How To Source Deals | S3E3

Now that we’ve talked about the strategy behind deal-making in commercial real estate, it’s time to get into the actual deals! This episode of season 3 of the A.CRE Audio Series talks about how to actually source deals and identify investment opportunities and the relationships needed to properly find these real estate investment opportunities.

You’ve watched episode 1 and have a strategy. Once you’ve got a strategy and you’ve got money (something we’ll talk about later in the season), you’re ready to start sourcing deals. But where do you go? Where do you start?

Watch this episode to hear Spencer and Michael’s takes on answering these questions as well as the various ways to approach sourcing deals in various real estate markets.

How To Source Deals

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Episode Transcript

Announcer (00:01):

Welcome to the Adventures in CRE audio series. Join Michael Belasco and Spencer Burton as they pull back the curtain on everything commercial real estate and introduce you to some of the top minds in the industry. If you want to take your skills to the next level and be part of a growing community of care professionals across the world, this is for you.

Sam Carlson (00:24):

All right. Welcome back. This is Episode 3 of Season 3, which is good. So this is going to be a great episode as always, of course. Last episode, we talked about coming up with a strategy. Okay? And we talked a lot about there was three steps, coming up with the idea, finding your unique advantage, and then finding and sourcing capital markets. This episode, we’re past that. We’re kind of moving on to the next phase of getting deals done, making deals happen, which is what, Spencer?

Spencer Burton (00:55):

Yeah, so we’re going to talk about actually identifying investment opportunities.

Sam Carlson (00:59):

Okay, so sourcing, we call that right?

Spencer Burton (01:00):

We call that sourcing.

Sam Carlson (01:01):

All right, so I don’t necessarily need to provide any framework. Where do we want to start off the conversation? We’ve got a strategy, we’ve got money. I guess we haven’t talked about money yet, but let’s say we have some money, we’re ready to start sourcing deals. Where do we go? Where do we start?

Spencer Burton (01:17):

Yeah, so we’ll give some examples. Michael, if you have an example, feel free to share. I have two that I’ve jotted down. I also have some, I don’t really call them keys to success, because there’s a lot of keys to success in sourcing and it’s dependent on the strategy. But some areas in my career that I found are important to focus on. So, maybe I’ll start with the first one. That will open the conversation and then we can let the anecdotes come out as in most.

Spencer Burton (01:46):

So the first, I think most important key to sourcing is having a rich network and rich meaning deep, strong, relevant network. So your relationships, let’s imagine you’re on the principal side. Meaning, you are out acquiring properties, whether land or existing properties, having relationships with brokers, positive relationships, trusting relationships, relationships with sellers, owners of real estate that is the most important element to a successful sourcing effort.

Sam Carlson (02:29):

Okay. So, this is within the deal-making phase?

Spencer Burton (02:35):


Sam Carlson (02:35):

The deal-making phase always comes out to, “Hey, I’ve got this idea. We’re moving forward with it. How can you participate?” This really is really we’re starting to keep things in layman’s terms, right?

Michael Belasco (02:45):

Yeah. We’ll sort of bring it to back to our listeners. You need a network. You need a network of brokers. If you’re starting out now, you have your idea, you’ve gone through your strategy, you think you’re there, and now you’re starting to source. If you don’t have that network, how do you do that quickly? Maybe we don’t go too deep into this, but now, this is a big component. How do you develop that if there’s a lack thereof?

Sam Carlson (03:11):

Well, I think Spencer, you, too, can give some really good tactical things. But I will say, so I’ve been working directly with you guys for about three years now, is that right? Roughly, aren’t I?

Michael Belasco (03:23):

Roughly at, yeah.

Sam Carlson (03:24):

And I am blown away by both of yours collective efforts in how you do this content. You’re doing it all the time. Whether it’s with the readers, you’re reaching out to them. They’re emailing you. You’re reaching out, but I also see you setting up on your calendar, just catch-ups, just discussions and talks. So because this is the foundation of sourcing, you got to strategy, you got to start source some deals, because this is the foundation, maybe we kind of go back to your collective experiences, because I know this started back in grad school. Is that kind of where you started? Let’s start where you started, and then move forward and then talk about what you do today because again, the network is everything, I realized.

Spencer Burton (04:15):

It really is, especially in this piece. Now, it comes in handy on the doing side, I mean, it is, but it’s especially valuable in sourcing, identifying opportunities, and actually then being able to make those opportunities come to fruition, come too close.

Spencer Burton (04:33):

Let me give one example. I have a second actually on this point that I’ll also share. But this first example is so, I was working for a previous employer. So in this context, I was not a partner in a large institution and I was tasked with finding really a whole variety of deal types, but in this particular context, it was a strategy for stabilized industrial, so and very traditional institutional industrial, So, credit tenants, generally single or multi-tenant but strong credit tenants in core industrial markets. It was a relatively new strategy that we had. And therefore, we didn’t have deep relationships with brokers in the particular markets that we were pursuing. And so I had a bit of an uphill battle, because I didn’t have those existing relationships.

Spencer Burton (05:33):

So the first thing I did, it was like I needed to meet who had the fingers in the most deals, and there’s places you can go and find those. And so, that was a combination of phone calls. I participated in some conferences. I was fortunate to be able to speak at two of these conferences and that gave me some credibility, I guess, in the room. And but more than anything, it was flying out, meeting one-on-one, touring some real estate with brokers and with sellers. Ironically, though, the very first deal we did in the strategy didn’t come to the brokerage community.

Spencer Burton (06:13):

Now, there were subsequent opportunities that came through, through the brokerage community. But the very first deal actually came through an existing relationship with a partner and we had done non-industrial opportunities with this partner in other markets. And it just so happened, it was a catch-up sort of situation where this partner was having a catch-up call with one of the senior management at the firm I was working at. And it happened, and so one of the senior people at the firm mentioned that we had this industrial strategy, and this particular partner said, “Well, actually, you know what, we have an operating company in this market, and we’re looking for a partner in this particular deal.”

Spencer Burton (06:57):

And the next thing you know, the investment came together. The beauty of those kind, so an existing relationship, we knew how to work with one another. We had existing docks, which I know, now that we’re getting to the doing side.

Sam Carlson (07:11):

Yeah, yeah, the doing side of it.

