Jeff Greenberg is the CEO of Synergetic Investment Group, which acquires multifamily assets in emerging domestic markets. In this episode, Jeff discusses his decision to transition away from being a syndicator to a capital raiser. He also shares insights on investor relations and the benefits of managing and investing in a customizable fund.
Click here to learn more about our sponsors:
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, Jeff Greenberg. Jeff is joining us from Los Angeles, California. He is the equity fund manager at Synergetic Investment Group. They invest in multifamily and student housing properties in strong domestic markets. Jeff's portfolio consists of over 1,300 multifamily units in over 60 short-term rentals. Jeff, thank you for joining us, and how are you today?
Jeff Greenberg: I'm doing fantastic, and thank you for having me, Ash.
Ash Patel: Of course, it's our pleasure. Jeff, 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?
Jeff Greenberg: Yeah, I've been syndicating for the past 12 years multifamily and student housing. I call myself a recovering syndicator. I'm in the 12-step program. I'm currently selling off the rest of my properties and moving over towards the equity fund. So for the past year, year and a half, I have been running equity funds where I go and invest in some of the best-in-class opportunities; and not just multifamily, but other alternative investments.
Ash Patel: So you are no longer in active operator, but now you are operating a fund that invests in other people's deals.
Jeff Greenberg: Absolutely. Except I do have one deal. As soon as I saw that one out, I will be out of operations, and working with those people that are fantastic at finding deals and operations.
Ash Patel: What made you transition away from being active?
Jeff Greenberg: Well, one thing is operations wasn't exciting to me. That wasn't what really got me going. I was more of a big-picture guy, and I wasn't as great at paying attention to all the little details, and I didn't want to do all that. I wanted to work with people that were able to do that, and enjoyed doing that, the challenges of bringing a property around, and bringing the business plan together... And I worked with a phenomenal lady on one of our projects, and I said, "All I want to do is work with people like her and bring equity to those deals." So that just broke the camel's back when I saw her working, and I loved the way she worked, and I just wanted to find more people like that to work with.
Ash Patel: Jeff being a syndicator for that long, if you found a great deal, would you not be tempted to take it down?
Jeff Greenberg: Not really. I've done enough of that. If anything, I'd refer it to somebody that I knew, and said "Here, why don't you take this down, and I'll help you raise money for it?" But I don't want to be an operator.
Ash Patel: So how do you get in front of people that have great deals? How do they know about you?
Jeff Greenberg: A lot of networking. A lot of the people that I'm investing with right now I've met through different masterminds. One, the lady that I mentioned, Ashley Wilson - she was actually working with me on a project where she was the asset management for our Team; we brought her on our team, and after seeing her work, I said "When you start doing your deals, let me know and I'll start raising money for you." So it's all about relationships. I'm very slow about getting into new relationships, but once I get to know somebody and I get to spend some time with them, I get to know their business, their ethics, then I'll consider investing with them.
Ash Patel: And being a capital raiser, do you get awarded a portion of the GP?
Jeff Greenberg: It can be part of the GP, or there's different ways of doing it. We come in on a fund-of-fund model, where we're coming in on the LP side. So I don't necessarily need to be on the GP; I may get some of the GP shares through a side letter, but I would prefer not to be on the GP side. I'd prefer to just stay on the LP side and get our compensation that way.
Ash Patel: Can you explain that to me? ...because a lot of times capital raisers strive to be on the GP side.
Jeff Greenberg: That's right, they do. Typically, people will start out maybe as an LP, then they get onto the GP side, as a minor GP, and then they want to be the main GP; they want to be the guy. And like I said, I've been there and done that, and don't really want to do that. I would rather just work with investors, and work with great deal sponsors, and not have to deal with the operation ends of it. So I'd much rather do that. Not only that, there's legalities as far as being on the GP side that you can't just be compensated for what you bring in and raise. You have to have other responsibilities, and your compensation can't be based directly on the capital you raised. So I don't want to have to worry about the compliance issues, I would much rather just be on the LP side and be compensated on that side.
Ash Patel: I'm glad you brought that up. So the way the game has been working for a long time is people become capital raisers. And they want 30% of the GP, just for raising let's say all of the capital for a deal. And the legality point is what slips a lot of people's minds. They're not allowed to be awarded a percentage of the GP just based on bringing capital to the table.
Jeff Greenberg: Absolutely.
