Drew-Murphy_Real-Estate-Capital_20251027_R02

Drew: [00:00:00] It absolutely will have an influence on driving different aspects of fund management, investment management businesses. At the portfolio levels. You know, at the individual asset levels of what you can see through the technology. And before AI was a thing, you saw people trying to, the constant discussion of real estate and technology just don't— They don’t seem to interact well. I think AI will find applications where it will help drive value at the underlying asset level. 

Nancy: Hello, and thanks for tuning in to Real Estate Capital. I'm your host, Nancy Lashine of Park Medicine Partners. Capital is a 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 can we learn from their experiences? 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, [00:01:00] who has influenced them and a lot more.

Our guest on today's episode is Drew Murphy, head of Private Markets Advisory at Berkshire Global Advisors. Berkshire is an M &A firm focused on financial services and asset management. As the institutional real estate industry matures and competition for investor capital increases, we are seeing a wave of manager consolidation, particularly since 2021.

Drew is on the leading edge of this trend. And has been described as a go-to investment banker in private real estate due to his extensive deal experience in his role at Berkshire, he advises all forms of alternative asset management companies on mergers and acquisitions aimed at growth. Some of his notable deals include Artemis Real Estate Partners Sale to Bearings, Blue [00:02:00] Owl's acquisition of Oak Street and Collier's acquisitions of Harrison Street versus Capital and Rockwood Capital.

Drew and his team touch more of these transactions than any other firm, and Drew is just universally respected and even loved by his clients. He's a wealth of knowledge and was recently named by PERE as one of the top 100 most influential people in private real estate over the past decade. Drew and I discussed the evolution of the GP stakes market, how real estate firms are positioning themselves for strategic partnerships, the impact of macro trends on valuations, Drew's vision for where the private real estate industry is headed, and much more.

Take a listen and you'll understand why Drew is a consummate industry advisor. 

This is fun. Yeah, Drew, it's great to have you. [00:03:00] Thank you. Thanks so much for joining. I mean, I've, I guess we've known each other for a while. Your role in the industry has just exploded over the last several years, and I think, um, you're probably known now as the go-to banker in the real estate M&A business, and that's becoming a more and more important part of our business.

So I'm really excited to— there's so many questions that hear your thoughts about, you know, broadly what's going on in the industry and, you know, get into some of the nitty gritty of some of the transactions and issues that you're dealing with. But before we start with that, welcome. Tell us a little bit about, you know, how you got into M&A and in particular, you know, started on this career path. 

Drew: Sure. Well, first off, thank you for inviting me to be on here. This is, uh, we, we have had a lot of mutual clients over the years, so I've certainly been in and around one another for a long time, as well as spending time together outside of those client relationships.

I, I was reflecting a little bit of on my career path, just in some of the prep notes to get here and, you know, it's, it's sort of [00:04:00] interesting the, you know, to we're, we're about to hit our fall recruiting cycle, so it's always the time of year where you start to really think about how did you get your career started at any of these places.

To some extent, I had a very, I think, different path to what it looks like today in terms of the folks that we interview where I had zero connections to Wall Street my junior year when everybody was doing internships. I actually had an opportunity to go to Florence and study two different economics classes in Florence and play soccer.

And was like, I'm gonna do that rather than do an internship. Which tell me a little bit of that wasn't 

Nancy: about eating pasta too. 

Drew: Uh, there was certainly a lot of fun events. Actually, our professors who set up the program had a, a great, uh. Insight on it, where every Thursday we would also travel to a city Oh, fun.

Outside of Florence to spend time in the smaller areas that you wouldn't go to on a, a regular basis. So it was just a phenomenal right experience and I wouldn't trade it for anything. Now on the flip side, 

Nancy: Wait, sorry. Going back to that, did you play college soccer? 

Drew: Uh, played college soccer at, uh, Trinity College in, in Hartford, [00:05:00] Connecticut.

Nancy: Which is, what position were you playing 

Drew: Outside midfield. So, um, oh wow. Okay. A lot of running off there. So you're fast. Uh, I was fast. You were, I dunno about it now, but it's, uh, it was an another big part of, uh, you know, my college career was, was balancing it. Yeah. And it was D three, so it was, uh, not, 

Nancy: yeah.

But playing in Europe, they're, they take soccer, ie. Football a lot more seriously than most of us do. 

Drew: They did. And, and I just, I had an opportunity on a couple occasions to play actually. Uh. In, in tournaments. And then with each of my teams over the years, high school, college, we all had, you know, at least a week or two of, you know, either preseason or whatever, going to different areas.

Right. So it was a really, really fun, actually, when I was 10, played in a, in a tournament in Sweden, which was fantastic. And my, my dad was a college soccer coach at one point, so Ah, okay. A little, little in there on that. Hence, good for you. And no Wall Street connections. 

Nancy: Well, you know, from, from the soccer field to Wall Street, it's not that far, really.

Drew:  Yeah, exactly. Exactly. But you know, going to like, spending the time. [00:06:00] In Florence that junior year. Mm-hmm. And then reaching out to all of these big Yeah. Known banks. Yeah. Where you don't have an in was Yeah. A pretty daunting task. And at the time, you know, I was really focused on getting to New York. I'm a huge Yankees fan.

I'm just, and I, at Trinity, it's sort of, you go to Boston or you go to New York, Uhhuh, or usually what people were facing. I was very clearly—

Nancy: Thank God you didn't tell me you're a huge Red Sox fan because I would've—

Drew:  There's no, I'm still, we would've had a problem. I'm still depressed about the game last night, game one.

So we'll see going tonight, so hopefully it's better. But, uh, I wanted to be in New York, applied everywhere, got very limited responses. Mm-hmm. Even though I had decent grades and think I worked pretty hard. It was just not having the connections. Sure. I was fortunate that actually Berkshire, our, one of our founders, went to Trinity.

Mm-hmm. And we at Berkshire, you know, continued to do on-campus interviews at different schools, ranging from a bunch of the brand name. F places you would think of, as well as some liberal arts schools. And that was really the, in that I had to get the interview and get [00:07:00] set up with Berkshire. Mm-hmm. And really start my career at a small boutique investment bank.

I was fortunate that there were those connections to get things going. But of course, uh, you know, very quickly into the beginning of my career, we ran directly into the financial crisis, which was—

Nancy: So that was what, 2007? 

Drew: 2007. Yeah. And we hit, I remember thinking, you know, starting my career thinking I didn't end up at all these big names, some of which don't exist anymore, and I'm at this smaller place that is great, but you know, what's it gonna be like?

Right. And the thing that I think the financial crisis really showed me and is part of the reason I think I've spent most of my, well, the vast majority of my career at Berkshire has been. You really see the character in a firm when times are not good. And we are a partnership. And while you watched, you know, a lot of changes around the street, our partners, you know, basically hunkered down.

Made sure that we didn't have any real staff reductions. Even though it [00:08:00] was not an easy time for anyone. The partners kind of put it on their shoulders and insulated the, the more junior bankers at that time. It was a big lesson to learn of just like getting things going and going from being a little disappointed by not getting the exposure to the big firms coming outta school. Turning up at a place that provided that launching pad was fantastic. 