Spencer Burton (07:12):

But having existing docks, especially in the institutional world, is so incredibly helpful. It speeds the process along. And the business people know that we can get a deal done, because we’ve already negotiated. And when we say we, in the institutional world, that means a team of attorneys on both sides, stakeholders that aren’t in the making side, right? When we say deal-making in the institutional world where you call it the business side, right?

Spencer Burton (07:39):

So, the business side has already come to conclusion, but also the attorneys and the deal doers, everyone’s already come to conclusion. And so, the very first deal we made was simply because we had this existing relationship. And it had been nurtured over years and then on some catch-up conversation, it came out. And the next thing you know, this deal was put together.

Michael Belasco (08:01):

Now, I’ll transition briefly into the doing side, because this whole networking thing at all, it permeates. It’s this all-ever-pervasive, important issue. You get to moments in time where there become challenges and difficulties and it’s inevitable happens in anything you’re doing. When you are networking and we’re talking about, I know we’re talking about the broker communities and sourcing right now, but never miss an opportunity to create a network or a relationship with anybody across any chain. Everybody is important anytime. There are certain processes that happen. Certain things may get overlooked. There’s a lot of volume happening.

Michael Belasco (08:46):

I’m trying to stay vague without getting into too many details, but to be able to get, the point is if you don’t cultivate relationships, I guess, here’s the crux of it all. You can get through and do a lot in this world and there are always moments in time where you hit roadblocks and if that network or that relationship isn’t there, it becomes a mountain to climb. And you never want to establish a relationship when you’re in need.

Sam Carlson (09:08):


Michael Belasco (09:08):

Go ahead.

Sam Carlson (09:10):

No, go ahead. I think you’re right.

Michael Belasco (09:11):

You never want to establish a relationship when you’re in need, because then it creates this dynamic of, “Why are you calling me or what’s going on?” Yeah, if there’s a mutually beneficial opportunity like you have capital and you’re looking for deals, that becomes much easier, but when you’re on the doing side, and there’s a lack of relationship, it creates roadblocks. So anytime a new person enters your world that is within your professional relationship, be sure to try and make that connection prior to anything coming up because you want to have that relationship. You want to have that rapport, it’s always helpful. Plus, you want to just grow your network in general, just to have people.

Michael Belasco (09:45):

And it’s not, the word networking, it’s a weird term because it’s not, it creates this thing of like, “Oh, it’s an obligation or a job.” But the goal is to get out there and meet these people for who they are. Get beyond the professional piece and just create that relationship. So, I do want to-

Spencer Burton (10:01):

Yeah. Well, let me suggest that it’s actually, we call it, we say trust-building and in grad school we had, and his name escapes me, but one of the kind of the mentors of our program, who was there along the way calls it relationship building. How about we call it trust-building? That’s really what this comes down to. We think about this to this example that I gave where to a certain extent but I wasn’t spinning my wheels, but I was putting a lot of effort in to try to identify and find the first deal. And yet this deal that actually came along was really easy. But the reason it was easy is that there was an existing relationship of trust.

Spencer Burton (10:42):

We trusted this partner, they trusted us. And therefore, the deal could get done quickly and easily, because we trusted one another. And ultimately, that’s what networking is. It’s establishing some relationship, but ultimately, nothing’s going to happen until there’s a level of trust that’s built that. And by the way, that the best trust is built through actual deals that are done, of getting the second deal done with a partner, with a lender or with what have you, a seller, a broker. The first deal is the hardest. The second, third, fourth is much easier assuming there’s that trust built.

Sam Carlson (11:18):

And it’s funny, because, you hear in real estate, that real estate, yes, it’s a relationship business. That is a cliché. If there’s one cliché in real estate that’s it, that maybe location, location, I don’t know. And it seems like a cliché, but I will say just kind of coming back to what I was saying before, you two are very proactive on your catch-up calls, on just cultivating nurturing and, assisting where you can, too.

Sam Carlson (11:48):

I think that’s the other thing is the willingness to help is I find it genuine on from an outsider looking in. But I think that that is a working component of if you want to get trust, you have to be the type of person who when we think about, “Okay, well, we have this deal, who’s going to pop into my head?” The person who’s going to help actually going to do something. Okay? And so, as cliché as it sounds, it’s a relationship business. You want to source your deals? You go to the network. That’s point number one, right?

Spencer Burton (12:29):

Yeah. And so, let’s talk kind of specifics here now, right? So, the one technique that I described was just simply deals falling into your lap, because you’ve built relationships of trust over time. Another example is, so being persistent about staying in touch with those people and I use it in the context of sourcing. We call it in our sourcing group of Stablewood hanging around the hoop. No, that’s really what it is, right?

Sam Carlson (12:58):

Okay. Yeah.

Spencer Burton (12:58):

So, oftentimes, we’ll lose an investment. We just weren’t the-

Sam Carlson (13:04):

Yeah, it happens.

Spencer Burton (13:04):

We think we’re the best buyer way. And we really are in our space. Nevertheless, price serve, terms, what have you, we lost. But we’d to hang around the hoop. And what that means is we stay in touch. We let the seller know that we’re still around. When I worked at a past institutional firm, I remember, this one year in the acquisition team, that they’d estimated that half of the deals that they’d done in that year, had been deals that come back to them when an initial buyer had been unable to perform. And so, they hung around the hoop. They were still there and they were in a way of rescue, right?

Michael Belasco (13:48):

No, no, a rebound.

Spencer Burton (13:49):

A rebound, yeah.

Michael Belasco (13:50):


Spencer Burton (13:50):

Yeah, that’s exactly right. Yeah, hang around. They were able to step in when it mattered. And because by the way, they had the trust. And that also goes to Stablewood, right? We were quite successful at hanging around the hoop and stepping in and we can execute. And so, while we may not have been the highest bid, when the first buyer couldn’t perform, we were there to pick up the pieces.

Michael Belasco (14:17):

You got to be like Dennis Rodman.

Sam Carlson (14:18):


Michael Belasco (14:19):

You’ve got to be that rebound king. Staying around the hoop.

Sam Carlson (14:22):

All right, so we’ve got, so we’re sourcing deals. We’ve got the strategy. We’re sourcing deals where we’ve reached out to our network. Where do we go from there? What are the next ways that we really source and fill our pipeline with deals?

