The Insider's Edge To Real Estate Investing w. Agustin Barrios Gomez

Welcome everyone to another episode of the Insider's Edge to real estate investing. I am your co host now, James Nelson. I am head of US Investment Sales. And Kim.

Good morning, everyone. I'm Kim Troller. Welcome. Today we have Augustine Berrios Gomez joining us in from Mexico City. He's the founding partner of International Capital Partners, or ICP Funds. Augustine, thanks so much for joining us.

Thank you, Kim. Jim, it's good to see you guys. Yeah.

And just as a brief intro, Augustine, like I said, he's the founder and president of ICP Funds. They're a commercial real estate investment firm focused on office and industrial in several cities across the US he's between Mexico City and Houston and also happens to be very involved in politics and he's a public speaker on issues related to international investments in North America. So he's got a lot of wheels spinning and we're really excited to kind of dig in and hear more about it.

Thank you very much, Kim.

Yeah.

So, Augustine, maybe just for our audience, if you could just give a background of icp, maybe just tell us a little bit about what the platform is. And I know that there's some different verticals that you're invested in, so maybe just kind of give a sense of the overall portfolio. Right.

So we're a private equity fund based in Houston. We, we buy industrial and suburban corporate office assets throughout maybe 14, 15 cities across the U.S. our strategy is we're very cash on, cash focused. We're cash flow focused. We buy core, core plus assets. These are stabilized buildings. Our weighted average lease term is upwards of 6, 7 years. We have 90 properties in 14, 15 markets across the country. We have, we have a perfect track record. We've been around for about nine years. It's a fund that's, you know, we curate our portfolio very specifically in terms of our industrial assets. You know, these are buildings that are between 10 and $30 million, mostly in terms of our suburban corporate office assets. These are buildings that have some element of, you know, mission critical. For example, we have portfolio of, of, of properties in, in the Denver Front Range area that have significant skiff space. Right. That sensitive compartment and information facility, which means that, you know, all of these suppliers to the DOD have to do these business processes within these spaces that are specifically that have specific build out so that, you know, that they block electromagnetic frequencies and all that. Anyway, so this is all, you know, what we try to do. We try to make that our portfolio has particularly sticky tenants. This is a cash flow portfolio. We're very, very conservative in our underwriting, we stay away from markets that have had speculative activity. We stay away from what are the traditional gateway markets, simply because when you do your underwriting for those purchases in the New Yorks and the Californias and the Miamis and these markets that have other elements of market demand going for them, then you have to assume that there's going to be upside. And in our underwriting, in our, in, in our projections, for, for, for, for the yield that we're looking to give our, our investors, we're very conservative. We, we, we assume, we, we don't assume anything in terms of upside. We assume that, you know, we, we do our underwriting based on, on, on what's, what's in the, what's in the lease contract, you know, the rent bumps that we have already established. And so that keeps the flow very, very steady. It keeps our investors very happy. Again, we've been able to, we went through Covid and we were able to hit our objective on time and on target. Currently, we've got a 9.5% yield per annum. And so we believe that this is the part of the portfolio that you can count on when other things are going a little bit haywire.

Right?

Yeah.

So generational wealth, if looking to build and, and protect your wealth, real estate is a great vehicle to do that for many, many people. What does, what does that term generational wealth mean to you and how have you used real estate as a, a vehicle for, for building that for yourself and for your investors?

Sure. So I mean, for, for us, what that means is basically, you know, your, your, it's capital protection and yield and it's that sweet spot between the capital protection aspect of it where you actually own the underlying asset and all of that. But at the same time, you know, we're looking to make sure that our investors do have that, you know, do have that yield that is attractive and that they can actually, you know, it's the whole sort of live off your rent strategy. Right. But we believe that this is a more intelligent way of doing it than buying direct. So because, you know, it's interesting, we've, we've developed this little, we have this niche in all of our markets. You know, in the Houstons, the Dallas is, the San Antonio's, the Denver's, the Chicago, St. Louis. We even have, we have property in Detroit, we have a property in Lexington with Long Waltz. And what we found is that there is, there is an act, there is actual value to be, to be given, you know, to be provided for your investors based on having a great reputation. So in all of these markets where we're, where we're active and we're constantly and consistently active, what we've been able to do is be very clear to the selling population, right. To the ecosystem that sells in all these different local markets. And the way we do that, we're very clear that we're not going to go against institutional money. If you have someone with deep pockets going after your property, we're really not interested. We're looking for that, for those double digits, cash, you know, levered cash on cash returns. You know, if we're not able to hit that with your property, we shouldn't really even be spending time on it. And what's great about that, you know, in exchange for all of that, we do give surety of clothes. You know, we've, we've closed every property that we've ever put under contract on time and on target, except for a couple that have had issues with dd, of course.

Right.