Nancy: Yeah. Oh, it's the Warren Buffett. When the tide goes out, you see, you find out who's swimming naked 

Drew: Exactly. 

Nancy: And what that might mean for you. How do you take care of people. 

Drew: Exactly. 

Nancy: That's a wonderful lesson. So you've been at Berkshire for your vast majority of your career was, were you always doing M&A?

Drew: So, yeah. And you know, Berkshire's, um, you know, our, our. Capability or specialization in general is to provide advisory services to the broad investment management space. Okay. So when I first joined, that did look a little different than where we are focused today. 

Nancy: You think?

Drew: So, we are, you know, uh, if I think back to where we started as a [00:09:00] firm, yeah.

It was really when, I think at a time where there were, there were some mutual fund transactions, long only equity and fixed income. And early wealth management consolidations a lot of banks and a lot of insurance companies involved in the early origins of, of what Berkshire was doing, which is actually why we started, which was our founders when they were doing deals, uh, at their prior role at Pain Weber, every time that they would go to get M&A advice, they would call one of the, the bulge bracket firms. Get a fig bank banker on the phone. Who generally was talking about.

Depository or statutory, you know, assets and accounting, so banks and insurance companies. But investment management's really a human capital business and design advice to people that are the assets themselves is a really interesting seat that we find ourselves in that our job, as much as it's blocking and tackling M&A

Drew: It's also [00:10:00] psychologist, friend, consigliary to the founders and firms that we're working with. So we were doing, you know, a bunch of those, a bunch of deals across the broad investment landscape. But around when I started, we did morph a little more to where we are today, which is private markets really started to pick up post financial crisis. So private real estate, private equity, private credit, infrastructure a little further down the road. 

And then on the other part of our business, wealth management, consolidation. Picked up a totally different meaning with the amount of private equity sponsorship within that space.

So we have teams focused on that. I, somewhere along the way, sort of started to gear my efforts into real estate and then more broadly into the private markets arena, to where today that's where I spend all of my time is coverage across private markets and execution, specifically within real estates and real estate, real assets.

Nancy: [00:11:00] What percentage is real estate a real asset? For Berkshire as a whole?

Drew: So in general, private market is, at a high end, is probably like 65% of the activity that we're dealing with. If you took real estate, real asset related, that's probably, you know, a little more than half of that overall 65% is within that space. We're typically doing, you know, somewhere between 5 and 10 transactions a year within just real estate, so enough to, enough to keep busy. 

Nancy: Yeah. No, but it's, it's so interesting because the real estate market, you know, in many ways is the real estate investment management business was very insular, other than the insurance companies that had real estate products. When the investment management business started, they were all firms that just did real estate. 

How important is it for you as a business and providing advice to have a broader purview? 

Drew: So we think it's, you know, I, I don't think we [00:12:00] ever can predict how the different skill sets that we focus on will interact with one another.. But they do on an all the time. And, you know, a great example, and I think we'll probably get to this later in the conversation, is how retail distribution is influencing real estate. And broader private markets. When we have teams of bankers that focus on the wealth space dealing with RIAs.

And part of the broker dealer networks like that has become, you know, there's sort of been a cross section between those two skill sets of providing advice. And same thing as you think about just, you could be in different asset classes, whether you're in real estate or in some private equity space, but the fund structures are similar.

The deal technology and creating alignment for parties often is quite similar. So we're, we're going through the same issues. But with different asset classes. So it does become pretty transferrable.

Nancy: when we think, when you think about the broad trends, I mean, you've seen a lot of them over the last you know, [00:13:00] 17, 18 years. What are the biggest trends that you're seeing today that are impacting why you're seeing as much activity as you're seeing? 

Drew: Yeah. So again, earlier in my career at Berkshire, it was fairly typical to think through a M&A event as a succession-oriented, um, yeah. Milestone for the business.

Right? And that could come in lots of different formats. It could be a minority deal, it could be a partial control deal or selling the entire forum, but succession was a big element. I think, you know, what we've seen recently, probably, you know, two trends of, and look, that succession point will always be there 'cause if you're an entrepreneurial founder, you know, found a business or tightly concentrated cap table succession is something you have to think about. The LPs certainly ask about it and sometimes a transaction can be helpful in that context. But what we're most often finding today from our clients on the sell [00:14:00] side is also, well, how do you respond to the LPs that we have a plan for succession. How do we accelerate growth within our business? 'cause we're seeing a market opportunity and it's not just, you know, it might be the flagship product scaling, it might also be adding adjacencies around the skillset that you have, so whether you have a different product in a different risk profile or a different geography, or a niche of what you're doing, but accelerating growth through partnership and then broadly capital, which again touches that second bucket I was mentioning. 

But also, you know, when we think about capital, it comes in different formats. There's capital as in if you're part of an insurance company, commit general account assets, or if you're part of a big financial conglomerate, do they have a balance sheet to help eliminate blind pool risk, get products going faster if there's market opportunity. And then there's capital from a distribution front, which is global institutional coverage. It's [00:15:00] now even more so about a focus on retail, which is really hard to build as an independent firm, you know, on the buy side.

And I think what you're seeing just of why is there so much activity? The market is consolidating. I mean, if you look across, you know, every report out there about just the big, getting bigger and the middle market is getting to a certain extent, pinched by that reality. The acquirers are adding product and capability that they might not specialize in, usually have a thematic reason why they're gonna do something. 

And for the, the sellers, you know, selling into those larger organizations, you might just really be becoming a partner of a larger business is, is a way that, I think you could think about it, that these, you know, you, you go into the buyer organization and you're probably the real estate business or the real estate team focusing on X, Y, and Z strategy, and now you just have broader access to capital resources that, you know, potentially can make things, [00:16:00] you know, easier or accelerate growth. While also solving some of those original things that we mentioned. 

Nancy: So a lot of people talk about the industry becoming more of a barbell.

Yep. Right? Where you have the very large companies and then you have niche firms that tend to be operators in a certain sector. Yep. Do you see it that way? And what happens? I mean, I mean the middle doesn't disappear, so what's, what's in the middle and why would folks survive between those two ends of the barbell?

Drew: Well, and we definitely see that barbell occurring and we, I think the other thing, you know, people ask us all the time, like, is it gonna consolidate down to where there's not a whole lot of independent groups out there, whether specialist or, you know, more broad based specialists and there will always be independent.

Firms in real estate, private equity, well, other asset classes—

Nancy: We hope so! We’re an entrepreneurial nation!

Drew: because people are gonna have that itch to go start. Right. And do their, you know, create their own business. Right. And, and, and do it [00:17:00] themselves. So, you know, while the barriers to entry probably have increased significantly since when, you know, firms were originally starting to look like what they do today. Like, I mean the early, the firms in the early nineties that started the wave that happened in the early two thousands. It is harder today, but there still will be an active, you know, independent network of firms that are filling gaps.

And I think, you know, to your question of what happens with the middle, so let's put aside the specialist for a second. Within the mid-market, the ability to go out and do asset by asset deals, create portfolios that might exit to the players that are getting larger and larger — there's an absolute need for that.