Spencer Burton (14:37):

Yeah, I mean, there’s a lot of tactical things that I won’t get into here because it really depends on the company and the strategy. But I would say high level the next, most important is to know your market and there’s a lot to unpack there.

Michael Belasco (14:54):

There’s a lot to unpack.

Spencer Burton (14:56):

The simplest is, and again, it depends on your strategy. If you can know every property that exists in your market. And I know that sounds daunting, but it’s possible.

Michael Belasco (15:06):

There are people that do.

Spencer Burton (15:09):

There are people who’d do that. If you can know every property in your market when an investment comes available, either off market or on market, you then have a sense of how attractive that deal is compared to all of the other, the universe of deals that either exist or could possibly exist in the future and you can then move at a faster pace. An example of this and I’m using Stablewood a lot because we are very active in the acquisition space and I lead our acquisition team. And I can share this because we share this openly outside of Stablewood. One of our core competencies is we have a team of data and technology professionals that have built tools for us that allow us to underwrite every single deal that hits the market.

Spencer Burton (15:58):

And in the space that we’re currently in, our current strategy, that was 800 last month. We underwrote all 800 of those. And then we have this ranking process that I definitely can’t take credit for, several members of our team have perfected this and other industries outside of real estate. It’s this idea of let’s line up all 800 deals and then let’s go out and buy the best 5%. And so, you line them up, and then you rank them. And then and then you go after the best 5%. And when you have technology and data on your side, where this can be a more of, or at least early-stage somewhat automated, it’s possible. And so now, that’s not always possible. We have a national reach in what we’re doing right now.

Sam Carlson (16:44):


Spencer Burton (16:44):

But an example is there’s an individual in Florida, I forget the name of the company. But they have a niche that they work in. And they know everything. I think it’s a shopping market.

Michael Belasco (17:01):

Across, it’s shopping.

Spencer Burton (17:02):


Michael Belasco (17:02):

It’s retail center, multi-tenant.

Spencer Burton (17:05):

Multi-tenant retail centers, strips centers. And they have a database of every single multi-tenant retail strip center in the markets within Florida that that they work in. And therefore, they know their market better than anyone else. And when an opportunity comes available, they know exactly where they need to be, what price they can be at, what the problems are, where the opportunities are with particular investments. So, knowing your market is key. And you do that through either a combination of technology or just pounding the pavement.

Sam Carlson (17:38):

So, I’m curious because growing up, my dad was a real estate developer. I spent enough time in real estate to be dangerous. I’m not an institutional level real estate like you guys. But what about when sourcing goes bad or when sourcing becomes desperate? Because at the end, the day you got a strategy, it seems great. You’ve got capital to deploy, what happens when and maybe dip into some of your collective experiences or whatever the case may be.

Sam Carlson (18:10):

But I’m curious because I see what you guys do at Stablewood. It makes sense to me what the person in Florida is doing. And honestly, if I listen to Episode 2, and I’m listening to this now, I’m taking this into my memory. I mean, like putting this on the hard drive, thinking, “Well, whatever strategy I have, I had better have a very good overview of all of the assets that I’m going to be putting my fingers into.” So, but what about when things go bad? What are pitfalls that people get into? Common pitfalls that people get into when they’re doing, when they’re sourcing deals?

Michael Belasco (18:53):

Or that are imposed upon? Not that they might get into, but that become imposed upon the strategy. Well, Spencer, this is-

Spencer Burton (19:00):

Yeah, I think as an acquisition team, and this is my experience, 20 years, largely in sourcing. There are these moments in time where your strategy and your targets are out of market. And what I mean by that is the deals that are coming available to you, you can’t win, because something about either your strategy or your target. When I say target, target returns, right? You’re targeting a certain return and ultimately that target return determines what you can pay for it. And when your target returns and/or your strategy are out of market, you can’t find opportunities. And if you can’t find opportunities, you can’t do your job.

Spencer Burton (19:42):

And there’s always this tension between volume, hitting, securing the number of opportunities that you need in order to satisfy the demands of your strategy or what have you, there’s always this tension between that and the returns that the firm is targeting or needs. And I think that’s the hardest part of sourcing. Well, in my experience, that’s the hardest part that that being out of market. And there’s constantly moments where that happens. I look back to, and I can say this when I was working for the real estate investment arm of Northwestern Mutual, incredible firm puts out, and I can say this because it’s public information, five-plus billion in real estate investments every year. I think they’re up to $60 billion.

Spencer Burton (20:37):

They’re constantly in the market, and they have this well-oiled machine that’s been around for probably 100 years that’s been doing this. And there’s a team, a committee, if you will, of individuals that set those target returns, okay? And they may only meet, say once a month and the market can shift on you quick. Then all of a sudden, market shift shifts, and you’re no longer competitive. And this group may not get together for another two or three or four weeks now. And they do a great job of trying to get together sooner.

Spencer Burton (21:13):

But at the same time, you don’t want to shift too quickly because maybe this is just a temporary blip and it might come back. But all of a sudden, your job, what you’re compensated for is to go out and put deals under contract and you’re out of market and it’s frustrating and it’s no one’s fault. It’s just the nature of the business.

Sam Carlson (21:34):

What do you do because that’s you were at a high-level institution. And there’s a lot of discipline in operating within those, the confines of the corporation like that. So, my question is what about the lower, the tiers where you get into midrange funds, family funds, things like that? What’s typical for sourcing then? Do we quickly adapt? Is that what we should be doing? Do you understand where I’m getting at?

Spencer Burton (22:08):

Yeah. No, I see. You use a term that’s incredibly important and I was wanting to use this in this context. It’s disciplined. Those who survive in this business are disciplined. And there are moments where you want to throw discipline out the window, either because you’re lacking volume, meaning, you need deal flow. Let’s do a deal we probably shouldn’t do. So, let’s underwrite this in a way that convinces ourselves to do a deal that we shouldn’t be doing.

Spencer Burton (22:38):

And Michael and I, smile, because over the last, the time we’ve known each other, especially pre-Stablewood, there’s been some moments where it was like, “Yeah, that’s not disciplined.” And you see and I’m smaller when you look at others. Now, others are underwriting it, right? So, discipline is the key. So when you talk, it doesn’t matter whether you’re a large institution or you’re a single sole proprietor out buying single family homes, you need to be disciplined. You have a strategy, you have targets, you stick with them.