That's something that's completely out of our control. But they know that, right? Sellers in all these markets know that. And because of that we generally buy off market and we generally buy below, below market prices. Why? Because they prefer to sell to us instead of being, you know, 60, 75 days out after this whole, you know, after the whole purchasing process and, and finding out that the, that the, that the buyer, you know, in one way or another can't perform. And so I think that, that it's a great deal for the sellers, it's a great deal for us, it's a great deal for our investors. And that's how we focused and so the way that we look at it, and I was at a family office conference in San Diego last week, you know, upwards of 50% of the portfolio for family offices these days is actually concentrated in private equity of one sort over another. Right. So alternatives, if you want to look at it this way, that way. And so we found that family offices, high net worth individuals working through, you know, private banks and all that, you know, they'll have the classic bond and stock portfolio that are the publicly traded securities, of course, and you know, as, that's as investment as investing 101 will tell you. But at the same time, they're very, very interested these days in having those alternative products that give the, that are not correlated to, you know, the, the ups and downs of the financial markets, that for them is very important. And so when you have a portfolio of properties that has, you know, the underlying, obviously the underlying property, but you have, but that really depends on these, you know, credit tenants one way or another paying the rent. And we believe that that has allowed, and it certainly has allowed during the last nine years that we've been around to have these uncorrelated returns. And so that's the way that family offices are looking at all of this. Obviously in that space, you know, you have to include, include VC money. Right. I mean there's a lot of people going in and investing in, you know, in these venture capital products and you know, early stage investment and now you have tech and all of that. But within that basket you also have funds that are much more conservative, that are much more geared towards providing a current return as opposed to the, you know, these spectacular irrs that are promised by a lot of other funds.

Right, that's, that's really helpful background and that makes a ton of sense with your investment philosophy. If you could just take a little bit of a step back to understand your position within the transaction. So you come in as the equity partner. So you, you're always going to have an operating partner who's going to actually be running the day to day. So are you, you know, typically you see these 9010 deals, you've got major decision making rights. I mean, are you always the majority equity partner who has that?

Always.

Okay, so is that, that's really. So tell us kind of a typical deal profile because again, if you're investing in properties that have great tenancy credit. Walt, I mean are these deals maybe just share with us what the capital stack looks like as far as how much finance, how much equity you're putting in and how much you look for your operating partner to contribute.

Yeah, absolutely. So yes, we do work through local gps. Our. We, we have nine, although there are three that are most, most dominant within our portfolio because these are the ones that work in the, in the geographic areas where we're most active. So about 50 of our portfolio is actually in the Texas triangle and that is basically Dallas, Houston and San Antonio. We don't buy in Austin because we believe that Austin often can show a lot of the, the market dynamics of a sort of sexy market that we're not all that interested in in term because, because of the whole, you know, speculative aspect of it. So 50% of our portfolio is there. So of course our Texas GP is, is, is, is, is, is, you know, particularly important. We're very clear. So we're, we're, I guess, you know, I've been heard, I've heard it called controlling LP and what that means is that we're very clear with respect to, you know, what the, what the benefits are for the sponsor. We are, we are, you know, major decision making obviously is always kept in our hands. We are always by far the majority investor. We, you know, we'll do from 99,1, we'll do 99% to say, 75%. If the GP brings someone that, you know, a local investor that brings some value to the, to the, you know, to the, to the operation, then, you know, we'll, we'll, we'll contemplate that. But of course the conditions are always the same, right? The promote's always the same and all these different things. So we look for, we look for debt and that debt is generally between 60 and 65%. There are three sources, three main sources of debt for these types of transactions. You know, you have regional banks, you have Life Cos and you have, you know, the big financial players normally out of New York that do the CMBS loans. And so most. Maybe nine out of ten. No. Well, probably about seven out of ten are regional banks. We like working with regional banks. We believe that regional banks bring a lot of local expertise. We also like them because we can give them a call if anything comes up. With respect to the tenant, with respect to the building itself, it's a, you know, this, at the end of the day, this is still a very much a relationship business. You know, you still, you still have to know who you're talking to. You still have to know the players at the local market, at the local level. And regional banks really do give that those benefits. And then of course you have Life Cos. Life Cos are great when you can line up, you know, the walt with their needs and so sometimes they offer some really good terms. And CMBS is, you know, when you're basically clipping coupons for 18 years from, you know, a credit tenant, then a CMBS loan might be interesting. But those are very, very few and far between because as you know, the cm, CMBS loans can be very complicated if you actually need to talk to somebody because of course, you know, these are syndicated loans and so you, there's no one holder of that debt. And so we are leveraged across the portfolio to about 63% on a weighted average. It's on a deal by deal basis. There's no, you know, there's no cross collateralization. You know, basically there's also no, there's no recourse on that debt simply because, of course we couldn't, we couldn't have that and so we've been able to finance our deals at attractive rates and what's great also by being an evergreen fund, which is what we are, that gives us the ability to, and on the one hand it separates us from funds that are project by project based. It gives the investor immediate diversification and it also allows us to buy in all environments. Right. So we've been very successful at buying in low interest rate environments and very successful in buying it in high interest rate environments with higher caps. And so, you know, generally you're looking at financing when the markets are a little bit more jittery. You're looking at say a SOFR plus 225, 230, 240. And when markets are a little bit more calm like they have been lately and there's more capital being deployed on behalf of, you know, on behalf of the banks and the debt, you're looking at maybe a SOFR of +180. So as long as you've got that delta between the cost of your capital and the yield, then you're able to give those returns that are attractive to investors.