And you see that in private equity as well, where, and I'm not gonna, I'm not suggesting that everyone's gonna just sell from one fund to a larger fund if the larger firms are gonna just keep getting bigger, the middle market is going to have to be [00:18:00] doing deals that are under the radar, which is what, what already exists today, to create that portfolio aggregation or to put together a thesis to then either sell that into a larger fund, into a public REIT, into, you know, whoever it might be that's looking for exposure to those asset classes. So I still think that middle market serves a purpose. And certainly on the specialist side, I think, you know, it's interesting that model's evolved a lot where when we were first doing fund management deals, it was very focused on the allocator model because it was understood how to underwrite those businesses.

You have investment management fees. If you're in a broader business, you can kind of understand how to value. That line of business. When you start doing vertically integrated fund management, there was a period of time where I don't think everybody really understood what a property management business associated with the funds can bring to the table.

And you know, I think what's fair is the groups that are in spaces like industrial and [00:19:00] residential, where you see it a lot, it's often being closer to the assets to drive value for the investors, which is why people are building, you know, vertically integrated functionality. 

Nancy: So let's just double click on that for a sec, because some people listening may not be familiar with the allocator model versus building platforms.

Explain, so historically, back in the, when you started in the business, the larger funds that were doing different things were the allocator model, meaning they. Raise money. They charge an investment management fee and a promote to their investors. And then they would go do a deal or series of deals with operators and they would pay them fees and they would pay them a promote typically over the hurdle rate of whatever their investors were looking for.

And that double promote structure is the allocator model. And you know, instead of dilution being maybe the 300 basis points that you see in a [00:20:00] typical fund structure from just the investment manager, the incremental dilution if the fund was successful, might be at least double that, maybe more. That model has evolved and so tell us where that's evolving to. Yeah, 

Drew: And it's, and it's not that the allocator model will go away. Mm-hmm. I still think there's a lot of, um, 

Nancy: by the way, I asked someone last night who runs one of the biggest allocator model firms. They're raising their new flagship. Are you still using that structure? And they said, yeah, of course.

Drew: Because there is an element of that model where if you're using the local sharp shooters, the best in the business at a specific capability in a specific geography, that is where the allocator model develops so that you can be, you know, across different areas and you can, you can debate if that is the right way to do it or not, but it, that's gonna persist for a long time, particularly at scale.

I actually think that becomes, you know, even more important to a certain degree. With vertical integration, I think, you know, [00:21:00] early on I think people sort of mix the concept of it's a lot different to be a property management manager to office and, and, and not talking about what we're experiencing just in office in general now.

But like that's a different, you know, type of business of you have to build up staff, you're gonna be in these major cities versus if you are. In the residential space or industrial space, and you have cohorts of assets in different locations and you've built a property management team that are your employees to service your assets to drive performance for your LPs, I think that model in, in areas, you know, does really resonate in certain degrees, but it wasn't really understood how to value those revenue streams in, in what we do. It was kind of looked at as, was that recurring or not? And that was the big, 

Nancy: the property management. 

Drew: The property management or even, you know, if you're, if you have significant lease up to do, like how do you value [00:22:00] that?

That doesn't look like a sticky investment management fee contract. Now, the reality is actually as you dive into the businesses that are, you know, providing those services for their funds and for their assets. It, it should sort of match itself. You're not talking about third party property management.

You're servicing the assets that you already control. So the duration is theoretically the same. And I think that's been better appreciated by the market in today. 

Nancy: Didn't the public REITs though, kind of teach everybody that when they all had to become internally managed to IPO? 

Drew: Uh, to a certain degree.

Now, of course with the public REIT side, it, that's always another interesting one of just how you look at the businesses of, you know, on the public REITs, you're, you're effectively a balance sheet company that is valued on an NAV basis. And then that has to be embedded into it to drive performance within the assets that are the balance sheet itself.

Whereas with the fund managers, you're contracting on everything with the funds. There's contracts between the fund and the GP. And same with the property [00:23:00] manager, and the funds where the distinction of obviously creating enterprise value outside of asset value inside the GP is, you know, what you're, what you're driving towards.

Nancy: So what's the difference between buying or building platforms like what Blackstone has done with Licor and you know, their platforms where they actually, the employees of those platforms are employees of the platform, not of Blackstone versus being an internally managed investment manager where everybody's an employee of on the balance sheet. 

Drew: So, you know, in general, I think we've started to see more and more, you know, like our business went from allocators, which we're still dealing with. Also advising vertically integrated fund management businesses, to now also doing a bunch of work with operating companies that are the JV partners to some of these businesses.

And they can be very large, scalable businesses in, in many cases. But you know, I think if you look at the Blackstone model, you know, they're effectively using the companies that they own through their funds [00:24:00] and backing them with capital to implement their strategic plan around a specific space and strategy.

Drew: They're just able to do it at a scale that's a lot larger of, back to the comment of like, rather than buying individual assets, they're actually doing it by buying the companies that are then deploying capital into those assets. Prob again, probably still at scale and you see other versions of it from different firms, you have to just have a lot of capital behind you to scale it.

But it's still fundamentally inside of a fund. If you're looking at the GP versus internally managed concept, it's still a GP that, that's funds own these operating entities. 

Nancy: So if I'm an if, if you have an operating company come to you and say, we need to do something, we need to figure out how to scale and to grow.

In the old days that operating company had a reasonable shot of becoming a fund manager. Today that's really challenging, as you say, much higher barriers to entry. [00:25:00] So what are the things that that operating company can go do? 

Drew: Yeah, so, um, and again, we've done work on this in a, in a few different instances where I think part of it's like, well, if they're coming in to have the discussion with us, well, what are you trying to solve for?

Right? In a lot of cases recently it's been, you know, the, what keeps all the, the JV partners, the operating companies moving is a continuous flow of deals within their specialization and now to, to have those deals as an operating partner, right? You have to be able to speak for your portion of the GP capital, and even some wildly successful firms, the GP portion can start to outpace the wherewithal of the firm or the individuals that are funding those commitments. 

And in the operating model, this is, you know, different than the fund management, it's often five or 10% pieces that people are putting down which might be direct sponsorship from the firm or the individuals, or it might be through a GP fund that some [00:26:00] groups utilize as well. In a couple instances, we've helped put financing tools in place for those businesses where it's hard to go to a bank and get a meaningful quantum of capital because the banks wanna lend against just your management company cash flow as opposed to promote assets, other things that you can put in the mix.

Nancy: Yeah. 

Drew: So we've helped in a few instances, groups put in place a package where you can take some of your assets within the company So things like your existing GP positions, accrued promote, Value that you have, potentially a management company, cashflow sweep, and you can go out and get financing against that pool which is also takes it away from some of the personal things that would come in from a bank note, and then if you're deploying that capital into projects, it's, it's actually pretty efficient for the most part at the project level, those are pretty nice. [00:27:00] Returning assets, 20, you know, 20 to 30% returns is probably what people are underwriting. If you're borrowing in the 10 to to 13% rate the math works pretty well. Right. So we've seen some financing packages come in for those groups. We have also, in certain instances, started to see institutional capital say we're, you know, we're highly interested in a certain segment. Probably a niche or a real specialization that a group has, and we can be a big capital supplier for the business as an LP. 

