Podcast

Building Wealth As Though You’re Already Your Own Family Office

4Q20

Strategies for proactively planning growth for generational wealth from a real estate private equity perspective.

Read The Transcript

In this week’s episode of Real Wealth, Real Health, we turn our attention back to the world of Commercial Real Estate Investing with our guest, Brian Adams, President & Founder of Excelsior Capital. Brian started his career in litigation, then transitioned to becoming an established operator of office assets in the US after identifying the vast opportunities in commercial real estate investing. Brian has developed his own unique investment philosophy, and speaks about his approach to investing, both from an individual perspective and the viewpoint of a real estate sponsor. Like any successful professional, we find that many of Brian’s most valuable lessons have been learned through experience.

 

Brian offers a plethora of fantastic insights, from the importance of strong infrastructure to a burgeoning business, maintaining positive investor relations, and why it’s critical to plan for scale as your business grows. Brian’s journey with Excelsior Capital has been emblematic of his approach to business, as he has pivoted his target investments to satisfy the needs of his investor base and found great success doing so, while maintaining flexibility. We talk about the reasons he finds office assets, particularly in the suburbs, to be an attractive area for future growth, and the trends he sees in the Commercial Real Estate & Private Equity landscape. Aside from his professional knowledge, we pick Brian’s brain about his personal approach to wealth building, estate planning, and work-life balance.

 

Key Insights

  • The role of alternative assets in your investment portfolio
  • Why it’s imperative be open and vulnerable about your own mistakes, accept & learn from them in order to move forward more successfully
  • The advantages of viewing Real Estate investments through the lens of a small business
  • What is a family office and how to plan for generational wealth and wealth transfer
  • The value of communication and transparency in investor relations
  • How increased access to Commercial Investment opportunity can help bridge the ever-widening gap of inequality that persists today
  • How patience can lead to far greater flexibility (and profits!) in the long run
  • The mindset necessary to start to use the tax code to your own advantage

 

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Guest Bio

Brian C. Adams is the President and Founder of Excelsior Capital, where he spearheads the investor  relations and capital markets arms of the firm. He has 10 years of experience in real estate private equity and has advanced knowledge in best practices for strategic real estate investing. Prior to forming Excelsior Capital, Brian co-founded Priam Properties (an institutional real estate private equity sponsor) in 2010 and provided leadership and direction for the firm in connection with capital markets, investment management and investor relations.

He has served on the Board of Sirrom Partners, LP, a single-family office investing across private and public asset classes since May of 2008. Since May of 2017 he has served on the Investment Committee for Solidus LP, an early-stage venture capital firm focused on investment opportunities in Healthcare and Technology. From January of 2016 to January of 2018, Brian served as a member of the Board of Next Gen Advisory Faculty for the institute of Private Investors/Campden, a program designed to support next generation family members in preparing the following generation for the responsibility of being a steward of family wealth. He has also served on the Advisory Committee for the Southeastern Family Office Forum since December of 2016. Brian is a former practicing attorney, earning his J.D. from Suffolk University and his B.A. from Wesleyan University with Honors.

 

Resources:

Real Wealth Real Health

Alpha Investing

[email protected]

Podcast Transcript

Speaker 1:

Welcome to Real Wealth, Real Health, the show that empowers you with insights, information, and inspiration to achieve your version of financial wellness. Learn how to balance living a full life today with planning for the future. This podcast is brought to you by Alpha Investing, a real estate-centric private capital network that provides exclusive investment opportunities to its members.

Speaker 1:

And now, here are your hosts, AdaPia d’Errico, and Daniel Cocca.

AdaPia d’Errico:

Brian, welcome to the podcast. It’s a pleasure to have you with us today.

Brian Adams:

Yeah. Thank you all for having me. This will be fun.

AdaPia d’Errico:

Yes. So today, we’re going to talk to you about your story, why you’re passionate about real estate versus other alternatives. We’re going to talk about wealth management, family offices, and we’re really going to hunker down, I think we talked about the role of alternative assets in an investor’s portfolio, especially these days, and looking towards the future. I know you have a lot to offer in terms of ways to think about investing, and portfolios, from a scenarios perspective, and playing some of those out.

AdaPia d’Errico:

I know this is going to be a fantastic conversation with you, so let’s jump right in, and let’s hear from you. Who are you? What are you doing these days? How did you get into real estate?

Brian Adams:

Yeah. I’m originally from Upstate New York, then I grew up in the Northeast. I met my wife in college in Connecticut, and then we both went to grad school in Boston. She’s from Nashville, and so we moved here 15 years ago, and I am a recovering attorney, so when I moved to Nashville I practiced law for a number of years. I didn’t do corporate, or real estate, I was a prosecutor in the Davidson County district attorney’s office on the vehicular trial team for a number of years trying cases for the most part.

Brian Adams:

The way I got into real estate was my wife’s family has a single family office based here in Nashville, Tennessee, and my wife is the oldest member of what we call G2, so my father-in-law’s the patriarch of the family. In addition to his day job at Vanderbilt as a trauma surgeon he took a company public in the 90s here in town in the mezzanine debt finance space, and since that time we’ve had a family partnership for the benefit of the lineal descendants of his family.