So from what you've described, it sounds like you have a very long term investment horizon. You're focused on cash, on cash returns.

We do. Nevertheless, we also believe, and this is important, I think one of the things that investors tell us is that they don't like long lock in periods. Right.

That was what, where I was going. Yeah.

And, and because there's no, there's no developer, there's no development risk, we don't develop. There's, yeah, we'll do a lease up, but lease up, but when it's very, very clear what the, what the exit is and what we're looking at, you know, maybe 85 occupancy, you know, nothing really, you know, out there in, in those terms. So we might do a lease up, but very, you know, and, and there might be a little bit of a value add play on some, some buildings where it's very, very clear. But the in place, the in place cap rate has to be attractive from, you know, again from the get go. Right. It has to be make sense, it has to be accretive. It has to make sense from the get go. We have to be able to get our returns from, from, from, you know, from, from the, the starting bell, so to speak. And, and at the same time, you know, we have enough, we have, we have about 450 investors at this point. And so there's enough movement within the portfolio so that we can offer our Our investors their, their exit after a two year lock in period, which we believe to be very, very reasonable, we can offer them exits, you know, liquid, to liquidate their, their positions within three months if it's below a certain threshold and six months if it's above a certain threshold amount.

Well, as opposed to stocks and bonds, real estate is an illiquid asset class and with that comes illiquidity premium, which a lot of investors who are willing to be patient can, can reap.

Absolutely. And you know, there are, there are several sources for those for, for that. Right. I mean you have, you have incoming investment which is, which fortunately tends to be enough. There are lines of credit and of course at the end of the day you can always go out and sell a building. But as investors know, when an investor of a certain size does seek to liquidate based on a sale, they're the ones that have to take whatever loss is on the table if that's what happens. Right. I mean, because I think investors have to be aware that like you just said, Kim, this is, these are illiquid assets, but at the same time that's what makes them attractive, that's what makes them solid, that's what makes them real, so to speak. Right.

I'd love to understand a little bit about how you get comfort with the various tenants in your portfolio and if that really drives, I mean, I know for example, Amazon is a very big tenant in your portfolio.

I know you also actually they're very, very small. And that was, that was an interesting deal. That was. And, and I, and maybe I can, I can answer your question with respect to counterparty risk. Right. At the end of the day, counterparty risk is, is very much the name of the game. And there are two ways to, to mitigate that risk. There's the multi tenant way, right. We have in our portfolio Flex Product that, you know, where you might have 30%, 40% of the GLA office build out and then the rest is, you know, light industrial or warehouse distribution. So you know, we call that sort of lunchbox real estate. Like, you know, you have, you have these, these, these local, you know, plumbers, electricians and all that. We have, we have some of that in Texas and we find them to be amazing tenants because that one, nobody's building that space. And two, you know, you do have a lot of these local contractors and, and, and, and these types of tenants that are doing very, very well and they need that sort of space. And you can actually, because of course these are not credit tenants, but you have A diversification in the property that, that, that, that banks like. And that's another element with respect to debt that we like. When you're making, when you're making these purchase decisions, you're making them hand in hand with, in normally a regional bank. And so you can, you can gauge the temperature of the, of the, of the tenant mix just by the, just with the back and forth that you have with your, with your, with your finance partner. Right? And, and, and oftentimes when you have a diversified, when you have a property that has a diversified base of tenants, even though not no one of them is, you know, is national credit, nevertheless the, the credit risk is fairly low because of the diversification within the asset and at the same time because you know, their, their, their individual balance sheets are actually quite good. Right? And then of course you have the national, you know, you have the credit tenants, the proper credit tenants that you can have. You know, we just bought a two property portfolio for a German, you know, automobile manufacturer supplier, one of these tier 1 OEM manufacturers for you know that they supply pretty much everybody in the automobile industry with sunroofs and, and drop tops and all these different things. And so that's a German company that's been around for 125 years and they have a plant in Lexington, they have a plant in Detroit. And that's a sale and leaseback, which we love by the way, for that's, that's 18 years. Right. And so that's a very specific type of credit risk and that's a very specific type of, of SLB Salem leaseback opportunity.