Spencer Burton (23:07):

And then you view the market, you watch what the market is doing. And you can make considerations of adjusting your strategy or adjusting your targets based on what you’re seeing, but not the first time, not the second time, not the third time. You wait for the market to lead you. And then you make adjustments accordingly. But you move too quickly and you get hurt.

Michael Belasco (23:32):

Yeah, I would say for every strategy, there’s always external. There are always external factors. Like one, I mean, where we’re the single tenant net lease retail known, flooding of capital coming into the market is always a concern and how that impacts our ability to execute and how we gauge that, right. It’s discipline, but it’s disciplined in the context of adaptation. Sometimes adaptation is not just going with the market at every moment. So you’re disciplined, but you do have to adapt because if there’s a new reality in the world, you can’t stay at a market for too long. You need to adapt and understand whether that’s the new norm.

Michael Belasco (24:09):

And so, it could push a lot of people out. And that’s the idea of always staying one step ahead, making sure you’re constantly thinking about the ability to transition in what else out there could be happening. If there’s a risk in your direct strategy, you’ll be thinking large, which goes back to the strategy conversation. But there’s always threats when you’re sourcing.

Sam Carlson (24:32):

I want to go back for just a second to you got to go where the market leads you. You had said that and there’s this phrase in business that pioneers get arrows in their backs, right? And basically, that is you don’t want to necessarily be the first person to do something. That’s risky. You talked about going where the market leads you. I think in last episode when we talked about strategy, we talked about finding a supply and demand in balance. These are all like cousin topics to me. You know what I mean? As I try and process and understand this better.

Sam Carlson (25:14):

So, I’m wondering, resourcing deals, that’s what we’re talking about today. How do we follow the market? How do we let the market, what is it that we know when the market is leading us? How do we not get arrows in our backs by going too early, right? When you were saying, you said, “Don’t go on the first, don’t go on the second, don’t go on the third?” Are we referring to going too quickly into something?

Spencer Burton (25:38):

Yes, that’s exactly right.

Sam Carlson (25:39):

Is that what we’re talking about?

Spencer Burton (25:41):

Yes. And so, pioneering is a term that that’s often used in real estate. And everyone has a different definition of what is too early or too late, right? And that will be based on the risk appetite of the investor. Some investors, one investor uses pioneering, another doesn’t. And that’s often used in terms of going into a certain submarket, that it hasn’t traditionally been an investable sub-market. But in this context here, what you’re really saying is, “Okay, who’s going to pay the price next?” So, if you have a new top-of-market price on an office asset, someone paid that, right? And then someone’s going to pay the…

Michael Belasco (26:29):

Next time.

Spencer Burton (26:29):

… this next time? Do you want to be the second? Do you want to be the third? Do you want to be the first? And it really depends on a whole lot of things that we can’t get into here, but ultimately, it comes down to your risk appetite.

Sam Carlson (26:41):

It reminds me of that Movie App. Is that what it’s called? That Movie App, that you would buy the Movie App. I think was called Movie App. I could be wrong. But you bought this Movie App, it was $10 a month and you got unlimited movies.

Spencer Burton (26:54):

I forgot what it’s called. It wasn’t called Movie App. But I know what you’re talking about, but yeah.

Sam Carlson (26:57):

Okay. So, that was, like when I first saw it, I was like my wife and I, we love going to movies. It was like, “This is perfect for us. They’re going to lose so much money on us. This is going to be great.” Not only that they gave you all of these spiffs for popcorn and soda. So, it was, it definitely didn’t seem built on a sound business, any kind of sound business concept. But nonetheless, it was there and we had that. And what’s funny is-

Michael Belasco (27:21):

It went out of business.

Sam Carlson (27:21):

We know what happened. It went up and then went out with a blaze of glory. But now, Regal now does the exact same thing. And they have it, so I think this was $10 a month, if I’m not mistaken and I think Regals is $20. So, they must have been able to identify, “Well, this was the gap.” And those pioneers got arrows in their backs. But now they’ve paved the way, so now we can then go in and go ahead.

Michael Belasco (27:47):

So, how do you know? Understanding your market, having the right data, having the right intelligence, not only having it, but then being able to accurately interpret what you’re looking at. And that is a huge role. I watch, I’m not in Spencer’s role, but I watched him and his team do that. And that is critical to knowing when you’re first, second, third, having that information, sourcing that information, interpreting it, sharing it with the team, having discussions. Again back to the previous episode of having the team to be able to help aggregate and interpret that information, so.

Spencer Burton (28:19):

Yeah, I hate to even say funny, but there’s a funny saying, implication in real estate that, “You never want to be the first one to do a complex large scale real estate development, you always want to be the second person who do that same development.” And what happens is, so you see this a masterplan developments oftentimes, the first person goes in, they get it all approved, they start building and they go broke. If the person that comes in right after them and finishes it, that actually makes all the money. And that’s because the first person solves all the problems and the second.

Spencer Burton (28:58):

Anyway, we’re getting a bit off track, I think from the core sourcing, but the point being that knowing your market means knowing the pitfalls, knowing if price, if you’re out of market, or you’re in market and how much you’re out of market, and then making sound judgments as to how you need to adjust if at all in order to meet the new reality of the market.

Michael Belasco (29:22):

One last piece on this pioneering effort. The first person gets in there, experiences the problems and challenges, maybe knows how to fix it, but it’s out of the resources to be able to do so. And therefore the next person is what happens. It happens in many industries. This is not just a real estate concept.

Sam Carlson (29:42):

I think whenever you get into doing something. And so my focus in what I do is very marketing, business development, just the entrepreneurial side, right? That’s where I’m very much involved. And whenever you start something, it’s almost like there’s a science of it. Meaning, there’s an objective thing to do and an objective tactic that needs to be done. And I think that if I go back to this example that you had given about the person in Florida, and for anything to operate at an exceptional level, you need the art and the science, okay?

