Real Estate Syndication vs Real Estate Fund | Working Capital Interview

Hey everybody, my name's Jeff Fergali, and today on Working Capital, the real estate podcast, I have Bridger Pennington on the show. Bridger is the founder of Blackbridge Holdings, a real estate investment company that has done over 265 transactions in the last 2 years. Bridger's also a YouTube creator. He's got a number of different videos on all things real estate. Check him out on YouTube, Bridger Pennington. All right, without further ado, let's get into the show. If you're interested in real estate investment funds, syndication, private equity, Any of the above and more, you're gonna like this episode. Enjoy. Bridger, how's it going?

Hey, well, it's good to be on. I'm excited to be here. It's gonna be fun.

Awesome, man. Yeah, it's great to have you on. I keep seeing your YouTube videos pop up in my feed and I'm like, who's this guy? I gotta get him on. So that's—

Sorry about that. It's my guy.

He's trying to be there. Yeah.

It's my guy. No, that's great. What I liked about them, and for those that don't know, just, I mean, Google Bridger, you'll probably— it'll probably come up, or Bridger Real Estate. What I really liked about them is you kind of, you go into a little bit more detail than the average person, I think, on private equity, real estate syndications, and the like. And I'm hoping that we can definitely talk about all that today. But I guess first, we do this with everybody, we kind of take a step back and ask our guests, real estate, how did you get into it? You know, what was that light bulb moment, if there was one, for you to kick off that direction in your career?

Uh, yeah, it's a good question. So I, uh, I was like a lot of people and got into college, was very ambitious, wanted to, you know, I was looking at all these YouTube videos online. I started 6 businesses my first 2 years of college. I did, uh, I was selling essential oils, forex trading, I did website building. I actually wholesaled 2 houses. So you asked me about my first deal, it was I wholesaled 2 houses, made $5,000 each one. I was like, this is sweet, this is awesome, you know. And eventually, my— I grew up in a very average kind of household. And feel free to cut me off whenever you want. But my dad was an entrepreneur.

We did okay, right?

Had an okay life, kind of just average. And my dad finally grabs me and goes, Bridger, I want you to go meet with one of my business partners. This guy is very successful. I think he can help you. You're kind of like a chicken with your head cut off. Let's have him help you. So I said, okay. Set up this meeting. And I drive up to this dude's house and I Pull up gated community. I pull through these beautiful mansions. I mean, it's incredible.

I pull up to the top of this hill cul-de-sac.

He's got this gorgeous home. I park my car. I'm like, dang!

I'm like, who who is this guy? It's my dad's business partner. Like who?

Like who the heck? Like wow!

Like how is you know? How did how did they get in business together? Anyways, I knock on the door. We sit down.

We start to chat, and we start talking about all sorts of stuff.

And he I finally get to the point. I ask him, how did you get all of this? like how did you do this? Right? Like you're— I kind of pointed at the house and the cars and the pool in the backyard. He had a basketball court in his basement, like the whole thing.

Right?

And he kind of laughed and he goes, well, Bridger, I was a lot like you in my 20s. I had done a number of businesses, actually made a decent amount of money. But then he goes, then I figured out the secrets of the ultra-wealthy.

Hmm.

And I kind of leaned in. I was like, what do you mean ultra-wealthy? He says, what I mean is the Vanderbilt family, the Trump family, the Romney family, the Rockefellers. This is what they all do. And they'll have their kids and they get them into the best schools possible. And they hope they can go work in investment banking and then eventually get into private equity, hedge funds, real estate funds, or come back home and run the family office. He goes, this is the world of investment funds. And I'm sure most of your listeners know what a fund is. But just pooling capital together, hedge funds, private equity, they're all structured actually very similar. They're almost all the same structure. They just invest in different things. We'll dive probably into that in a minute.

Yeah.

But I was very intrigued. And he goes, a number of years ago, I met a guy who ran a private equity fund. He's one of the most wealthy people I've ever met. And I set a goal. He said, I set a goal. I didn't care how long it took me. I didn't care if it took me 1 year or 5 years or 20 years. I was going to figure out what a fund was, how to start one, and how to go. And I was like, I was really intrigued. He goes, that's what we did. And he goes, me and your dad launched a fund about 6, 7 years ago. And he goes, currently today, We manage about $8 billion of multifamily real estate.

Wow.

And I was blown away. I was like, I was just struck. Like $8 billion. To put that into perspective, like Cardone Capital I believe managed just about $2 billion of multifamily real estate.

Yeah.

Is that about right?

