Speaker 1 (00:00):

Don't buy what you don't know. We have an expression in every deal. We don't take flyers, we don't do deals. Even if we think they're great deals, if we can't lift up the hood and diligence everything, it's just not worth doing the deal. I would go into, you know, seller's offices and I would ask to see 36 months of utility bills and trash bills and add them up and made sure that they didn't stray from what their p and l was showing their projections, just asking all the hard questions. I'd go meet the city planners and sit down and pull out a zoning map and ask about what was going on in every single parcel around the site and what the plans were for development and everything. And we'd spend two and a half months on a single building and we knew every dollar of cash flow before buying it.

Speaker 2 (00:44):

Hello and thanks for tuning in to Real Estate Capital. I'm your host, Nancy Leinen of Park Madison. Partners Park. Madison is a capital solutions and advisory firm serving the global institutional real estate business. Capital is the lifeblood of the real estate industry, but the decisions on where and how it's allocated are driven by people and personalities. Who are they? What motivates them? What have been their biggest successes and lessons learned throughout their careers? On this show, we introduce you to some of the real estate industry's most influential thought leaders and decision makers. And we talk about what is important to them, how they make critical decisions, who has influenced them and a lot more. A guest on this episode is Jeff Giller, partner and head of real estate at StepStone. When Jeff and his two partners merged their business with StepStone in 2014, they created one of the most formidable juggernauts in the real estate consulting and secondary investment arena.

(01:45):

Today, StepStone has grown to 180 billion in assets under advisement to real estate with 19 billion of new commitments in 2022 alone. They're an active capital allocator to real estate funds, secondaries, co-investments, and recapitalizations. Jeff has been a friend for over 20 years. He's a trailblazer in real estate, secondaries and recapitalizations, which continue to grow in popularity. Jeff has a great perspective on their evolution and he sees a lot of parallels between the current market environment and the immediate aftermath of the gfc, which we touch on more broadly during our conversation. Jeff is also an entrepreneur with a long history of setting up and growing investment management businesses, and we have a chance in this conversation to discuss some of the practical considerations of launching a business. Jeff, I am so looking forward to this podcast. It's really great to have you on. Thanks so much for doing this. We've been friends for a long time. You've had an amazing career in real estate and so I'd really love to spend a little time today talking about kinda some of the different things you've done and then dive into what you and StepStone are doing today. So let's start off by just talking about you and your career path in real estate. You've had a really an entrepreneurial journey. Tell us a little bit about where you've been and you know how you got here.

Speaker 1 (03:07):

Yeah, thanks Nancy. It is really fun to be having this conversation with you. I remember meeting you for the first time on a hike at a conference

Speaker 2 (03:14):

In,

Speaker 1 (03:15):

It was 2002, 2003, so a long time ago, but uh,

Speaker 2 (03:19):

We were in high school, right?

Speaker 1 (03:20):

Yes, yes, exactly. Yeah. So I have taken a entrepreneurial route in my career. I've always known that I wanted to eventually run and start my own platform. I really tried to engineer my career so I could play all positions and kind of play all parts of the field. So could, you know, train to become a coach and actually build and run a real estate investment management business at some point, which I have done. Mm-hmm

Speaker 2 (03:45):

. So let's just for people who haven't followed you since you were hiking in the early part of the, the turn of the uh, century, where were you before you started the platform at StepStone?

Speaker 1 (03:59):

Yeah, I've had a long career at this point. I started my career at a firm called Metric Realty, which was one of the first institutional real estate advisors. They later sold to State, state Street and then eventually to BlackRock, but it was really early days institutional, principally apartment manager back in the eighties. Then after business school I moved to the Jay Robert Companies, which was just truly a innovator in the real estate private equity world. Having made a huge mark in the post savings and loan crisis era, buying distressed debt, moved to Europe with j e r to start their first international platform for them as a young kid in my early thirties and built that platform in Europe. Eventually moved back to the states started.

Speaker 2 (04:48):

Where were you in Europe, by the way?