Ash Patel: And look, for a long time, people have gotten away with this. I think around 2016 the SEC cracked down on that, and there was not really a lot of pain being felt... So nothing really came out of it. Now, when we have more and more deals going South, I think you're going to uncover a lot of these people that became capital raisers, they're going to realize that they are not allowed to do that legally, so that'll come to a stop. So I appreciate what you're doing, Jeff, staying on the LP side; not trying to claw your way into the GP just to get additional money for yourself.
Jeff Greenberg: No, absolutely. I totally agree with you, that when everything's going beautifully, you're making lots of money, nobody cares. There's a lot of people that I see doing a lot of things that are not in compliance, not just in multifamily syndication, but in fix and flips, where somebody will bring in money, and somebody else will do all the work, and if everything goes great, nobody cares. But if that investor loses their money, then they may go to somebody to complain, and that may be the SEC. But that's true on the syndication world, a lot of compliance issues, and that's why I'd rather stay on the other side of it, and be on the LP side.
Ash Patel: Yes. And you are an actual fund, so you are registered with the SEC, and went through all of the fund setup, the fund stuff.
Jeff Greenberg: Well, we're exempt because I have a 506(C) and a 506(B). So we're exempt from actual registration just as any other syndication would be, but we're in compliance with the rules, both with the SEC, and also there's some FINRA rules that we have to abide by as well.
Ash Patel: How do you get paid? Because staying above board sounds less lucrative than getting a part of the GP. So how do you get compensated?
Jeff Greenberg: Well, it's a negotiation on terms with the deal sponsor. And each deal sponsor has a different way of doing terms. So if I bring in a million dollars or two million dollars, I'll go to the sponsor and I'd say "Look, if I'm bringing in this amount of money, do you have a separate class of investments that I could be in, that would get better terms?" So I get the delta, the difference between the terms that I negotiate and the terms that they're offering their regular investors, so I can give that to my investors. And that delta in there, that comes into the fund. And then I have my compensation through my PPM and operating agreement within the fund, so how I get paid out of that extra money that's available. But each sponsor has different terms that they want.
Ash Patel: So it's a win/win. I like it. In terms of attracting more investors to your fund, what's the magic to doing that?
Jeff Greenberg: Well, that's always a challenge. But I've been very active on podcasts, I've been very active in going to different events... Social media is something that's a lot newer to me, that I hadn't been real active in before, but now that's the way to go to get to meet people... But most of it's been over the years, being on lots of different podcasts, and going to a lot of networking events.
Ash Patel: Getting people to know, like and trust you.
Jeff Greenberg: Exactly. But they're not going to trust me if they don't get to meet me, or know me, and hopefully like me, and then the trust comes in.
Ash Patel: Is there a target audience for your fund?
Jeff Greenberg: I've always tried to find myself an avatar. I love working with doctors, I love working with other high net worth individuals, but I don't have a narrow focus on that. But I do like to educate. I come from an education background. So through educating people about the business, they get to know me, and hopefully we can build a relationship from that. But typically, I'm giving and educating first, and through that, hopefully they're interested in investing with me.
Ash Patel: Have any of the deals that you've raised capital for paused pref payments?
Jeff Greenberg: Paused pref payments? You mean distributions?
Ash Patel: Correct.
Jeff Greenberg: Definitely. We've had a couple of those.
Ash Patel: And that's not an easy conversation to have with your investors, and my assumption is that the operator communicates with you, and then it's your job to communicate with your investors, right? There's no direct channel of communication between the two.
Jeff Greenberg: Yes. If I'm in the deal as a fund-of-fund, I'm direct to my investors. And yes, that is -- or as I was an operator, I was direct to my investors. I was the one letting them know what the situation was, what we were doing about it, what the next steps are. But that's the big thing, the position I'm in, is the communications with investors, letting them know the good, bad and ugly, and what we're going to do about it and where we're going.
Ash Patel: And that is a difficult conversation to have with investors, especially because they've been used to getting their quarterly checks, and now all of a sudden you have to let them know there's going to be a pause. What are some tips on having those tough conversations?
Jeff Greenberg: Do it early. That's probably the best one. If you see something coming, letting people know what's going on, as far as that may be what's going to cause this issue, the shortage that we're going to have... And communication, communication, communication. That's the best thing. When COVID hit on one of our properties, we were constantly communicating; we started a weekly communication to let people know what was going on on the property, what we were doing. The best thing is communicating with investors, letting them know, having a webinar, giving them the chance to ask the questions, and have an understanding of what we're doing.
I have to tell you, I've had some phenomenal, phenomenal investors, that when we've hit some bad spots, and did have to cease distributions, they've just been great, and totally understanding, and we've worked our way through them.
Ash Patel: How do you find more phenomenal investors, versus the people that just want to give you a hard time?