Well, it depends on the lawsuit, how that goes. But yeah.

Yeah.

Just joking.

Yeah.

We'll see.

That's a great point. Yeah.

We'll see what it all shakes out. But let's say they claim at least that's where they're at. At the time, they were $8 billion. And I believe today they've just topped over $25 billion under management. This is properties, it's a value-add investment fund. They're buying them up, you know, buying B, C-class apartment buildings, renovating them, and flipping them essentially.

Yeah.

I was blown away. And I said, I want to learn this. And I've always heard find mentors, find coaching, right? You hear that forever. So I said, hey, I wonder if this guy would be my mentor. And so I asked him like, hey, can you mentor me? I'd love to get into this. Can you kind of coach me through this? He goes, Bridger, He goes, go talk to your dad. Your dad knows about this way more than I do. And I said, I was like, oh, no way. No, my dad's poor. He drives a crappy car.

You're rich.

Like can you mentor me? And he goes, Bridger, me and your dad make about the same amount of money.

Yeah.

And my chin about dropped to the floor. And I left the guy's house. I drove straight to my dad's house. I was like, Dad, what the heck? Like you're making all this dough and you haven't been sharing it with all, like what's going on? Like why haven't I been able to order dessert at you know, dinner for the last 12 years because it's too expensive.

You know? Oh my God. Yeah.

Like what's going on? And anyways, he kind of laughs. He goes, well, Bridger, I like to save and invest my money and my partner likes to spend and kind of show off his money. But yeah, he goes, yeah, we run these investment funds. And sorry, it's getting a little long-winded here.

But—

No, no.

And feel free to cut me off. But this is, that's how I kind of started to learn about funds. And he sat down for the next 6 months and every time I was around him, we sat on the whiteboard and he taught me about funds, how they worked. We talked about Luxembourg funds, Cayman Island funds, blocker entities. parallel funds, how to find capital, all the stuff inside of funds. And I was super intrigued on it. And about 8 months, 9 months later, I had an opportunity. I was at a company I was actually working at.

Hmm.

And a lot of clients were coming through this company and they needed funding for their businesses. And I thought, hey, this might be a great opportunity for a fund. And so I went and talked to my dad. He loved the idea. I talked to the owners of the business. They loved the idea. And I was like, I'm gonna start a fund. We're gonna do this. And so I put together The kind of organized the documents, got things together. My dad helped mentor me and look through everything. And I finally got to the point like, okay, I need to raise money. And I kind of overlooked how hard that would be and how daunting of a task that would be. Right? I'm 22 years old at the time. And I remember thinking, well, aha, like my dad is rich. He doesn't spend his money. He likes to invest. I'm his son. He's told me he loves this idea. He would probably love to invest in this deal.

Yeah.

And so I remember it was a late Sunday night. I went into my dad's kind of home office. I sat down with him and I said, Dad, in my best pitch voice possible, Dad, how would you like to be our first investor into our fund? And I kind of showed him the whole pitch deck and the whole thing. And he kind of laughs and he goes, Bridger, he goes, I have the money to invest. But if I invest in your fund, I would ruin the experience of you raising money on your own. And he goes, this will be a crutch that you'll never be able to recover from. Your first investor is the hardest investor to find.

Yeah.

And if I'm the first investor, you'll never recover from that. That'll be your story the rest of your life.

He said no.

And it was a big tough love moment between me and my dad. And he kicked me out and he said, go do this on your own. And I took him up on the challenge. And I kind of walked out with my, you know, tail between my legs a little bit and took him up on the challenge though. And after weeks of pitching anybody I could, I raised a whopping $49,000 Nice. For my first, it wasn't even a fund. It was a syndication.

Yeah.

And which is, if you guys know anything about funds, that's probably the smallest possible fund you could possibly do on the planet.

Yeah.

But it was enough to get started. The loans we were doing were small. They were $2,000 to $10,000 loans each. Small, quick turn. They were 4 to 6 weeks long, high interest rate loans. And we did these loans and our first group of investors, they got back a 64% return on their money. They were thrilled. Small dollar amounts but good return.

Good return.

And so we said, let's scale this. So we launched a second fund. And in our second fund, we've raised and deployed millions of dollars. It's gone really well. We've done, we've scaled a lot. And then right now we're launching a third fund actually in real estate. So we're buying up big box stores, Kmart, Shopkos, Best Buys, doing value add in them. We've raised about, soft raised about $18 million so far. Right now we're actually just finishing our documents. We're raising $50 million for that fund.

Awesome.