Speaker 1 (04:50):

I was in Paris. I was in France and built a team of about 20 people to focus on buying distress debt in real estate. And we had a French business, which I ran and that's where I think I really learned that if I could get that done, I could get anything done. Just a lot of challenges there. Kind of fast forward, came back to the us, started a triple net lease fund on my own with some partners and then a small opportunity fund and then eventually got into the secondaries business in 2005 and formed a business called Clairview Capital Partners, which we merged into StepStone, which is my current business, deformed StepStone Real Estate in 2014. So there's a quick walk through my career in life.

Speaker 2 (05:37):

That was a sprint, but No, I appreciate that. So you've started a few different businesses, obviously starting business is not easy, highs and lows. When you think about it for people who are listening who are starting their own investment management platform or who aspire to do that, what have you learned about starting a business that you'd like to share? I

Speaker 1 (05:55):

Mean, a couple things. One is, first of all, you have to have the skills and experience to be able to execute, especially if you're running an investment management business where you are charged with controlling and investing tens, hundreds of millions of dollars of capital on behalf of institutional investors. As a fiduciary, you better know what you're doing. So nothing substitutes for experience, but sort of on a softer, more cultural note if you're starting your own business. It is all about the people I've been blessed with having great people around me through all those journeys. My two partners, Josh Cleveland and b Brendan McDonald or you know, great professionals, great friends, and the teams we've worked with along the way are fantastic. So I would just say it's really all about people and surrounding yourselves with good people who have got your back and, and can help propel you forward. Mm-hmm.

Speaker 2 (06:50):

. So you started a business called Clearview and then somehow merged it into StepStone. How did that come about?

Speaker 1 (06:58):

So Clearview Capital Partners was a business that I formed with Josh and Brendan in 2009. Previously we had been focusing on LP secondaries and we saw an opportunity to focus on a different part of the market that we referred to at the time as special situations secondaries. We kind of made up the name because it's called GP led secondaries now, but no one was really doing it. So we coined that term and it was special situations because we decided to only focus on deals where we were transacting with the gp, not the lp, because we felt at the time we were starting the business in the wake of the global financial crisis that we would would not be willing to execute transactions where we didn't have near perfect information on the assets, which you don't get in LP secondaries. And we also wanted control. So we were able to structure these deals for control.

(07:58):

So we started that business in partnership with Goldman Sachs and it was really a great partnership, but we had a few deficits. We loved building and running a boutique investment management business, but there were really three factors that caused us to start to think about becoming part of a larger platform. The capital markets for real estate private equity had really shifted from favoring small and mid-sized boutique managers to favoring large global allocators. So the mega cap managers and the ones we all know, like Blackstone, Brookfield, Starwood, were starting to get disproportionate shares of LPs, capital allocations. And the smaller managers, you know, like us, were more challenged in raising money. So that's really progressed date.

Speaker 2 (08:50):

It's, yeah, I mean if you just look at say the stats from last year of the top two and they both begin with B, they represented 30% of their fundraisers. Now this is particularly slow, you know, period in time this last year and this year. But yeah, back in 1990, the top 10 represented 50%. Like that's been a stat for a very long time. But the big have gotten that much bigger and the, you know, the top two, three or like literally third of the market in terms dollars.

Speaker 1 (09:20):

Interesting. Well prior to the GFC it was actually an advantage being a boutique or an emerging manager. I think a lot of the institutions felt that there was an advantage to working with startup investment managers with leadership, with strong track records that would be more hungry and outperform the larger platforms. And that all shifted post GFC and the big recent fund fundraisers of the two base that probably shifted through those numbers even higher. So we're caught in this place tr you know, we're having success fundraising, but the idea of really building from a 250 million a u m manager to several billion over the course of a series of funds seemed like it would take the amount of time. You know, we didn't have or, or I didn't have

Speaker 2 (10:11):

your partners are younger, right? Yeah, my

Speaker 1 (10:15):

Partners are younger, but even for them that's a long slog to go from, yes, a2, hundred million AUM manager, two sequential funds and get bigger and bigger until youre into that point where you can scale. And this was occurring at a time where costs of running a manager had become very heavy because in the post GFC environment, regulatory environment where you were required to become registered meant you needed, you know, big back offices accounting reporting and it was more expensive. So it was more important to scale.

Speaker 2 (10:46):

Do you remember what you thought your A u M needed to be to be a breakeven?

Speaker 1 (10:51):

Yeah, probably at about seven, 800 million and we were sitting at about two 50 and raising our next fund, but that would've been the breakeven.