Brian Adams:

That’s my part-time job, and then my day job’s in real estate, but the family had invested in commercial real estate through various sponsors, GPs, funds, co-investment, et cetera, and so I got exposure to a lot of those investments, and that’s how I got into the business. I linked up with my business partner, who’s also a New Yorker that married a Nashville girl. We started the business 10 years ago, and I’m sure we’ll get into this, we’ve grown the portfolio to about two and half million square feet, so probably roughly 375 million dollars gross asset value in a bunch of different markets in the Southeast and Midwest.

Brian Adams:

I definitely earned my stripes, made a lot of mistakes. I’ve tried to learn from them, and hopefully can prevent people from stepping into the same pothole twice that I did.

AdaPia d’Errico:

Fantastic. Thank you for that. You mentioned this about the mistakes, and when we were doing our pre-call and talking about this one of the things that really shone through for you was you said I don’t want to come on here and talk about my deals, I want to come on here and focus, and teach through my stories, and through what I’ve done on how to avoid mistakes, and that’s a huge theme for me in my life as well, is I really believe that sharing our stories is part of our own process for understanding why we went through something and pulling out the lessons. And also very much that whatever “happens to us” is actually happening for us, and it contains a lesson for other people.

AdaPia d’Errico:

I really appreciated that was something you wanted to focus on. So what are a couple of the things that you did learn that have allowed you to be this successful at this point?

Brian Adams:

I think to echo your comment I’m not really sure what the world needs is more sponsors or GPS talking about how great they are and awesome their deals are and cannibalizing each other’s time on these type of things. So I appreciate the fact that this forum is a little bit more open-minded than that. I’m happy, of course talk real estate. I think it’s much more interesting to talk about being vulnerable to the mistakes that you’ve made, being very open and transparent about them to help other people hopefully create successful businesses. And so for me, there’s a couple of things that I want to highlight. One is if you’re a fundless sponsor and a GP and you’re looking to grow your business, it’s really important to understand that you’ve got the real estate investments you’re making, which obviously are hugely critical. But I think even more important is the realization that you’re also starting a small business, right? Because you’ve got all this infrastructure that has to be in place and has to function properly for you to be able to execute on the real estate side.

Brian Adams:

I did not take that into account when I started my business. I did not put the correct amount of resources, time, and energy and money into it that I should have. And that was a huge mistake. I definitely felt the brunt of that mistake for my investors. I just was lacking in investor relations, marketing, reporting, tax, audit, HR, all these things that had to do with the business side of it, the small business side of it, I was very focused on doing deals and then the deals were working and we were able to raise capital. And so it all kind of caught me at once. And I had a very difficult year taking everything down to the studs and rebuilding it and putting in the proper protocols and infrastructure in place. And now that we’ve done it I’ve really seen the benefit. I’m a huge proponent of doing some things on the front end to make your ability to scale much more efficient on the backend.

AdaPia d’Errico:

And that probably also provides a better experience for your investors. And something that we talk about a lot at Alpha is this is a trust building exercise. And people are giving us or you their hard-earned money, and we have to earn their trust And it’s not a one-time deal. It’s not just this deal is going well, but it’s how we speak about something, it’s how responsive we are. It’s so many different things. And so I’m curious from your perspective how did that change the relationship with your investors as you went through this?

Brian Adams:

Yeah. I think I’ll quote Brené Brown and say like clear is kind, right? It works both ways. I think you need to be very clear with your investors about what they can expect from you, but also be actually open to listening on what the expectations are from the investor base and to the extent that you can give them that products and investment that they want. If you set expectations on the front end and we do a very good job of this now, which we didn’t originally where this is what you can expect from us, monthly financials from the asset, quarterly distributions, quarterly commentary and an asset level and a market level. We put out a monthly newsletter. If you email an inquiry to us, somebody will respond within 24 hours. We might not have exactly what you need, but somebody will get back to you within 24 hours.

Brian Adams:

You’re not allowed to call me on the weekends. That’s my time with my family. And that’s really important for me to have that downtime, to recharge the batteries to be able to be a good fiduciary for you during the week. I think I was really nervous about doing that because I didn’t appreciate, I was scared, right? I mean, you worry, that’s not enough, people are going to want more, you’re going to kill the pitch if you start this way. But the reality is if you’re just very communicative and transparent and being a good listener and setting expectations with your investors, it really does set the whole relationship for the rest of the time they’re going to be with you because these individuals, families, they’re looking at 10 plus years of being your partner, that’s a pretty long time, right? I mean, that’s legitimate.

Brian Adams:

So that was one of the big things for me was actually taking time to listen to what that investor process would look like. If you could paint me a picture soup to nuts as an LP, what exactly would the steps be? What would you want the steps to be? What would you want that experience to be like for you? And to the extent you can give them what they’re hoping to have have.

AdaPia d’Errico:

Yeah. I love that process and it completely resonates. It was funny I was thinking when you said the 10 years and I thought that’s a marriage sometimes longer than some marriage, longer than my first one. So I’ll just say that. So it’s just that these are long-term relationships. It’s the right approach to have because you’re reporting monthly or you get your information monthly and when we’re running our own businesses as we are. you mentioned something about the weekends And so I think it’s really important to be able to find and set those boundaries respectfully for everyone. I also really appreciate that, that you mentioned that because so often in the way that our world works these days really has been always on, always on, but it’s not really conducive to a life that even allows you or I, or even our investors to be more productive when they need to be. Because if you’re always on, you really never necessarily focused on the present moment. And you mentioned listening and so much about listening has to do with presence.