Awesome.

That's the quick story.

Sorry.

No, no, no, not at all.

That's kind of the story of how I got in this game and where we're at.

Yeah, no, that's great. So first of all, I wanted to ask you and you answered, 22 years old. So you're doing that. It's hilarious because it just reminds me a lot of a very similar story for me where when I was on BiggerPockets, the first time I was on their podcast was like 6 years ago and it's the same story except I was doing student rental properties. I went to my dad first and he was like, No, and it was almost identical to this because we've talked about it on the show, it's the 0 to 1, right? That's the really hard part, not that 1+ isn't— is just easy, it's just getting that first one and then really kind of getting investors in your case and building that. So, the first one wasn't real estate, so was that— were you selling notes on that? Clarify that for us.

Yeah. Yeah.

We were doing, and I totally agree with the zero-to-one thing, by the way. That's so huge. Your first dollar is such a big step. To make $1 in revenue is huge.

Raise $1, make $1. Yeah.

Whatever it is. That's huge, right? The first dollar. But yeah, our first 2, I guess, syndication and fund, we were doing notes to, we were doing debt consolidation inside of there. We did some hard money loans as well on real estate. But And then a lot of it was debt consolidation for small businesses. If they had lots of debt on credit cards or other places, we would consolidate it down in a short period of time. It'd help their credit scores go up and help them get more access to capital. And then they could pay us back in 4 to 6 weeks. And usually, they're getting $60,000 to $100,000 in capital that they could pay us back on. That's kind of what we were doing.

Yeah. Very cool. So you fast forward today, like you said, you're launching a fund that's, it seems like good anchor tenants in large big box stores. I'm curious, for those that don't know or haven't followed you, you don't just jump into a fund. A lot of times, it evolves from a friends and family syndication and then evolves into committed capital that can be used at your discretion. Talk about that journey from that first one, which sounds like an asset-specific or investment-specific entity syndication, and to where you're at today and the structure of that fund for the real estate.

Yeah.

I've seen tons of people do this journey. I did the journey as well. And probably a lot of people listening to your show, and I was the same way, are stuck in what I call the syndication loop. Hmm.

And it's where you—

house flipping is a great example. You find a great house, you love it.

Okay, we're gonna flip this house.

You go call up your investor pool.

Hey, you wanna put money in this house?

You get hard money loans or however you're gonna finance the property. And then you make an LLC or a special purpose vehicle. You put money into that vehicle. you go flip the house and then you restart. And you find another house. You got to find new investors and you got to send, you know, and then that investor this time, hey, sorry, I don't, you know, my bonds, I've got to do something else. I can't put money in. You're calling around. You're trying to drum up capital.

And then you go and you do the next deal.

And eventually, you know, some people get to the point where they just have enough capital themselves. They can just fund deals themselves. But a lot of times they're stuck doing a certain deal size.

Yeah.

And actually, so I mentioned my dad earlier. This is where they were at. They were doing hard money loans. And they were doing syndications on all of them. But these loans were bigger. They weren't doing house flips. They were doing $2, $5, $10 million loans sometimes. And they're syndicating from 10 to, you know, 50 investors on some of these. And he said there was one deal they had, it was on a Friday, they were supposed to close on a Friday. They already had some money that was hard. And one investor didn't wire in their money and they lost the entire deal.

Yeah. Their reputation was tarnished. They lost the deal, right? And they said, we can't do this anymore. We can't do this syndication loop where we're depending on investors and we're just scrapping for capital every time. And we want to get into bigger deals. And that's why most people that are in that loop, most people that are good at financial products or things eventually end up in the fund model because it's so scalable and so lucrative.

Yeah.

So for people that don't know a ton about the fund model, just in a top-level sense, what it does is it allows you to go out and you raise capital once. You set up your legal entities once. And then you can go do as many deals as possible. Depending on how you set up your fund, it's gonna vary quite a bit. But for example, we have one guy in our group, good friend of mine, his name is Brent. He last, so 2 years ago, flipped 2 houses. He's a house flipper, flipped, you know, 2, 3 houses a year, did okay. He just set up a fund.

Hmm.

This year is flipping 72 homes. I think he's like halfway through those flips right now and is doing the other, you know, 30 or 40 the second half of the year because the fund allows him to have the capital there. He can close with cash in hand, proof of funds. He's not trying to scrap it together and, you know, grab hard money.

He just, he can close.

Yeah.

And that's the beauty about funds. And then the final thing that's so just amazing about funds is you have 100% control over what happens. There's a great scene. Have you seen The Big Short? Yeah.