Speaker 2 (10:59):

Do you think that number's higher today?

Speaker 1 (11:01):

Probably. First of all, and this is emblematic of our business, we are registered in sort of every major jurisdiction around the globe and it's very expensive to be an s e c regulated registered investment advisor to be an a, IM regulated advisor in Europe or registered in Japan, Korea, everywhere. And that's very, very expensive. So if you want to raise capital in those markets and it's truly become a global capital raising environment, you need to be registered. And it's also a global business, or at least the way we approach it. So you need to have offices, you need to have people, you need to have travel budgets in all those areas. It's very expensive. So that's really why we felt we needed to grow because we were trying to run a global business as a boutique in a post GFC regulatory environment. And so those were really the reasons, you know, one, the capital markets were favoring the large two, the burden of running a business had become more so we needed to scale. And three, you know, we were a global business and we just needed to be larger. So StepStone provided us with all of that.

Speaker 2 (12:10):

Right. Well that makes a lot of sense and it's really true. I mean, you were just representative of so many smaller managers to that, you know, that have had to go that route.

Speaker 1 (12:19):

Yeah. So we merged with StepStone in 2014 and you know, as we considered kinda what to do with this scale problem, we started having conversations with potential partners. We didn't really wanna sell ourselves cause we enjoyed running our own firm and making our own decisions. So we were looking at ways to potentially integrate strategically or otherwise with other kinds of firms. And we met StepStone who we had never heard of along the way. StepStone was a powerhouse private equity asset manager and advisor, but being, you know, very myopic in the real estate world. We hadn't really heard of them, but we were introduced to StepStone and it just seemed like a perfect fit. So who is StepStone? What are they? The way we describe our business is as a global private markets investment firm that provides customized solutions to institutions through advisory service, our commingled funds and separate accounts. So we sit at the intersection of the GP and LP universe by providing investment solutions to LPs and liquidity solutions to gps. So if you think about our solutions to LPs, they're delivered through advisory services, separate accounts and commingled funds. And our liquidity solutions to gps are provided by investing in their funds on a primary basis basis by recapitalizing their vehicles, by helping them right size their investments through co-investments and providing liquidity to their LPs for our secondaries funds.

Speaker 2 (13:57):

Okay. So you started Clearview and then you were looking for a partner. Why did you choose StepStone and what does that platform look like?

Speaker 1 (14:06):

So we were looking for obviously business fit and cultural fit and StepStone check both those boxes. They had a really interesting business model that we were not familiar with. We had this GP led secondaries boutique shop focusing on recapitalizations and GP led secondaries. And StepStone had a business that focused on fund investments, secondaries and co-investments. And the way it worked is it's a quasi asset management and advisory business that provides customized solutions to institutional investors around the globe. So it's a large global platform and the idea is providing investment solutions to LPs by helping them think through their asset allocation strategies by deploying capital for them principally in funds, investments and co-investments. And then on the other hand, we sit at the intersection of the GP and LP world by providing liquidity solutions to GPS by investing in their funds, by helping their LPs with liquidity through our secondaries programs, by helping bring liquidity into funds through recapitalizations of real estate funds and other kinds of vehicles. And by helping gps right size their investments through our co-investment programs. So it's a very synergistic model working with GPS and LPs on these liquidity solutions. And we thought that that model could propel our business and we thought frankly it'd be interesting to grow an advisory business and a co-investment business as

Speaker 2 (15:45):

Well. And StepStone is a truly global business,

Speaker 1 (15:48):

25 offices around the world on all the major continents. We have offices, we have 900 employees, about 700 billion in AUA and a U. So truly a global business.

Speaker 2 (16:01):

And then you, I think about five years ago bought Cortland Consulting here in the us. Why did you do that?

Speaker 1 (16:08):

So the model that I just described is heavily dependent on investing in funds and to really build a large advisory service business. The reason is we describe what we do as on the investment side as a sort of positive feedback loop where investing in funds and therefore becoming a very important player to gps gives us a differentiated access to secondaries and co-investments. Last year for example, we put out 18 billion into over 60 funds and in doing so, we held 900 meetings with managers. So those meetings and that connectivity with managers we believe helps us to source secondaries and co-investments. So when we first started, when we first merged into StepStone, we really didn't have an advisory service business. We were building it slowly. But the barriers to entry in building an advisory service business are exceptionally high. You can't really grow a new advisory business organically in this market.

