real estate. So it was truly an immersive experience. And when I was transitioning careers, knowing enough to be dangerous about real estate, it was a great way for me to sort of scratch the surface and figure out where I wanted to be, but also create an instant network with the students, with the faculty. And I still keep in touch with many of them today.

Ash Patel: Michael, what's the hardest lesson you've learned in real estate, and what's also your best real estate investing advice ever?

Michael Episcope: Saying no, that's the hardest. And just being disciplined and not running after, and staying in a lane. And I would tell you that in investing - and in life in general; this is something I tried to teach my kids - one of the most important words you can learn is no. Once you make an investment, once you're in there, it's hard to get out of those things. So you have to be really, really sure early on that the investment is right for you.

And your second question was what's the best advice I can give people... Bet on people, not deals. I know there's a proliferation of syndications out there. You really have to believe in the sponsor, and you have to believe in their integrity, their ability to generate returns, and their alignment that they're doing these things for the right reasons... Because in my experience, the deals that kept me up at night - it wasn't even about if the deal went bad or lost money, I'm going even pre-Origin here. It was about the people, how they behaved in that particular deal.

And by the way, I talked about Lehman Brothers in the early thing; I had another deal with Lehman Brothers, and that did incredibly well, but it got caught up in the bankruptcy. But the difference was that manager had 60% of his net worth in the fund, with us. And there was a hypothecation - this is a word that I learned throughout this - of assets. But this fund wasn't caught up in that. And I literally wrote this thing down to zero. I'm like, "Yeah, yeah, yeah..." Well, 10 years later this thing returned -- I think it was like 250%, because they were still running the fund in between there. This guy fought tooth and nail to get his money and everybody's money out of this bankruptcy, and he won. And that just goes to confirm how important alignment is when you're thinking about investing in real estate, and just making sure that you win and lose together.

Ash Patel: That is great advice. One of my LP investments is a mobile home park. I know nothing about the deal, but I know the operators are not doing a good job communicating and executing... So great advice. Michael, are you ready for the Best Ever lightning round?

Michael Episcope: Sure, shoot.

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

Michael Episcope: Oh, God... I just read a couple of golf books, believe it or not. I've read so many business books in my life, and I know this isn't the lightning you were looking for... There was a really good book called The Match. So for those of you out there who are a golf enthusiasts, I've found it's so interesting and easy to read. And I love golf, and it just talked about the history of Ben Hogan and Ken Venturi, and the history of golf, and I've learned so many things about the sport. And what it did is it just brought me to other books. And so now I have this stack of golf books that are really just intriguing, and learning about how it sort of came to be where it is today.

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

Michael Episcope: Go to our website, OriginInvestments.com. We make it super-easy. We have a chat box, there you can download our materials by just filling out a simple form, you can schedule a call with any one of our investor relation contacts on that site... Or you can always reach out to me directly, Michael [at] OriginInvestments.com. We really pride ourselves on being connected with our investor community and being accessible.

Ash Patel: Michael, I've got to thank you for your time today sharing your story of being a commodities trader for 15 years, working with your grandfather in real estate at a young age, getting your masters in real estate, and building Origin, which is an incredible company... So thank you for your time today.

Michael Episcope: Thank you for having me. I appreciate being here.

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

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