That show?

Yeah.

Great scene in The Big Short with Michael Burry. So Michael Burry, he's pretty much—

Christian Bale.

Christian Bale.

Yeah.

He's kind of autistic and he's listening to loud music. He's got the glass eye, that guy. And so there's a great scene in there. His fund, he like writes on the whiteboard, they're down like 17% or something. His investors come into the room and they're yelling at him, right? They're screaming, you gotta sell your position, get out. And he just says, no, sorry, no. And that is the most beautiful thing about funds. That's the reason 8 guys and gals on Wall Street can manage billions of dollars.

Yep.

and you have your biggest investor come to you and they, let's say, you know, they've invested $100 million with you and they say, hey, you know, Jesse Bridger, I've got some taxes I gotta pay. Can you guys sell some of the properties earlier, the positions, to get me out? Because I gotta pay some taxes. And can you help me out? And you go, no. Right? The properties, the assets are not ready to sell.

Yeah.

fiduciary responsibilities to the fund as a whole. And yeah, you can pull out. It's a 50% penalty if you want to pull out or you leave your money in. And that's the most beautiful thing about funds is the control that you have over what goes on in there.

Yeah. And you know what? When we recently had Brian Burke on the show for a second time and we were talking about the comparisons between entity-specific syndications and funds, and obviously pros and cons with certain things, one of the pros of the actual entity-specific syndication is that the LPs, if they're not as sophisticated, You know, they can technically walk up to a building, hit the brick, and be like, this thing exists. Whereas he said something really interesting about the funds side, it's that it's a trust vehicle. So, you don't just start with a fund, right? You have to develop trust with whether you're the connections that you've done in earlier deals or people know that you're a thought leader. So, why don't you talk about, you know, let's talk a little bit about how you get to that point where somebody's trusting you with what seems to be somewhat of a blind committed capital type of deal rather than entity-specific. And then maybe we could talk a little bit about the generic structure, or like, let's call it the vanilla structure of the fund, the GPLP, you know, just kind of the Coles Notes there. But yeah, first, it'd be great to just hear how you get over that trust curve for investors on the fund side.

Yeah, 100%. And what we just mentioned, syndications is a great way to go, right?

That's an excellent route to go to build yourself a track record or team a track record. But another great way to go about it is partnering with someone who already has the track record, right? You can easily, if you're sitting there like, okay, well, I've got to build a track record now.

Myself, I have, as you can tell, I'm not a seasoned real estate investor.

I don't claim to be.

Hmm.

Yet we're launching a $50 million real estate fund, raised $18 million so far, not because of my track record. I have 2 incredible partners that have done real estate for 25 years that I partnered with.

And they have the great track record.

They partnered with me because I understand funds, how to put them together, and how to raise capital. And so we're a good team together, right? Actually, my dad, I tease him all the time. My dad actually doesn't know that much about real estate. I really ask him. I'll ask him, hey, what kind of cap rate would you offer on that? What would you do? And he's like, I don't know, right? I'm like, you manage $25 billion of assets. Like what are you talking about? He goes, well, no. He goes, my partners know how to do it.

Yeah. But I I don't.

Everyone— so I would say number one, you can do syndication to build a track record, but number two, also partner with people.

But I'll give even a—

I don't know, for me, I, I was— I started out my first one with zero track record and zero partners, right?

Yeah.

On a first syndication deal. How do you even get money on the first syndication deal? Number one, I believe, is finding great properties and great deals.

Yeah.

And, um, you probably talk about on the show a lot, but pitching the deal over yourself or your degree I think goes a long way. And I can go into more in depth than that. But it sounds like you agree and already on the show.

Oh yeah.

Yeah, for sure.

But that's how, that's how we've gone out and raised our capital as well. We say, hey, we're obviously smart. We think we're smart people. But look, we've already identified 3 properties we're gonna buy in our fund. Go, here's all the paper on it. You're smart. You've done real estate. Bring on your friend. Poke holes in the deal.

Yeah.

As much as you can. And if you can't poke holes in the deals, hey, can we put you down for a $500,000 commitment to our fund?

Yeah.

And we still use that model. And real estate's really great because we can identify properties, say these are the ones we're looking at, we're going to put them under contract right now or they are under contract. We want to get in quickly. It's a great way to, and investors, a lot of times, they'll look past a Harvard degree if you have a great deal in front of them that they can get into.