Speaker 2 (17:24):

Why not?

Speaker 1 (17:24):

Because all the jobs have been given away and taken for which all the institutions certainly in the US that need and have advisors selected their advisors a decade or two decades ago. And those contracts are very sticky boards and staff rarely change. There's also the chicken or the egg or the catch 22 where you can't really apply for an advisory mandate unless you've got, you know, five years or more of experience and you know, x, y, Z of a uua assets under advisement and you can't get the experience in asset under advisement without winning the business. So we just found ourselves sort of stuck in the mud trying to build the business. So we were about four or 5 billion of a uua. Uh, buying Cortland propelled us to a hundred billion overnight and acquiring Cortland has fed the engine in the way that we had hoped to allow us better execution for our secondaries and co-investment practice.

Speaker 2 (18:19):

And for our listeners so that they may understand the economics of the business a little bit, while you went, you know, to a hundred billion of aua, is it a little bit, you know, the loss leader, the consulting business to feed the investment management business? How do you think about that at StepStone?

Speaker 1 (18:37):

Look, I mean regardless of which one pulls in more revenue, they're both exceptionally important businesses to us. They're codependent. We wouldn't have the successful secondaries recapping phone investment business we did without the advisory business. And the advisory business really benefits from our direct investment approach, getting to test drive managers through secondary co-investments and make better decisions about where to allocate capital on a discretionary basis for our clients. So they're really codependent businesses and regardless of which one makes more money, they're equally important to us.

Speaker 2 (19:15):

So you've talked about recaps and secondaries. Can you explain for our listeners what's the difference between a GP led secondary and an LP led secondary?

Speaker 1 (19:26):

The true difference between a GP led secondary, an LP LED secondary is who you're transacting with in a GP LED secondary, you're doing the deal with the gp. So the transaction is important to the gp and why that matters to us is because we typically structure to get some kind of a control and we also will not do a deal unless we can do granular asset by asset level due diligence. So if for transacting with the gp, we make sure to procure those elements, which is really, really important to us. In an LP LED secondary, you're transacting with the LP and in fact your transaction is somewhere between unimportant to annoying to the GP because you are just buying one of their investors positions in becoming a replacement lp. The trade does nothing for the gp, so they're not going to be incented or maybe even allowed to give you information on the assets in the fund or portfolio. And they're certainly not going to seed control to you as a buyer. So that's really why we focus on GP led secondaries. And then there's a whole distinction between secondaries and recap GP led that we could talk about.

Speaker 2 (20:45):

So I'm the GP led recap or secondary. Does the GP stay in the transaction? And you mentioned that you like to have control. How does that work?

Speaker 1 (20:55):

So the GP always stays in and we're looking to back strong GPS or operators or developers or who's ever controlling the assets. They always stay in. So we're backing best in class managers to help them with liquidity issues in their portfolios. And the kind of control we get is it ranges. So we get control in about 80% of our transactions and it ranges from full control where we have complete removal rights to major decision control, where we have approval rights over budgets, business plans, asset sales financings, all the typical things you'd see in a joint venture. And then when we have no control in those small 20% of our deals, there's usually a really good reason where we feel like we have perfect alignment potentially because there's another partner in the deal that has full control that we trust and we're aligned with and we've worked with before or we've got a board seat or board observer seat and we have a lot of influence. So there's always some element of being able to shape or control the transaction for us.

Speaker 2 (22:03):

Mm-hmm . And how often are these recaps of commingled funds, traditional closed-end commingled funds versus just particular asset or portfolio of maybe an operator who doesn't even have a fund?

Speaker 1 (22:16):

Yeah, I'd say the vast majority of the recaps we're doing are with fundless sponsors or with smaller funds that have struggled to raise capital because of the market environment we talked about earlier. So we'll be in a position, for example, to buy out all of their LPs. So we've never done deals where we're a minority replacement partner, recapping a larger fund. We're usually 90 to a hundred percent of the capital buying out all the LPs working with the sponsor to take the portfolio to the next level. And then we almost always reset their economics so that we're in line and they're incented to our objectives.

