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And of course the response that sometimes from LPs that are just

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unfortunately a little bit clueless is, “well, that’s okay, like it’s just gonna accrue and

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I’ll get paid later”. And the problem is like you’re right on the first part, it does accrue.

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On the second part, you might not get paid later.

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[Music]

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Welcome to the TCO method, the only show focused on helping you massively increase your net operating

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income. I am Andy McQuade, thank you so much for tuning in to this special interview episode

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with my guest Aleksey Chernobelskiy. He has this insane background that I’m gonna read off right now

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and you guys are gonna your brains are gonna melt. All right. So currently Aleksey is advising LPs,

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limited partners, right, investors on existing and future investments specifically, probably mostly

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syndications, but we’ll get into that. He writes weekly on his substack called lplessons.substack.com,

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write that down to 1500 investors so far that list is constantly growing and he helps explain

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how to do your research to vet and how you need to think about your LP investments in your portfolio.

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He helps GPs, general partners, on matters relating to LPs like how to frame capital calls and he

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provides feedback on their investment decks. Prior to doing all of this crazy advisory work, he ran

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store capitals $10 billion commercial real estate portfolio, oversaw the firm’s underwriting team,

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and his educational background is nuts. He graduated from the University of Arizona with a quadruple

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major which just makes my eyes bleed thinking about it because I’m that ADHD guy that just, no,

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that’s not happening. Finance, mathematics, economics, and accounting. So,

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born for Excel spreadsheets and numbers. Now I’m just kidding.

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You’re not wrong. Aleksey, thank you so much, so much for joining me. I appreciate it. Your

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background is insane and there’s there’s a saying in life that I that I adhere to is if you’re the

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smartest person in the room, you need to find another room. I don’t know that there’s a room that

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exists where you wouldn’t be the smartest guy in the room. So, what do you do with that? That’s

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nuts. I can tell you I’ve been in many, many rooms where I wasn’t by far and those are the best rooms.

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I remember actually, when I got interviewed at the store, I met the founder, Chris Volk.

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After about a five minute interview, he said, “I think you’re going to be one of the smartest

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people here.” But before that, he went through a bunch of examples on the business and to be candid,

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like I understood probably 50% of it. So, I came out of the interview and I just told my wife,

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like, called my wife right away. I said, “I’m not sure if I’m going to get that, but if I do,

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this is going to be amazing because I just love being around people that are much smarter than me.”

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I said, “Why?” So, I feel that completely. Thank you so much for joining me again and I,

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I guess the first question is, all this finance background, you could have done anything on anywhere

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in corporate America and you chose real estate. How did that happen? Yeah, I mean, so I actually started

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away from real estate. So, I’ve more or less always been on the buy side. But really started with

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high-frequency trading. It means anything to you. So, like, algorithms. I did that in Israel. Then,

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I did a little bit of distress debt, a little bit of private equity and venture capital work for

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a family office in New York and then a little bit of consulting for the C-suite of Accenture.

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And then, I got married and that actually took me to Arizona. And so, although I’ve had quite a few

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experiences with real estate indirectly and sometimes directly, my first real real estate touch

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was at store capital. That interview that I was thankful to get enough for for. And I did pretty

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well there and ultimately, like you said, and running the portfolio that they had, I think by the time

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I left close to 3,000 properties, maybe 2,900 or something like that, all across the US. And

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there was a 20-person team that essentially looked at managing that whole portfolio of real estate

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assets all across the US, but also underwrote new ones. So, any new transaction that came in came

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through my team and my goal in every single sense of the word was figure out whether the risk reward

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makes sense on a given transaction. Right? Like, hypothetically, we had endless money as a public

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company to buy anything we wanted. But of course, the risk reward balance is really important because

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you want to buy things that are good for your shareholders and over a long period of time that ends

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up showing. So, my team was tasked with putting together investment memos. I sat on an investment

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committee and restructured a bunch of deals. So, yeah, it was like in a way, looking back. I mean, first

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of all, it was just a phenomenal experience and I learned a lot, but now that I’m in this new role,

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that I, you know, the new ventures that I found that I’m realizing how helpful that experience was

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in framing a lot of things that are right about today. Absolutely. I mean, your content is great. The

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Twitter and LinkedIn stuff that you put out is amazing and your sub stack has really taken off.

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How long ago did you launch that? And you’re at 1500 subs already? Uh, three months. I think now I’m at

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1760 or something like that. 1770, I can’t remember. That’s insane. Congratulations. That is awesome.

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Yeah, you know, it’s, it’s an interesting niche. I think there’s a lot of limited partners out there

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that really want to learn more. And I feel like it’s a very interesting balance of, of both being

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a very highly capitalized space. In other words, you have limited partners that have made tremendous

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amounts of money, typically in non real estate pursuits. And yet they generally don’t know what to

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look out for. Right? So I’ll have, you know, several calls a week that, you know, I, this is where like

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the entire genesis of the sub stack on my blog was I have calls with a bunch of people that either

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learn some harder or in lessons, right? Or they just call me about a new transaction. And they’re like,

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wow, I had no idea what I was doing. I didn’t know that this was a problem. I didn’t know this was

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a problem. And whenever I hear comments like that, I just think, well, chances are like a lot of people

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don’t know whether that’s bad or good. So I just write about it, you know, and so in a sense, a lot

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of my advisory work is obviously everything is anonymized. It’s all sort of content for me to

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just think about and help other people without mentioning the GP and without mentioning the LP, of

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course, or the deal even, but, but there’s, there’s a lot to learn from. Absolutely. I do the same thing.

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I’ll tell stories on the show. They have no idea who that customer was or what the property was I was

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talking about. Yeah. So I guess my, my next little block of topics that I’d like to cover are just

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very much related to everything you do. That’s why you’re on the show. And the audience is,

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we talked briefly about it, but the audience is largely made up of real estate investors. There’s

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not a lot of people who are listening to the show for anything other than that. And it is very

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much focused on helping people not light money on fire. I support that message. This is a little bit

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of a side trek for me because I don’t directly deal with the financials as far as underwriting deals

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or anything like that outside of the numbers have to work and they have to be realistic, like

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projecting five to eight to 15% red increases year over year for the entire pro forma period is

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insanity. And it’s not sustainable. And there’s never been an economic cycle that has supported it

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for longer than a few years. Yes, you strike all the irons hot, but you can’t just have it add

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infinitum and expect it to work out for you. Bad things will eventually happen, which is what we’re

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seeing now. So the last couple of years with Zerp and all the other stuff, a decade of bad policy has

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created the ability or did create the ability for a lot of companies to develop bad business models.

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And then stay afloat because capital was basically free. Now we’re seeing that kind of abruptly and

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painfully come to an end for many like we work, right? And, you know, is it mismanagement? Is it fraud?

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Is it willful ignorance? I don’t have those answers, but maybe you do. But the reality is that

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I am a firm believer that everybody has the right to be an entrepreneur and to go into business.

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And to make money and to be successful. Yeah. Just because you can doesn’t necessarily mean you should.