Yeah. Well, we had, you know, it's all a blur in terms of like the past guests we have on, so I can't, I don't know who to credit with. It wasn't me, but it was somebody talking about the 3 trust curves when it comes to real estate investing or real estate private equity. And for initial investors, it's that you have to have somebody that believes in the asset class to a certain extent, believes in you, and believes in the deal. So, I think you touched on it right there with the deal. And like, there's a lot of times the deal can speak for itself. Obviously, you have to bring expertise to that in your own capacity, but it sounds like What you're talking about is whether it's raising money for production of a movie, raising money for real estate, the expertise is in that raising capital, which leads me to kind of the next area. So, you talked about having an operating partner, having somebody that's an expert in that field. How do you structure the fund model when, for instance, there's already potentially your operator in a GP-LP arrangement? Are you now a fund of funds where you're taking capital and you're coming in as a co-GP or as an outsized LP? Could you talk a little bit about that?

And you're saying specifically investing into operators or partnering with operators? Yeah.

Well, it sounds like when you say you're partnering, I'm assuming you're a co-GP on the deals, but maybe that's a bad assumption on my part.

Yeah. Well, there's— you can— the great thing about funds is you can structure it however you'd like, whatever makes sense. That's the best thing about funds. The way we're doing it is one of my partners is actually, he's a property manager, has managed properties for 10 years. His company will be outside of the GP and they are going to give us below, just right below fair market value.

Okay.

And so, and we kind of, technically it's not in-house. It's not part of the GP, but it's a partner, kind of a sister company with us. And we said, hey, we're going to be operating, running these companies from a partner entity that's giving us below market value.

So you're coming in almost like you're coming in at, I assume it's a NAV or net asset value where you're coming in with a little bit of a discount and then you're securing that position. So you're basically profiting on the— initially right away, right? By virtue of connecting at that discounted rate. Is that right?

Well, the way I'm talking about, I'm talking about a property manager. So once we acquire the property, they're going to help manage the property. But in our case, we are going to be the ones buying. We're not co-investing with anybody else. We are going full in buying. The GP is, or the, excuse me, the limited partnership is going to go and buy the entire asset. And then we're going to hire our, you know, sister company to come and help lease it up and renovate it, you know, fix it up, that whole thing.

Yeah. So you haven't gotten to, and maybe you don't want to, you haven't gotten to the point where you're vertically integrating all of that into one business. You're going to have third-party property management. And then continue doing this with different opportunities, it sounds like.

Yeah.

It's my business partner's company. So, it is, we're starting to get to that point. This is our first fund in this asset class. We're keeping it separated, at least currently.

Yeah.

Yeah.

Well, the plan is to integrate all those together in an offering as well. Very cool.

Now, what you mentioned earlier though, having a discounted rate, we're gonna do that as well. So, people that come in, you know, investors that come in in your first, you know, close, they get preference over investors that come in in a second close or a third close. Because they've risked their capital longer. So, you can— yeah, if you're coming in early, you're making money on those second and third closes though.

Nice. So, for listeners, let's talk a little bit downstream. You have somebody that wants to invest. What does it look like for them from a promote standpoint, a pref-return standpoint? Talk a little bit about that.

Yeah.

And by the way, I'm not pitching my fund at all.

This is just examples here.

Not legal advice?

Yeah, not legal advice, but this is what we're doing.

So, We, uh, we decided on our first fund.

Now, we debated this for a while, what to do, how to incentivize investors, especially on a— I've run 2 funds in different asset classes, right? This is our first time in this asset class. How can we drum up a lot of money and capital very quickly?

Hmm.

And an easy way to do that is with your fees.

And I'll give you 2 examples. Number one, um, so my dad's first funds, they paid out, they did a 0% management fee, and they paid a 16% pref. Wow.

Which is, this is 2005. So they would say, essentially what that means is we're taking zero management. We don't make any money unless the investor makes 16% first. And then above 16%, I believe they split 50/50 until 20%.

So a catch-up.

And then the GP would take 100% after that. And they did it on the APY. So annual percentage yield on the yield. And they were doing hard money loans. So, but to put this into kind of an example is they were doing loans that were, let's call it, you know, a couple points, 10% interest, whatever. Let's just say, just round numbers, 1 month and they make back 10% or 10 points on the loan in 1 month. They were doing very short-term loans.

Yeah.

