Today’s guest is Matt Burk.
Matt is the Founder, CEO and Chairman of Fairway America and Verivest. He has spent 30 years acquiring, managing and selling syndication and fund products. Join Sam and Matt in today’s episode.
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Intro [00:00:00]
Matt Burke’s background and experience [00:00:40]
Opportunity and catalyst for Fairway America and VeryVest [00:03:18]
The challenges of raising capital for a fund [00:10:26]
The learning curve for first-time fund managers [00:12:24]
The difficulty of raising capital in the current market [00:18:05]
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Connect with Matt:
Linkedin: https://www.linkedin.com/in/mwb/
Web: fairwayamerica.com
Verivest: verivest.com
Ebook: https://fairwayamerica.com/access-our-top-5-considerations-in-private-real-estate/
Connect with Sam:
I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.
Facebook: https://www.facebook.com/HowtoscaleCRE/
LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/
Email me → sam@brickeninvestmentgroup.com
SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson
Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234
Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f
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Want to read the full show notes of the episode? Check it out below:
Matt Burk ([00:00:00]) – So a lot of the things that we do are speaking from our own experience. Right? And, you know, but people, it costs money to raise money. Yeah. And there’s all kinds of things that you can spend money on to try to go raise it, many of which don’t work. Or let’s say they might work for certain people, but they’re not suitable for certain types of funds, certain sizes of funds, etcetera. And people don’t really understand that until after they’ve spent the money and figured it out the hard way. Welcome to the How to Scale Commercial Real Estate show. Whether you are an active or passive investor, we’ll teach you how to scale your real estate investing business into something big.
Sam Wilson ([00:00:40]) – Matt Burke is the founder and CEO of Fairway America. And very fast. He has 30 years of acquiring, managing and selling syndication and fun products. Matt, welcome to the show.
Matt Burk ([00:00:51]) – Exam. Happy to be here?
Sam Wilson ([00:00:52]) – Absolutely. Matt. The pleasure is mine. There are three questions I ask every guest who comes to the show in 90s or less.
Sam Wilson ([00:00:58]) – Can you tell me where did you start? Where are you now and how did you get there?
Matt Burk ([00:01:02]) – 90s or less. So I started in California, went to started through real estate finance, started my own company in my late 20s. Been running it for 30 years. Done a lot of deals. Real estate loans, real estate acquisitions, run a bunch of funds. Now we help people set up funds, we do fund administration and we invest in alongside real estate entrepreneurs all over the country.
Sam Wilson ([00:01:28]) – Wow. That’s a lot. That’s a lot of experience. What what were the kind of reasons for the different iterations of what you’ve done over the last 30 years?
Matt Burk ([00:01:40]) – Well, you know, well, I think it’s a combination of setting goals and targets and knowing where you want to go. And then, you know, I think I’ve read that the definition of mean luck is what happens when preparedness meets opportunity, right? So, you know, I’d say I’ve tried to always be prepared and then respond to opportunities and hasn’t always been, you know, tried a lot of things.
Matt Burk ([00:02:03]) – Some of them have worked great, some of them haven’t worked so well. But hopefully you learn from your mistakes and, you know, you keep you keep moving. I think Great Recession had a big impact. You know, losing a company early 90s company shutting down that I work for, you know, had a big impact and forced me to. That’s what precipitated me launching the company. Right. So, you know, macroeconomic events certainly impact directions that you that you take. But, you know, all in all, it’s been a it’s been a pretty remarkable journey. And as they there’s the cliche goes time goes by pretty fast.
Sam Wilson ([00:02:38]) – That that it does I was reading through I didn’t actually finish it yet but I picked it up there at the best ever conference this year your your book capital attraction you wrote that what, maybe eight, ten years ago.
Matt Burk ([00:02:51]) – 2016.
Sam Wilson ([00:02:52]) – Well, okay. So even earlier than that, so 7 or 7 years ago. And just some fascinating stories you had in there.
Sam Wilson ([00:02:58]) – I mean, you’ve done a lot of different things inside of the real estate space fund space. It I’d love I’d love to. If we had more time, I would get into the really nitty gritty on that. But why is it that you are doing what you’re doing now? What was the opportunity you saw both with Fairway America and with very vast.
Matt Burk ([00:03:18]) – Yeah, I think a lot of it came out of the Great Recession. I mean, we were private money, private money lenders for many years up through and to the Great Recession and certainly still do loans today since then. But in 2011, we we had a large credit facility with Wells Fargo Capital Finance on our fund. And they did not renew and they forced us to have to wind that fund down. Well, that experience of having to go to all your investors and tell them that they’re kind of stuck in a fund that you now have to wind down was I’d say that was the biggest catalyst toward the things that we do today, right? So I did successfully wind that fund down.