Speaker 2 (23:00):

So presumably the sponsor has a fiduciary obligation to those investors who you're buying out. They also are effectively a buyer or a new investor in the new transaction. How do you, or how do they, or who ensures that this transaction is fair?

Speaker 1 (23:17):

It's a really good point, but frankly it's not our conflict. We're the capital taking out the LPs. The GPS deal with it in several different ways, typically through full disclosure of the pricing and some sort of, maybe there's a fairness opinion and an appraisal that supports their position. But look, I mean, especially if you look at the post GFC era, and we think the next investment period coming up are recapitalizing real estate vehicles is actually providing important liquidity to the vehicles. So we may be infusing capital at a time when the vehicle needs additional capital in the LPs who are also liquidity to constrain in these environments can't or want fund.

Speaker 2 (24:06):

And in the period of time that we're entering, so, you know, interest rates are up 500 basis points in the US it's been, you know, it's a really challenging time to transact at all. What's your transaction volume looking like these days?

Speaker 1 (24:20):

In any market cycle inflection, there's always a stall in transaction volume, while the bid ass gap is narrowing second quarter 2023 to second quarter 2022. Transaction volume in both use is down 65%. So there's really a dearth of deal flow right now across real estate, whether it's in secondaries, recaps, or just direct transaction that is present and everybody's waiting for the bid ask gap to narrow before really volume increases, but it will absolutely narrow. And the catalyst for that will be the wall of maturing debt that we all know is coming, that's going to cause prices to have to reset as that debt needs to be settled.

Speaker 2 (25:08):

And debt looks a little different in Europe than it does in the us. How do you see the transaction opportunities for GP-led secondaries in Europe versus the us? Where do you think you're gonna see the best opportunities over the next year or two?

Speaker 1 (25:22):

Yeah, we'll continue to focus on the US and Europe, really even in the post GFC era and in the more stable markets that followed, we continue to do about half of our investments in Europe and about half in the US They're both transparent liquid markets, which is important to us. And we think that Europe in this next point of the cycle is probably going to offer us more opportunistic situations. We think that because of the fragmentation that just naturally occurs in the eu, there'll be more dislocation. Another interesting element to play in Europe is the fact that there's a whole set of asset types that have really not become institutionalized the way they have been in the US We've done really well investing in care homes and you look at how the student sector's been evolving in Europe, for example, and there's ways to kind of arbitrage the institutionalization of capital in Europe. The US is probably more gonna be more of a stable market where we'll be focused on helping managers restructure their balance sheets given the maturing debt fair problems they'll face.

Speaker 2 (26:33):

So you mentioned property types and the fact that some of these niche property types are not institutionalized even more so in Europe than in the us which of course leads us to the question, you know, in the US everybody has been focused on investing for the most part in multifamily and industrial properties kind of holding their own or maybe some interest in open air retail today. But you know, a b O, anything but office , how are you feeling about office at the moment and would you do a recap with, you know, primarily office assets at the right price

Speaker 1 (27:06):

Office is tough. Look, we made a really good decision and redlined retail from 2015 till just about now. Mm-hmm , we just didn't do it because my view was even if you can find assets that work, the capital markets are gonna punish you or could punish you for higher interest rates, lack of liquidity, expanding cap rates. So we just felt there was no need to do it. So less than 3% of our portfolio in our special situations. Secondary recap fund series is retail. The fact it represents one deal, which was actually a really good deal, and uh, with a good story behind it that we won't have time for in this podcast. But I feel the same way about office, that it's just gonna be under severe pressure from so many factors, from work, from home, from the E S G retrofit requirements, capital markets are punishing it.

(28:06):

It's probably not going to be something we're gonna be looking to add to our portfolio. Now, big, big, big caveat that, you know, needs to be said this situation in Europe and and is very different. The work from home effects aren't really prevalent in Europe and Asia. So we might look at office there, but office continues to have other kinds of headwinds, which is, you know, ESG compliance and retrofitting is extremely expensive. Functional obsolescence in office between the new generation of highly amenitized, well located technologically retrofitted offices and the class B and C stock out there really creates an issue in the office market. So independent of what jurisdiction you're in, you know, office is always a capital pig that requires TIS and repair and maintenance and replacement of major systems through all market cycles and you know, subject to economic environment fluctuations. So we have very little, even before work from home, we've had very little office in our portfolio.