Brian Adams:

Yeah. And that was a big key. I think what you also find in this business are white alpha males that are making decisions on a ego-driven basis and not in an empathetic basis. Where just because you can do a deal is it really in the best interest of your LPs? Are you’re acting as a fiduciary or is this going to drive the size of your ego? I think early in the business, I was definitely on the other end of the spectrum. And it took a lot of hard conversations and a lot of self-reflection and time listening to folks like Brené and others to understand that that’s not sustainable business model, and this is not how I want it to run my business. I’ve been much more thoughtful about the LPs that I want to participate in my offerings and the people that I want to do business with and those that I don’t.

Brian Adams:

And maybe that might limit how quickly I can grow the business, but it’s much more enjoyable way to do the work and to have partners. I think that realization took about a year for me, but since then even with COVID has been a lot going on, it’s been much better way to grow the business. I think the LPs hopefully look at me as a place where they can have a resource for them outside of real estate. And that’s what a lot of what we try to do on the content side is just be considered a thought leader for all aspects of their life, things that happen around the kitchen table that don’t really necessarily have direct impact on the real estate world, but they’re still really important to these LPs. And that’s where I like working with non-institutional piece because there’s more to it than just the bottom line. And I think that’s really important.

Daniel Cocca:

I think we’re at an interesting time right now as well because like anything the relationship between sponsors as investors, what that looks ebbs and flows a little bit. Right? And so if you go back even as little as 10 years, right? Before The JOBS Act, before crowdfunding, most individual investors, high net worth, ultra-high net worth, it was country club equity of his friends and family, it was the more local operator. It was someone that you already had a relationship with, or someone you had a relationship with connected you. There wasn’t this ability to go out and source real estate deals.

Daniel Cocca:

And that’s a big part of the reason why as a country we’re massively under allocated into real estate, right. Just access didn’t exist. And then The JOB Act came along and real estate crowdfunding really started to become popular, and all of a sudden there was access and it seemed almost overnight, particularly for that high net worth investor who otherwise didn’t have access. They were just kind of going out finding deals, hey, there’s a portal, there’s projects. I can make investments. And I think over the course of the last few years, you’ve seen a retreat from that FinTech almost no relationship between sponsor and investor back to a world where people say, hey real estate is always been this long-term relationship based proposition.

Daniel Cocca:

And we got away from that for a few years because we got really excited by the access and the opportunity. But the reality is we’re now learning, hey, those relationships are important. The system was set up for a reason. And so I think what you’re saying resonates perfectly with what we see in our business which is this moving back toward much more of a relationship based approach.

Brian Adams:

Yeah. There’s a lot to unpack in what you said. One of the big things, and I talked to my investors about this because they ask, right. What do you think about real crowd street, realty mogul, all these big platforms. And I tell them, listen, I don’t know terribly a lot about them, but I can tell you this, their venture capital investors want them to be valued on a B2B, SAS basis and not the value of the underlying real estate deals. And if you approach the relationship with them that way you won’t get hurt, but they are not commercial real estate operatives. I mean, they’re trying to get a multiple on that business and sell it to a bigger animal. That’s what they’re doing. There’s a reason they’re not revenue positive. So I think to your point, finding groups like yourselves that are thoughtful, trying to have meaningful relationships with operators and sponsors, you’re going to have better deal execution, better deal flow, and better returns over the long-term because to your point real estate at the end of the day is still a very much a local relationship-driven business.

Brian Adams:

Now, I do think is really cool that the democratization of access to alternatives is a trend that we’re seeing become more and more prevalent. Because to your point, if you take a look at what’s happening in the 401(k) space, what’s happening in a self-directed IRA space, what’s happening with public markets versus the amount of companies that are publicly traded versus privately held, it’s incumbent I think on individuals and families to at least understand how private equity works, because you’re already in the private equity business. You just don’t even know it yet, maybe, but it is common. I think things like this, being able to be a resource for people where they can learn, it’s really important because it’s going to be a big part of their financial life moving forward.

Daniel Cocca:

Yeah. At a regulatory level as well, it seems like the SEC at the very least is getting more comfortable with the idea that they’re going to be people out there that are connecting to folks they previously didn’t know and facilitating some type of investment into real estate or really any alternative. I think just last week, the SEC made a proposal around people we call finders. So folks that go out and they get investors and they connect them to sponsors and then they get compensated for doing so. And at present you need it to be a broker dealer, you need to have FINRA licenses in order to take compensation like that. The SEC is now pushing you to move that to a position where you really just need to disclose what you’re doing. And that type of activity to me in and of itself is interesting, but on a broader scale, it makes me think, okay the SEC and regulatory bodies generally are coming to the realization that all this access to alternatives it’s a really good thing.

Daniel Cocca:

Now, sunlight is always going to be the best disinfected. And so we need disclosure, whenever you have an open market like this there’s an opportunities for fraud, misrepresentations, what have you. And so that stuff will get worked out over time. But I think it’s really interesting in that we seem to be going full speed ahead. Usually it’s the regulation that holds us back, but then you see with The JOBS Act, it pushed us forward very quickly. I think this finder exemption is going to do the same. And so it seems we’re trended in a positive direction as relates to individual access to alternatives.