Sam Carlson (30:24):

And our brains are developed in such a way to where, we’ve got the analytical side and the creative side. And really, because we live in a human world where there are objective things. There are things that are hot and cold, that does exist. But there’s also like where one person sees opportunity, another sees failure. And so, I wonder, and Michael, you kind of, you spawned this thought in me a little bit where you’re talking about you what Spencer and his team bringing in deals. You have 800 deals last month or whatever. Did you say 800 deals last month you had?

Michael Belasco (31:06):

We had under 800, yeah.

Sam Carlson (31:07):

Yeah, so I wonder, the art and the science of sourcing, if you were to paint with some broad strokes, what makes a good sourcer, both objectively, so the scientific side and subjectively, so the artistic side?

Spencer Burton (31:26):

Yeah, the artistic side, it’s a persistent individual that just sticks with it. An example of this, early in my career, was when I was a land broker at that time, and trying to figure out my place, so I was brand new, actually. I don’t think I’d done a single deal yet. And went to my account manager, and I said to him, “Hey, I’d actually just met with a client, who said to me, “Hey, Spencer, you’re young, but I love to see the ambition that you have. If you can bring me bare land, I’ll buy it.” And it was a residential land developer.

Spencer Burton (32:16):

And that kind of lit a fire. I was excited. It’s like, “Yeah, I’ve got a client now and I just need to go find something for this client to buy.” And so, I went to this manager. And he did not do residential land. He did a different type of land. But I mentioned this client, and he’s like, “Oh, that’s great. But you just cannot find residential land right now.” He said that to me.

Sam Carlson (32:42):

He was a good mentor, I’m guessing.

Spencer Burton (32:46):

Not so much, actually. But anyway, he said, so that you just cannot find residential land, so don’t waste your time. That’s essentially what he said. Now, I’m not suggesting that you do with the impossible. But oftentimes, it’s like that was for me, I love the idea of someone telling me that’s not, no one could do it. I’m like, “Yeah, let me prove them wrong.” And I literally just started knocking on farmer’s doors. And then I sent out letters like I mentioned that on an earlier podcast, I do that. And I was quite successful at finding land. I just had to, I had to be more creative about it.

Spencer Burton (33:17):

And so, my point is, on the art side, it really is that person that just pounds the pavement, goes up turns up rocks that others aren’t turning up, thinking outside the box in terms of sourcing. Making the relationships that matter. I’m sorry.

Michael Belasco (33:35):

Seeing things others don’t see and then the ability to communicate that vision. Even if you’re sourcing to define your box there, other things that could fit in that box that might not have been brought to light, for example. So, that communication. The art is seeing a vision and being able to communicate that vision.

Spencer Burton (33:54):

I want to jump in real quick on this idea. The idea of your, whoever that was, I don’t know if it was your broker or whoever it was, but that saying that. It makes me think of that book, The Third Door. Have I told you about that book?

Sam Carlson (34:08):

Yeah, you’ve mentioned it. Yeah.

Spencer Burton (34:09):

So, I’ll give the analogy and then I’ll kind of get my thoughts on, but it’s, imagine a club, okay, like a discotheque, I don’t know, something. Okay. So, there are a couple of ways into this club. There’s the front door, okay? And the front door has a line and the line goes out and maybe around the block. And then there’s the back door. In the back door are the owners, the people, the performers, the workers, the people on the inside, right? Those are the only ways into this club.

Spencer Burton (34:43):

Well, if you’re a person standing in the very back of the line, and you’re, “So long,” or maybe you won’t be in there by the time they hit capacity, you’re not going to get into the club. So, what do you do? Most people would listen to this broker whoever that was, and say, “Well, I guess, I guess they’re right, I’m going to have to stand in line with this.” Now, the juice will not be worth the squeeze as they say, yeah. But you found a third door. And the third door is the methods and the tactics used by the creative creators, the artists that actually resulted in something.

Spencer Burton (35:26):

We talked about relationships. This is when to leverage relationships to get into opportunities. Be creative. There is a new movie, The Cruella De Ville movie where, and I love this PR stunt. Okay? This PR sounds beautiful. They backup this dump truck, dump out what looks like garbage. It happens to be a quilted-together, sewn-together dress that is huge. I mean, it’s like 50 yards long and it hold her weight. Now, as it unravels, instead of looking garbage, it looks beautiful. It’s this beautiful dress. And she goes, “Oh, my man.” That is a PR stunt if I’ve ever seen one.

Spencer Burton (36:07):

But it’s really interesting when you hear these stories about people who achieve these amazing things or whatever it is. Sourcing your first deal is an amazing thing if you’ve never done it before. Right? When you hear about them doing it, they don’t usually just go up and knock on a door and in they go and they get the result. It’s always finding a third door. It’s finding a creative way.

Sam Carlson (36:30):

Well, it’s interesting you say that. So we’re talking the context of sourcing, but we often talk with ACRE readers that are looking for jobs. And the front door for looking for a job is to go to job boards, and put your resume and application in. And you know what? It’s you and another 100 or 200 people and it’s likely to be unsuccessful. The second door is having some in. It’s a family friend or whatever. But there is a third door and the third door is getting creative in order to either network your way into the job or set yourself apart in such a way that you’re getting-

Spencer Burton (37:14):

Yeah. Well, you did a cast with-

Sam Carlson (37:14):

We did.

Spencer Burton (37:15):

What was that guy’s name? I forget right now, but he was amazing. He went and he needed a job. I think this was during the recession.

Michael Belasco (37:22):

It was, yeah.

Spencer Burton (37:23):

And he went to this company and said, “Hey, I’ll work for free. I just want to learn the game. I have whatever it is.” I don’t remember, I don’t remember that much. But it was an absolute third-door opportunity or a third-door scenario.

Sam Carlson (37:40):

Who was this?

Michael Belasco (37:42):

We’re not great. Our memories aren’t great, but I remember thinking it was an amazing episode.

Spencer Burton (37:46):

Well, another example of this, I hear this all the time is, “I have no experience,” and these jobs require experience, right? And that frustrates me because I want to shake that person. And if you’re that person, I don’t mean any offense, but there are ways to get experience without actually having a job. And one example that we give all the time is there are all these websites you can go on. You can actually download, offering them randoms of real deals and underwrite those deals, and then put those on your deal sheet. And that is real experience even if you haven’t worked at a shop.