Speaker 2 (29:08):

I hear you. How often do you look at a recap situation that comes to you and say, this really isn't a recap, it should be an outright sale, meaning that the GP is probably not the right sponsor to continue managing this asset?

Speaker 1 (29:23):

I mean, I, I don't think we would look at a recap where the GP wasn't the right sponsor. So that I wouldn't say has been a factor for us.

Speaker 2 (29:34):

Right. And do you ever look at a situation where you love the basis in the asset, but just the structure of the deal is so complicated that you would walk away?

Speaker 1 (29:45):

Well, Nancy, we're always driving the structure. So we'll tip the way our investments work is we'll meet a GP or a manager with some kind of an issue. They need liquidity. We'll work on a structure that works for us that may be buying out their LPs, it may be buying, it may be just infusing more capital infrastructure. It may be done on a common equity basis where we're infusing equity and buying out the LPs. So kind of a secondary and a recap, it may be done on a preferred equity basis or debt basis where we're providing capital to the vehicle and you know, we're senior to the common equity we structure and negotiate the kind of controls we need. So that's how we approach it. We're never really stepping into an existing structure and just becoming an investor in something repackaged and delivered to us, which I know defines a lot of the market, but that's just not the market we're playing in. We need structure, control and diligence, the

Speaker 2 (30:44):

Ability to, right. So do I take as a corollary to that, that you don't necessarily win a deal on price? That a lot of it is about all those other factors you just mentioned?

Speaker 1 (30:54):

Well, it's interesting. Price is important. I won't say it isn't, but it's not always the most important factor. I like to use this analogy. Let's say you're recapping your home versus selling your home, right? If you're selling your home, you don't care who buys it, you're gonna sell it, whatever

(31:11):

Pays you the highest price period, right? If you're recapping your home and you're gonna live there, the partner that infuses money into your home and becomes, you know, your partner becomes really, really important. And it's not about price. They've gotta have integrity, they've gotta be good partners in addition to, so you're not just gonna recap to the person if they lack integrity because they're giving you the most proceeds. So that's, I think, the way the market often works. There's also the factor that we control a tremendous amount of primary capital and that a lot of the managers that we're working with feel like working with us gives them the opportunity to audition, if you will, for discretionary primary capital allocations that we have. So I think that's really compelling to a lot of the partners. Something that, you know, candidly no one else in the market offers is the ability to allocate substantial amounts of primary capital to managers. We get to know through the recap and GP led secondary process

Speaker 2 (32:15):

Now, hence the beautiful synergy in the business. Exactly. If that makes sense.

Speaker 1 (32:18):

That's the positive feedback loop that I was referring to earlier.

Speaker 2 (32:20):

Right, right. If you put your long hat, your experience hat on in terms of the business and having lived through a few cycles, how long do you think it's gonna take us until we kinda get to a point where things are transacting more normally in this cycle? And if you can also add to where do you think broadly not specific to, you know, any deals you think the best opportunities may be?

Speaker 1 (32:47):

So I mean, dust off my crystal ball and polish it, but it's of course hard to say, but I feel like there's a tremendous amount of liquidity in the market that will help us to get to a more normalized market much quicker. I mean, there has to be some house cleaning. This is a very different down cycle, if you will, or a pending down cycle than anything I've experienced in my career following the savings alone crisis, the savings loan crisis was really driven not only by real estate oversupply and loose lending, but a severe economic recession that basically decimated real estate operating fundamentals. So you had distressed assets operationally and oversupply. The GFC was the same thing. You had substantial economic recession with real estate over supply and eroding real estate fundamentals. So it really created a tremendous amount of distress that we had to get out of this.

(33:47):

So far seems like a capital markets driven distress cycle catalyzed by high interest rates that are just causing values to diminish. And so far, this recession that we keep waiting for hasn't occurred. And operating fundamentals in real estate are really strong. So I think what has to be solved is the refinancing of the 4 trillion of debt that's maturing in the US and Europe over the next five years. The refinance proceeds are gonna be lower than the payoff balances, which means properties will go into default, properties will need to be sold at lower prices, and there's a lot of capital to solve those issues. So I see this washing through the cycle much quicker than the last cycles. So I don't know, let's call it three years. And we have more of a functioning market again. Yeah.