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So the what we’re seeing now is we’re seeing people, LPs largely who have been traditionally

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looked at as dumb money, right? Nor stupid money. However you want to say it. I’ve seen it

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reference that way multiple times. Not by you. You’ve been very polite about not framing people in

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a negative light for not understanding the investments they’re making, which is a very careful, very

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rocky road. And I don’t think I would do very well with that because I’m a little bit more blunt than that.

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But there’s this this this feeling that LPs and silent partners are not always the most business

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savvy. And that can be true. So I mean, what what are the biggest mistakes that you’ve seen? And I

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know you’ve written some amazing articles and made them free for people to read. But where are the

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biggest mistakes that you’ve seen from like, you know, 2019, 2020 till now that, you know, they’re

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coming knocking at the door saying, we don’t want to take this property back, but we’re going to take

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this property back. Like how how is that going? Capital calls, pause distributions, cash in, refice,

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what are we looking at as far as rescue capital and and the mistakes side?

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Sure. So I took a few notes. I’ll try to address everything kind of like maybe we’ll we’ll try to

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weave it together. And obviously you can stop me if you want to pause on something. So you started

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on run increases, which I think is an interesting topic. The way that I always like to explain the

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still piece is there’s nothing I genuinely believe this. There’s nothing wrong with assuming constant 15%

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running increases as long as the LP realizes that that might not happen. Meaning it could happen.

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And we’ve certainly seen it happen in some areas. And and there’s probably justification for it to

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happen in certain areas in the US for the next few years, which is don’t know that it’ll happen yet.

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So I never take issue with really any assumptions as long as the assumptions are sensitized. And

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as long as LP goes into an action understanding, what will happen if this doesn’t work out? And the

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way that I just kind of ties back into the biggest mistakes, probably one of them is not understanding

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downside catalysts. And and I always tell people, if you don’t have the time to do do do the

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diligence on a deal, you probably shouldn’t be investing. In fact, that probably I mean, I would say

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it’s stronger. I think you shouldn’t unless of course you have like direct real estate or investing

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experience. It’s very deep. And secondly, you should really take time to understand what let’s say

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three things can go wrong that will have the maximum impact on your returns. This is the the

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universe I deal with. And every single person that I speak to are extremely bright. And in some

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cases, I get calls, hey, I’m selling a business. I’m going to have $50 million liquid. You know,

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can you can you help me think through some stuff? And it’s like wow, like me, I mean, you’re dealing

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with people that are extremely sophisticated is just that they didn’t make their money through real estate.

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And and what they don’t realize is when they they they look at it, that and the deck says, you know,

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like look passive income, like you don’t have to do anything. It might even say 8% preff. But they

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forget that that the preff comes from the same LLC that operates the property. And the preff is

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only going to be paid if and when the cash is there. And sometimes the preff gets stopped.

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The preff still accrues, but I’m saying the cash disbursements can get stopped. And of course,

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the response that sometimes from LPs that are just unfortunately a little bit clueless is, well,

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that’s okay. Like it’s just going to accrue and then I’ll get paid later. And the problem is like,

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you’re right on the first part. It does accrue. On the second part, you might not get paid later.

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It just depends on what’s going to happen. And so so that framework of what I like to call it is

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verified and trust as opposed to trust than verify is pretty, it was missing. And the I don’t know

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how else to say it. I think people got excited and to be frank, some people made a lot of money in

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syndications over the past few years and and things got pretty exciting. So they just kept going.

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But you know, you don’t want to be there when the music stops.

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I think that’s what we’re seeing right now is the music has definitely stopped. And now there’s

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signs that it might be restarting, but we’re not going to get ahead of ourselves just yet. So when

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they’re looking at these deals and they’re trying to decide yes or no, I love the fact that you said,

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maybe if you don’t understand it, you shouldn’t be investing in it. That’s kind of kind of huge. And

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I think in all things, even real estate, people don’t know what they don’t know. Right? Half of what I do

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is highlighting things that other companies have done that have worked and you know, you see the light bulb

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go off and they’re like, oh, yeah, I guess that does make sense, but I never thought about it that way.

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Like, you know, it can be something stupid like change of batteries and smoke detectors. Well, how much

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does that cost you in labor every year? Oh, I didn’t really think about that. Okay. Well, it’s costing you

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a lot of money every year. Maybe you should go to something that you don’t have to change batteries

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in every year. Pay a little more now, save save over time. So when you’re, I guess advising people

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who are calling you and they’re looking at a syndication or they’re looking at an LP for different

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business venture outside of not understanding the numbers or not understanding that side of the

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business. Where are you seeing like the biggest red flags? Like, this is missing. And you know, if

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this investor had known this ahead of time or not been sold to bill of goods, like I don’t really

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want to talk about the fraud thing and the, you know, the improper advertising and the SEC crap.

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Like, that’s still to be decided and it’s going to be a mess no matter what.

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Let me let’s touch on fraud just for a second. I think it’s important. I think cases of true fraud

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are are pretty rare and and they’re scary, but again, I think the chances of getting into a real fraud

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is pretty minimal as long as you do what I would call like baseline to diligence. And I would even say

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obviously this isn’t a promise, but, but to the extent that someone looks at my, I have an article

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called like top 15 syndication mistakes is if someone looks at that article, they understand everything

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in there, which is, you know, written pretty simple English. If you don’t understand anything

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that’s in there, then I don’t think you should be investing. Now, if you do and you’ve sort of

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vetted all of those things, then I think the chances of a fraud are like very, very low.

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Anyone can do anything at some point, but like getting through those 15 things and not finding

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something is like actually pretty impressive, I think. And most deals will at least have one or

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three things on there that are perhaps borderline. And the way that I phrase that article was very,

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it was it was it was with a lot of intent. Like I don’t think those things that the 15 mistakes,

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so to speak are are not red flags because every single investment at the end of the day needs to

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be compared to other investments, whether it be real estate or something else. And I would, I called it

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is sort of 15 reasons to pause and think. In other words, if, if someone doesn’t have a

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track record, that’s okay. You should just know that they don’t. And, and something else,

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so to speak, or else equal has to compensate and make you comfortable. So, so I mean, that’s a little

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bit on front. I think the reality is that and I’ll go into, you know, the, the second topic that

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you mentioned in a second, but where where things get pretty difficult is what I would call a

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poor alignment of interest mixed with ignorance. Like those two things can become pretty dangerous.

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In other words, we’re not talking about cases of people misappropriating funds. We’re just talking

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about people that are either ignorant or overly optimistic or an experience, sometimes a

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combination of all the three. And to dumb to get in to get out of their own way. Yeah. And, but in a

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sense, like, I actually, I have a lot of respects for people that that try things, especially now that

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I’m like, I’m starting a business. It’s hard. You know, and, and I have a lot of respects for people

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who try things. But I think there’s a big difference between trying something and being transparent

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about the fact that you’re trying something and trying something and sort of like pushing out

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a totally different image for marketing purposes. There’s a lot of that. Yes. Yeah. Yeah. And, and I

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think the best way I think I can answer your, your biggest mistakes question just as a function of

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what’s happening today. What’s the common thread across people that I’m advising that you have

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either lost all of their investment or some of it or getting capital calls. I think probably 75% of

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it has to do with alignment of interests. And, and 25% of it has to do with just vetting the sponsor.