Matt Burk ([00:03:59]) – It was a painful experience. You know, my investors got their money back, but it took a while. But, you know, I think we earned a great deal of respect from those investors on, you know, because it’s not when things are going wonderfully that defines people’s character. It’s when, you know, things are tough that people see, you know, who the real what they really got with other people. And so that that certainly defined us. But coming out of that, Sam, we had to wind down the fund. We we well, you know, we shrunk the company and I kind of fundamentally reevaluated our business model. And at the time, I had a number of people come to me asking about saying, Hey, I think I’m setting up I’m thinking about setting up a fund. Now, I know you’ve set them up and you’ve now wound them down. Like, what do you think of this and what do you think of that and what do you think of the other thing? And realize, Sam, that there’s a lot of people who are doing deals one asset at a time, who have thought about the idea of setting up a fund, but who really don’t understand what they’re getting themselves into.
Matt Burk ([00:04:59]) – Right. And they have to and and historically and even today, it’s still very true. The only real place that they know to go is a lawyer and they go to securities lawyers who you know and look, you need a lawyer and lawyers and a integral part of it. But a lawyer is only one spoke in a wheel right. That you need that spoke in order for the wheel to run. True. But it’s not the center of the wheel. It doesn’t it comes at it from one angle. So as a result, I find that that managers setting up funds expect things from lawyers that they can’t really deliver. And lawyers expect managers to know things that they just don’t know. So there was a real opportunity in the marketplace to help people set up their own fund, do it properly from the beginning. And that was kind of the catalyst. We started doing that in 2013. Since that time, we’ve set up several hundred funds for managers all over the country with all different real estate types, you know, from run and loan pool funds to buy in properties to rehab and to buying discounted notes, tax lien certificates, you name it.
Matt Burk ([00:06:04]) – We’ve set up a fund for it. And you know, that gave rise then to our fund administration business and all of that. Sam to make a long story short, if it’s not already too late, um, the idea was that through that process, Fairway would find people that we would come to know who we could then invest in and alongside, you know, the vehicles that they created. So that’s kind of the model that we’ve created over the years. We’ve tried a lot of different things even since then. And again, but but foundationally, that’s that’s kind of what we do today. And, you know, the Great Recession was a big part of why that happened.
Sam Wilson ([00:06:41]) – Interesting. Tell me, I guess, what do you see? You know, and I’m sure we could actually remember some of these from your book, but what are what are just for the purposes of the show, what are some of the things that people are commonly getting wrong over and over again that you guys are helping them avoid?
Matt Burk ([00:06:59]) – Oh, man.
Matt Burk ([00:07:00]) – I mean, there’s too many to count, really, Sam But I think they set up the wrong structure. They don’t understand the structure that they set up. So they really don’t understand the vehicle that they’re actually trying to sell to investors. They somehow think that that by setting up a fund, the capital is going to magically show up. You know, they think that they’re going to be able to go find other people to raise the money for them because they don’t really want to do it themselves. They’ll spend a lot of money on a lot of different things that mostly don’t work. So I see people waste a huge amount of money on panaceas that they that they try to get to, to launch the fund to raise the capital that ultimately aren’t as good as they are hoping them to be. So there’s any number of common and repetitive, I’d say mistakes or misconceptions, I’ll call them that people have that, you know, that we try to help them avoid.
Sam Wilson ([00:08:02]) – Got it. When you say when you say they’re spending money on things that don’t work, is that in do you mean that in relation to once the fund is launched, then in the way they market it, does that mean in the way that they even structure the fund? What do you mean by that?
Matt Burk ([00:08:16]) – All of the above.
Matt Burk ([00:08:17]) – So I’ve seen people spend, you know, tens of thousands and in some cases hundreds of thousands of dollars, you know, in legal fees, launching or creating vehicles that never get off the ground, that they never raise a single penny. But they spent a lot of money trying to set it up. And partly it’s they don’t set it up. Right. Or they have they have misguided perceptions around what what it’s going to do for them if they do it. So, you know, we’re we’re we try to be extremely straightforward with people and say straightforward is a good adjective to describe me, Sam, And sometimes perhaps to my detriment. Right? Because I’ll tell people, if I don’t think that you should be setting up a fund, I would say save your money, Right? That’s not for everybody. Absolutely. And then once they launch the fund, I’ve seen people spend all kinds of money on various things to attempt to raise capital that that really, you know, and look and some of those things, Sam, I’ve spent the money on to try to raise capital and wasted plenty of money.
Matt Burk ([00:09:25]) – I mean, so a lot of the things that we do are speaking from our own experience, right? And you know, but people, it costs money to raise money. Yeah. And there’s all kinds of things that you can spend money on to try to go raise it, many of which don’t work. Or let’s say they might work for certain people, but they’re not suitable for certain types of funds, certain sizes of funds, etcetera. And people don’t really understand that until after they’ve spent the money and figured it out the hard way.