So how do you get. Because it's really interesting that in some cases it might be better to have kind of the multi tenant mom and pop than just say one Amazon tenant. Right. So but regardless of the tenant, how are you getting a comfort level with the credit? And then what type of return are you looking for in return? I mean obviously if you have a credit tenant that's going to warrant for most investors, you're willing to accept a lower return. If you sell in the future, you're going to get a tighter cap rate. But how do you really, I mean is it just going to Moody's S and P, you know, trying to figure out what the credit rating is? I mean, with these private tenants, how do you get comfortable with their shadow credit, if you will?

Well, it has, it has a lot to do with their, their particular activity. So I mean, I guess the classic comparison is with retail. We do not do retail, but the classic comparison is you know, with the nail salons and the, and you know, the cleaners and all these different people in the, in the retail side. That' very specific type of activity when you're dealing with industrial product, when you're dealing with flex office industrial product in the local markets, you know, with surface parking, but you might even have overhead doors, for example. Generally these are businesses that have been around for a while. They're certainly mom and pop in the sense that they're family, but you'd be surprised at the amount of money that, that, that, that they represent. Right? I mean, these are generally, you know, they'll have some, they'll have monopoly, a monopoly over certain things as contractors, for example, within a region. Because as you know, these are very local businesses. They will have been around for a long time. They will have, you know, a very attractive balance sheet. They'll have very, very little debt on their books. And at the same time, you know, because they're, they're, they're like you say, shadow credit, if you want to look at it that way, they also tend to pay a premium in terms of rents, which makes it all the more attractive. And at the same time, the element of diversification, that is also very important. You might have 30 of these types of tenants in a flex office industrial building that's a single story, surface parking, overhead door kind of, you know, situation. And of course you're doing this again, you're doing this hand in hand with, with, with the regional banks. Oftentimes these, these, these businesses will actually have relationships with these banks. So that, so, so the bank will, will be comfortable also with that credit because they will know these people personally. And that, that, that's, you know, that's the granule, that's, that's acting at the gross.

Augustine, what is your reasoning for staying away from retail? We've noticed just from our internal reporting that over the past few years there's been an oversupply in assets like industrial and multifamily. But from a rent growth standpoint, retail is in a really great spot, particularly bricks and mortar retail. Why not retail?

You know, originally there's a sister fund that operates in Mexico that has Walmarts and, and has significant amount of retail that I have business partners that have that fund. And when we looked to launch icp, that was sort of a natural way to do things. But what we saw was retail has different dynamics. Often the property will be very specifically built out for, you know, for, for, for the, for the, for the tenant in retail. We didn't see that, that, that with that, you know, with, with that customization necessarily, we would find the, the, the, the, the commitment on behalf of the tenant in terms of the length of the wall for, you know, for, for, for it to really make sense. Which doesn't mean the retail isn't a great business. It certainly is and, and more power to those who are in that business. But when you're, when, when we were looking for, for, for stability, when we were looking for properties that, that really, you know, that, that, that could turn on a dime in terms of, of, of, of finding new tenants, but that had very sticky tenants in the first place. We actually found that, that industrial and specifically, you know, mission critical suburban corporate office because office is a huge, you know, it's a huge space and suddenly, you know, you hear, oh, office is doing terribly, not all office is doing terribly.

Right?

And in fact, you know, when, when, during the pandemic when, when, when it was sort of the height of the, the office crisis because our, our office properties were truly mission critical, we actually didn't see any issues with, with the, the, the 47% of the portfolio that, that, that, that is made up of office. And so I think, you know, you have to know what your property is about, right? I mean, you have to know if the, if the, if the, if the tenant is actually using it as a sort of a cookie cutter space that they could, you know, they could take it or leave it, right? Or CBD office, for example, that was all. That's, you know, that's still having its issues. In particular, you know, 90s and 2000s production that you have these amazing buildings. I mean, some of them are like, you know, brutal, brutalist masterpieces like that style or, you know, or these sort of, you know, glass CBD towers that are also very iconic. But if they're not full on aaa, you know, if they're not, you know, you know, full on top of the, you know, top of the class office product, there's very little demand for them. We never got into that, right? We just, it just didn't fit our profile. We, we were always on, on in, in these suburbs that have, you know, the market dynamics where you have, for example, the C suite that lives very nearby or the, the employee base that also, you know, that you would, you wouldn't want to send them 40 minutes further west or east or whatever, right? And so there's another reason why they're there. Skiff space in those markets that are related to national security and Department of Defense. Like, you know, the fact that in Colorado Springs, which is one of our markets, you have the Air Force base and up until now you had Space Force and all of these different things. In Denver, for example, I don't know if you know this, but Denver has, Denver is the sort of capital of the west, apart from California, of course. California is its own world, but Denver is the high, has the highest concentration of government buildings outside of Washington D.C. and so you have these, you know, so you have these defense contractors out there that have a bunch of rules around them with respect to where they do business. And so they, these are the stickiest of tenants despite the fact that these are office buildings.