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So, and I wrote pretty lengthy three three pieces of, of, you know, the path that I suggest for folks to

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follow. It might surprise some people that the last one, the number three of three in its

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in order is the property. In other words, when you’re investing in this indication, in my opinion,

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the last thing you should look at is the property you’re investing in, which might sound like insane

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to some people, but I think in many situations you’ll get through one and two and actually not even

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get to the property because there’s so many things that you have questions on or uncomfortable with.

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Now, number one is execution, which, you know, many topics to discuss there, but more or less,

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that’s like, that’s a pillar that revolves around can they actually execute, right, which is partially

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track record, partially trust. If you are there things that I mentioned, right? So, there was

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definitely a lot of that missing, like people just said, yeah, look, this guy seems like a nice guy

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and or a gal and look at them, like they’re trying to help the housing problem, like why should I

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trust them? And I think my argument could be like the exact opposite, like, why should you trust them?

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And until someone has performed, there’s no reason why you should trust them. And I think that’s

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normal, you know, they might be nice and they might have a nice smile and whatever and talk nicely

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and dress nicely. By the way, like, while we’re on the topic, they might also have lots of followers,

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they might also like be very famous, they might be a family member of yours, but all of those reasons

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are not reason to invest or trust someone, they’re just what I would call a reason to look into the

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transaction, right? And those things should not bias you to invest. Now, the second pillar is what I would

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call alignment of interest. And that that touches on a lot of different topics, but broadly speaking,

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it’s co-invest i.e. how much is the GP investing alongside the LP? And then the other thing is the

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waterfall. In other words, what happens if things go south? So, so the first thing is a co-invest,

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in other words, like how much money do they have at stake? How does that relate to their sort of

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net worth as a person and is it a meaningful amount? And then second is, okay, so now that I know that

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they’re invested, what practically happens to the economics if things go south? In other words,

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who gets paid first? What happens? Is there a return of capital clause, which is like a whole topic,

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I can spend a lot of time on? Because I was shocked to see that some some agreements don’t have it in

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there, but I think that is a big theme and the is people forget that this is a transaction, but

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in investment, investments are risky. Sometimes things don’t work out. And the best thing you can do

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for yourself is to know that if things don’t work out, you’re being taken care of by someone who’s

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incentivized to do something about it, right? And those incentives and those conversations have to

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happen to be zero because as soon as they one begins, it’s already too late and like they can just

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stop answering your emails. Yeah, the ink is dry at that point. They have your money. You’re just

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going to deal with what you get. Yeah, it’s too late. You know, there’s always the horror stories,

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right? To every every story has two sides and there’s the doom and gloomers, you know, catastrophists,

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and the everything’s fine rainbows and sunshine and butterflies and rose colored glasses, whatever.

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The concern that I have is seeing people getting into these syndications and being like, oh, it’s

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real estate. It’s a safe investment because there’s an asset. Well, you’re an LP. Is there an asset?

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Really? For you? Maybe? Maybe, but maybe not. Maybe it’s just evaporates, right? Maybe there’s nothing

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for you. Oh, well, I can claim depreciation on my taxes. Do you have reps? Are you a full-time

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real estate professional doing more than 750 hours a year, doing more than 51% at that property? Can

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you claim depreciation? No, but you think you can because you listen to 15-second snippets on

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LinkedIn or on Instagram where they say, hey, join my thing and this is what you can take advantage of

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in very specific circumstances. Maybe if you’re lucky, you can make all that stuff work out as an LP.

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However, not understanding the deal is the crux of a lot of these issues, I think. Yeah, so I think

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two comments there. I think you subtly mentioned courses, join my thing. My courses might

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me use letters. I always try to remind people that all of those things are great. I have no problem

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with them. I think with anything though, an investor needs to be mindful of conflict of interest.

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In other words, if an industrial GP is telling you that a multifamily sucks, that might be true,

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or they might just be sort of like diverting your capital to an asset class that they happen to be

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a GP in Winkwing. If a multifamily owner tells you, oh my gosh, there’s such a housing crisis,

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we’re going to help solve it. I have general thoughts about that as a comment, but putting that aside,

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that also is like that sort of like an appeals to emotion, and it happens to be that the person

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that’s telling you that is also like multifamily’s indicator. Now, again, I have no issues with that.

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And some of those comments and type off the seas that are being made are true and they’re well

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thought out, but as an investor, you just have to, again, like I like to say pause and think,

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and be like, what am I being told, and what is the bias of the person in front of me?

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So I just think it’s important to think about those things. And as far as taxes,

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I mean, I see some decks, and actually I’m in the middle of writing an entire article on

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the hidden, what is it called hidden, hidden risks of property benefits? I think it’s the name,

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property tax benefits. Yeah. It’s a good name. If you know anything about it, it’s a really good name.

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And so I think to your point, oh, I see a lot of people get into things, oh, like I’m going to,

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I’m going to have a crazy W2 year. I’m going to offset my income. And so many things happen,

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like a GP forget to do the cost tag or doesn’t do it on time or perhaps to your point, like they

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don’t have any passive income, which is different than your W2 income. I didn’t go on and on.

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I mean, I have like a whole article on this. I think people just forget that, you know, tax benefits,

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they’re great, but they’re, they’re not always free, right? And I think it’s important to go into

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a transaction with, with a solid perspective of what could happen. I agree. And I think that’s

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hugely valuable what you’re bringing to everybody is it’s, it’s giving them information

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that maybe they don’t have a source for because they don’t have a lot of real estate contacts, right?

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Browse LinkedIn for five minutes and scroll your feed. If you’re connected to real estate people,

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you’re going to see airline pilot that’s helping people invest in real estate as a syndicator.

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You’re going to see doctors, you’re going to see dentists, you’re going to see lawyers, you’re going to see

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all these different people working W2s having great careers, focusing on helping those other people

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come into the fold so they can make some money while still working their W2, you know, draw a check,

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be an LP, do all this other stuff. It’s great, except for these are not people who are real estate

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natives either. So you have to trust the source and how do you do that when they don’t have a vetted

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background, right? So for me, it’s a red flag when I hear people, you know, on Instagram or whatever

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being like, oh, tax benefits own real estate. Oh, well, even if everything falls apart and the

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investment fails, you still have an asset. You might not actually. And you need to follow the money.

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That’s what I tell people all the time is when you’re listening to somebody who’s trying to sell you

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something, when you’re you’re listening to somebody who’s doing a podcast or doing a whatever,

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what’s their goal? Why are they doing it? Where’s the money going? And why do they want you to

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be involved or why are they pitching this to you? It always comes down to where’s the capital?

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Where is that money going to be? And how does it influence them? When we hear these nightmare stories

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of the people who are getting into these syndications and getting into these investments,

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and now there’s capital calls and the capital call is, I think it might have been one of your

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examples where the capital call is, we need you to give us another X number of tens of thousands of

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dollars. So you might get 40% of your original investment back or you get 100% of nothing.