Speaker 2 (34:38):

You know the expression, life is short, but the days are long. Three years sounds like a long series of 365 days when after another. But I hear you. I can't disagree with you. I'm gonna ask you a few kind of rapid fire questions if that's okay. Sure, sure. If you had to state the most important lesson learned from decades of doing these transactions, what is it?

Speaker 1 (34:58):

So it's due diligence, due diligence, and due diligence, , all three of those. Yeah, I think it's just, it's obviously a little more than that. Good partners, good partners will do the right things in bad times and propel you forward in good times. And I mean, your business partners and your investment partners don't buy what you don't know. We have an expression in every deal. We don't take flyers, we don't do deals, even if we think they're great deals, if we can't lift up the hood and diligence everything, it's just not worth doing the deal. So that's very important as well.

Speaker 2 (35:35):

Who or what has had the strongest influence on you and your career path?

Speaker 1 (35:39):

I think back to my very early days when I think my practices and habits were formed in the business. And I had a boss at Metric Realty named David Dean, who was the head of due diligence, and I was on the due diligence team, and he infused in us a really deep due diligence culture, and we had a very deep due diligence practice at that firm. We wouldn't buy a building without, for example, I would go into, you know, seller's offices and I would ask to see 36 months of utility bills and trash bills, and add them up and made sure that they didn't stray from what their p and l was showing or their projections, just asking all the hard questions. I'd go meet the city planners and sit down and pull out a zoning map and ask about what was going on in every single parcel around the site and what the plans were for development and everything. And we'd spend two and a half months on a single building and we knew every dollar of cash flow before buying it. And that's really shaped how I've operated as a team member and how I've driven the businesses I've run and built due diligence for culture. And I think, you know, the lessons I learned from David Dean back in the dinosaur ages, .

Speaker 2 (36:56):

Well, no, it's, I mean, obviously incredibly valuable lessons. It's really interesting to think about how you can use AI today to shortcut the process of gathering that information. It shouldn't obviously shortcut your analysis and thoughts about it, but the information should be a lot more accessible today.

Speaker 1 (37:14):

Absolutely.

Speaker 2 (37:15):

Terrific. Well, thank you so much. It's been really fun to chat with you. And if you want to finish up by asking me a question, the floor's open.

Speaker 1 (37:24):

I would love to, Nancy, I've been following your business and your career for a long time, and you've just built a really great business and you've expanded your business into an area where we intersect, which is sourcing recap opportunities for clients in the market. What do you see as the environment ahead for Recapitalizations?

Speaker 2 (37:48):

Yeah, no, we think there's a huge opportunity, and there'll be a big increase in the volume of recaps for a number of reasons. Obviously with debt less available, there'll be need for more equity capital as portfolios and funds mature. And we also see that investors, you know, with, especially in the wake of higher yields, want shorter investment holds. Or some investors want shorter investment holds. And so recaps are a way to get to the value creation sooner because typically a lot of it's been done. And then finally, there's just a lot of capital that's been amassed for this sector and it's looking for a home. So we think that this hasn't happened yet, but as the bit as spread narrows as you rightly talked about, we'll see a lot of interesting opportunities in the recap space.

Speaker 1 (38:43):

Great. Couldn't agree more.

Speaker 2 (38:44):

It's so much fun to do this podcast with you, Jeff and I really do value our friendship for all these many years, and I'm thrilled with the success that you're having and your partners are having at StepStone. You guys have built a fantastic business, so thanks for joining us today.

Speaker 1 (38:59):

Well, thank you, Nancy. Really enjoyed it.

Speaker 2 (39:02):

I hope you enjoyed this episode of Real Estate Capital. Before you go, I have a quick favor to ask. We put a lot of thought and effort into this show and making sure we bring you insights from real estate leaders that you not normally find in the mainstream media. So if you're enjoying this show, please remember to follow it on your favorite podcasting app so you never miss an episode. We'd also love for you to share it with others or give us a review on Apple Podcasts so others can find us. Thanks again for tuning in. For more information about our firm, please visit our website@parkmadisonpartners.com.