Spencer Burton (38:17):

You can do internships, you can do unpaid externships. You can, I mean, there’s a whole lot of things you can do. Special projects in school. Stop looking at the front door. Think about the third door. That’s a really good comment. Yeah. And so on the sourcing side, it’s the same way. Look, sourcing is like anything else. It’s an exercise in going out there and making things happen. Sometimes it’s easier than others, but that’s the art of sourcing, yeah.

Sam Carlson (38:42):

So, when you’re sourcing, if you’re coming to the table, you’re well-capitalized, you’re reputable, it’s a lot easier. It’s a lot easier for a broker to look at you and say, “You’re real, you’re legit.” Even if you’re going out networking. If you are sourcing your first deal, you’ve found capital, but you’re a first time buyer, right? Your first deal. How do brokers look at you? If you have a pool, maybe you’re the highest price. And this is something to know. I think it’s something to share.

Sam Carlson (39:16):

How do brokers look at you initially? Without giving any advice on how to break. You’re showing up, you’re saying, “I have the capital, I’m the highest price, but yeah, this is my first deal. I have no track record on closing any deals.” What happens in a broker’s mind?

Spencer Burton (39:27):

You’re a risk, right? The broker’s job is to get the highest price in the least amount of time. And you may be the highest price and you may be saying you’re the least amount of time, there’s no certainty there. Right? You don’t have a track record. And if you can’t verify your ability to close, it’s a real risk. And therefore, you’re going to have to make up for that. Now the first step of that is just simply recognizing that there are better buyers out there than you and you better set yourself apart in some way. But yeah, that’s an uphill battle. And that first one is always harder, right? I mean, the first one is the hardest one to get done.

Sam Carlson (40:09):

Yeah. And in that situation, you might have to, I don’t know, if it’s sucking up your pride. It’s probably not sucking up, but you might have to say, “Look, I’m going to do this first one with somebody else. Somebody who has a little bit of track record. I can bring this to the table, but they’re going to bring some experience to the table. So, now instead of looking at me like a person who has no experience, I’ve got borrowed credibility now. Right? And I borrow for a little while and after I borrowed it, I’ll give it back. But I still have it.

Spencer Burton (40:35):

Yeah, that’s, so I have a friend who retired from an institutional job, but retired at 50, o he still had some runway definitely left in his career. He wanted to get into apartment acquisitions. And the key to department acquisitions really is agency financing and he didn’t have a track record to be able to actually go out and borrow. And so, like to your point, Sam, he sucked up his pride, for lack of a better term, he went and found a partner, who had some track record.

Spencer Burton (41:09):

And what did he bring? Well, he brought a lot of incredible experience and some capital and he put his first deal together and that first deal gave him some experience. And then his second deal he did on his own. And so, there was a little bit of cost in the first deal by having a partner and all that, but it was worth it. That was what he needed, I guess, to get over that hump.

Michael Belasco (41:29):

Yeah, so that becomes a barrier to a lot of people when they’re out there and the first time they’re going. But that also comes to the first piece, which is networking, and you create a really strong bond and relationship, that might also help you get over the hump as well. So, again, you know a broker well, your capital strong, maybe your capital is somebody who has some familiarity. So, there are ways to get over the hump, but it’s definitely something to be aware of when you’re looking at your sourcing your first deal.

Spencer Burton (41:57):

Yeah. And I’d also maybe just interject a little bit of positivity into this, not that we’ve been negative. But it seems like whenever people are going out to do deals they want to do, they want to keep the pot as small as possible. Meaning, “Hey, I need as much or I need half of this, or whatever the case may be.” They want so much that and they think by involving other people in a transaction or a dealer, whatever venture, whatever it is, that it’s going to take their cut down, right? I mean, the reality is, this is a cliché beyond cliches, but it’s a lot better. I’d rather have half of a watermelon than all of a golf ball.

Michael Belasco (42:44):

Like a basic level, it’s counterintuitive, but if you just look to the next step, it’s just a ticket to two deals, and you’ve already more than made up, “Oh, by the way, you’ve cut your risk in half, and you’re out there.” Yeah, that’s exactly right.

Sam Carlson (42:55):

Well, and what they don’t take into account is if you look at it like Xs and Os or ones and zeros, okay, you’re looking at a deal, “Okay, that deal is going to yield this. Okay, fine, we’re going to split it this way. I get less, but I guess I’ll get the deal done.” What they don’t think of are the exponential components of what it means to build the right have the right relationships, do deals with the right people, because you might do if you do it right, if you position yourself as a really good team member, it’s not a zero-sum game. Right?

Sam Carlson (43:31):

There’s so much opportunity out there that if you position yourself, you might be out like maybe you’re sourcing deals that are sub $10 million deals, and you do the right you generate you got the right team, whatever it is, and now all of a sudden, instead of doing that, you’re 2, 3, 4, 5x that or maybe 10x. But to keep things on. But I just think that people think of sourcing deals business as a zero-sum game. And it is not that way. The more people you get involved, the more exponential possibilities there really can be.

Spencer Burton (44:10):

Yeah. Let me belabor this point a little bit, because I think it’s really important. Some advice I got very, very early on in my careers was this, “Spencer, if you want a long-term career in this business, make sure that you always leave a little bit of meat on the bone every time you do a deal.” And the reason why is you may get every last, you may be able to squeeze every last piece out of the deal or in other words, you get greedy, but you may be able to squeeze every last piece out of the deal, you’ll never do business that person again.

Sam Carlson (44:44):

Yeah, that will be your last deal.

Spencer Burton (44:45):

And if there’s anything I hope that people have gotten out of this conversation thus far, it’s that the most valuable thing, the reason why you want the first deal is that it leads to subsequent deals. And if you aren’t ethical and it’s not even being unethical. But first off if you’re not ethical, but second off, if you’re not, at recognizing that this is a collective thing, I don’t know how else to describe it. But essentially, if you’re not leaving a little bit of meat on the bone, it’s going to be much harder to do the second or third deal with that person and it should be the exact opposite.

Michael Belasco (45:21):

Collaboration relationship, even with the people on the other side, it’s what keeps things, it’s what keeps the pipeline flowing.

Sam Carlson (45:29):

Well, let’s end it with that. I think that was, I mean, both of what you guys said was absolutely perfect, building your pipeline, collaborating, being the type of person that people want to do business with.