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Those are the situations that now people are going, oh my god, I had no idea. I need somebody to

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scapegoat and blame. So I want to do this SEC lawsuit or I want to do this lawsuit or grant cardone is

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great big asshole, whatever it might be, how do people, if they’re not involved in real estate and

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they’re bad at Google, right? Because obviously a lot of people had to have been bad at Google because

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this is not something that’s new. This is started, the snowball started 12 months ago in some cases.

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Where should people be looking other than Lplessons.substac.com?

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Thanks. Let me touch on a few things here. So I think you mentioned twice now like the idea of

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real estate being a safe asset class. I probably hear this at least once a week from people that are

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way wealthier than I am. And on the one hand that blows my mind, on the other hand, I have like a real

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dialogue with them. Like they’ll tell me, hey, I feel like this is a really safe investment,

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and a pretty solid way for me to make 15%. So what I tell them is, can you can you see a path where

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it won’t be safe? And most times Andy, the answer is not really like, I don’t think I can lose money

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because it’s an asset and if something goes wrong, I can sell it to which I of course, I just continue

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the dialogue and I’m like, okay, but like what if they sell and it happens, it happens to sell for

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less than you bought it for and maybe it gets sold for around, you know, your dead basis. And then they

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start thinking and they’re like, oh, so you mean to say like asset prices don’t always go up? It’s

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like, well, yes, you know, partially depends on cap rates, partially depends on NOI. Both things could

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change. And in fact, you negatively, the reason why I’m telling you this is like, this is a very

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common. I mean, sometimes you’ll hear like, well, everyone needs to place the lives so therefore,

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it’s safe, right? And as a comment that isn’t entirely false, like meaning there’s demand and that,

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but of course, you know, you and I know that like, there’s a lot of things that can go wrong,

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one of which as we’ve learned obviously is just high leverage and floating rates, but there’s

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a bunch of other things. A quick comment on Google, since you mentioned it, I always recommend people

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to Google the GPs that are involved and understand whether they’ve been involved in anything that they

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should know about. And honestly, I always say like 50% of the time, there’s nothing wrong with

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lawsuits by the way, like they’re part of business, but but sometimes you’ll see lawsuits like right

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there on Google, second result that are pretty big and potentially questioning, you know, the

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ethical nature of the GP. At which point, again, I think of this as investments, right, risk

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rewards. So like your risk just went up because of the execution variable, there’s something else

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compensate for it. Are you willing to take on that additional risk of this article or lawsuit

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being true? Maybe it’s false, but you should at least know that it’s a thing. Another thing I mentioned

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is just this pretty prolific to be honest, idea that like a W2 worker will get, you know,

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their other doctor friends, dentist friends, attorney friends, sales friends, and like, you know,

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you know what I mean, you know, I think there’s probably one of these for every field. In principle,

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I have zero problems with that. I think it’s great because it like exposes more people to the idea

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of real estate investing and those benefits where I start to have a problem is when incentives are

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misaligned. So the question is always what is that person doing? Many times they’re not actually buying

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the property themselves. They’re like putting together a fund that essentially becomes like a fund

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of funds that goes or special, you know, SVV that goes into the ultimate GP’s equity position,

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right? Either on the GP side as a coin vest on the GP or more often as LP capital, where I think

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this goes a little bit haywire is like you always as the ultimate LP, right? In other words,

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there’s like, there’s the GP and then in between us is like the person that you’re speaking to and

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then you’re like over here. And the question is like, what value is this middle person bringing to me?

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If you feel like the value is really there, then fine, if you feel like they’re properly

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vetted the deal and then they have the experience to do so and the compensation that they’re receiving

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for your capital, which they often do and many times it’s not as close, then fine, no problem.

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But but where things go wrong and I’ve actually advised on a few cases like this recently where

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someone invested through a fund of funds and now like the GP is in the stress, the ultimate GP

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and the fund of funds is essentially just pointing fingers like we don’t know what to do like we’re

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not in control, but but we’re not in control, but we still need you to fund the capital call and

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it’s due on Friday, but we haven’t really talked to the GP and we don’t know what the plan is.

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So that’s like that’s a pretty real additional risk layer because you’re once that

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removed one additional step removed from the GP. And again, if you feel like you’re getting the

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benefit of of whatever fees and potentially double promote et cetera, et cetera that you’re

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paying than great, but also don’t be clueless and I assume that like people are just doing this for

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free. That happens a lot. I have seen it personally. So yeah, there’s some interesting ones that I’ve

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had a backseat to watch sort of disintegrate, not as an investor, thank God, but just through the

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being surrounded by real estate people 24/7, it is a it’s a mess and it’s amazing to me how many people

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will invest with someone who has zero ownership stake in the success of the property or of this

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indication. You’re giving these people tens of tens and hundreds of thousands of dollars in some

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case and the guy you’re trusting to make this go has zero incentive after acquisition to make it work.

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Why are you giving them money? And I would just add one more thing, not just incentive but control,

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like those two are different things. In other words, someone might have an incentive through like

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a piece of the promote of the GP or you know, something or perhaps they take some of your proceeds

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as an LP, but incentives don’t really matter in downside scenarios. What really matters is like,

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can you actually do anything? And in 99% of cases, fund of funds are completely helpless. This is

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like getting technical, but like manage your removal clauses and like, what do you do? And by the time

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you can do anything, it’s usually too late, which actually, another thing I wanted to just comment on

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as lawsuits, you know, when things do disintegrate, I think people have this idea that, you know,

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look, if something goes really haywire, I’m just going to sue the hell out of these people. Yeah,

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not legal advice and I’m not in turn. But just from what I’ve seen, this is much harder than people

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think it is. I think if someone wants to sue, just to sue, no problem, right? But you have to keep in

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mind that generally speaking, the probability of monetary benefits out of a lawsuit are pretty small

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when you consider the fact that like, by the time that your property is doing not well, there’s also

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a chance that the GP is not doing well. And if the GP is not doing well, like, there’s not much

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money to pay you, they can just file bankruptcy. There’s so many different things. And obviously,

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anyone can sue, but really what matters is like, what is the probability of you winning?

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Actual dollar amounts. And unfortunately, many cases when things go south, like the answer to that is

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zero. Yeah, blood from a stone. That’s a more or less, yeah, a very real result in a lot of this.

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And if you’re only in for 50, 80, 100,000, what are you going to spend on legal fees,

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unless you can somehow figure out how to class action it or something and split costs between

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multiple claimants? Like, where is the capital to support that going to come from? Because it’s

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probably not going to come from the sale of the building, right, or the property. And I mean,

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it’s a mess and it sucks because people are being, you know, in some cases, take an advantage of,

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in some cases, it’s just getting in trouble for being dumb money. Like, he just don’t understand

356
00:37:36,320 –> 00:37:40,640
the nature of the beast that you got yourself into. Yeah, you know, and this is a whole,

357
00:37:40,640 –> 00:37:46,720
it’s probably a whole topic, but just quickly, I think there’s obviously delicate balance between

358
00:37:46,720 –> 00:37:53,120
like, what a GP has to disclose and how much they need to, the responsibility, right? What are

359
00:37:53,120 –> 00:37:58,880
the responsibilities of a GP and the responsibilities of an LP? Like, this is a very interesting,

360
00:37:58,880 –> 00:38:05,600
in my opinion, ethical discussion. And I’ll just give you one example. Like recently, I spoke to someone

361
00:38:05,600 –> 00:38:13,440
who invested in a ground up development. And the Dex said that there’s an 8% pref, and the guy just

362
00:38:13,440 –> 00:38:19,200
assumed it’s current. So like, a quarter in, he’s like, hey, like, where is my first dividend?