Right, interesting. Augustine, maybe you could talk a little bit about your partner. So you said, I think you said you have nine different partners, repeat partners, especially in Texas. So, you know, what do you look for in a partner? You know, maybe how did you end up connecting with them? And then, you know, maybe there's someone who's listening to this show right now who has a great opportunity and they say, hey, this perfectly matches, you know, ICP's deal parameters. You know, someone just reaches out and says, hey, you know, would you have interest? Does that ever happen? Or is it more kind of debt equity advisors who are kind of help matchmaking for you? How do you find your partners?

No, so it's been very organic. So, you know, we started out in Houston because just for family reasons, my former father in law had been developing in Houston since the 1970s and that was where we started out. And we still have a, a good, what are we at? Maybe about 29, 30% of the portfolio in Houston. We love Houston. We think it's a, it's, we love the business dynamics there. And so we were looking at a property, it was one of the first properties that we were looking at that we ended up not buying. But we were introduced by the, the broker, the seller's broker because, you know, we were looking at the property, we said we had, we had this, we had a GP in tower, sort of a small two man operation that was going to be the GP that had a lot of, a lot of experience, but they hadn't actually created their, you know, built out their business since the guy left this massive like sovereign wealth fund that, where he had managed a large portfolio. And when we told the seller's broker, we said, you know, this guy can't, can't perform anymore. We're going to need somebody to pick up the slack. We're going to need somebody, you know, to do, just perform the duties of our local partners which are generally, you know, procuring debt and a lot of the property management, that sort of thing. And he was the one, this sellers broker from jll, he was the one who put us in contact with this group. And in particular with respect to our gps, what we look for, we look for basically second or third generation local players that have, you know, that have a really good reputation, that have incredible local contacts, that have done a good number of deals. But we don't, you know, we don't want them to be like these multi billion dollar operations that have done all these deals with institutional money because it's not, that's not where we play. Right? We, we're not looking at deals up north of you know, $30 million, even 25, $30 million, you know, where we, we, we curate our portfolio. We're not, you know, we're not deploying enormous amounts of capital which is the reason why we're able to buy at the prices that we're able to buy. Because we really are looking for, we're very, we're cherry picking in a very aggressive way. In many ways, but. Very aggressive. No, actually I wouldn't use that word. It's not aggressive. What it is is very open, very clear, very transparent. We're working to hit double digit levered cash on cash and we will give you surety of close but you're not going to get top dollar, right? But if you're serious about selling your property, if you're serious about selling your building, we will give you a fair price for what is for us a fair price. We're also not going to be overly aggressive with respect to, you know, it's not that we're trying to squeeze the last dollar out of you. It's, it's the fact that we, we have a commitment to our investors for a certain level of return and, and we're very clear. And so it's very funny because people, sellers actually really appreciate that it's been surprising for us that, that we, that we have been in such a, in, in what is in many ways such a perfect market. There is the market dynamics. I mean commercial real estate in the United States is by certain, by, by, by many measures the biggest asset class of any kind in the world. You know, maybe China might be bigger, but of course China has its own thing, right? So in terms of like you know, asset classes, commercial real estate as a, as a whole is perhaps the largest asset class in, in, in the world. And so you know, you would think that it's a perfect market, but it's not, there's still a lot of there, there, there is still a lot of value to be had with those personal relationships with your, you know, with a reputation with giving the, you know, the seller certain guarantees in terms of the fact that they will close on time and on target. And that mean that represents millions and millions of dollars for our investors. And that's the reason why we can, we can give these returns or we have been able to give these returns up until now, since inception because we have found those deals so we curate them in that way. So again our gps, our sponsors, they have to have those, those qualities about them. These, you know, generally these are second or third generation players, you know, very well known in the market. They know everybody in the market. They can sit down with the debt providers, they can sit down with the sellers and everybody knows them by name. Those are the people that we like. And of course they understand that they're not going to, this isn't a one and done sort of situation. You know, I think, you know, in an ideal environment everybody does very, very well. But at the same time it's not a get rich quick scheme. You know, we're not looking for, you know, we're not looking sort of kill it with them such that everybody gets this massive promote and all of that. That's not where we're about. We're about consistency. We're about, you know, this is a marathon, this isn't a sprint. Right?

So on that note, let's talk about foreign capital. I know you, you work with a lot of international investors and I, I'd be curious to hear about what sort of draws foreign capital to the US we know that foreign investors often have a different deal logic than, than domestic. Maybe if they're trying to get their capital out of that might not make sense for us investor might actually pencil for them. From a yield standpoint, is that something that you're seeing with your investors?