Spencer Burton (45:41):

We never got to the science. See, you asked me about the art.

Sam Carlson (45:44):

I’m sorry. Okay.

Spencer Burton (45:45):

You asked me about the art, but you never got the science. I mean, we can end this episode now.

Sam Carlson (45:47):

We only got halfway. We’re only halfway through.

Spencer Burton (45:50):

Ask me the science.

Sam Carlson (45:51):

I think the art, the art got so interesting, that it kind of took us away. But let’s come back to the science, you’re right. Let’s hit on that and then we can end.

Spencer Burton (45:59):

Let me offer one final, on the art side, I’m sorry. I’m keeping you, but this is so incredibly important and this is a cautionary tale. All right, so this is an individual that I can’t say much at all or I don’t want to reveal who they could possibly be.

Sam Carlson (46:17):

You know who you are.

Spencer Burton (46:19):

But this is an individual who all they cared about was the Numero Uno and they left and in the term of someone else, skeletons behind everywhere they went. And this particular individual got about 20 years into the business, and had a reputation as such that no one would do business with this individual. And I remember, I was a kid, actually, I was 16 years old, I was working in plumbing. And my boss, who had or who knew this individual said to me, “Make sure you never do this, what this individual did.”

Spencer Burton (46:58):

And then I got into the business and he was a real estate developer, really burned every single bridge that was possibly out there. And so if you’re listening, and you’re early in your career, and you’re like, “I want to make as much as I possibly can in every deal. It doesn’t matter what relationships I hurt,” you’re not going to have a long career in this business. And this particular individual flamed out. So, that’s the art side.

Spencer Burton (47:23):

Now, the science side, the science side is what we teach at real estate at Adventures in CRE, real estate financial modeling, right? So, part of it is the underwriting component, financial underwriting, but also market underwriting, credit underwriting. That’s part of the science, but the bigger picture of the science is a phrase that our good friend Brandon Taubman, who is kind of baseball analytics phenom, who works with us now at Stablewood. He has this term that is, “Discount, but don’t dismiss.” And in the sourcing context that is efficient filtering. So, you have this universe of opportunities that come in the door. And to Brandon’s point, “Don’t dismiss, but discount.” And by discount, what he means is have some methodology where you can score every opportunity, and then compare them to one another.

Spencer Burton (48:28):

Now, in the simplest context of real estate, financial modeling, underwriting, that’s a return metric, maybe it’s unlevered IRR. And so, you have a set methodology that you use to underwrite every single opportunity. And as you underwrite every single opportunity in this way and the output of that methodology for every opportunity you have is unlevered IRR. This as an example. You could then, let’s imagine you underwrite and in an infinite number of deals, a million deals in a second, you then line up those million deals against one another. And let’s say that you’ll only mesh if you care about is unlevered IRR. And because you have the exact same methodology, you know which deals that you should buy based on that.

Spencer Burton (49:08):

Now, there’s more complexity to it. There’s more factors than just simply someone returned metric, but the concept still stands, which is don’t throw away, still analyze, still assess. Because you might end up discovering that there’s something about that deal that you want. But discount, but don’t dismiss, score in such a way that you then know where you should focus your time. That’s the science of it.

Sam Carlson (49:34):

Let’s dive into this. I’m going to be a little like I’m not pushed back.

Spencer Burton (49:37):

Please, yeah.

Sam Carlson (49:37):

But I want to get to the meat of this. Here’s the deal doer right here. Here’s the deal doer. I’m kidding. I’m kidding. Discount, don’t dismiss. We hear this. We are able to discount don’t dismiss because of there are capabilities that we’ve built with inside of, within our company. When you don’t have that sophistication or that capabilities and the volumes at you like that, how can you possibly discount everything and not dismiss everything within that context? We have the luxury to do that, now, some people might not have that, so.

Spencer Burton (50:10):

No, I hear you. It’s almost the difference. It’s like, “Okay, if I’m in a poll for which politician is leading the race?” I don’t go poll the entire population. But I do poll a subset of the population and the larger that subset is the lower or yeah that the-

Michael Belasco (50:36):

Lower margin of error?

Spencer Burton (50:37):

The lower margin of error is the greater the confidence I have in my subset, right? And so I don’t have the ability to poll. The beauty of art, the technology that our teams developed is that we do have the ability essentially to poll the entire population. But if I can’t poll the entire population, I should still poll some subset of that population. So, what I’m getting at in the context of real estate, let’s say that you are going to execute, I don’t know, a core office acquisition strategy.

Spencer Burton (51:09):

Before you buy your first deal, maybe you should go underwrite 50 deals. And now, you have some baseline. So, that when you underwrite the 51st deal, which is your first real deal that you’re looking at, you have something to compare it against, right? That’s what I’m getting at and the institutional firms that I underwrote at did not have the technological capabilities that we do, thankfully, at Stablewood. But they had still nevertheless underwritten thousands of deals that we can then compare this new deal against. And at least have an understanding of how this deal compares to other deals that we’ve looked at and make a judgment as to whether this is good or bad.

Sam Carlson (51:51):

It’s interesting because I love talking with both of you guys. I get to insights into different things. And one of the things that you said that sunk into me, that sunk into my brain was real estate is a game of comparisons, right? And if I think in the context of what we’ve been talking about in these podcasts, I remember back to the gal who was in Florida. She knew every property on the market. Why? Because she wanted to be able to A, know what was there and B, compared to what has happened, right?

Sam Carlson (52:28):

So, if you can’t, if you don’t have the capabilities that you guys have, I mean, people are obviously doing this. You’re not the only ones doing commercial real estate. So, sure you have speed, sophistication, efficiency, but sometimes you need to build in the mechanism. Is the mechanism that you’re actually talking about is a viable comparison mechanism?

Spencer Burton (52:51):

Yes. See? No, so-

Sam Carlson (52:54):

Episode’s over.

Spencer Burton (52:56):

No, I’m so glad you brought that up.

Sam Carlson (52:57):

Roll it. Roll it.

Spencer Burton (52:58):

This is a mistake that that younger people in the industry make, which they assume that these metrics that we use in the industry-

Sam Carlson (53:07):

Are the Bible?