Sam Wilson ([00:09:53]) – I would venture to say, and I’ll see see if you agree or disagree with this, but that if if it’s like like the word you use, there’s a panacea. If it seems like it’s a panacea to whatever your problem is when raising money, it probably isn’t. Is that a problem?
Matt Burk ([00:10:07]) – That’s a pretty good rule of thumb.
Sam Wilson ([00:10:10]) – Yeah, absolutely. Because there’s enough gimmicks and there’s enough, you know, hey, done for you X, Y, and Z out there that promises the moon and man, I’ve just never seen any of that outside of just really hard work in raising capital.
Sam Wilson ([00:10:24]) – I mean, raising capital is work. Absolutely.
Matt Burk ([00:10:26]) – It’s very Yes. And I think like some people think that they if they set up a fund that somehow the capital is just going to show up and it’s going to be there, I’m like, no, it’s harder to raise money in a fund than it is one deal at a time, because at least on the individual deal, the investor knows what deal they’re putting their money into. Right. In a fund. And there there are funds out now, you know, customizable funds where they’re and they’re really not a fund but it functions like a fund for the investor but it still preserves their ability to pick and choose one at a time. It doesn’t necessarily solve the manager’s problem of having capital readily available to it. Right. But there’s I don’t know, there’s there’s just a lot of, um, I’d say my experience, Sam, is that every person who raises money from investors to acquire real estate based assets of some type, whether it’s the property directly or making a loan or buying discounted notes or, you know, fixing and flipping houses or whatever it is.
Matt Burk ([00:11:24]) – If it requires them to raise capital from other people, right. To do it on a regular basis and build a business around that at one point or another, they’ve tried, they’ve thought about how do I do this more efficiently, right? Especially as you scale, the more deals you do, the more work it is, the more people try to find a way to do it more efficiently. Well, a fund is a way to do that in theory. So a lot of people think about setting up a fund and it’s kind of sexy. I want to be a fund manager. If I had a fund, I can, you know. So our mission is to really help real estate managers understand what they’re getting themselves into, make good decisions along the way, maximize their return on the investment that they make, and have a clear idea of what of what to expect, you know, and then coach them and guide them and help them along the way and provide them with services that enable them to focus on what they do best, which is real estate and and capitalize them, you know, through our vehicles and invest in alongside those managers.
Sam Wilson ([00:12:24]) – Got it. What are what are some what are some of those manager’s problems? You know, I’m thinking about especially the first time, say first time people for their first fund like what are some what are some learning curve things that as they manage a fund that’s very different maybe than managing a, you know, one deal at a time syndication.
Matt Burk ([00:12:43]) – They extrapolate how a single deal works into a fund model and they don’t appreciate or understand the difference between how a pooled investment vehicle functions financially versus how a single deal functions financially. So they get terminology mixed up and they and they will they will oftentimes not really grasp until they get into it for a while how the financial information works and inside of a pool. Investment fund. But if you think about it, Sam, it’s like it’s like a mutual fund, right? It’s like if you own a share of a mutual fund, the performance of that fund is based on the collective performance at any given point in time of all of the underlying assets in that fund that then contribute to positively or negatively to the financial outcome of that vehicle.
Matt Burk ([00:13:40]) – And then you have to run it through the vehicle’s performance, you know, and then the vehicle has expenses associated with it. And only then do you have a net return to those investors, positively or negatively. People get that confused all the time.
Sam Wilson ([00:13:58]) – That that honestly, it’s hard for me to understand how how they get that confused. But I could see how the accounting gets more confusing.
Matt Burk ([00:14:08]) – It’s an order of magnitude more difficult, particularly for a lot of real estate people who by and large are not accountants. Right now you will get some people who come from an accounting background who appreciate it more quickly and understand it. But a lot of times, in my experience, the people who set up their real estate people, what they love to do is find property, you know, acquire. It’s the asset, it’s the acquisition, it’s the leasing, it’s the execution, it’s the construction, right? And then the selling, that’s what they love doing, kicking dirt, you know, visiting real estate.
Matt Burk ([00:14:46]) – ET cetera. But figuring out the difference between accrual accounting and cash accounting and net asset value determination of share price and all of that is generally not there expertise. So that part requires significant learning. And it’s I use this analogy all the time, Sam. It’s like, you know, you, you cannot you cannot learn physics before, you know, trigonometry and you cannot know trigonometry before you know calculus and you cannot know calculus before you know algebra. You cannot know algebra before you know arithmetic, right? So you cannot just skip straight to trigonometry. You have to go through the progression. Right? And that’s very true for fund managers. You know, they need to learn. And the only way to learn really is by by doing we can accelerate that learning. But there’s inevitably a learning curve that just takes time for people to to grasp. And some do it faster than others. But but it always requires some amount of time.