Nancy: Right. 

Drew: And is there a way for us to be more aligned with the business i.e. should we own a stake in the business or in some instances own a controlling interest in the business because we're gonna put a bunch of capital behind this and it's gonna create a lot of value for everyone.

And it also, if I'm an owner, helps if I go through the math average, my fee basis down as an LP because I [00:28:00] have underlying economics in the company. Right. And that trend I still think is trying to figure itself out, of how it comes together. I think in the fund management world, you know, the deals that are put together on a GP stake side, you kind of know how those are gonna be set up on a controlling transaction, you know, apart from working with, through the unique governance. You can see how those things will get set up on the operating company side, it is more of a free for all in terms of the approaches. Yeah. It's, it's hard to compare offers against one another. I think for some of the groups that we talk to, it's just a more confusing space to say, so we had an offer from this group and this group, and they look wildly different.

And the answer is, that's sort of what the market looks like today. 

Nancy: What do you think would, and maybe it's too, it's all too new to say this, but what would define success for those transactions?

Drew: With the operating companies? 

Nancy: With the operating companies.

Drew: With the operating companies, I really think it's, I mean, the groups that we've seen complete successful transactions, it's because they're sitting [00:29:00] there saying, I have a phenomenal pipeline.

Maybe it's development, maybe it's value-add transitional projects where there's like, this is a phenomenal pipeline over the next 24 months, but I need, you need capital, X million of capital to fund my portion of the GP. 

And then when they're presented with the option, sure, nobody, everybody wants the best deal possible.

But when a group says, I have this great pipeline and I need the capital to deploy into these projects. 

Drew: And then they have the capital and it goes well, the manager. Understands what's in front of them and if they're willing to take on the capital, it's 'cause they see a great investment opportunity.

And those have generally worked out well to expand their business and, and grow their franchises. 

Nancy: It seems like the best of those deals will be buyers who are longer term because you wanna repeat it. And so one of the questions I have, I probably would've gotten this completely wrong a year or two ago, is what becomes of all these GP stakes funds?

Where it's a five or [00:30:00] seven year life, you take a stake in, well you might take a stake in the manager, you might take a stake in an operator, but then you have to move on. 

Drew: Sure. So the word GP stake gets thrown out a lot. I think in the traditional sense of how we would look at the GP stake market, actually a lot of that capital was formed with a permanent nature in mind. Okay. So if you look at Blue Owl’s funds as an example, you know, they, they are meant to be permanent capital vehicles. And it actually, as we look at our business of how it interacted with private equity sponsorship in general across different asset classes, he fund life question was always a hurdle for an independent firm at what point am I gonna have to deal with the fact that the shot clock is up, find an exit where the GP stake universe, in many cases has said, we can be a permanent owner. We'll figure out how to get liquidity for our investors.

And you've seen that through, you know, in some instances, [00:31:00] securitizations of certain portions of the portfolio. You've seen that through the fact that in many asset classes, groups will find a solution for their business where the minority stake, you know. That happened five years ago today might end up becoming a controlling stake where you sell the business and liquidity is naturally created.

Drew: You know, by that and you see that I think in real estate and certainly right now corporate credit, you know, you've seen a bunch of groups that did minority stakes that have now sold the businesses and created that liquidity exit, while the GP state capital is permanent, there are going to be things that occur in the life cycle of these firms that drives them to other deals.

Nancy: But can you just get used, you mentioned securitization to part of the portfolio. How does that happen? 

Drew: Oh, I think in general, one of the ways to provide liquidity to those LPs who have signed up for permanent duration is you generally can package together a number of different interests within a fund, which, you know, part of that is you wanna make [00:32:00] sure that it's spread out 'cause if you're in the manager's seat, you don't want to just be a single position that people are getting your information. Whereas if it's a pool of other GPs, potentially in private equity and credit infrastructure, and that is put into a portfolio sale effectively where you're averaging down,

Nancy: it an IPO or? 

Drew: Yeah, so I mean, one of the firms did do an IPO, Peters Hill, which there's been some, some news on recently about maybe taking that private, but some of the other groups, you know, really have access and Blue Owl certainly, you know, has access to the market to do these different securitizations 

Nancy: and they do them privately.

Drew:  Yeah. Uh, yeah. And it's, you know, it's a nice, they're basically offering up a, a coupon to a set of investors on what look like very stable cash flows from some larger businesses. And that, that has been a, I think, will continue to be a path for liquidity for many of the groups within the GP stake arena, different than the private equity firms that are [00:33:00] inside of a closed end vehicle with a finite life that you know, do need an exit. 

And I think in many instances with those groups, the same is true that, you know, if they bought a company 5, 6, 7 years ago, that company probably is now facing something different. And there might be opportunities where maybe they should be part of a larger organization and that opportunity just comes to them.

So the management team is just as likely to say, now is a good time for us to create that event for you and us. There are the instances where maybe the timing's not right, or the fun life is not perfect to a matchup. Those are the more difficult situations. But there hasn't been a lot of that where something's gotten trapped inside of a fund.

Nancy: Right, right. Yeah, it's true. There seems to have been more liquidity than people anticipated inside these closed-end funds. We'll see if that, you know, continues. And obviously as long as the underlying firm can raise capital. [00:34:00] They're in good shape. 

So let's talk about capital raising and kind of the trends that you are seeing. Is consolidation of the RIA business still ongoing in the way it was just so fast and furious a couple of years ago?

And how are real estate firms being successful at accessing the high net worth channels? 

Drew: Yep. So I, I guess unlike the M&A deal front for your independent wealth managers, your RIAs that is, I mean, if you look at the charts, there's something like 200 plus deals done a year. Our wealth management team will correct me on these stats.

It's drawing more than that. That is a heavily private equity backed, you know, I think there's 30 different firms that have platforms that are aggregating RIAs. Um, that trend is not going away, but how it intersects and it's usually how it intersects with real estate. It's not really the independence that people are dealing with.

It actually is becoming more those aggregating platforms that are trying to provide. Alternative [00:35:00] product to their wealth management clients. So if you're, if you're a high net worth advisor, you know, in your, your different options of what you're presenting, you wanna make sure that you have an ability to offer sophisticated institutional quality product to that clientele.

And so in, to some degree, we actually saw a few wealth management firms say, should we buy the capability and bring it in-house and potentially distribute it amongst our—

Nancy: by the real estate manager?

Drew: by the real estate manager, and make it part of the ecosystem. 

Nancy: Isn't this the open, the age old open architecture, closed architecture question?

Drew: So that's, which is, which is the question. Yeah. Um, and so there, there that is—

Nancy: I thought the wirehouses proved that closed architecture didn't work very well. 

Drew: think that, you know, there's—

Nancy: I may be wrong, I dunno. 

Drew: No, I think you're, I think you're, you're spot on. So, but there is. We saw a little bit of a wave of that, but what, what we've really started to see is more when people talk about retail capital, it's not just like, if you think of the, the different centers for [00:36:00] how to access distribution, you have the wirehouses, which is generally where most people, I think that's what people are thinking of initially when they think about retail distribution. 