363
00:38:20,080 –> 00:38:25,840
I was expecting it to like pay something like, like, meaning he was going to take that money and use

364
00:38:25,840 –> 00:38:30,960
it for, for personal needs. And the GP just kind of looked at him. He was like, are you like,

365
00:38:30,960 –> 00:38:35,520
great, oh, and a nice way, obviously, but he was like, this is a development. This money is a

366
00:38:35,520 –> 00:38:41,200
cruel thing and will pay it to eventually, or current when we can, but like, you’re looking at a

367
00:38:41,200 –> 00:38:46,720
piece of land. There’s no cash, right? So in, in succumbence, like, that, it’s interesting because

368
00:38:46,720 –> 00:38:52,880
it’s like, well, I think that’s like an Alpizor responsibility at that point. But you could also say,

369
00:38:52,880 –> 00:38:59,280
maybe the GP Dex could have been a little bit more clear, right? So it’s a very interesting

370
00:38:59,280 –> 00:39:04,400
discussion. Yeah, just in that case, you know, as a real estate guy, I look at that and I go, of course,

371
00:39:04,400 –> 00:39:08,320
it’s a piece of land. It’s not going to cash flow, right? Because I’ve been around construction

372
00:39:08,320 –> 00:39:12,480
my entire life. I know how construction loans work. I know how they structure those. I know how the

373
00:39:12,480 –> 00:39:17,040
inspection cycle goes. You’re not getting paid because there ain’t no draws. Like, there’s nothing

374
00:39:17,040 –> 00:39:24,080
happening right now. There’s no cash flow of any kind. Yeah. Yeah, but I think the question of

375
00:39:24,080 –> 00:39:31,520
responsibility is interesting. Yeah, because to an extent, you can say, well, DLP should have known,

376
00:39:31,520 –> 00:39:37,200
what were you thinking, right? Is one approach? And another approach is like, well, the deck

377
00:39:38,000 –> 00:39:43,440
wasn’t entirely clear, you know, it could have said, yeah, it’s 8% per ref, but here’s what we’re

378
00:39:43,440 –> 00:39:50,960
planning to pay in terms of cash flows. You know, so it’s a balance. And look, I ran a 20-person team

379
00:39:50,960 –> 00:39:57,440
that made, I mean, we probably looked at, I don’t even know, 30, 40 deals a week. And like, many of those

380
00:39:57,440 –> 00:40:02,720
ended up being investment memos. And I can tell you like every single deck had some sort of mistake,

381
00:40:02,720 –> 00:40:07,680
just like little things, formatting things or whatever. Like, it’s difficult to produce a lot of

382
00:40:07,680 –> 00:40:12,560
stuff. And many times you’re in a rush. And there’s nothing wrong with that. You come to investment

383
00:40:12,560 –> 00:40:17,360
committee and you discuss, and it might be 90% done. And that’s better than waiting a few more days,

384
00:40:17,360 –> 00:40:22,240
but having it 100% done. And that’s okay. Yeah, that’s okay. But then it sort of falls on,

385
00:40:22,240 –> 00:40:27,680
back in my day, it was like the investment committee, including myself, questions, some of the things

386
00:40:27,680 –> 00:40:32,560
inside. And now in our case, what we’re discussing, it would be the LPs, like you need to ask, like,

387
00:40:32,560 –> 00:40:38,560
hey, is this 8% starting immediately? Yeah, there’s a lot of assumptions in gray areas, I think, because

388
00:40:38,560 –> 00:40:42,560
when you’re in it and you’re working at all the time, it’s just second nature that, oh yeah, well, I’m

389
00:40:42,560 –> 00:40:47,680
not going to see a penny of that until there’s actually somebody occupying the property, right?

390
00:40:47,680 –> 00:40:55,600
It just goes without saying for us. Yeah. But you know, for a doctor or a dentist or an airline pilot,

391
00:40:55,600 –> 00:41:01,920
they have no idea. Hopefully they read the fine print in the 144 page contract that they signed.

392
00:41:01,920 –> 00:41:06,320
Maybe not. Most of them probably didn’t, unfortunately. And if they did read it, they’re not lawyers.

393
00:41:06,320 –> 00:41:10,480
So they probably couldn’t translate most of it into English anyway, right? To your point,

394
00:41:10,480 –> 00:41:15,520
many of them don’t read it. I think it’s a really good idea to read it just at least for an educational

395
00:41:15,520 –> 00:41:20,240
perspective other than just you’re signing up for a contract. But what’s a little bit more scary to

396
00:41:20,240 –> 00:41:26,160
me is sometimes they’ve actually used attorneys and the attorneys, I mean, they probably read it,

397
00:41:26,160 –> 00:41:33,040
but they didn’t catch like the completely off market terms in certain circumstances. And that

398
00:41:33,040 –> 00:41:40,400
makes you wonder like if the LP can’t catch something, I’m not talking about the acquisition fees,

399
00:41:40,400 –> 00:41:47,440
3% instead of 2%. I’m talking about like 6% or in some cases higher, I’ve seen. And again,

400
00:41:47,440 –> 00:41:52,880
nothing wrong with that. But at least going into it, you should know like, hey, I’m kind of

401
00:41:52,880 –> 00:41:59,360
paying a high acquisition fee, but I’m okay with that because X, Y and Z, no problem. But the reality is

402
00:41:59,360 –> 00:42:06,960
many LPs got into stuff, not understanding that. And the attorneys who I think should be seeing

403
00:42:06,960 –> 00:42:12,720
a lot of these things and presumably know what market is also don’t know. So the way they like to

404
00:42:12,720 –> 00:42:18,960
describe it is a typical LP, a client of mine is like a dentist sitting in his like, you know, lunch

405
00:42:18,960 –> 00:42:26,320
break room, looking at a deck, calling me like, hey, is this market? Is this market? And without me,

406
00:42:26,320 –> 00:42:32,000
perhaps there’s a few other doctors sitting around the room and they’re discussing it amongst

407
00:42:32,000 –> 00:42:39,200
themselves, but their purview, so to speak, is very limited to other things that they’ve seen.