So yes and no. Generally when, you know, the foreign investors that we deal with tend to be very sophisticated investors who are already in the US oftentimes. And this is something that we, we prefer to be honest, they have their own investment vehicle, they have their own C Corp in the US and we can give them their K1 and everybody's happy, right? And because at the end of the day the vehicle, the, you know, the actual investment vehicle is is, is a pass through LLC, right, with its SPVs, whatever underneath. And so if, if you know the, the, the foreign investor, even though they will be a foreign investor. From the perspective of, of the fact that the ultimate beneficial owner is international. They will have some sort of US investment vehicle that tributes in the United States that has a real presence in the US and has its own operation. A C Corp. Right. Not a pass through a week. We don't do, you know, we can't have another pass through. We need to have an actual C Corp. Check the box. Llc, however you want to call it. And so they tend to have very similar dynamic to the U.S. investor. You know, these are people, family offices like out of Monterey for example. Monterey, Mexico, which is a very, you know, know, it's a, it's a wealthy industrial city that's been around since forever. It's part of the region in terms of Texas. Like that whole region is really very integrated. Obviously used to be part of the same area. So you know, people are very comfortable with the San Antonios and whatever because you know, these, these, these family offices, the owners will have their beach house in South Padre island, right? And so it's not foreign to them. It's part of their, it's part of their, you know, maybe even half of their family will be on the Texas side, so to speak. And so for them, you know, it's, they get, they get very comfortable very easily with, with these sorts of trades because they understand the market dynamics. And these are all obviously sophisticated investors. These are all accredited investors. And, and so we're just, you know, we're, we're. What we offer them is diversification. So a lot of these family offices wouldn't, would, would normally be considering buying for example, you know, power centers and all of these different things in places like San Antonio. But the issue is that if you actually do the math, I mean if you're a family office, no matter how large you are, I mean, I guess they're a very, very large family office. But you know, the classic family office doesn't have that amount of their portfolio in real estate for it to make sense.

Right.

When you, when our, our best investor is the one is the family office that's, that's, that's willing to sit down and actually do the numbers because we will show them that buying direct will concentrate their risk. They have to have a team of people to actually manage these properties. So you just, just there you're talking about 500,000, a million dollars a year in salaries and, and, and sunk costs just to, you know, just to handle the portfolio. That is, those are expenses related to your investment. So when you're, when they're willing to sit down and not just isolate the trades and say, oh yeah, we bought this, you know, we got this power center for whatever and we sold it for 50% more four years later. But if you actually sit down and do the numbers, generally you're looking at 4 and a half percent, 6% returns in the best of cases. And so when you can actually go through a diversified fund with, with, with very reasonable fees and, and have that diversification and have, you know, we look at deals that are just not available to these family offices because we're in the market constantly because we do have our, you know, our reputation. And so I think a lot of these investors have actually had the bad experiences, which is certainly a pity. But it, but for us it's actually a great benefit because they do see, they do see what, you know, what it, what being out there really means. Right. And that you can get bruised out there very, very easily because it's not what you do on a day to day basis. Right.

Are you only acquiring assets through the fund structure or do you also do single asset syndications?

No, no, we only acquire it through the fund structure. Yeah, yeah. Which also plays into what you were asking about, retail. That's another reason, you know, we specialize, we believe that, that, that you're best served by, by, by staying in your, in your lane, so to speak, and being the best at what you do, which is what we try to do every day.

So Augustine, going back to what you were saying before, it's almost as if ICP becomes the outsourced family office for some of these investments. And I'm just curious, what is your organizational structure? And I notice you were at Harvard Business School, Executive program for Real estate management. And so, you know, how have you built your company? What does that look like? And then how do you spend the bulk of your time as the founder?

Yeah. So, you know, there are two, two main things in this business. One is raising capital and the other is buying properties. Well, three, if you want, because there's obviously an administrative part, you know, an ongoing administrative part, basically what you want. In, in, in, in, in. So there's a management company, and the management company is the company that actually charges the fee to the fund. That's the business. That's what pays for the plane tickets in the office and all that. And within that management company, we have every aspect of the property and asset management and income distribution, you know, of the finance side, the property management side, the asset management side represented. So you have this core team of Professionals, about a dozen of them. And these are the people who make sure that everything works right. And they, they have individual counterparts within the sponsors. Right. So this, the, the, there, there's, there's somebody in charge of pipeline, for example, example, who's, you know, who's contacting their, their, their counterparts and sponsors and GPs every day or several times a week. Same thing happens with property management because we keep decision making powers ourselves so we're constantly giving follow up to, to, you know, to, to the, part of parts of the sponsor team, the work on, you know, the tenant improvements, the leasing, all of these different things. You have this sort of mirror organization within the management company that replicates the abilities of the GPS internally and then of course, but it's the GPS that have to deal with this on a day to day basis. And if they're single tenant, two or three tenant buildings, then oftentimes they will ask to keep the property management in house and they're generally very good at that. And then of course you have multi tenant deals and these are parts of the negotiation with your, with your debtor that you know, with your debt provider, sorry, that, that you know, you'll have to hire a Lincoln Properties or one of these big, you know, property management firms and pay them the 3% of NOI. But as you know, all of these, all of these rates are very standard. Right. Nobody's, nobody's, you know, nobody's taking advantage of anybody in that context. Everybody knows exactly how much these services are worth and you're always paying market prices for that.