There are the RIAs which are, there are thousands of across the US that you know, can, if you have selling agreements, you can aggregate capital from.

And then there's the broker dealer channels as well. That retail access point for private market strategies is actually more about how the large. Mainly, you know, you hear about it from the publicly listed firms, but certainly the other groups that aren't public yet that are at scale are all thinking about this.. It's probably the number one thing when we're talking to corporate development teams at these firms. It's retail capital platform access, or how to think about it and insurance solutions, 'cause they're trying to think about how to create sticky capital and penetrate a new market in the retail space.

That's, you know, if you look at the numbers is [00:37:00] a massive opportunity and you've already seen groups like Blackstone and Blue Owl and Apollo take leadership, you know, in those areas and other groups building out around it. From an M&A perspective, it's been interesting to see how people have tried to utilize what I think is generally real estate technology to distribute product to retail clients. So the non-traded REIT, is a format. It's an access point to, to really start your program and in general, retail investors, you know, for a long time. I think the same way in a lot of cases, like real estate's a, an asset class that you can see, feel, and touch.

And it's, you, you see investors leaning into that now. I think there's been a sophistication update on, people are also looking for high yielding strategies. It's not just about owning the real estate strategy, but using a non-traded REIT format to distribute product to individuals. You know, has been in a way to start for [00:38:00] many groups.

So if you look at Aries buying Black Creek a few years ago, or as one example, Apollo buying, you know, uh, Griffin Capital in a different degree, Collier buying versus capital, which is now Harrison Street's private wealth business. These are all different ways to access it. The other way that groups are accessing retail channels is within the corporate credit space where groups are managing large scale BDCs.

There's often a selling force behind those as well.

Nancy: And so who's done that? 

Drew: Yeah. I I mean, if you look at all of the, you know, the, the Apollos Wells of the world have you know, have that product. I mean, all the publicly listed groups have some format of that Blackstone clearly as well. And it's, I think the difference, and we talk about this with a lot of groups 'cause it is a, it's a big topic with the independent groups of, everyone's talking about retail capital, right.

How should I approach it? It's really hard as an independent firm, it's really hard and it's, it's, you know, it's, it is a very [00:39:00] different business in terms of what you're used to managing. 'cause you have to have a, you know, a Salesforce that internal external wholesalers, people that can get out to corner offices and areas.

It's a lot different than—

Nancy: I'm laughing because that's how I started in the business. I was doing, I, I was an investment banker, but we effectively were the wholesalers for JMB and Balcor and, you know, Carlisle that were syndicating product. And I, it was a very different business.

Definitely not your traditional institutional sale. 

Drew: Exactly. And as an independent firm that has maybe an adjacent product, maybe a different risk return profile somewhere, it's hard to build a significant retail sales effort because you don't have enough products to distribute across it.

So that's where

Nancy:and brand becomes so important

Drew: You just nailed the next point brand. I mean, you're seeing, you're seeing it on, you know, when you turn on a sports game at some of [00:40:00] these tennis events, golf events, you're starting to see Wall Street private equity firms have sponsorship logos on players and hats.

Nancy: Isn’t that just because they want the tickets? 

Drew: I'm sure there are good tickets that are involved there. But it's also, it's, you know, it's, they're creating brand recognition within the ecosystem of, you know, individuals that might end up investing in these products and getting it out there.

So it is, you know, as we talk about how does somebody take their independent firm where they've built a culture, built a great system, but can they plug it in to, and, and keep all the good stuff that they built? And, and I think most at this point, sophisticated buyers understand you're not gonna change much in the business you bought, but you're gonna add capability around it and distribution, particularly on retail, where you, most groups won't have much access going in. 

But also then on the institutional side of, okay, you might have built a great North American following, [00:41:00] can we help you in Asia or in the Middle East or in areas where your, your brand might not be there, but ours is.

Nancy: But it's really, I mean like the groups that you mentioned, Colliers or Apollo, like buying these, you know, groups that have, you know, big, you know, whether it's non-traded REITs or other lifecycle vehicles, it's really hard for the middle market and the smaller firms to even begin to do anything about that in the M&A arena, you know?

Drew: Yeah. Which it will. So I think it's hard for a middle market firm to build true retail penetration unless they had some unique legacy, you know, product or salesforce behind them.

Nancy: Can you think of one that's done it? I am, I'm sort of struggling. I mean, there are, there are plenty of middle market firms that have good high net worth following.

Drew: Yeah. Well, and that, yeah, there's definitely high net worth, which is a little different than again, when people, that's different people think about [00:42:00] retail, it's not the single family or multifamily office you're talking about, you know, high net worth that are in, in the wirehouses and other areas.

But no, it's, it's pretty limited in terms of who's built a, a significantly sized retail force. Now you have seen a little bit of it in groups that have created interval funds that are a way to access institutional capital for the retail client. That's what Griffin was. If you look at what, what Blue Rock does is, is somewhat comparable versus did that in an interval fund.

But, but selling into the RIA strategy that—

Nancy: Aren’t the interval funds kind of in trouble though?

Drew: The market has, you know, certainly for, for a lot of open-end core, core plus products been challenged, but it will be a portion of portfolio allocation for the large allocators and for the individuals to have that exposure.

I think we're in a bit of a, you know, a moment of time, and I do think, at least in our conversations with managers, you, you are seeing, you know, a return back to the core and, and certainly core plus [00:43:00] areas to, to a large degree. 

Nancy: Sort of pivoting on this similar topic to insurance companies.So I guess Apollo with Athene was the first big private equity insurance merger, if you will.

And, and you worked on the most recent one, which is Barings acquisition of Artemis. Why, why would that work from the buy side and the sell side? 

Drew: Sure. Well, I think first off, the convergence of insurance and private capital is, is interesting. And obviously Athene and Apollo is just a remarkable case study as people look at that as an example, hard to replicate.

I mean, many people have tried, but there was a, a white paper put out recently, um, by, uh, I think it was, was came out from Artos, which showed the changing landscape of the ownership of Life Coast and looking at 2005 to, I forget what timeframe it was, maybe 2024 might've been the cutoff date. But, you know, originally in 2005, it was all these [00:44:00] brand name life insurance companies that you could look down, Park Ave and see their, their logos on.

You could, or, or you would know the name by the stadium that they sponsored today. I think in that top 20, it's something like seven or eight are owned by private equity firms. So, Apollo-Athene being one that people notice, but certainly, you know, uh, groups like KKR, Sixth Street are, are up there as well and Brookfield has made acquisitions in the space. Other groups are, you know, aren't in that top 20 yet, but have certainly made, taken positions to establish that because of the effectiveness of managing a general account for the insurance company, when you're managing assets, that have a long-term nature that match up well with that general account.

So long-term liabilities, long-term assets, or yield producing good capital treatment ratio capital in the credit space is where you've seen a convergence [00:45:00] from the private market firms into insurance companies. Now in the same vein the insurance companies who are in many cases, scaled financial institutions are, you know, if you look at what they've built for their fund management businesses, originally most of them built out an internal general account investment management function, fixed income focused, you know, probably had some other adjacencies that they dealt with.