408
00:42:39,200 –> 00:42:46,080
And that’s interesting, you know, because when you don’t see a lot of different deals, you’re not

409
00:42:46,080 –> 00:42:50,880
really sure what’s market. So it’s like, well, who cares about this 6% like I don’t even know if that’s

410
00:42:50,880 –> 00:42:56,320
market or not. Let’s move on. It’s a good deal. Yeah. But they don’t, you know, the guy saying that also

411
00:42:56,320 –> 00:43:01,440
doesn’t know how to run the numbers and how to look at a pro forma or how to look at how a

412
00:43:01,440 –> 00:43:06,720
trailing 12 could possibly, if it’s already existing, how a trailing 12 is going to maybe not be

413
00:43:06,720 –> 00:43:11,840
completely honest right off the get go. Right? Because there’s no extent, you don’t get to see the

414
00:43:11,840 –> 00:43:16,800
extended due diligence that the GP is going to do on acquisition. You’re not going to see whatever

415
00:43:16,800 –> 00:43:21,360
third party property manager that comes in that’s going to just use bubble gum and paint to hide

416
00:43:21,360 –> 00:43:25,520
all sins and try and get this thing occupied for as cheap as possible while they’re pocketing the

417
00:43:25,520 –> 00:43:32,240
extra fees. Like I’ve seen all sorts of nightmares involving people coming in and saying, oh, well,

418
00:43:32,240 –> 00:43:38,320
it’s a 2% acquisition fee. Well, the fine print actually says it’s 2% of the total acquisition cost,

419
00:43:38,320 –> 00:43:45,600
including the bank funds, but not the 2% of the money coming from the LPs. They’re actually

420
00:43:45,600 –> 00:43:49,840
taking like 10 or 12% of the LPs money because they’re not taking any of the bank money. They’re

421
00:43:49,840 –> 00:43:55,920
taking all of that capital out of the LPs. I’ve heard that horror story. Are you kidding me? How

422
00:43:55,920 –> 00:44:02,080
do they get away with that stuff? So acquisition fees generally are a percentage of acquisition

423
00:44:02,080 –> 00:44:07,440
price like the purchase price, which to your point would include the debt. But that’s, that was a

424
00:44:07,440 –> 00:44:12,400
topic of one of my earlier posts because I think people don’t understand like to your point, a,

425
00:44:12,400 –> 00:44:17,920
many of them think that the percent is part of equity and they just don’t, I mean, they just can’t,

426
00:44:17,920 –> 00:44:24,960
they don’t learn that it’s not ever. And another part is they just don’t understand like the

427
00:44:24,960 –> 00:44:34,160
impact of paying, let’s say, a 6% acquisition fee on 80% loan to value deal is insane because like

428
00:44:34,160 –> 00:44:42,560
that 6% isn’t really across your 20% of equity. It’s across the entire stack. So it’s, you’re actually like

429
00:44:42,560 –> 00:44:50,400
day one, you’re in the red by a lot. You know, in some cases like 20%, 30% and of course, again,

430
00:44:50,400 –> 00:44:56,320
no problem with that as long as you’re aware. And you know that like you’re in the red, but I’m going

431
00:44:56,320 –> 00:45:01,120
to make up for it by X, Y and Z and that’s why I believe in the deal. I’m okay with that. But many

432
00:45:01,120 –> 00:45:07,520
people just from my experience just don’t, don’t realize that. No, I think, I think that it’s a lot of,

433
00:45:07,520 –> 00:45:12,000
oh, real estate’s awesome. It’s stable. There’s an asset. I can do this. I can do that. And they don’t

434
00:45:12,000 –> 00:45:16,320
know the rest of it because everybody’s, oh, by a house, it’s stable. It’ll help you build, you know,

435
00:45:16,320 –> 00:45:21,600
build wealth for your family and generational wealth and all this other stuff. But if you’re not,

436
00:45:21,600 –> 00:45:29,360
if your name’s not on the title or on the lean, you really don’t have an asset until you do. And

437
00:45:30,320 –> 00:45:35,840
some people don’t know how long it takes to actually get there. Yeah. Yeah. And look at the end of the,

438
00:45:35,840 –> 00:45:40,640
it’s a big investment spectrum, which is another thing that I try to remind people of for whatever

439
00:45:40,640 –> 00:45:46,320
reason, sometimes people think like if I don’t invest in this, the GP is not going to contact me again,

440
00:45:46,320 –> 00:45:53,600
I’m too afraid to ask questions. And it’s like, look, the worst thing is, you know, so to speak,

441
00:45:53,600 –> 00:45:59,600
put your money into treasuries at 5%. Yeah. And wait until you get the next deal or meet some other

442
00:45:59,600 –> 00:46:08,880
folks, it’s okay if you miss it, nothing will happen. And the cost of making uninformed decisions is so

443
00:46:08,880 –> 00:46:17,840
much more painful than missing a 20% IR deal and instead putting your money into a 15% IR deal, which is

444
00:46:17,840 –> 00:46:23,040
was, you know, another topic of of mine that I wrote about like if just give you an example, like if

445
00:46:23,040 –> 00:46:28,800
you lose 50% of your capital and then you take that capital that you got back. In other words, you

446
00:46:28,800 –> 00:46:34,400
know, you invested 500 K, you got 250 back after they, you know, made some mistakes and then you go

447
00:46:34,400 –> 00:46:41,680
invested at 8%, which is, you know, risky capital, right? Because it’s more than what you can get risk

448
00:46:41,680 –> 00:46:46,960
free. In other words, it’s not so simple to just get 8% without any risk over a long period of time.

449
00:46:46,960 –> 00:46:54,640
But let’s say you can. So that needs the compound for nine years for you to just get back to your 500 K.

450
00:46:54,640 –> 00:46:59,440
And I think people just don’t think about that sometimes. It’s like, well, it’s not going to be me.

451
00:46:59,440 –> 00:47:04,640
It’s not going to be me, but sometimes it is you. And when it is you, it’s like really painful.

452
00:47:04,640 –> 00:47:11,520
What I think people do have very right about real estate being a safe asset is that it actually should

453
00:47:11,520 –> 00:47:18,000
be pretty safe in a sense. In other words, if you invest correctly, the downside should be very

454
00:47:18,000 –> 00:47:24,160
limited because your upside is it’s not limited. No one is going into real estate to 10X or 100X.

455
00:47:24,160 –> 00:47:29,440
Like that’s a venture capital type very speculative investment real estate is not meant to be that way.

456
00:47:29,440 –> 00:47:36,560
So if you know that your upside is capped at let’s say it’s not capped officially, but like what’s

457
00:47:36,560 –> 00:47:43,600
on average over five years, your two X your money, like that’s really good, right? So if the best you

458
00:47:43,600 –> 00:47:49,680
can do is two X, so to speak, then you should you should be pretty sure that like the the probability

459
00:47:49,680 –> 00:47:55,520
of you losing your money or losing a substantial amount of your money is pretty low. Yeah, absolutely.

460
00:47:55,520 –> 00:48:01,840
Well, I think again, you know, the last 10 years of maybe 15 depending on who you talk to,

461
00:48:01,840 –> 00:48:09,120
but Zerp really crushed the ability for I guess you’d call it natural selection to do its work.

462
00:48:09,120 –> 00:48:15,680
People with bad business models without controls without, I mean, I’ve talked to operators who haven’t run

463
00:48:15,680 –> 00:48:22,880
a cap X reserve in six years because they didn’t need to because they could just get a note for 3%

464
00:48:22,880 –> 00:48:30,400
and finance it for nothing. Well, those days are over. So the business models that worked maybe

465
00:48:30,400 –> 00:48:35,840
aren’t going to keep working. And I guess this is probably a good transition point because we’re

466
00:48:35,840 –> 00:48:42,960
getting up on on time is the Fed announcing potentially three rate cuts. I personally think it’s

467
00:48:42,960 –> 00:48:47,680
politically motivated to some extent. I don’t like either party. I say that on my show all the time.