Brian Adams:

Yeah, I completely agree. I think you will see the continued dilution of the accredited investor requirement status as a way to bridge the gap on this inequality that we have in America today, where previously it was very difficult to get access to private deals, to private equity and they’ve outperformed over the long-term and they continue to outperform. And so I think granting people further access makes all the sense in the world. And I don’t even think it’s a function of who is in the White House or who is in Congress. This is going to be something that we continue to see moving forward.

AdaPia d’Errico:

So Brian, I wanted to touch on a couple of things, is your experience working with or as a family office, because you have such a wealth of information and knowledge really about the way that family offices invest. And it may or may not be common knowledge. I know that it is to all of us here, but the way the ultra-wealthy and the ultra-wealthy invest where they put their money is not the way that main street investors are taught to invest. So that’s definitely something I would love to hear about. And also, I think you have a really unique definition of what a family office is and also intergenerational wealth.

Brian Adams:

Yeah. So maybe let’s start with the definition because this is a term that seemingly everywhere nowadays, everybody wants to have a family officer, everybody wants to have relationships with family offices. It gets thrown around quite a bit and you can say that Rockefeller had the first one, but you look at Europe and they’ve got multi, multi multi-generational families that have been in private businesses, they still are. I mean, triumph Rockefeller by couple of centuries. I think the modern term that I would use because it’s changing quite a bit. Right. I think one of the things that I’ve taken away is family offices are just families. There’s crazy as everybody else. You’d be unpredictable, they’re schizophrenia, they’re emotional, they’re always changing because they’re people, they’re not a pension fund or some kind of endowment that’s got a very rigid process.

Brian Adams:

So the way that I define it is more of a mindset than it is on AUM level or amount of zeroes behind the number. And the mindset is this is a corpus of assets that are meant to maintain a certain quality of life over multiple generational time horizons. And to the extent possible avoid paying taxes, period. And because you and I probably everyone listening to this knows ultra-high net worth individuals, ultra high net worth families that don’t have that mindset, right. They don’t want to have a corpus of assets to accomplish those goals necessarily. They have different priorities, different things in mind, it’s not wrong, or right. There’s no value, judgment being associated with it, but it really is just how you think about those assets. This is a different mindset in my opinion.

AdaPia d’Errico:

With your experience with your own family office, I guess, could you share your strategy or just some sort of high level things in terms of the way that you allocate or just the way that family offices would allocate their portfolios.

Brian Adams:

Yeah. And so is a little bit different perspective, right? So the way that I think sophisticated family think about it is, okay, what is my spend rate? Which basically means how much do I have to pay to maintain my quality of life today?

Brian Adams:

So a good rule of thumb would be 3% to 5% of the corpus has to go out the door to make sure that you can maintain that quality of life. And that can mean different things to different families, going to a certain place in the beach in the summer, sending your children to certain schools, living in certain places, having certain experiences, travel, leisure, et cetera. So that’s 3% to 5%. You put a number in there that’s inflation. So call it 2% or 3%. And you have the exponential growth of your family. You have two children that each have two children, and this is the way life goes often.

Brian Adams:

Not always, but you’re probably going to increase the size of your family over time. You put all that together and you’re solving for a return rate net of taxes and fees that hits that number. And that really dictates your asset allocation, right? Because the reason a lot of these families are in more private deals than the main street investor is because they have to be pretty aggressive and opportunistic to achieve a net 10% to 12% return annually is probably what they’re trying to go after. And you just cannot do that in the public markets today, or fixed income, you have to go private. And that’s why a lot of families are very well-versed and very deeply entrenched in the private equity space.

Daniel Cocca:

And one thing I’ve always found really interesting are the stats around individual versus family office versus institutions and their allocations into alternatives, right? And if we look at the bottom 99% of earners outside of their primary residence, there’s almost no allocation to real estate and investment portfolios. And if you look at the 1% or so you start to see it creeping up, but nowhere near the 20%, which is what a lot of financial advisors would pay people at. But then as you look into that kind of top quarter percent into the family offices, that’s where you see groups that now have 30%, 40% or more of their assets allocated to alternatives. And so given your position, I’d love to hear your thoughts on all of that.

Brian Adams:

Yeah. I think that’s a function of the return profile they’re trying to hit. And also they have the flexibility of having ultra-long term time horizon. So if you look at commercial real estate, for example, it’s been pretty steady. The past 100 or so years in America, it’s been about 2% or 3% of valuation increases and appreciation year over year.

Brian Adams:

So if you have 100 year time horizon, it makes a ton of sense to put a chunk of it into commercial real estate. And to use a cliché, just fire and forgets. Don’t worry about it. Don’t look at it monthly. Don’t look at it annually, look at it every 10 years and reassess. And that’s where it gets… If you have the ability to do that kind of thing, where you can buy a great piece of property in a great location, high conviction, and you have 100 year time horizon, and you refinance it every 10 years and you manage it appropriately, is this going to be a killer deal for you?