Sam Wilson ([00:15:49]) – Are there any resources you would recommend to expedite that learning process or things that that potential fund managers should be digging into right now? Any books, any any any really.
Matt Burk ([00:16:02]) – Mean you know, the book I wrote, Capital attraction is is a good, you know, starting point. I wrote a lot of blogs on a lot of these subjects over the years that are available on our resource page. So we have we’ve produced a lot of material on it. I would say there are other good books out there on capital raising and things like that. Um, I haven’t seen a lot of stuff and granted I haven’t looked all that much lately. But on this topic specifically for non institutional managers, I think another thing I’ve noticed over the years is that most of the fund management literature is geared more toward institutional funds and they don’t really work the exact. I mean, there’s a lot of common themes obviously, and a lot of similarities, but they don’t function exactly the same because of the deal sizes are so much smaller, right? And because you’re typically the people we work with, their, their, their investor base is high net worth, you know, accredited investors, not California state pension fund.
Matt Burk ([00:17:01]) – Right. So it’s a different beast a little bit. That said, a good one is there’s one called the rev inner rev org. And this is a European outfit, but it talks a lot about management, you know, fund management practices. There’s a lot of terminology in there about fees and and how things are done and best practices and, you know, managers scoring and all that. Again, it’s a European thing, but I found that pretty valuable over the years. It’s very institutional, so I’d caution people not to take it, you know, as gospel. But but it is useful to managers to learn.
Sam Wilson ([00:17:39]) – Absolutely. Absolutely. That’s great. Talk to us about raising You’ve raised an enormous amount of capital over the years. Everything I’m hearing in the market right now and maybe you can speak to this from the Fairway America side, is that it’s becoming harder for sponsors to raise capital right now. Is that what your guys experience is? And what are some things maybe you guys are doing differently than maybe what you were doing two years ago?
Matt Burk ([00:18:05]) – Uh, well, the first part of the yes, no question, it’s much more difficult, right? The last year or so, it’s gotten progressively more challenging to raise money from high net worth people.
Matt Burk ([00:18:15]) – With interest rates being up, they have more options to generate, you know, real time return. I’d say it’s risk off. By and large, people are nervous. I think people raised a lot of money in the last ten years in private real estate. A lot of those a lot of money’s tied up and people can’t get it back right now and they’re concerned about the performance of those deals. And so they’re sitting on their wallets. Right, Right. That said, I think there are the bigger the dollars you get, the more people are looking for opportunities, you know, But they’re also pretty picky right now. So family offices, for example, I think you have a lot of money are looking around for. I think people sense that there’s going to be some good opportunities coming up but haven’t really seen them. To realize all that much just yet. So as a result, we’re seeing a lot of inactivity, I think. You know, we we have our deal volume has gone down considerably in the last, you know, six, eight, nine months.
Matt Burk ([00:19:11]) – You know, But we’re also looking we have moved up a little bit into more a family office, you know, type investors, I’d say quasi institutional, not the pension funds and so forth, but but more larger check writers than, you know, then high net worth accredited investors typically. Now, that said, we have a lot of high net worth investors. They do continue to invest, but I’d say more selectively.
Sam Wilson ([00:19:35]) – Got it. Got it. Very, very interesting. And what’s one piece of advice you would give to people raising money right now? One thing you said, hey, you know, this is this is a lesson I learned the hard way and you should learn it sooner than later.
Matt Burk ([00:19:49]) – Honey, the best advice I. Always give people is be a great underwriter of deals. Right. Be worthy of money. If you know don’t don’t compromise your standards on on the deals that you put the money into. Treat that money as if it was your own right. And if you do that generally, if you have great deals, you can get the money.
Matt Burk ([00:20:10]) – Right? If you have marginal deals, it’s harder to get the money. Although I’ve seen plenty of people who are good marketers that can raise money with where the deals weren’t that great, you know? So that does happen too. But yeah, I’d say be it be worthy of the money and do great deals and generally you can find the money.
Sam Wilson ([00:20:27]) – Fantastic. Matt, I’ve really enjoyed having you on the show today. You’ve given us a lot to think about here. Learned a ton about you, learned a lot about Fairway America and very vast. I love what you guys bring to the market. It’s certainly certainly a need in our space, as I can personally attest, for what you guys do. And I appreciate you coming on today. If our listeners want to get in touch with you and or very fast and learn more about you, what is the best way to do that?
Matt Burk ([00:20:50]) – Uh, emails you can get me on LinkedIn or email is great. Matt. Matty Dot Birkbeck know at either Fairway America or wherever either will get to me so yeah I appreciate you having me on the show.
Sam Wilson ([00:21:06]) – Absolutely. Thank you Matt. Have a great rest of your afternoon.
Matt Burk ([00:21:09]) – You too.
Sam Wilson ([00:21:10]) – Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.