468
00:48:47,680 –> 00:48:53,120
One side likes to stick the knife in your chest a full 12 inches. The other party likes to stick it

469
00:48:53,120 –> 00:48:59,280
in your back six inches. They’re both assholes. So don’t trust anything because it’s all about

470
00:48:59,280 –> 00:49:03,840
getting reelected and they don’t give a crap about what really happens in the real world. So let’s

471
00:49:03,840 –> 00:49:09,280
get that out of the way. If they do three rate cuts next year, great. People are literally like

472
00:49:09,280 –> 00:49:14,800
popping champagne who are specifically in real estate, specifically GPs and syndicators. And I’m going

473
00:49:14,800 –> 00:49:20,480
have you guys learned nothing from the last 15 years like we’re paying the piper now. There’s so much

474
00:49:20,480 –> 00:49:26,960
that could possibly go wrong and read a news report from December of 2007. This is very, very familiar

475
00:49:26,960 –> 00:49:33,600
to me. You know, coming like I had just exited doing stuff for a lumberyard working with single

476
00:49:33,600 –> 00:49:40,480
family home builders to go to a place that was focused on DIY and single family renovations and,

477
00:49:40,480 –> 00:49:46,320
you know, eventually turned into multi family for me at the home depot in 2007. I left in September

478
00:49:46,320 –> 00:49:52,080
and took that job specifically seeing the writing on the wall. So I am scared right now that this

479
00:49:52,080 –> 00:49:57,440
irrational exuberance is going to spiral because two things can happen. Everything can work out,

480
00:49:57,440 –> 00:50:03,040
soft landing, great no recession, everything picks up. And then what happens if we get hyperinflation,

481
00:50:03,040 –> 00:50:10,080
what happens if we see inflation start to heat up again, what happens if all of this craziness that

482
00:50:10,080 –> 00:50:16,880
is now costing people money, pause distributions, capital calls, all this other stuff, business plans

483
00:50:16,880 –> 00:50:23,040
built on a lack of understanding of fundamentals and then investors investing in those deals based

484
00:50:23,040 –> 00:50:30,080
off of this irrational exuberance. People were about to pay the piper and have a come to Jesus meeting

485
00:50:30,080 –> 00:50:34,160
and now they’re throwing parties and drinking and it’s like dude it’s been three and a half hours

486
00:50:34,160 –> 00:50:40,080
and you’re already celebrating right. This is we’re recording this on December 13th and I can’t

487
00:50:40,080 –> 00:50:45,120
believe the amount of insanity I’m seeing. It’s like they forgot the last 12 to 18 months of pain

488
00:50:45,120 –> 00:50:49,520
that they’ve been through and at the end of the day if it’s three cuts it’s going to be a quarter

489
00:50:49,520 –> 00:50:55,360
point to one point all in. Maybe there’s some opportunity there to restructure and make things

490
00:50:55,360 –> 00:51:02,400
less painful. I don’t know that there’s a way for these people who are celebrating to unberry

491
00:51:02,400 –> 00:51:07,760
themselves. 1%. It’s a lot of money when you’re talking about tens of millions of dollars,

492
00:51:07,760 –> 00:51:14,000
but it’s 1%. I don’t think it’s going to move the needle. I don’t think we’re going to see 3.9%

493
00:51:14,000 –> 00:51:19,040
any time in the next 18 months, but I don’t want to prognosticate either. I just think that it’s

494
00:51:19,040 –> 00:51:25,600
insanity based on just the last 12 months of crying and survived till 25 and now it’s

495
00:51:25,600 –> 00:51:35,040
but it’s a party. Yeah, look, I’ll make two comments. So one, I think for the in terms of the good

496
00:51:35,040 –> 00:51:42,480
news, right? I think there’s really two things going on. One is obviously the rate cuts if they do

497
00:51:42,480 –> 00:51:48,800
happen, I think we’ll have a somewhat direct impact on what the banks borrow at and therefore

498
00:51:48,800 –> 00:51:54,720
it should all else equal trickle down to borrow and cost to real estate operators who are, you know,

499
00:51:54,720 –> 00:52:01,040
presumably planning to refi or need to refi or whatever. That to me, to your point is actually,

500
00:52:01,040 –> 00:52:07,120
it’s a subtle point. I don’t see that as being very good in the grand scheme of things. I don’t

501
00:52:07,120 –> 00:52:14,080
like it’s certainly positive. Rade’s going down is helpful. I think what’s potentially a bigger theme

502
00:52:14,080 –> 00:52:20,160
at play is just people getting more comfortable with the risk. So what has happened, especially in

503
00:52:20,160 –> 00:52:26,400
the lending world over the past year and a half is lenders are just so uncertain about the future

504
00:52:26,400 –> 00:52:31,920
that the spread that got to a point where like you effectively just couldn’t get alone to make

505
00:52:31,920 –> 00:52:39,520
anything make sense. Now, I think what will happen on top of lowering rates is the fact that

506
00:52:40,160 –> 00:52:48,160
at some point you’ll see a tightening of that spread and therefore things will become even more

507
00:52:48,160 –> 00:52:54,000
affordable. And that I think combined with the lower rates actually could have a pretty deep

508
00:52:54,000 –> 00:53:01,120
effect in terms of the securitization market, CNBS markets, people will lack of a better word is

509
00:53:01,120 –> 00:53:09,920
come back to play where everyone else, until now, has been on vacation more or less pretend

510
00:53:09,920 –> 00:53:16,560
lending if you will. So those two are the good news. The bad news is like as I always like to say,

511
00:53:16,560 –> 00:53:24,480
I think any GP or LP for that matter unless perhaps you’re an economist yourself or something.

512
00:53:24,480 –> 00:53:31,120
I just don’t think the real estate game is a game of predicting rates. Certainly it impacts the

513
00:53:31,120 –> 00:53:37,280
business. Certainly you should sense his values to understand how things could impact your investment

514
00:53:38,160 –> 00:53:45,600
both for the good and the bad. But if you’re getting into a rate sensitive bet at some point,

515
00:53:45,600 –> 00:53:49,920
I mean, the sounds brutal, but it’s like at some point you might as well just go trade rates. Like

516
00:53:49,920 –> 00:53:59,920
why play rates through real estate go trade rates? If you are so convinced that something is going

517
00:53:59,920 –> 00:54:05,760
to happen, take that bet and make more money with it, you know, seriously. It would make a lot of people

518
00:54:05,760 –> 00:54:10,560
a lot happier compared to some of the insanity that I’ve seen for the last couple of years and now all

519
00:54:10,560 –> 00:54:14,720
of a sudden it’s like they’re drinking champagne. I’m like, are you guys out of your mind? Look, I mean,

520
00:54:14,720 –> 00:54:19,120
I think they’ve learned nothing. I think part of it is, you know, they just had like a rough 18 months.

521
00:54:19,120 –> 00:54:27,520
But with your point, you know, I think there is like probably a balance, you know, to not overselibrate.