Brian Adams:

Unfortunately, we don’t all have the flexibility of having 100 year time horizon. I know I don’t, I’ve got to send my kids to college hopefully, I’ve got to take care of retirement, et cetera. So it does come down to mindset and that’s where the allocation could be so powerful because if you’re disciplined about it, you can really outperform over the long-term, but you need to have the right concept of what you’re trying to achieve. I think that’s why families like private deals is because there’s also this concept that however they created their wealth, or if they’ve trained the family members appropriately or at internal professionals, you really can have some kind of advantage over the marketplace. If you’re a subject matter expertise in healthcare venture capital, commercial real estate, hedge funds GPs, whatever it is, whatever esoteric subjects, if you can really put the time into it, it can be extremely powerful.

AdaPia d’Errico:

So, Brian, I know that we said and you specifically said, I don’t want to talk about my deals, but I actually would love for you to tell people the asset class that you are working in and how that’s been going through your mindset approach, your philosophy through these markets and through everything that we’ve talked about. So if you could just spend a couple minutes talking about that, it would bring great value to everyone.

Brian Adams:

Yeah. So it’s all commercial real estate. It’s probably 95% suburban office, which we can get into the nitty gritty on the office conversation if you want kind of the future of office work from home, et cetera. But the way that we got into office, I think is important to understand because when you look at the spectrum of commercial real estate, I think investors need to actually do a little bit more homework and self-reflection on what their risk adjusted returns need to be, because certainly you can go do some Drake located self-storage or cold storage deals at very difficult cap rates, like four caps, five caps. You’d be very insulated for risks, it’s going to be very safe, but there’s very little yield, right? Then you go the other end of the spectrum. Sure, you can buy some hotels at a pretty steep discount right now, you can look at retail and get some things at a pretty steep discount, but are you really appreciating the risks you’re taking on for that?

Brian Adams:

I like office because it’s probably somewhere right in the middle, a little bit riskier than multi-family. But I think when you look at being able to buy office properties at seven caps or eight caps and put out moderate leverage to solve for a 10% cash on cash yield, I think that’s an excellent risk adjusted return for people. I think it gets overlooked by a lot of operatives because they don’t understand office and multifamily just seems to be the easier asset class to go into. So the way that we got there was most of our LPs were looking for us to solve for a net 8% cash on cash yields. And to get there with other types of commercial real estate, I either had to go way out of the risk spectrum or lever it up. I didn’t want to do either of those things. So office really hit the sweet spot for us.

Brian Adams:

The future of office with COVID, et cetera, I think suburban office and secondary markets and unbiased, and I’ve got a dog in the fight. I think it’s pretty well positioned. If you look at people leaving the West coast, the Northeast, getting out of these major markets that need mass transit and a bunch of other things to access. I think CBDs and these markets will continue to struggle, especially if… This is not a political statement I think it’s just a reality. And a lot of them that are democratically held and controlled and more liberal leaning, which you’ll see is a bit of a death spiral of increasing taxes and decrease in services in these markets, which will just exacerbate demographic shift away from them. And employers and businesses are going to follow the demographic shift.

Brian Adams:

So in our portfolio, we know we’ve had some users that have had some COVID related impacts, exposure to travel and leisure and hospitality they’ve struggled. For the most part we’re probably at 93% rent collection. Now, new leases and lease renewals are pretty slow as you can imagine, there’s a lot of uncertainty. People don’t really know what they’re doing, but the nice thing about office is the majority of my leases are five, seven, or 10 years long. So that’s a legal obligation, right? That’s a liability. If the underlying value of the businesses is doing well and its credit is good, it will pay on that liability. And so I’ve got some time in my opinion to figure out exactly what’s going to happen. I think we all suffer from recency bias where we think what we did the last six months is what we’ll do for the next six years and that’s just never the case, not about real estate, not about anything else that we’re experiencing right now.

Brian Adams:

And so I like the fact that real estate is an illiquid asset because I would’ve sold everything in May and I would have gotten just crushed what happened in the REIT market. But because it’s illiquid, we’re holding on, we’re still able to make distributions. We’ve seen lease activity pickup. I think the way we use office will change, but I really don’t think it’s going to be a secular shift away from office we’ve seen in retail or something. I don’t think the work from home experiment on a mass scale has been that efficient, that effective or that enjoyable for the majority of employees, at least not for me and my group.

Daniel Cocca:

Yeah. That’s really interesting because you’ll talk to people who share that opinion and then others who feel the exact opposite where working remotely is the greatest thing ever and they’re just as efficient. And you’ll see a lot of heartache when these folks are asked to go back into the office. I know a lot of my friends who are attorneys that are currently working remotely are loving their life for as the day they have to go back is going to be a harsh kind of reality of sorts. Right. That being said, I think we can all agree, there’s a lot of uncertainty around how office is going to be used in the future. And in a place here like Nashville where Brian and I live that you’re seeing so many companies move here right down the street from me, Amazon’s building a new headquarters. You’ve got Ernst & Young, Alliance, Bernstein, SmileDirectClub, all these firms that kind of came to Nashville and are growing and whatnot. But a lot of them you’re hearing from now there’s this indefinite work from home mandate in place, right?