Real estate was always an area that those groups were in 'cause it made a lot of sense for the organizations. Those groups started to look at, well why are we just doing this for the general account? We could be a third party manager. Uh, we have great global brand names, we are seen as fiduciary organizations that people have a lot of trust in.

I mean, some of these organizations go back, you know, 150 plus years and have have survived cycles. So there's trust from the [00:46:00] LPs for them to be a manager and from the insurance company side, building out a third party. Investment manager creates additional opportunities for the general account or for the public shareholders.

Nancy: But it's really different and I, I keep this, you know, I remember reading the front page of the Wall Street Journal about credit default swaps somewhere early in like 2007 and scratching my head, going, there's something here I don't understand, so I'm gonna say this and then tell me why I'm wrong.

It's really different when you're an insurance company and you decide to internalize your real estate business and there's a bunch of insurance companies, correct. Lots of them that are examples of doing that. So now you, you know, you have that capability, those people work for you, you trust them, they're good at what they do and they manage both third party and the managed general account and and separate account.

Yeah, there's lots of good examples of that. The motivation though is you are still an insurance company, you're regulated and you're the end of the day. You know, you need to make sure you're gonna, you've got [00:47:00] the right balance to meet your premiums. When a private equity company owns the insurance company and they're effectively using that source of capital so that they can, in theory, make higher fees and promotes for the owners of the company and their investors, do you end up with a riskier insurance PLA business?

Drew: So I think that's the part that, you know, people sometimes just, they, they see firms, a private equity firm owning an insurance company and think, okay, well what's the general account investing in? The reality is it's just a, it's a portion of the general account that's allocated to these higher yielding private market strategies.

So they are still following the same standards and regulatory—

Nancy: but they're owned by the PE firm, 

Drew: but owned by the PE firm. But if you're able to take a portion of the general account, which is within the parameters that, that you've set up and say, this actually could be allocated to, you know, a, a bit of a higher yielding credit strategy, [00:48:00] and we have an origination business and funds that can service this. 

It's actually, you know, I think providing better returns and, and growing the insurance company. I understand the conflict point that gets brought up, but I think to actually operate it where it's not, you're not, you're not taking half the general account and just putting it into what can be riskier assets.

Nancy: So you’re saying they're still being well run as insurance businesses? They have, and obviously they're regulated. 

Drew: They, they, they have to be, but it is using a, effectively an annuity stream of capital to continue building and having capital available to deploy, which takes out, you know, if you have investment teams focused on a certain area, it just provides them more capital to, you know, to, to go affect their business plan.

I think on, on the point though, on why the traditional insurance companies, like they built these general account management businesses, but they also then in building third party businesses, they themselves need to go to a bit of a more third party facing product, which, and you'd asked about the Artemis [00:49:00] bearings deal.

And part of it is, if you look at the product set, and this is, this was also true to a certain degree with Sun Life and Benol Green Oak. Where, you know, the puzzle pieces fit together really well for what is currently in the insurance company general account, generally core exposure, potentially mortgage exposure on the debt side for, for those groups.

But then a value add flagship series of funds that's focused and has a, a, a, a great track record where you can be an, a supportive LP to that and help bring your other relationships in, into those strategies is growing a different business. So it's not actually, you know, like if you take the two things they fit together really well, make a larger business, potentially add additional resources around the real estate capability that can help, what can a fresh look from. Who just came in helped drive performance in what you have today, vice versa. Can the debt [00:50:00] relationships potentially help that we have on the other side of the house?

So it is important to build out those third party facing businesses as what those insurance companies really wanna be looked at it from a general account perspective is, hey, we're, you know, in some cases we're a hundred, 400, 600 billion of assets as a subsidiary, if you looked at us as a public company, we look like some of these other firms that everybody is, is talking about.

Because of our exposure to credit and real assets. Right. Right now, yes, they all have some traditional fixed income because the general account but you're also seeing the convergence in some of the large private market firms are starting to service more traditional forms of credit because of the insurance side of things. 

Nancy: Right. How have you found the cultural meld? Know you mentioned two examples. You know, one is, you know, a very large institutional business. The other is, you know, entrepreneurially grown, um, more nimble business. How do you know, how do you figure out if that's gonna work?

Drew: Spend a [00:51:00] lot of time with, with one another beforehand? Um, it's always, um, the most difficult part of it is how do you, you know, to a certain degree, there's some matchmaking that you play and you don't always know how it's gonna work out. But there is a lot of time spent over dinners and meetings talking about how things will work together, what integration to the extent there's an integrated format might look like.

But I think the biggest thing is actually from the acquirer perspective. 

Nancy: Mm-hmm. 

Drew: Most of the time those groups have made a decision internally we need to be better or bigger or have more exposure or add a geography in a certain asset class. 

We're gonna go through the rankings and the lists and decide who we think makes sense and that most groups have a list set up and when they go through their screening, it boils down to like, in most cases it's only a couple options that people are really thinking about and it, it's gonna [00:52:00] look different across sectors and geographies of where people are focused and what we've, you can never predict this in the deal, but there's often a connection where some culture carrier piece of it, where the parties know each other through some format which helps really break the ice on the conversation. They might have worked with somebody in the past. They might have had someone as an LP who's now at an organization. There's some familiar face, which is helpful. 

Nancy: Mm-hmm. 

Drew: But the buyers have, or the acquirers have made a decision that this is an important, you know, centerpiece of what they're doing.

And they also are, they're looking to add, they're not looking to extinguish. So they need to make sure that all the things that are working fabulously for that independent firm that they're attracted to have an ability to have runway inside their organization. And there is going there, there will be things that you run into.

There will be some growing pains. But for the most part, we find groups not trying to come in and control a [00:53:00] business and tell them how to do it. A business that's been around for 10, 15, 30 years is working pretty well. It's more about how can you add, we, we often talk to our clients about no deals that we ever do.

Rarely are deals done where you think about expense synergies. It's about revenue. Revenue growth, opportunities or servicing the clients better because in the traditional investment management space, like for a while when you saw big brand name firms merging, 'cause they were the long only shops.

That was a race to fees were compressing. We had to eliminate costs. That's how you're gonna create synergy. Within private markets, I think most firms, they're trying to carry their culture, their investment, DNA, into a larger organization that can then surround it with additive resources, which are good.

And this, we talk about this all the time. The LPs need to feel comfortable. The employee base that you're bringing in needs to feel comfortable. And then, yes, not necessarily third, but I'm gonna put a third in [00:54:00] the order. The shareholders, which are generally some of the C-suite of the, the business need to feel comfortable with what they're doing.

But it's usually in that order where we're sometimes asking. The CEO, the CIO, the co-founding group. Like you need to make sure these boxes are checked for the other constituencies almost before yourself because you have the, the company has to deliver 'cause nobody's going away. 

Nancy: So how do you measure success post merger?

Drew: You know, it's interesting, and this is like, again, with Berkshire, we're around, nobody changes seats. Like I've been with the firm a long time. So we have the interesting point of like, we're still in contact with most of the, I mean, almost every client that we've dealt with, we run into at all the industry events.