So. Augustine, one of the best parts about real estate is that it's interdisciplinary. And I know you have a background in politics.

I have a background in everything.

I had a nightclub in my 20s. Yeah, I'd love to hear about how, how those experiences have shaped your, your, your real estate investment philosophy.

Yeah. So you know, at the end of the day, like I mentioned previously, this is very much a relationship business. So it's, it's, yes, it's a real estate business, but it's also a fine, but it's very much a finance business. So the, one of the wonderful things about working in US real estate is that it's, it's all so organized. Right. So when you're working with your, you know, with your ARGUs, right. When you're sitting in front of that ARGUs and you're doing all of your underwriting and you're working hand in hand with, with, with, with, with the debt providers and you, you know, and with the tenants and your, you Know your estoppel and all these different things. When you're getting all of this information, everything goes into a box and you know exactly how much the property is going to be giving you over the next 10 years. Exactly. Why? Because you know, you're, you're, you're making those res automatically, making those reserves. You know, as you know, this is investors money. But you don't have access to it because why, because you're going to have to replace that, that, that roof. You're going to have to replace that H Vac. Right. And so it's, it's, it's such an, the, the level of, of, of security from the, from the investor's perspective is, is, is wonderful because these are things that are already baked into the system. And one of the things also, you know, if one of the reasons why we, we get, we, we can often get, you know, great deals is because we are very conservative in our underwriting. So we will, we, we will budget for, you know, we'll make reserves for a lot of the contingent potential contingencies that come up. And sellers actually like that also because they, you know, they know that when it comes time to close, you know, there's not going to be any, any surprises from their perspective. So it might make the building cheaper, or rather it might. No, or rather it might make us less willing to pay top dollar for a property. But at the same time we're being realistic from the get go. And so you know, all of these, I guess interdisciplinary things are. Yeah, they're certainly important. I mean, you know, you've got to do public relations in one way or another. You got to do sales, you've got to do, you know, you've got to be, be conversant with what, with what the investor is looking for. You know, also as an individual. My father, my father was, was, was, was very successful in media, but he was, you know, and so when I, when, when, when he had a stroke when I was 23 and I had to sort of from one day to the next had to, you know, become conversant in asset management. And I'm an only child and all these, you know, my mother for all practical purposes was a, was a widow at 54. You know, you, My experience, my personal experience and I made a lot of mistakes during those first years, obviously. Right. That personal experience plays directly into this. Right. I've made the mistake of buying, you know, the condo and renting it out and thinking that it's a good idea. Right. Sorry to mention that. And I'm sure that it's, that it's worked out for a lot of people. It certainly didn't work out for me. And I've seen a lot of people get burned on those beachfront condos because, you know, they think, oh yeah, it's going to pay for itself. Yeah, sit down and really understand what that means. You know, look at the fact that you're, you know, in the Miami market, for example, you're paying 10% to, to the broker just to place the property. You know, you've got taxes that you weren't thinking about. You've got insurance costs that are going through the roof. You've got potential contingencies on, on a single property that are going to really affect your cash flow, if not do away with it all, you know, altogether. So I made those mistakes at the beginning and, and, and why? Because I did it with my own money. And you know, that's just the way, the way the cookie crumbles, so to speak. But, but eventually you realize that, you know, we're all, we're not that different. Investors are not that different. You know, once you start talking about family wealth, you, you investors are really not that different. They, they, they all want a part of their asset allocation to be not, not directly correlated with the financial markets. They all want, you know, a certain amount of return, but the capital protection, you know, we all want that as investors. I myself am an investor in my fund and that's what I'm looking for. In fact, to be honest, the gestation of this product actually was based on my own experience. Right. I mean, you know, when you're working with private banks and during the great financial crisis and you realize that, you know, one of these major banks that has this incredible reputation, you know, sold you made off products, right? And you realize that oftentimes, you know, what you really do believe to be safe isn't really safe. That's when you start question, you know, asking yourself, well, where, where is the best place to get that capital protection? And, and the end those returns. Right? So anyway, that's kind of my personal experience and that's what played into this.