Jeff Greenberg: I don't know, that's a pretty good question, but I guess maybe I attract those kinds of people. But I am free about talking to people, having long conversations with them about the business, about what's going on, getting them to know me, getting to know them... And I don't know if I've done something to attract extremely reasonable investors, that trust me. I cherish that. That's something that is very near and dear to me, that I do have a lot of great investors.
Ash Patel: Jeff, have you ever had to have conversations about cash calls?
Jeff Greenberg: I have had one cash call. Yes, we did have a cash call; on one deal we were looking at the possibility of a cash call, and instead what we did is we sold off GP chairs. The GPs took a hit just so the investors wouldn't have to. That was a property we had during COVID, so those people that invested in the GP shares did very well. All of the GPs took a little bit of a haircut.
I did have one deal that we did have a cash call on, and it wasn't a great conversation, but my investors understood it. The deal ended well, and everybody made some good money on that. But yeah, it's uncomfortable.
Ash Patel: Yeah. And on those cash calls - I'm assuming they're voluntary. Is that right? It's not an all-or-nothing thing.
Jeff Greenberg: If they are unable to or unwilling to put the money in, then their shares would be diluted. But other than that, that would be the only consequence of not participating.
Ash Patel: Got it. In terms of the operators that you deal with, how often do they communicate with you? Quarterly? Monthly?
Jeff Greenberg: The ones I'm working with right now, it's pretty much monthly. On my short-term rental, I'm getting communications just about every other week, as far as what's going on with the funds.
Ash Patel: How often do you communicate with your investors?
Jeff Greenberg: I typically will relay information as often as I get from the deal sponsors. And so I'll relay that, and maybe add some of mine. But I also have a monthly newsletter that goes out to all my investors... And basically, I'm doing what the sponsor is. So I have one sponsor where we'll have a quarterly webinar, so we'll join them with the webinar. Others don't have webinars, they just have the monthly newsletters. So at least monthly as a minimum.
Break: [00:16:40.08]
Ash Patel: What types of deals are you looking at going forward? Do you have a preference? STRs, non-residential, multifamily, mobile homes...?
Jeff Greenberg: Right now, I'm looking at a couple of things. I'm in the middle of raising for a multifamily deal, a big portfolio in Houston and Austin. But I'm also looking for deals that will bring in better cash flow. Typically multifamily, especially now, you don't see a lot of cash flow; you may see capital appreciation, but that could be five or seven years down the road. So I am looking for some short-term rentals, I am in discussion right now with somebody that's doing assisted living... I also still like RV parks and self-storage... So those are some that I am looking for. But I'm looking for some that have a little bit better cash flow than multifamily. Multifamily is always going to be my basis. That's where I started out, so I think it's probably one of the greatest assets. But I'm still looking at some other things.
Ash Patel: Jeff, when you say cash flow, do you mean the deal cash-flowing, or cash flow to the investors?
Jeff Greenberg: Both. Mainly cash flow to the investors. If the deal is cash-flowing at a high rate, then -- investors get most of the cash flow anyway for most of these deals, especially if there's a pref. The deal sponsors typically don't get a lot of cash flow. They may get an acquisition fee up front, they may get some profit at the end, but typically, other than asset management fees, they don't get a lot after the pref. So it's usually investors getting that pref first.
Ash Patel: Here's where I'm going. I want to circle back to that for a second... However, do you do any debt deals? ...let's just say straight 10% debt.
Jeff Greenberg: I have not done any debt deals, but in this current raise that we're doing, one of the classes is doing a straight 10% pref. And it's going to be ahead of the other class of equity. So it's almost like debt; they will get 10%, they get no upside at the end, but it's as close that you can get to a - I'm going to use the G word... As far as you could get to a guarantee as any of these deals would be. But you're basically getting a 10 pref, and you get your money back, and the 10% return prior to anybody else getting any returns.
Ash Patel: Does that include the GPs? Do the debt holders get paid before GPs get paid?
Jeff Greenberg: Yeah, that's part of the pref.
Ash Patel: So is that attractive to investors in this current climate, May of '23?
Jeff Greenberg: It is. They like the predictability of that. And some think "10%? That's great. I don't need to take the risk to try to get a 14% or 15%. I would just rather have more of a "guaranteed" 10%."
Ash Patel: Is there a minimum deal size that you're looking for?
Jeff Greenberg: Not really. Usually, the sponsors I'm looking at are looking at bigger deals; they're looking at 30, 40, 50, 100 million dollar deals. I don't particularly need a deal that large. But I am looking for good quality deals sponsors that know what they're doing, are experienced, and bring a lot of value to the investment and the investors.