Half the time, if they've gone into a larger organization, we're probably having a discussion about what else they might want to add to their platform. You know, normally what we're, you know, measuring as success… I, I'd say it's different by client. We try [00:55:00] to upfront, really spend time in a closed door.

No one's judging or saying anything of what does somebody really wanna accomplish out of one of these deals. Like let's just really get to the heart of what are we doing here? And that can range from a lot of, there's a lot of different ways that that can take form. But it's really, did we accomplish what we set out to do is probably the first bar.

And frankly, that's something that no one else probably sees besides ourself in the client of was it successful for what you said you wanted to do. 

Nancy: Mm-hmm. 

Drew: On the more like, visible side of it, it's, this is certainly when you look at the control oriented deals of you went into a larger organization, were we able to create something that is, you know, gonna be long lasting for your business inside this longer business now that the brands might change and, you know, the, the market facing side of things might change, but the core components of the business are those [00:56:00] there, the investment, autonomy, acumen still in place, that your LPs are still there with you and are you creating opportunities for your people who, you know, hopefully in some, in these deals you see, you know, folks that might have been in the middle or early part of their careers.

Hopefully they're there 10 years from now, you know? Weeding the franchise at that point. That's, that's probably how we were, we would look at success. I mean, you could give other examples of Sure. Did you put somebody in and their product just was able to take off on a new channel?

That's not necessarily what's driving success for these deals. For us, it's usually when you run into somebody at an event and they, and they say how to, how's it going? It's, what's the reaction gonna be at that point? 

Nancy: Right. Right. It's family therapy.

Do you wanna share, um, a couple of examples of specific transactions and what worked, why they worked? 

Drew: Yeah. Every. Transaction has sort of a unique [00:57:00] starting point. Um, you know, going back to just maybe I think where like a big part of our forward momentum started, um, we had done a transaction back in 2017 with Harrison Street and Colliers. 

You know, at the time I think it was a pretty differentiated result for what we were looking to accomplish. 

Nancy: You were representing the buy side? The sell side, sorry. You always represent the sell side, right?

Drew: We, we do do buy side work, um, as well, but, uh, if you look at it's probably 80% sell side.

And generally advising closely held business entrepreneurial led businesses as opposed to some of the corporate carve outs that that happen. But with, with Harrison Street, what kind of just stands out about that was we did kind of go through that diagnostic upfront of, okay, what do we wanna accomplish at this?

And this was at a time when the early formation of GP Stakes was taking off, so we were deciding like, is that a path to, to think about? Or, you know, also [00:58:00] there's, you know, there's these other options out there. At the time, insurance companies were very big participant in the market. I think today you've seen a little bit of the private equity firms starting to take over and we're very careful about how we put together a list of groups to go to. 

As with every client, there's, you know, a lot of concerns about confidentiality when you go into these processes, but we, you know, one of the names that we brought up was Colliers and at the time wasn't as well known as some of the other groups that we were talking about. And we had sort of a unique knowledge of what Colliers was trying to build.

And this goes back to, has an organization really thought about what do they wanna accomplish in the platform that they're building? And do they have an action plan to go out, build it by it, develop it, whatever it might be. What became interesting about what we were solving for was. While the transaction, for various reasons was going to be a control oriented deal by, or in terms of equity that was gonna exchange hands, we did [00:59:00] want to create something where there was a real partnership model put in place.

And in, at that time, doing a transaction that involved 75% rather than a hundred percent was quite interesting. And it kept the business in place to Harrison Street as it was. And, and really the, the governance and everything was day-today. Nothing looked different the next day.

Um, and you know, the business has obviously grown tremendously, you know, since that point. They've, they've added capabilities in Europe, they've added some capabilities in Canada with the, with actually Colliers obviously having a big presence there, as well as, uh, added infrastructure in other areas.

And sometimes growing with, you know, an organization behind you that can provide additional support can be quite helpful. As well as they've acquired other businesses around Harrison Street, some of which are now coming together to form a bigger overall organization underneath Harrison Street's brand, but you know, if I think back to the [01:00:00] comment of like, what we were trying to accomplish, that was one where the time, pretty differentiated approach. We sort of had a unique lens into what Colliers was doing. And, and I think that that's been a really interesting result for both parties and one that, you know, I don't think much has changed, uh, over, over the years.

Nancy: You've certainly created behemoth of a, a bit different firm. 

Drew: Well, they;ve also created it themselves. 

Nancy: You’ve been a part of that. 

Drew: Yeah. The, the other, you know, just a, a little, you know, different version of it. Obviously with, with Oak Street, we had actually done.

Uh, we've done two transactions with where the first was really a traditional GP stake. I think it was at a time where that, that made sense for the, the mandate that we were discussing and in terms of what the, the founders were trying to accomplish. It also helped really unlock, or, or maybe, I mean I'm sure they already saw this opportunity, but maybe it took us a little while to see it, but, you know, as we had those conversations about the [01:01:00] stake uhhuh, you could also see, well, actually the future potential of where this platform could go inside of some of the other organizations out there where this product in the triple net space is, is actually really interesting and distributable to the retail channels. And so having done the, the GP stake, you know, we found ourselves in an opportunity to do a different type of deal with Blue Owl where they actually acquired the full business.

And at that was the initial piece of their real estate offering, which made a lot of sense. If you think about their business as financing, corporate activity through what was Owl Rock now the credit business financing different forms of private equity through the GP stakes business dial mm-hmm. Which is now, now, now the GP Stakes offering. Um, and then Oak Street, which is now that the real estate offering. And then, you know, and this is a good example of keeping in touch with clients afterward. In fact, both of 'em are, you know, um, they've gone on to add, continue to add to their real estate platform in the debt space through, um, [01:02:00] an acquisition.

And then more recently in the data center space, things that fit around what they're doing to a certain degree within, 

Nancy: who did they buy in data centers? 

Drew: Uh, IPI. 

Nancy: Oh, 

Drew: And so adding that together to create, you know, a different business and again, with a focus on one, the thematic of where. The investment offerings that are coming out of the real estate business all fit together as well as with the corporate, the broader corporate Blue Owl and products that, you know, have an interesting distribution outlet through retail channels, you know, has, has come together really well.

Nancy: Do you have a lot of clients coming to you looking to buy a data center business of some sort? 

Drew: Uh, the short answer is yes. Um, it's, uh, I that is certainly, you know, one of the most actively sought after categories that we're talking about.

Now, what's interesting in the data center business is [01:03:00] there aren't a lot of dedicated fund managers that have these large scale funds that just do data centers. Most of the groups are back to our early part of the conversation in an operating company format. That's right. And that's where you've seen some of the large private equity firms actually buy.

The Opco and then funnel capital through it in a private equity style holding for those businesses. So it's hard to access and, and again, you know, some of the groups that are asking the question now it's just, you know, where are we at? And I think some of the players have become so established in that space that it's hard to catch up.

So it's not, you know, it, it is a hard area to just go buy something and, and solve the exposure through. 

Nancy: Right. And the dollars are big.

Drew: Well, and that's part of the attraction is the dollars from what you're deploying are big. Right. Which they're big, complicated deals, but it's, it's, you know, you can move a lot of capital. 