Now, really good points there and appreciate your sharing how you had to really essentially figure this out for yourself first and then kind of open up the opportunity to outside investors. So as we begin to wrap things up here and just, you know, looking again at the diversity of your experience and for those listening right now, who might not be from the real estate space, that could be a student who isn't majoring or going For a master's in real estate. You know, I see at Georgetown you had a degree in international law, then you went to Madrid Law School where you studied on public policy. You know, talking about a path towards real estate investing. I mean, the fact that you have this diverse experience. Oh, the one other thing I wanted to mention for your bio was you worked for Procter and Gamble, which is notorious, having sales and brand management. So you know, I guess the question is for someone who has kind of this diversity of experience, you know, how do you see that as a strength as opposed to someone just taking that direct focus where okay, I'm in college, I'm going to intern every summer at a real estate shop and I'm going to go get my real estate master's degree and then I'm going to go be an analyst and then I'm going to go do acquisitions. I mean there's a very kind of defined path, traditional path if you wanted real estate, as opposed to maybe learning about the law, maybe learning about public policy. So any thoughts about kind of differences in approach and having a more diverse experience?

I mean, you know, I think everybody has their own individual path. I think it's, it's extremely valid and extremely valuable for those people who, who from, you know, when they're 18 and about to go to college, you know, love the idea of, of getting into the real estate space as, as, as, as a space that has been up until now a consistent source of wealth creation. Right. But from my perspective, independent of, you know, whether I was a brand manager at Procter and Gamble or all of these things that, you know, we're going to Georgetown at school of Foreign Service and all of this international stuff. From my perspective, the experience that, that, that, that really drove me into the space was my personal experience from an asset, from, from, from, from like a personal financial management perspective. So, so in, in my case there was generational wealth. And so when I, when I was suddenly, you know, pushed into that, I had to pull from all my experience to, to, to see what I was going to do with that. And this was, you know, I mean this was a long time ago. Obviously, fortunately I learned. But you know, it was that you, there are two ways to come at this. One, the very professional, you know, specific path, you know, studying it get going into a real estate shops, either at the GP level or at the fund level or you know, at the broker level, for example. I mean these huge national brokers, the cbres of the world, you know, they have these amazingly well versed people inside their shops. And, and, and if you can, you know, if you can be successful in that space, that will give you an incredible breadth of knowledge of the space or there's, or there's the life experience space. And I think, curiously enough, I think real estate has a lot of life experience. People in there, you know, the classic people who, who, who, who have built their wealth in one way or another and then, and then they realize that, that real estate is just, you know, a great place to protect your capital and to have yield. And you know, they're graduates of the university of life and they learn on the go. They'll burn, you know, they'll buy that, you know, that lease up property in the Bronx, for example. I'm mentioning that specifically because I think you guys are in New York and over the, So I was in San Diego at a family office conference and just now the, there was this other conference that I was at a resort here in Mexico and I spoke to two different people who were, you know, very, very successful people from the Bronx. You know, these classic, one was Italian, the other one was Jewish and you know, these, these, these men who, in their 70s and 80s who just, you know, they started buying these properties locally in New York and eventually created these incredible portfolios and stuff. They didn't study any of this.

Right.

And, but they're probably, I mean, I don't know them, I don't, I don't know the, their, their portfolio individually, but I'm guessing that they're probably some of the best, you know, business people in the space out there. Right. And they're very, you know, university of life people.

Right.

So from, from my perspective, I think it's also very important that for me individually it was very important to know what I was looking for in order to protect, you know, whatever generational wealth or patrimony. And it's a direct translation in Spanish, it's called patrimonio, which is a great word you have and know what my needs were and know where, where, where my pain points were as an investor. Right. Know that I had been, you know, and, and you know, I had been with these very renowned financial institutions and I had been stung and, and, and, and, and it's that personal experience that I bring to the table that says, you know, it's time to find something that suits my purposes, my family's purposes, and I think it's going to suit your family's purposes as well. Right.

If everyone we worked with came from the same background, not only would our day to day be extremely boring. But I think we would lose out on a lot of creativity that we, that we have in putting deals together. You need diverse perspectives, no doubt.

Absolutely.

Well, Augustine, this has been fantastic. We so appreciate your sharing your story and again, incredible takeaway. So we really appreciate your joining us today.

It's my pleasure. Have a wonderful rest of your week.

Thank you. And for all those listening, especially on the live stream now, we really hope this was a benefit to you. And for those of you who will be listening once this comes out through your favorite podcast channel or maybe on YouTube, the best thing we find is you can just share this episode with someone who you will get benefit from. And Augustine has shared so much knowledge here that we know that there's a lot here to capitalize on. So as always, you can go to james nelson.com this site is not about me. I built this for you. And this is where you can find the show notes. From here you can find out how to connect with Augustine about ICP as well as a lot of other helpful tools, instructional videos, white papers that I author on Forbes, and soon a course that's going to be coming out on real estate investing based on the book the Insider's Edge to Real Estate Investing. So with that, we appreciate your joining and have a great week. Until then, thank you.

Thanks to both of you.