Ash Patel: So Jeff, let's walk through that 10% debt deal. What would your cut have to be to make this deal worth it? Because if you pitch to your investors 10% debt, how do you get compensated on a deal like that?
Jeff Greenberg: Well, as I said, I haven't done a real depth deal. But on this particular deal, where they would be just a different class of shares within the raise, my fund would still get those same terms that I negotiated with the sponsor. So it wouldn't matter if I brought in a million dollars, and all of it was going to be in the debt, or if I brought a million dollars and that's going to be on a class B, that's going to have some equity. My cut would be the same. Or I shouldn't say my cut; that goes to the fund. The fund's cut.
Ash Patel: Sure, understood. So Jeff, how is your fund different than any other fund that's out there?
Jeff Greenberg: Well, first of all, typically, when people get into a fund, there's a couple of different funds. Typically, you find a blind fund where someone will set up a fund; it's for their own deals, and once you're in the fund, whatever they bring into the deal, you're in. You're a percentage owner of each one of those opportunities. And you're putting your total trust in that fund manager.
Now, there's other funds where they're doing similar to what I'm doing, where again, you're in all of the deals within the fund, but the fund manager may be finding all different sponsors; there may be different sponsors, around the country, different areas, but again, you're putting your total faith in that fund manager, and not getting an option to not be in a particular deal. Perhaps you don't like a particular region, or a particular sponsor that they're working with; you don't have a choice. You're in it, like it or not.
The fund that I have is customizable, which means you get to look at each deal as it comes in, and you get to decide whether or not you want to be in that deal or not. And once you're in the fund, you still have a choice on each new deal that comes in; you have a choice of whether or not you want to be in that deal. And that gives me the flexibility of bringing in all kinds of different asset types, and not alienating somebody that may not like that particular type.
So if somebody doesn't like self-storage, or doesn't like retail, or doesn't like medical buildings, or whatever - they wouldn't have to be in a particular deal that I brought in. And not only that, they can diversify their own portfolio. So they may have some deals that are higher in cash flow, and some that are going to be higher in capital appreciation. And I could bring both in, and they can pick and choose which ones they want to be in. And then at the end of the day, they get [unintelligible 00:24:11.19] for all of the deals with they're in.
Ash Patel: I like the approach; it seems like a lot easier from the backend for you just to do the blind pool fund, take money in, invest it as you see fit. Why didn't you go that route?
Jeff Greenberg: Well, because I like that flexibility. I like to be able to get into other asset types, and bring all kinds of different opportunities in. Yeah, it is a lot of more work for me up front, as far as the different opportunities have different deal sponsors. But I get to find people that are experts in those particular areas. And once I find those experts in those areas, then I could work with them to bring those deals in. And I just like the diversification. Multifamily is going to go through some pains right now, and there's a lot of commercial real estate that will go through some pains right now, and there's a lot of great operators I know that aren't finding deals right now, even though we all know that there's going to be deals coming because of the lending situation. But at this point, I have the opportunity to look at all different asset classes, all different asset types, and be able to diversify.
Ash Patel: Looking back on some of the deals that have paused distributions, is there something you could have caught in hindsight, or a telltale sign that would have given you pause?
Jeff Greenberg: I don't think anybody was going to project COVID. So that one was one that we had to hold back. There are a lot of lessons learned, and a lot of those deals where there's undiscovered capital repairs that were needed. So I'm not going to say that I've never made any mistakes, because I've certainly made plenty. So yeah, there was a lot of lessons learned. On one deal, it was purchased as a student housing property, and there was several new properties that were brought online while we were operated, and we never expected them to be our competition. We were two miles out from the university, we were the low-end provider. And who would have thought that somebody else would bring on new properties that were going to actually be our competition, when normally, their price was at least three times what our per-bed price was, but because of a fire, they got delayed as far as opening, and then started giving out $1,000 credit card for signing the lease, because they were trying to lease up quickly for that semester, because they had gotten delayed. And all of a sudden, we're being hit with - they wanted to be close to campus, and now they can get $1,000 credit card if they sign the lease. So yeah, there were things that happened that we couldn't have predicted, but there was a lot more properties being planned closer to campus. And that was because of a law change. So we might have been able to see that ahead of time, but we missed that.
Ash Patel: Yeah. $1,000 to a college kid can go a long way in convincing them to sign a lease. What are you doing different or in addition to underwrite your deal sponsors in your deals today, knowing all the experience that you have?