Daniel Cocca:

And some firms are even going as far as 2022 is the earliest they would expect folks to head back into the office. That may or may not turn out to be the case, there are a lot of things that will happen between now and then that I think will dictate how things ultimately transpire. But as you look at a new deal today, as you think about making an office investment today how much are you weighing that uncertainty, the unknown unknown that exists out there. We just don’t know how things are going to change. And we all have thoughts and predictions, but if we’ve learned anything from COVID we would say we really don’t know, things happen. We have good guesses and why they do. But if you would’ve asked us in March what are your rent collections at in your portfolio? I would have said, they’re getting hammered, this isn’t a disaster scenario. And the reality is the opposite has been true.

Daniel Cocca:

And so we’re all trying to figure out as we go, but understanding all these uncertainties, all these unknown unknowns. Are you still moving forward today with new office acquisitions or are you maintaining your portfolio waiting for opportunities a little further out?

Brian Adams:

Yeah. I mean, obviously the priority was to make sure the portfolio is in good shape that the assets are performing. We’re doing everything we possibly could on the asset management level and the property management level and leasing to ensure that it’s performing well and that was really a lot of Q2. In terms of moving forward are we looking at buying commodity suburban office space with some near term rent roll? No, I just think there’s too many unknowns. I don’t think as a fiduciary, I can assign a probability to what those users are going to do or what’s that list of schedule might look like. I think it’s just very challenging to do it. We have been actively acquiring properties. So we’re in contract on an asset in Kansas City, great location, distress seller, it’s a CMBS assumption. So it’s got all kinds of hair on it, but it’s the kind of thing that we smaller deal, 65% medical.

Brian Adams:

So it does have some office users in it. We feel pretty good about those users. Obviously we’ve done a lot of homework on the credit and the essential services component of medical office given the location makes us very comfortable with acquiring it. And there’s no near term role. So nobody rolls it in for the first four years.

Brian Adams:

So on a risk adjusted basis, we still feel very strong about it. We were pretty oversubscribed on the deal, frankly, there was a lot of appetite to allocate to it. And so those are the kinds of things that we’re looking at moving forward. We’re looking at an early childhood center actually that’s owned by a private equity franchisee model, which I think is kind of interesting. The reason I being a fundless sponsor is imagine if your mandate was secondary or primary gateway market, office towers, right? I mean, you’d be really hamstrung right now. I like the ability to go find value, find opportunity, and still be able to deliver my investors kind of what they’re hoping for, which is capital preservation deals and tax benefits. So those are the types of things that we’re looking at. We are pivoting a little bit, but we still are a big believer in office

Daniel Cocca:

What about innovation in office and more so in the context of the way people use it, right? Are there either trends that you’re seeing? I know I talk with a lot of groups that are getting started and they have a unique approach to the office. We’re going to buy LOS in Chicago and we’re going to convert them into small offices for these types of workers. That may work out. Right. There’s not really a tried and true business plan behind that. But how do you think about how office is going to change?

Brian Adams:

Yeah. So pre-COVID 4% of the workforce worked remotely in America. Clearly that number is going to go up post-COVID, where more people are going to be more flexible and more optionality on where they work and how they work. That being said, the trend line that we saw in the WeWork model, for example, where you had some locations that had 75 feet per employee or per user in their spaces, I think the pendulum is going to swing pretty considerably the other way. Well, there’ll be a return to more traditional office layouts where you’re talking 250 to 350 square feet per user or per employee. You actually have an office with a door. I think this trend of hoteling or hot desking, cramming people into tight spaces regardless of where we are on the vaccine, people just aren’t going to feel comfortable there.

Brian Adams:

And frankly, I don’t think they were very effective in making people more productive. I think people have realized on this work from home experiment that actually can get quite a bit done if they drown out some of the noise and other things that were distracting them. And so I think just the way that we use the office will change. Will I work from home a couple of days a week? Probably. Will I be in the office three or four days a week? Yeah. I like having the team environment. I think collaboration, innovation, creativity is all better in a small group setting. That being said, I think we all need to be more mindful of how we use office. It probably will be more of a hybrid. And if you take that assessment and you believe in what I’m pitching you, that we’re going to need more space, suburban office makes a lot of sense.

Brian Adams:

It’s less expensive. You can park it, I think that’s one of the things that people forget is this great that you can have more space in these office buildings, but because they’re relocating to markets that don’t have mass transit, you’re still talking about parking ratio and density are hugely important to these people moving to these venues into these other jurisdictions. And so suburban office can usually take that load on and you just have more flexibility, right? You can do more with the building than a brand new tower deal in a CBD major market. You just can’t afford to do those TILC packages and you’re reconfiguring a lot of space. I just don’t think it’s very viable. And so I think suburban office is well positioned from that standpoint, it’s cost-effective and flexible.

Daniel Cocca:

Yeah. That’s a really good point. I think people don’t think about often is parking, because I know here in Nashville, it’s a massive issue.

Daniel Cocca:

You have a lot of these folks who parked down at the tight end stadium and then they have a shuttle that takes them to work. And it turns a 15 minute commute into an hour commute just because of that issue. And there’s just not a ton of room for it. And so yeah, what you’re saying about suburban office in that sense, I think makes a ton of sense.