Nancy: Drew, we could keep, keep [01:04:00] at this for like the rest of the day. I am, your purview on the business is fascinating and, and also just your ability to really understand the businesses and the people and what motivates them and your interest in them makes it clear why you are the go-to real estate M&A banker.

So I, I appreciate it. I guess, um, as we kind of try to wrap up here, any lessons or principles that, that guide you that you'd like to share? 

Drew: One of the lessons that we have tried to really stay on track with is we try to be very honest with our clients. And it seems really easy. But when you're, when you're pitching for business or establishing a relationship there's absolutely a tendency to tell people everything they want to hear and to push yourselves into a level of, of course this one is worth more than that one things of that nature. Valuation solves itself in the [01:05:00] transactions and it's, there's a recognition of, you know, like there are firms that are growing at a different rate that will command higher multiples, but the market sets what pricing is and if people don't like it, they won't do a deal. That does happen. But what we, when we are establishing a relationship and really getting into the nitty gritty, it's a lot easier when we can get there with our client and say, look, we are gonna tell you what we think.

It's not that we're not trying to outperform this and we're not trying to set a bar below. We're trying to be very real with you about what is a benchmark for you to evaluate this off of. But also, what did you tell us that you want to accomplish through this transaction? 'cause that might impact how you look at this opportunity.

And the more we can get into that discussion with our client and just have a very authentic discussion, the better we can serve them. But also to just talk about, well, why was this deal different than that? Like, so many people just take comp sheets and like, we hear people quote our deals all the time and we're like, [01:06:00] that's not really what happened.

And it's, but it doesn't matter. That's what's out there. Yeah. But it's, it's really, I mean, I think what we talk about across our firm is providing, you know, very close knit quality and honest advice that really can't go wrong for you. It might lose us some business here and there when we tell people, yeah, maybe you should wait a little bit.

Maybe you should think about this, implement this part of the plan first. Like, we do a lot of that where we're trying to help people set up for these events, not just jump right into it. Um, so that piece, and also, you know what we try to tell. A bunch of our upcoming bankers in the organization is, we also like, we're a firm that, like we are a boutique, but none of us look at ourselves like a boutique.

And you know, we look at ourselves as we should feel like we're part of the largest asset and wealth management team on Wall Street because we are, or we're right there. There are fig groups that are bigger than us, but like [01:07:00] the skillset that we have of whether it's one of our founders who's still at the firm, who's been here for 43 years, my other partners who've been here 25 or 30, myself, who's been here for almost 20 years, the folks underneath us who've been here 10 or 15.

The skillset for dealing with investment management and the human capital side of it, it goes back to like creating a connection, enjoying what you're doing, and just having honest conversations with somebody along the way is the best way to do, it's like, we like what we do. I love running into my past clients like, it's not right.

As much as there's the feeling of you're only as good as your last deal. It's like, I mean, that's, that's how the, the street looks at us. But like, it's awesome when we run into people that were clients seven years ago or 10 years ago. Right. See how they're doing. We also learn so much from them. I mean, like whenever I give my expectations speech to the, our new class that comes in, one of the things I always tell them is, we have [01:08:00] such a unique lens because we're sitting with the CEOs, CIOs of firms that are the best of the best at what they do. But they don't know how to think about their firm, which is baffling, like they value real estate all day long. They value private equity.

We had, I remember we dealt with a group that was in emerging markets, equities, business, like they know what they're doing better than anyone. But then they're asking us, well, what is, how do we find an option for our firm? What should we be thinking about? And it's, it's a little humbling.

But it's, it's a really interesting thing and it's, it creates a ton of learning opportunity for us to take, have takeaways from these deals. 

Nancy: I love that, I mean, it makes so much sense to me. I mean, it's very analogous to the placement business. A hundred percent. Which is also a human capital business.

And, and we are asked all the time for advice by people who are incredibly good at what they do, but it's a little bit about having a 30,000 foot perspective [01:09:00] and talking to different parties that you can connect. Who aren't currently connected in what they do. So, um, and I sometimes, and I, as soon as I say that, I think, so how is AI gonna change all that?

But we're gonna have to leave that for part two of a conversation. I think that's, that's good. But you do wonder, I wonder, I think about this a lot because it is a human capital businesses, you said a couple of times today, and yet. AI is absolutely going to change the way the business is transacted.

And the way investors are gonna think about their portfolios. And so how will that change things?

Drew: This could be a little much length there. But my quick 2 cents on it or it's, it absolutely will have an influence on driving different aspects of fund management, investment management businesses at the portfolio levels, at the individual asset levels of what you can see through the technology. And before AI was a thing, you saw people trying to, the constant discussion [01:10:00] of real estate and technology just don't seem to interact well. I think AI will find applications where it will help drive value at the underlying asset level.

From a firm perspective, how will it influence things? I still think there's a lot of relationships that AI can help supplement. It's not replacing. Sure. And it's, it's not, it's the same way in every industry. AI is gonna have a big influence. There will still be. You know, plenty of opportunity for the same discussions, the same relationships that are created to do this.

At the end of the day, you know, you're creating buildings and— 

Nancy: Yeah, I think, I think the, in the organizations just maybe look different and maybe have more, more senior people, fewer junior people, the types of junior people, and those functions change a lot. Maybe that's good for margins, maybe.

Drew: But even in our business, you know, and I'm sure you've, you've probably experimented with it in yours, like the AI functionality of like, it's not gonna replace what our analysts do. Like, at least today, like we've, we've tried to feed [01:11:00] different machines to see like what is, what comes out on the other side of it.

And it's, it's not totally there or it still needs. Somebody overlooking it. It will be interesting to see what happens in five years.

Nancy: Any final thoughts that you wanna share? 

Drew: No, this, I appreciate the opportunity to come on here. It's been, uh, this has been, this has been great.

And, um, you know, I think just from our perspective, the advice for the groups that we work with has generally been, it does take time to plan these and to think about, you know, don't just jump into the conversations, kind of step back, think about what are you trying to accomplish? Is the organization set up for this, when's the right timing?

And, you know, think about that from the end date to, to then when does a conversation like this meld into it? And there's a lot of different formats. I mean, you also are just seeing groups do. It's not just one deal, it's, there's financings [01:12:00] and GP stakes and exits.

So there's a little bit of a journey and we've found ourselves in a number of cases, talking with groups that are earlier in that journey to just talk. And they've been approached by groups. Some of them are like, where's all this coming from? 

And I think just getting, whether it's from your placement agent, from your council, from someone like us, just understanding what the opportunity set is that's out there as it relates to corporate activity at the firm.

It's never too early to start thinking about that. That doesn't mean you're gonna be doing anything. But, but knowing what, what you should be thinking about and how to plan for it in the future will just make you, you know, better organized when you get to that moment. 

Nancy: Wow. Truer words never spoken.

Drew, you are. Just a gem and I so appreciate your coming on and sharing your wisdom, so honestly, as you do with your clients. Thanks so much for being here. 

Drew: Thank you. 

Nancy: I hope you enjoyed this episode of Real Estate Capital. Before you go, I have a quick favor to ask. [01:13:00] We put a lot of thought and effort into this show and making sure we bring you insights from real estate leaders that you don't normally find in the mainstream media.

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