Jeff Greenberg: Well, like I said in the beginning, the main thing is the deal sponsor. As you and I know, it's the operator. And that is the key for anything. Getting to know and trust the operator. Then when I go and I start looking at the underwriting, I know who did the underwriting, I know how many people have checked it out... And I'll go in and I'll look at it, and I'll look it over, so I don't know that I'm doing anything different in that way... But I'm using the knowledge that I have from my experience on different things to look for. There's a lot of assumptions that people make in underwriting. There's a lot of underwriting that I'll just throw out. I'm not even going to go and look any farther as far as that deal sponsor with some of this underwriting that I see. The people that I'm working with, I trust their underwriting, and I trust them, and I'll still do my due diligence and look at things, and I may ask a lot of questions. "Why is this?" Or "What's the percentage of units that aren't upgraded?" and different things. But I'm working with people that are experts in their area.
Ash Patel: Jeff, are you ready for the Best Ever Lightning Round?
Jeff Greenberg: Sure. Go for it.
Ash Patel: What's the Best Ever book you've recently read?
Jeff Greenberg: I was thinking about that question, and I haven't recently read a book lately. I listen to a lot of podcasts, I read a lot of trade articles to keep up to date with what's going on in the market... I listen to a lot of experts as far as predictions on the economy... But I'm afraid I haven't read a book in a little while.
Ash Patel: We'll give you a pass on that. Jeff, what's the Best Ever way you like to give back?
Jeff Greenberg: I think the best way that I give back is I pay it forward with a lot of newbies that come in and ask me questions, and I help them out and refer them and give them advice. So I'm giving back to our commercial real estate community by helping young people, maybe even old people, just new, getting into the business, advising them on what I feel is the best way to get into this business.
Ash Patel: Jeff, how can the Best Ever listeners reach out to you?
Jeff Greenberg: You can get me at Jeff [at] synergeticig.com.
Ash Patel: Jeff, thank you for your time today. It's rare that we find somebody who has 12 years of active syndication experience, and then transitioned into fund-of-funds model. Normally, you see people just starting out, maybe a couple years into it, transitioning, or literally just starting out as a fund-of-funds model, and then capturing GP shares, which is typically not above board. So thank you for sharing all of that with us today.
Jeff Greenberg: And I do have a giveaway for your listeners. It's a questions to ask a deal sponsor if you're planning on going in as a passive investor. Or even if you want to be an active investors, things that you should think about. So if you go to sigcre.com/sponsor, I have some questions to ask before you get into a deal.
Ash Patel: Great. Jeff, thank you again. Best Ever listeners, thank you for joining us. If you enjoyed this episode, please leave us a five star review, share this podcast with someone you think could benefit from it. Also, follow, subscribe, and have a Best Ever day.
Website disclaimer
This website, including the podcasts and other content herein, are made available by Joesta PF LLC solely for informational purposes. The information, statements, comments, views and opinions expressed in this website do not constitute and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. Neither Joe Fairless nor Joesta PF LLC are providing or undertaking to provide any financial, economic, legal, accounting, tax or other advice in or by virtue of this website. The information, statements, comments, views and opinions provided in this website are general in nature, and such information, statements, comments, views and opinions are not intended to be and should not be construed as the provision of investment advice by Joe Fairless or Joesta PF LLC to that listener or generally, and do not result in any listener being considered a client or customer of Joe Fairless or Joesta PF LLC.
The information, statements, comments, views, and opinions expressed or provided in this website (including by speakers who are not officers, employees, or agents of Joe Fairless or Joesta PF LLC) are not necessarily those of Joe Fairless or Joesta PF LLC, and may not be current. Neither Joe Fairless nor Joesta PF LLC make any representation or warranty as to the accuracy or completeness of any of the information, statements, comments, views or opinions contained in this website, and any liability therefor (including in respect of direct, indirect or consequential loss or damage of any kind whatsoever) is expressly disclaimed. Neither Joe Fairless nor Joesta PF LLC undertake any obligation whatsoever to provide any form of update, amendment, change or correction to any of the information, statements, comments, views or opinions set forth in this podcast.
No part of this podcast may, without Joesta PF LLC’s prior written consent, be reproduced, redistributed, published, copied or duplicated in any form, by any means.
Joe Fairless serves as director of investor relations with Ashcroft Capital, a real estate investment firm. Ashcroft Capital is not affiliated with Joesta PF LLC or this website, and is not responsible for any of the content herein.
Oral Disclaimer
The views and opinions expressed in this podcast are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information, go to www.bestevershow.com.