An investor's mindset and principles
An investor's mindset and principles
Thought processes and character traits that'll help you succeed as an LP
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An investor’s mindset and principles
Some of you may know that prior to advising LPs on real estate investments, I ran a 20 person team at a public Real Estate Investment Trust (“REIT”) called STORE Capital. This experience was fascinating in many ways, but I would like to pull from one particular aspect of it for today's discussion.
There were two aspects to my job:
The first was to manage the existing $10 billion outstanding across ~2,800 properties. There are plenty of lessons to speak about there, but that’s not what we’ll be talking about today.
The second was to oversee the entire team that underwrote any new transaction that the firm was considering. For context, we typically bought well over a billion in properties per year and each asset was usually in the $5-$10 million range - that’s a lot of properties! Now, these figures describe the properties that we actually bought, while the number of properties that the firm passed on due to my team’s underwriting efforts was many multiples of what we bought.
This brings us to today's topic - the investor mindset. Simply said, my job was to vet real estate investments and to figure out whether the risk-reward profile of a transaction met our criteria. A limited partner is put in a very similar situation every time they review an investment for themselves.
I would like to spend some time thinking through the process that helped me be successful at STORE, with the hope that it'll help you apply some similar principles when analyzing your own investments.
It is easy to getting bogged down in the details of a transaction, but many times it’s even more important to “zoom out” after all of your analysis (recommend top 15 syndication mistakes on this point) in order to look at the investment as a whole – both the good and the bad parts.
You should think about investments as a muscle – the more transactions you see, the easier it’ll get to compare investments and get to a decision. Although the below (and many of my other articles such as the three pillars of LP investing: Execution, Alignment of interests, Property) are meant to shorten the timeline of your practice, there’s simply no shortcut to educating yourself and doing the reps.
Alright, let’s dive in:
1) Healthy dose of skepticism
It is always a good idea to assume that someone passed on a deal before it got to your inbox, regardless of your relationship with the counterparty. 9/10 times this is actually true, and even if it isn’t true it’s generally a good principle to stand by when investing.
A few related corollaries that are generally true, in a probabilistic sense:
The "exclusive" opportunity to invest was blasted to hundreds of people and rejected by at least one person before you saw it
When someone tells you that you were their first call, it's usually not true (sorry, but this statement is true across a large enough sample size)
Most "off-market" deals aren't truly off-market