Your yield on that, your APY is 120% because it's an annualized number. So investors, they would say, great, yeah, we'll pay you the first 16%, 50/50. And then they were taking the next 100%, right? Return on that loan. Well, that's, you know, and investors were happy as ever. Hey, we're making 16%. This is awesome. And they didn't know they were leaving this huge chunk out there. Anyways, interesting structure. But in our fund, what we're doing, we're going to do a 2% management, just a typical, very similar 2 and 20 model. So 2% management fee. We're gonna do an 8% pref. So first 8%, so preferential rate of return, first 8% goes to the investors. We're then going to do a 2% catch-up, so the 9th and 10th percentile will come back to the general partner, and then from there, we'll do 80/20 split, 80% to the limited partners, 20% to the general partner.

Yeah. And for those that don't know, I don't know if it's come up on the show before, but the catch-up is, it's a mechanism that is used to make sure that after the pref return is paid to the limited partners, that the general partner Depending on how you structure the documents, will get a catch-up or they will get a disproportionate share so that they are compensated on the pro rata investment, if that makes sense. In terms of the— I'm always curious about this, and again, we're talking in the abstract. When you guys do these types of deals, is your philosophy to have the general partner be a 5% investor, a 10% investor, and then if so, Are they investing arm in arm with the limited partners or separate share classes?

So yeah, we are, the general partner is 2% into the limited partnership. So 2% of all funds raised capped at $1 million.

Got it. That's what you meant by 2 and 20. Sorry.

Yeah. So we'll put 2% capital in as well. And the limited partners will put the other 98% into the limited partnership. And the limited partnership or the fund will be the one that goes and either sets up an SPV or just acquires the property. Well, most likely set up SPVs and then they will go acquire the property out of that SPV all through the fund. So we're not co-investing or anything. It's all dumping into the fund, the limited partnership. That's then going into a holding company and then they're going and buying those assets.

Okay. And that's what I wanted to Yeah. So, talking about the fund structure, first of all, I can't shout out your YouTube channel enough because I'm a visual learner and you see the whiteboard here. I see the whiteboard in your videos. I'm like, perfect. Talk a little bit. I'd like to talk a little bit about structure and without getting too much into the weeds, your typical structure for, for instance, something like the real estate, again, Just generically, if you're doing a real estate fund, how are you typically setting that up and what type of time horizon are you discussing with investors? Because we get a lot of questions about, they see, at least in my personal experience, they see an 8-year horizon, 10-year horizon. And a lot of times is if we get an amazing offer in year 3, we wouldn't be doing our fiduciary duty to you unless we really considered it. So maybe you could talk a little bit about that. Yeah.

There is a— the first thing about funds is there is a lot of options. And that's what I actually, our channel, we try to walk through the options, right? And if you understand the options, it'll save you and your dollars paid to a lawyer. You'll save a lot of time because lawyers will love to walk you through all these options and bill $500 an hour while they do it. And it's just, they love it, right? It's their favorite thing to do. And so we try to walk people through your options. So a few options, I'll kind of go through the most common. And then, I mean, there's 1,000 ways to do it. But the most common filing, at least in the United States, is under Regulation D, 506.

Okay?

That's just the filing number. And a 506 fund, you cannot publicly advertise. And you can, and I'll actually go through a few exemptions below that. You can raise unlimited capital. And you can raise from 35 non-accredited investors and unlimited accredited investors.

Okay?

That's a 506 fund. And that's how 99% of all capital on the planet is raised through a 506 fund offering.

I will just, sorry to interrupt, interject on the Canadian side. That would be, if those of you are interested, National Instrument 45106. That's our exemption similar to your 506 and to a certain extent. But yeah, sorry.

No. And that's actually great. I probably need your— I need help on learning Canadian funds better too because I know U.S.

funds really well but not Canadian.

So—

Well, you guys have a Yeah.

I know.

They'll come after you. So you got to set it up right. There's a lot of exemption stuff. So yeah, to not get too into the weeds, you can do a 506 in the United States or a 506, and then 506, you can publicly advertise. There's a few other things there. And then underneath there, so once you pick one of those, there's then a number of options as well. So you can do a 3, a 3, a 3 fund. There's a few different options there. Those are the 3 most common. For real estate funds specifically though, 3 is a great exemption for real estate funds. So if you just remember, it's hard to remember, but 506 or , and then 3, you'll get great exemptions for real estate. You have to own, I believe, you might know the number, it's like, it's 80% or 85% of your portfolio needs to be real estate inside of a 3 fund.

Mm-hmm.

And if you do that, you get exempt from a lot of clauses. You don't have to have certain licenses. It's actually really great and useful. Um, but there's a ton of options. I don't— we probably don't want to get into them, but you can run Regulation A funds, Regulation, um, CF funds. You can do crowdfunding. I mean, there's a lot of cool things you can do there, but that would be the most common for real estate funds. But back to the— that's— this is probably confusing there, but to the structure of things.