Spencer Burton (53:08):

Are the Bible? And there’s only and there’s only one right way to calculate them and what we’ve learned in what’s the number 27 billion that we’ve underwritten over our career, it actually doesn’t matter how you calculate the metric. It doesn’t affect me. I had this interesting conversation on LinkedIn. So Clarence Wong is a good friend, and he made a-

Sam Carlson (53:28):

Hold on. Let’s say, Clarence, how you doing, buddy? If you’re listening to this, we love you.

Spencer Burton (53:33):

Clarence is great.

Sam Carlson (53:33):

A great guy.

Spencer Burton (53:34):

And he’s very engaged on LinkedIn. And, and he had tagged us in a post about IRR partitioning. And there was another individual that has a different methodology for IRR partitioning. And there’s this interesting, not a dispute or anything, but it was I don’t the way that, that ACRE teaches IRR partitioning. And by the way, this applies to all return metrics, all methodologies generally, so long as the math is sound, it actually does not matter.

Spencer Burton (54:00):

I worked at a shop, I’ve worked at a large institution, okay? It does many, many billions every year, that does not cap a net operating income. They cap cash flow from operations. And when I first got in the door, I’m like, “This doesn’t make any sense. This is so out.” Everyone and then if you cap then why. What is this? This is silliness. But what I learned is it actually doesn’t matter. What matters is that your methodology is consistent across every single deal you underwrite. That’s what matters because this is a process of comparison. As long as I’m comparing every single deal in the exact same way that I compared it, as long as I’m underwriting every deal with the same methodology I did before such that my comparisons are the same, that’s what matters because ultimately, it’s an exercise in comparison.

Sam Carlson (54:56):

Okay, let me just dig deeper into that to make sure I’m understanding. And maybe if I’m understanding because I’m not that smart, then people who are like me will understand even more. So, are you optimizing then? A strategy optimizes towards a result, okay? So, is what you’re saying and if my understanding is right, is what you’re saying that in the case of that example you gave, the cap rate, they were doing it based on cash flow, is that what you said?

Spencer Burton (55:26):

Based on cash flow from operations, which is-

Sam Carlson (55:29):

But because they’re optimizing for what?

Spencer Burton (55:33):

So, there was a reason they did and I can’t really get into the reason why.

Sam Carlson (55:37):

Okay, but they had… so, they’re optimizing towards a specific. That’s why. Is that right?

Spencer Burton (55:43):

Yeah, it’s less about optimizing, it’s more about, “Okay, so if…” What’s the best way to, yeah.

Michael Belasco (55:53):

Maybe there’s a market convention or a preferred way, but if you’re going for a market convention, and trying to change what you’re doing, when you’re already in a process, there’s no ability to compare back. So, if you all of a sudden change in the middle of what you’re doing, as long as Spencer said, exactly, as long as the methodology, and the math is correct, at the metric that you’re looking at, and you’re comparing. If the shops-

Spencer Burton (56:21):

X, Y, Z.

Michael Belasco (56:21):

Yeah, X, Y, Z was to go and compare all these buildings they’ve been looking at for years, billions and billions of dollars. And then they start flipping to capping NOI rather than CFO then it’s all of a sudden apples, it’s oranges like it’s not..

Spencer Burton (56:36):

Yes, exactly.

Michael Belasco (56:36):

The metrics are not compared. But as long as okay, cash flow from operations is a fine metric. It’s not common in the industry. But as long as it’s consistent, and you have five deals, and you’re using that same consistent methodology, and it’s not a wonky made up weird thing that creates inconsistency within the formula itself, then it’s a sound logic.

Spencer Burton (56:57):

And look, even if it’s wonky, in my view, as long as it’s consistent, it can be used. It doesn’t mean that will be valuable, but it can be used, because ultimately, it’s about comparison, right? So, if I look at 100 apartment deals and what I care most about is that those apartment deals throw off consistent cash flow. I’m going to look at cash on cash returns, one of the metrics I look at, right? If I care about consistent cash flow, and I want properties that throw off cash flow. But if I calculate cash on cash return differently on each of those 100 calculations then is worthless.

Spencer Burton (57:35):

But if I calculate cash on cash return the exact same way across all 100, even if by the way, I use a methodology that’s different from everyone else in the industry, it actually doesn’t matter, because I’m comparing it the same across all 100 and therefore I get the result which I need, which is I can compare this deal against the other deals to know if it’s good or bad.

Sam Carlson (57:55):

You’re establishing a base.

Spencer Burton (57:56):

A base, yes.

Sam Carlson (57:56):

With which to compare, so all right. I tell you what if you’re, if you want to learn financial modeling, and you’re not in the accelerator, you better get in because that’s the kind of stuff you’re going to get. But anyway, anything else we want to end up with? I think, I feel-

Spencer Burton (58:12):

That’s on the science side, yeah. That’s what I’m saying.

Sam Carlson (58:14):

Yeah, I feel like this has been, I learn some on every podcast. This has been so fun. Even just in the last 20 minutes, just poking and prodding into because sourcing deals seems like such an innocuous topic, “Let’s go get some deals.” That is what makes you or breaks you. Because like to what you were talking about Spencer, you don’t have that many losers you can put on your resume before that’s kind of it for you.

Sam Carlson (58:46):

And so, there’s and there are nuances to this, too. There are nuances, both from the relationships that you build, how you source deals, how you value them, how they fit into your strategy, and now some of these metrics, so I think this has been absolutely phenomenal. Anything else or should we end it there? What do you guys think?

Michael Belasco (59:08):

Yeah, I think, we’ve beat this one to get.

Sam Carlson (59:11):

Yeah, okay. Again, I love the new format. So, listeners thanks for listening. Viewers, thank you for viewing and we will see you on the next episode.

Sam Carlson (59:19):

Thanks for tuning into this episode of the Adventures at CRE audio series. For show notes and additional resources head over to [email protected]/audioseries.

Announcer (59:33):

Would you like to learn real estate financial modeling in a matter of weeks and do it with zero guess work? If so, the ACRE accelerator is for you. The accelerator is a step-by-step case-based program designed to teach you exactly what you need to know and in the order you need to know, so you can gain both the knowledge and experience to take your career into the next level. To see if the accelerator is right for you, go to www.adventuresincre.com/accelerator.