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Let Sleeping Dogs Lie
I don’t feel old. I don’t feel anything till noon. That’s when it’s time for my nap.
Real estate projects require a lot of money, more money than most of us developers have, so a big part of our job is getting money from someone else. If the money needed is to be borrowed, then it’s a straight-forward affair, showing the lender in no uncertain terms how they will be paid back, with interest. And they want to see redundancy so that if one method of paying them back doesn’t work, they want backup plan - belt and suspenders style.
If there’s money needed from an investor, however, there’s more nuance. There’s more risk for an equity investor - the whole structure is arranged so their cash investment goes to zero before the lender loses a dime. And since they stand to lose before anyone else, there needs to be a tangible path to delicious upside and great wealth in exchange for the risk of losing it all.
Years ago, while looking for equity investors to help fund a real estate project, I was introduced to two gentlemen - classic New York real estateurs - having made their fortune developing a large handful of properties many decades ago and now sitting on their ass, Charlie Munger style.
They officed in an unremarkable midtown building and had a small group of pedigreed young turks handling their affairs.
I hit it off with one of the turks and he in turn invited me to pitch my project to the firm’s two principals.
In their dated conference room, lit with fluorescent bulbs and with an undramatic view of another unremarkable building, I made my pitch. The polite gentlemen, both in their 80s, nodded as I walked them through the potential caper. The turk sat back, in deference to the principals, taking notes.
One of the principals then asked me to describe the delicious upside.
This was where I knew I had a great hook - the project had tremendous potential for riches. As I scooted up my seat to describe it, both of the principal’s chins dropped to their chest - in near unison.
At first I thought they were being contemplative to make sure they didn’t miss anything, but one started a soft snore. Then the other gentleman joined in.
Unmoved, the turk motioned for me to proceed.
I looked back and forth at him and the principals as the snoring volume increased.
“Go on”, he said.
At the end of my pitch, they remained sitting and snoring, and the turk circled the table to shake my hand and let me know he would get back to me.
Postscript: he did get back to me - they were interested (even without hearing the upside) - but we never finalized the deal. I assume they nodded off.
The only time I have problems is when I sleep
Yvon Chouinard, founder of Patagonia, is one of history’s great businessmen, albeit a reluctant one.
I met him once after he gave a talk on an arcane type of minimalist fly fishing where the angler uses an extra long rod with just a piece of monofilament line attached to the end, flipping the fly over the water or just dabbing it on top.
He’d been traveling around the West promoting this style of fishing as a less consumerist alternative to the more gear-heavy traditional methods.
I asked him where he spent the night, curious as to where a gazillionaire outdoor clothing magnate would stay.
“I slept in my car”, he said.
I love sleep. My life has the tendency to fall apart when I'm awake, you know?
A California friend, after a few weeks of hesitation, decided it would be worth the risk of introducing me to one of his acquaintances. I was looking for opportunities and, oh boy, did this fellow deliver.
We met at a wonderful restaurant, somewhere near Pacific Heights, in the kind of place only San Francisco can deliver - a small well-worn neighborhood joint that smelled like Dungeness crab tossed with wine, garlic, and money. The hearty waiters wore jackets.
My dinner mate fit the environment with his Belgian loafers, a hopsack blue sport coat (probably from Gump’s), and half-rims. He had terrific hair and a raspy voice.
After some pleasant discussion of news, sports, and weather, he placed his hand over his wine glass and waved off the waiter, instead taking a sip of his club soda. He had been the co-head of M&A for a sizable west coast investment bank and was now growing his own shop. He had also had a soft spot for real estate, he explained, and through his connections came across attractive opportunities from time to time.
Knowing the kind of dough he must’ve been making at the investment bank, I asked why he left. “Oh, well, it’s a quite the story”, he said, “they fired me for smoking crack”.
That’s an opener, I thought. He continued, describing the terrific situation he had at the bank, but how it lacked excitement. He’d always had a fondness for the bottle and maybe a bump of coke once in a while, but beginning about five years ago he started putting some real effort into ruining his life.
It began with a string of big nights out doing client entertainment, rolling back home at dawn. That led to getting straight the following morning with a splash of vodka in his orange juice, and over time, a splash of orange juice in his vodka.
After an initial dalliance, the cocaine became a more demanding mistress. But with repetition it lost its effectiveness. A stripper solved the problem by introducing him to a more potent option - crack cocaine. His new vice was delightful, curing his insecurities while adding just the excitement he was looking for.
The excitement became a bit much, he figured, when he woke up in Kansas motel, naked, with no idea how he got there. He’d been gone for several days and returned to find his bank accounts empty and his wife and children gone.
“That was my bottom”, he said.
A logical assessment, I thought.
He’d gone to rehab, come to terms with the why behind his addictions, and started piecing his life back together. The market was still reeling from bank failures but with his newfound aspiration, he launched an investment business.
Lacking capital, he went back to the few bridges he hadn’t burned. One of his acquaintances owned a financial district office building. Because it was vacant he talked his way into being able to use one of the offices (a full floor) on a temporary basis. He bought a sign with his new company’s name and placed it behind the existing reception and bought a $500 flower arrangement (on credit) for a table at the entry.
He then went to work recruiting other bankers, offering them commissions disguised as partnerships in his new company. It worked and within a month he had a team of ten ambitious aspiring financiers working on deals of all sorts.
An old contact let him know about a large European bank looking to sell one of their divisions, a money-losing specialty research group with offices worldwide. As a negotiator he wasn’t to be trifled with and he crafted a transaction where he was paid to take the company.
Another European bank heard about the deal - after an article in the Wall Street Journal - and had a similar division they wanted to unload. This time he crafted an even better deal - an eight figure payment and the requirement to pay for a furnished midtown Manhattan apartment for 2 years.
One final coup: after closing the second deal was in New York surveying his new troops and staying in his new apartment. He was a squash aficionado and went to see a professional tournament. There were only a handful of spectators but he made a mental note and the next day returned with a banner with his new company’s name on it.
The tournament was being filmed by ESPN and without asking anyone, he tacked up his banner where it would be seen throughout the broadcast. It wasn’t quite a US Open sponsorship, but it got national exposure and the price was right.
His little company was a juggernaut. In just a few months he had an entire floor of investment bankers in a San Francisco high rise, offices in New York along with a corporate apartment, millions in the bank, national TV advertising, and lots of fresh flowers.
It was a sham, but a sophisticated one.
Our dinner was great fun. His mind was quick and the honesty of his story was refreshing. He was above all a hustler, but he’d been taken to the mat and had gone a long way towards rebuilding his life. The speed at which he’d built his businesses - with zero capital - was staggering. His hard times story combined with his wit and charm and obvious talent had me rooting for him.
The friend who introduced us shared the sentiment and began investing with him on a number of real estate projects. I liked his deals and considered doing the same. I went so far as to put up some refundable earnest money for him, but the deal didn’t work out and when there was a bit of friction before getting my money back from him I moved on.
Within the year I heard he decided to burn his remaining bridges, including with our mutual friend. The implausible little company collapsed as soon as he returned to his vices.
I heard he’d moved to a yurt on a remote ranch in Oregon, confirmed when I received a voicemail from him a few years later, his voice more raspy but less coherent. He said he had a screamer deal and to call him back but first he needed to take a nap.
If you’re reading this, you’re probably interested in real estate.
And you know how - despite a developer’s best efforts to make a nice place - sometimes the vibes are off and that place feels sterile and fake? While other places just feel right and have a terrific energy that makes you want to spend time there?
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