Yeah.

We mentioned, you know, general partner, limited partnership structure.

A lot of times in the United States, you'll set up a third entity. And that third entity will be your investment advisor or registered investment advisor. And so, and that usually is owned by the same people in the general partner. So your general partner, your investment advisor, the same, that's just your management team. This is us that are running the fund. Your investment advisor or registered investment advisor in the United States, if you're over $150 million, you fall into the SEC rules, the national level, and that's over $150 million. If you're under $150 million, you fall into the state level where your primary office is located. So if you're located in Spokane, Washington, you will be under Washington securities laws. If you're in Utah— I'm in Utah, I'm under Utah securities laws in my state for there. So you have to just look out for that, and it just depends on the fund type that you're doing as well.

Yeah.

And then if you want to go deeper, I mean, we can talk about parallel funds, blocker entities, if you're raising money from international. I don't know if you want to get into that.

Well, before we do, it's fascinating to see the different structures because, as you said, there's many of them. What I think there is parallels, at least for the Canadian and the U.S., is that there is the GPLP, there is an entity typically that actually has title to the property in the States that usually is an LLC. In Canada, we have no LLCs. We don't know what those are. So, we have corporations, and corporations take title to the properties, or you have a nominee corp. So, very similar. And even when we invest in the States, oftentimes, it's done in a USLP. For Canadians, I think it's more of a preferential tax entity. But without getting too far into the weeds, in terms of the exit strategy, so when you're talking to investors, obviously, we're talking funds here. So, it is committed capital. I guess, 2 questions. One on exit, and talk a little bit about how that works and how you talk about that with your investors. And then the first one is on entry. And what I mean by that is when somebody asks you, hey, Bridger, I'm giving you $200,000. How much runway do you have if it's a really tight market and you can't find deals until something's got to happen with my money? How long can it sit in a bank account?

Yeah.

Great. Yeah.

Great question.

Thanks for getting me back on track here.

Yeah.

No worries. Yeah.

And you obviously have plenty of experience in funds. You can add on to this as well. But again, it depends on, you can decide, which is great. We can do. But also, typically what funds do, you have what you mentioned, a 7 to 10-year horizon is a typical horizon for the entire life of the fund. Usually first 12 to 18 months, we're going to be raising capital and starting to deploy that capital. into deals if we deem fit. And then hopefully, you know, in the best-case scenario, we're deploying capital. By year 3, maybe 4, we've deployed all of our capital and now we're seasoning the properties. And hopefully by year, you know, 5, 6, 7, we're starting to exit a few properties. They usually will set a longer timeframe just in case we go into a crazy recession or something.

Yeah.

You don't want to be forced to sell because if you told an investor 7 years and you know, now you're at 7 years at the bottom of a recession or depression, you're like, hey, can we extend or not? A lot of funds will just give themselves, you know, 10 years at the max and they'll time the market right. But I think most managers that I talk to are saying, hey, we're trying to get out of these properties in 6 to 7 years as our primary target. Now, you mentioned capital committed. So a lot of times, an investor, if we're raising $10 million, we'll get commitments from that. We don't actually take the money yet though. It's literally just pieces of paper that say we have certain $10 million committed that we can draw down when we want. So we identify a property, we will issue what's called a capital call, and we'll say, hey, we're gonna, we're buying a million-dollar property. We're gonna draw 10% of the capital down. So if you put, if you committed, like your example, $200,000, you would commit 10%, so $20,000. You'd have know, 10 days or 14 days to send a wire into my bank account. And then we would go and acquire that property there through a capital call. A lot of funds that I see typically will have a timeframe of maybe 2 to 3 years. And they'll say, after, let's call it 3 years, we cannot call capital anymore. So on that $10 million fund example, let's say after 3 years, we only deployed, you know, $6 million. We just couldn't find enough deals that were good enough.

Yeah.

A lot of times, you'll send a letter to your investors saying, okay, the last 40%, you're released from your capital commitments. You actually do not have that liability anymore to fulfill capital calls. Does that make sense?

Yeah. No, it's a great distinction on the fact that it's callable capital. I'd love to do this again. I want to be respectful of your time here. So just coming up to the end here, and we'll talk a little bit about how people can get in contact with you. But We typically ask all our guests 4 questions. So if you're down and game for that, I can kick us off.

Let's do it. Yeah.

All right. What's something that you know now that you wish you knew at the beginning of your real estate career?