Brian Adams:

And I do think you’ll see I know Regus’ having some trouble right now. They’re actually user in one of our buildings, the entity that leases our space has not been impacted yet. But I think this rebirth of WeWork is super interesting to watch because I’m a believer in that. I think co-working and shared office make a lot of sense in terms of more traditional office suites, where people kind of come and go as they please, ingress and egress is much more manageable. You’ve got more flexibility in your payment structure. And somebody gets a landlord we’re very open to having one of those concepts or users come in there, like industrialist or some of these other groups, because I think it makes a lot of sense for a lot of companies that realize they want to come back in the office, but don’t necessarily want to sign a five-year deal.

AdaPia d’Errico:

Yeah. That’s all really interesting, thanks Brian. I have a million questions, but I think they’re more underwriting questions. So we’ll just kind of leave those out at the moment, but really, really, really insightful. I would love to move on to talking about estate planning and some of the scenarios. I mean, we a few days out from the elections when we post this and so I know you had a lot that you wanted to share, and I think it’s really important because it goes back to the mindset, right? The mindset about how you think about building wealth as a family office, for your investors, for yourself, and through these scenarios I think you mentioned earlier in the call, you put it really eloquently about the way that regardless of who wins or what happens you have to play out the scenarios and just stay the course. So could you share a little bit more about that?

Brian Adams:

Yeah. I’ll go back to my law background here to justify the expense that I paid in tuition on it, but any good litigator will tell you if it’s a white collar issue or business litigation matter that most of them 90% plus could have prevented on the front end by good corporate documentation and good corporate governance. I think estate planning is the same way, you can call up whoever right now, and they can run around for 60 days and Jan and a bunch of things. But if you spend some more time on the front end, trying to make estate planning the forefront of your governance structure and how you think about taxes long-term as a family, it’ll save you a lot of time and money over the course of your running this business because I think one of the biggest takeaways I’ve had after being in this space for the last decade is this election is a big deal, obviously.

Brian Adams:

And if there is a blue wave, there could be some very legitimate tax changes in our future, which would have a huge impact on families. People say it’s a once in a generation election, I’m 38 and I’ve lived through three of these things. So I think the takeaway is if you are a family with a long-term time horizon or an individual that cares about passing on wealth to your direct descendants, you need to have the right stakeholders in place and an infrastructure in place to make these hard decisions because they happen every few years. You’re going to have to make some very difficult choices. You’re going to have to take some risk on, you’re going to have to assign a probability of certain things happening.

Brian Adams:

And you just going to have to aim, shoot and move on. And you can’t second guess it to death. You can’t Monday morning quarterback, whatever cliché you want to use. But I think that is the key takeaway is understanding, okay, I need my trust in the state attorney and in my CPA. I need my investment banker. I need my wealth management group, and I need these people from my family involved in this decision-making process. And this is how we’re going to make this decision.

Brian Adams:

We’re going to follow the bylaws, the operating agreement. We’re going to follow this investment plan that we put together 10 years ago. We’re not going to freak out and have a knee jerk reaction to something and make choices without any context or reference points. And we may be wrong. We may be right. Maybe the right thing to do is do nothing, but we’re going to follow this process in place that we made while we were in a calm, meditative, reflectionary state of mind, and not when we’ve got dueling town halls and COVID, and all this craziness going on. It’s just not a very good environment to make these choices so we can get into the nitty gritty on what I think may or may have happened from a state planning perspective.

Brian Adams:

But I think the bigger takeaway is make sure you have the right stakeholders in place and make sure you’ve got a process in place for how you make these decisions, because they’re just going to keep coming.

AdaPia d’Errico:

It also sounds like take a breath. What you said this reflective state, right? I think a lot about meditation and I have a meditation practice and it’s really about listening and getting past the noise in our own heads. And there’s so much noise out there right now that’s compounding in our heads and reverberating. So when you said that, I really thought about that. When we talk about responding versus reacting and you said the knee-jerk reaction. And so I really appreciate the insight on that because I don’t know that we all think about investing that way. I mean, we know the rules, we know diversification, we know long-term whole, we know all this kind of stuff. But I don’t think we really often think about the reflecting and the response versus reaction that we’re so primed for these days, just because of the psychology of media and social platforms and all that kind of stuff. That’s really literally happening to us. And so I think that’s a really great point that you made about just stay the course regardless of what happens and have that right team in place.

Brian Adams:

Yeah. And just from a high level, the tax code is extremely complicated thing, but it’s not a set of laws per se. It is a set of incentives and disincentives to do certain things. And you should not fight the IRS on this. There are huge incentives to invest in commercial real estate. The IRS and the government are begging you to do these things because there’s this huge benefits involved. So you should take advantage of them and have them in mind when you’re making these choices. So, yeah, I mean, I think the reflectinary perspective and the meditated perspective is really important because a misconception I see a lot of people make is, well, I want to have my own family office. I want to make a ton of money, et cetera. Well, if you talked to those first generation wealth creators’, the billionaire type folks, and you ask them how they got there and you see what their books look like today, it’s massive concentration and massive risk, probably in the form of leverage.