Oh man.

To have, that's a good question. Number one, have good attorneys. And number two, to get into real estate. Like for me forever, I've been in and out and I'm gonna time the market right and I'm gonna, you know, oh, I'm gonna wait just to the perfect time. And it's like, nah, just get in. Like just stop waiting for things to, it's just life's gonna pass you. Just get in. You know? And even if it's the worst time ever in the history of the world to get in, traditionally, real estate over time has, you know, you're gonna make money over time. So just get in. Even, you know, that's something I wish I knew.

Awesome. Number 2, what's a resource that has your attention right now that you'd like to share with listeners? That can be a podcast, a book.

One of the things I've been loving to read is Ray Dalio. So Ray Dalio runs Bridgewater Associates, one of the largest private equity funds in the world. I mean Ray is a legend in the industry. I look up to him a lot. He posts incredible articles on his LinkedIn. And to his, you know, he kind of points everyone there. He's written a few books. But he has been constantly just banging on this long-term debt cycle. He believes, he has a lot of theories on what's going on with monetary policy on kind of a macro view. I love macroeconomics. I just finished, I love reading books and they, sometimes they get a little too far. I don't understand everything. But yeah, it's, and he does a great job of making it simple and actionable of what's going on in the world right now. It's actually, man, it's pretty interesting. So I'll point you guys there. You can't go wrong listening to Ray Dalio.

Yeah. That'll have to be the topic of the next the next podcast because I'm a huge econ geek and just his idea of the long cycle. What he's doing now on LinkedIn reminds me a lot about what Howard Marks has been doing for the longest time of the writing. I think it was monthly or weekly now, but anyways, both are great resources. Mentorship, what does it mean to you? How important is it to you?

I am all in on mentorship. I've spent $80,000 in the last 12 months on mastermind groups, coaching, and mentors.

Yeah.

Because I know every time I give a mentor or coach a dollar, I get back $3, $4, $5 in return.

Yeah.

And so I remember the first time I joined a program for like $1,000 and I just gulped. I was like, oh my gosh, I don't, like I'm freaking out. And like 3 months later, I'd made, I made like $2,500. I signed a client and I, whatever. I was like, whoa, like that worked. You know? And I was like, this is a cool investment. Like you're thinking about return on investment. I have seen it time and time again. Every time I pay a coach, a mentor, not all of them are perfect, but a lot of them are actually really good and really quality information. My business, it grows our business in a certain way. And I wouldn't have, it's just, you pay for shortcuts. You're buying shortcuts. I'm all in on mentorship. And I put a lot of, every year I just budget. Like I budget a certain dollar amount. Like, okay, like this amount's going to just masterminds, groups, and mentors this year.

They're like the PS2 cheat codes back in the day, where you just buy the— but yeah, I mean, it hearkens back to the zero-to-one piece, right? It's like until you do it and see that, oh my God, I should have done this 5 years earlier. Last question, this is my lob, my favorite Bloomberg. First car make and model?

First car make and model, it was— I love it— Ford Expedition, 1999, had about 230,000 miles on it.

Beautiful. That's a lot of miles.

Oh yeah, it was, and it did good, man. Old Ernst was his name.

Right on.

That's what you asked, first car I've ever owned, right?

Yeah, first car, make and model. I have always stolen that from Masters of Business, one of my favorite podcasts on Bloomberg. Bridger, where can people, aside from an easy Google search, you're going to pop up everywhere, is there somewhere that you would point to people or something that you're promoting now that you'd like listeners to know about?

Yeah, easy spot, our stuff is called Investment Fund Secrets. So Investment Fund Secrets, we go in and teach people about funds. We try to go through and map it out. My brother's a securities attorney. My dad, obviously he just actually just retired, but co-founded a $25 billion family of funds. And myself, we try to just make it simple. So it's called Investment Fund Secrets, investmentfundsecrets.com, our YouTube channel, Bridger Pennington. I love whiteboards, like you mentioned. So we try to whiteboard stuff out there, but that's what we're trying to do there. And we have coaching and mentorship stuff and all that kind of thing, but just Investment Fund Secrets, we're trying to just give out as much free information as we can funds, just, just to help people understand this world better and what's going on and just kind of pull back the curtain.

My guest today has been Bridger, the investment fund guru, Pennington. Bridger, thanks for being part of Working Capital.

Thank you so much. It's been fun.

All right. Thanks so much for listening to Working Capital, the real estate podcast. My name is Justin Fergali, and we hope to catch you on the next one. Take care.