Brian Adams:

And do you really have the stomach for that? And you have to be honest with yourself. I mean, I don’t have the risk profile. I would get really nervous, but if you look at Zuckerberg and all these other tech folks, they still are massively invested in their stocks. Bezos bought a bunch in the spring a lot and the trade could have gone the other way. Right. And you often don’t hear about the people that made those risks and bets and loss. You only hear about the ones that they did well on, but that’s the reality of the choice you have to make. And that’s where I think getting time away and understanding, especially with COVID so recent in our minds where there was such a big draw down in the market. Think about how you felt at the end of March or in April. How you really felt about your position in the market and understand what your risk profile is and you can go there accordingly.

Brian Adams:

But I think most people are just to your point, I think they’re reacting every day. I don’t think they’re actually making investment decisions based on a policy that they have put in place.

AdaPia d’Errico:

Right. And so along those lines one of the last things that I would love to talk about when we do this with all our guests is we would love to hear what wealth means to you and how you think about building wealth for yourself or in your business, for your investors. We talk about having a healthy financial foundation. So any of those prompts, what does wealth mean to you?

Brian Adams:

Yeah, it’s a great question. And I think one that people should ask themselves a lot more. I find that reflecting on my own personal death every day is extremely important. So I think about the fact that at the end of the day, we can build huge monuments to our ego and we can create these beautiful things, but we’re all just worm food. We’re just walking around and there’s a date on the back of us and on that date we become worm food.

Brian Adams:

With that in mind, I view wealth as a means of allowing me to experience different things, allow me that flexibility. I won’t say freedom because I think that’s a more complicated term, but just the flexibility to do different things and to have different experiences and to have those with my family. That’s where I think the empowerment comes from, because I do think oftentimes we work towards this destination. We have a number in our heads and like most things, when you actually achieve that number or you achieve that destination is probably pretty depressing because nothing really changed. And so I think for me just knowing that this wealth between myself and my wife gives us this flexibility to pursue these incredible experiences with our family, that’s the main driver for me. I think thinking beyond two or three generations is just very challenging for me personally. So I don’t know if that answers your question, but that’s kind of how I think.

AdaPia d’Errico:

No it does. And really the answer is whatever that means to you. I always love hearing it from people from different perspectives, because again, we always learn from others and how they perceive things and do things. So I think it’s a beautiful definition especially coming from someone, what you work in this. I don’t know if it’s an industry really, but this, the family office is such a thing. Like you said, everybody has this number in mind and whatever that number is as with everything else in life, we get the thing, we get the title, we get the job, and what we fail to understand until we do is that we’ve placed value on an external happening or objects. And when we get it, the reason it feels empty is because we’re not valuing our intrinsic meaning and nature and our intrinsic value.

AdaPia d’Errico:

And then we do, one day we do, we get it, and it flips and we realize that the external is simply a manifestation of when we turn that value driver around and start from the inside. And then whatever we get on the outside is, oh cool, that happened. I manifested it. I materialized it, but it’s because my values started from within. And so that external thing actually has more value and it’s more fun as opposed to when we’ve placed the whole driver on the external. But I think we all go through that and then eventually we get there.

Brian Adams:

Yeah. I love that mindset and what I tell myself and my team and my children is, and I know we’re not recording this necessarily a video, but if you just kind of put your two fingers apart in an inch or two, and you realize that human suffering occurs in that place between where you think your reality should be and where your reality actually is. So to the extent that you can narrow that gap and live your life the way that it is, and just come to terms with that reality and accept it, your suffering will decrease.

AdaPia d’Errico:

100%. There’s a saying, and I don’t know where it comes from, but that pain is physical, suffering is mental. And we actually have control over the suffering part to your point about how big or how small, because it’s the amount of energy that we put into making that space bigger by putting our thoughts and our energy and our life force into it. So suffering is going to sound maybe weird, but it’s actually voluntary is what we learn in more in yoga philosophy, which is something that I’m a little more well versed in. So yeah, I have my fingers open and I’m going to play with that today around having the visual and the physical cue is actually really cool.

Brian Adams:

Is a cool show get into eastern meditation philosophy and talking about real estate, it’s a good time.

AdaPia d’Errico:

Yeah. The thing is, is that everything is integrated. We’re all integrated. I think that so many people these days are learning that we’re not a person and a professional, and then it’s all together and we bring all of it. When you talk about mindset and reflection, it’s not dissimilar to what the ancients have been teaching for thousands of years. We’ve just given it a different name and started to become more open to it. So I really appreciate all the insights and it’s been so wonderful to have you on. Thank you so much.

Brian Adams:

Yeah. This is actually been a ton of fun, so happy to do it.

AdaPia d’Errico:

Yeah. All right. Thank you.

Daniel Cocca:

Thanks, Brian.

AdaPia d’Errico:

Yeah, thank you all for having me.

AdaPia d’Errico:

Thanks for tuning in to Real Wealth, Real Health. We hope that you’ve enjoyed today’s episode and found it both informative and insightful. We welcome all your questions and your feedback about today’s episode, and especially we welcome your questions about specific topics that you would us to cover.

AdaPia d’Errico:

So shoot us an email at [email protected] And if you have a moment, we really appreciate ratings and reviews as it helps us grow our online community and our interactions with you. And we’ll also be linking to a number of relevant articles on topics that we might’ve touched on during our conversations. Some of them are broad, some of them are technical, but we’re always aiming to provide information that helps you better understand the mechanics of building this healthy financial foundation especially if you’re looking to do this with real estate.