522
00:54:27,520 –> 00:54:31,840
Yeah, I’m a big believer in the conservative underwriting and the numbers having to work. And if

523
00:54:31,840 –> 00:54:36,160
everything, if the only way a deal works is if everything goes right, the deal is never going to work.

524
00:54:36,160 –> 00:54:42,160
Yeah. Like that’s how I look at everything. Like when I do any type of money lending on storage or

525
00:54:42,160 –> 00:54:47,040
whatever, I want to see the business plan. Like the asset’s great, but I have the asset, right? I

526
00:54:47,040 –> 00:54:51,120
want to see the business plan to make it worth more. So I make sure I’m not going backwards. And if

527
00:54:51,120 –> 00:54:57,760
the numbers make sense and you pay me on time, I’m happy. It’s not rocket science. I guess we’ve

528
00:54:57,760 –> 00:55:03,600
covered a ton of stuff. And thank you so much because this is huge. And I have learned more like my brain

529
00:55:03,600 –> 00:55:10,960
actually hurts now. My question, I guess there’s two of them. The first one is, what haven’t we touched

530
00:55:10,960 –> 00:55:17,120
on that you would like to touch on? I want first of all, in a minute, we’ll get to how people can find you,

531
00:55:17,120 –> 00:55:25,280
email you, we’ll talk about the sub stack again. But GPs, where should they be? Because I know you’ve

532
00:55:25,280 –> 00:55:31,520
done a bunch of specifically very recently, advisory for GPs, putting together decks, putting together

533
00:55:31,520 –> 00:55:38,880
capital calls, doing all of this stuff. What should they be trying to do other than, don’t be shady,

534
00:55:38,880 –> 00:55:44,880
don’t be a scammer, don’t promise things you can’t deliver? Like, what should they be doing right now?

535
00:55:44,880 –> 00:55:50,960
I think the best answer is that it’s just be transparent. You know, the worst thing that can happen

536
00:55:50,960 –> 00:55:58,720
to a GP in my opinion is figuring out the status of your investment through someone else. I think that

537
00:55:58,720 –> 00:56:04,240
just sort of discredits the GP. And I think if you’re transparent and you communicate, well, I

538
00:56:04,240 –> 00:56:09,680
can’t tell you how many capital calls I’ve seen that essentially say, you know, I even tweeted about

539
00:56:09,680 –> 00:56:14,800
this and some people thought it was a joke, but it’s not like capital call templates nowadays are essentially like,

540
00:56:14,800 –> 00:56:21,360
hey, everything is going great, happy holidays. And then the second sentence is, we need some more

541
00:56:21,360 –> 00:56:28,480
money for this project. The third sentence is, we are putting together a plan of how we’re going to

542
00:56:28,480 –> 00:56:34,800
use this money and we’ll send it to you over the next month. And then the last sentence is, here are

543
00:56:34,800 –> 00:56:42,080
the wiring instructions. You have until Friday or you’ll be deluded. Goodbye. And it’s like, wow,

544
00:56:42,080 –> 00:56:49,120
like seriously, like how did you even come up with that? And now, you know, partially, I think,

545
00:56:49,120 –> 00:56:54,000
like a lot of this is sort of like last minute decision making, people are freaking out. Perhaps

546
00:56:54,000 –> 00:56:58,320
they don’t have enough information, you know, in the case of like fund to funds and stuff, like

547
00:56:58,320 –> 00:57:03,360
there’s a lot of things that could happen. But at the end of the day, communicating well and

548
00:57:03,360 –> 00:57:07,360
communicating early, I think we’ll go a long way, especially during challenging times.

549
00:57:08,080 –> 00:57:16,560
I don’t disagree. A big red flag for me too is when they point the finger immediately to a property manager.

550
00:57:16,560 –> 00:57:21,120
Oh, the property manager screwed me or the property manager is mismanaging. We’re going to fire them

551
00:57:21,120 –> 00:57:26,240
and we’re going to replace them. Okay, well, cool, but who’s in charge of making sure that they’re

552
00:57:26,240 –> 00:57:29,520
doing their job? And how do you know the next guy is not going to do the same thing? Like,

553
00:57:29,520 –> 00:57:34,320
I’m not a big fan of the finger pointing in the blame. Like, there’s the buck stops here kind of

554
00:57:34,320 –> 00:57:40,160
thing. Like, you need to own it. So I’ve seen a lot of people not owning anything and it’s scary because

555
00:57:40,160 –> 00:57:43,920
I think those are the people who are going to end up in the lawsuits. Yep. Absolutely.

556
00:57:43,920 –> 00:57:52,160
The next and final thing, Aleksey, thank you so much for the time you’ve taken. Where can people find you?

557
00:57:52,160 –> 00:58:01,120
And what is your overarching message for the audience, for anybody looking to invest in a syndication,

558
00:58:01,760 –> 00:58:09,200
or do any type of business deals in this environment right now when we’re seeing kind of the worst

559
00:58:09,200 –> 00:58:13,840
to the worst float to the surface? Because it’s always the best the worst stories that make the news.

560
00:58:13,840 –> 00:58:18,480
Right? And it’s never that happy stuff for the stuff that worked out. It’s or maybe this isn’t

561
00:58:18,480 –> 00:58:24,320
going great, but it should be okay. That won’t make the news. It’s the nightmare scenario where

562
00:58:24,320 –> 00:58:28,320
everything is on fire and people are just losing their butts and getting zero back.

563
00:58:29,040 –> 00:58:37,600
Yeah, so I mean, I’ll say broad statement is if you don’t know how to do diligence properly

564
00:58:37,600 –> 00:58:43,760
or don’t have time for it, I don’t think you should be investing. And I’ll stand behind that all day.

565
00:58:43,760 –> 00:58:51,920
In terms of the point that I’m trying to make, you always have to take a step back. There’s two ways

566
00:58:51,920 –> 00:58:56,720
to view everything. In other words, on the one hand, there’s blood on the street, so to speak right now.

567
00:58:56,720 –> 00:59:01,200
Another hand, there are truly some great opportunities that I’m seeing once in a while.

568
00:59:01,200 –> 00:59:05,680
And for those opportunities, like you have to have capital available, you have to be active,

569
00:59:05,680 –> 00:59:10,720
you have to know some GPs if you want to invest as an LP. And that’s pretty important,

570
00:59:10,720 –> 00:59:16,240
you know, to get yourself out there and just not feel like you have to invest in the first deal that

571
00:59:16,240 –> 00:59:21,280
you see, you know, like nothing will happen if you say no politely. And also, like just one less

572
00:59:21,280 –> 00:59:28,160
thing is you mentioned, you know, only some things come on the news, right? And I actually have a

573
00:59:28,160 –> 00:59:37,040
pretty interesting opinion on this, I think what you see on the news is a GP X, Y and Z gave back

574
00:59:37,040 –> 00:59:43,680
their properties to the bank. Okay. What you don’t see, what I see, the LP who calls me and says,

575
00:59:43,680 –> 00:59:50,800
“Hey, I invested a million dollars into this. I don’t really understand what this notice is about

576
00:59:50,800 –> 00:59:56,160
some capital call, like what does that mean?” And “A, I have to explain to them what a capital call

577
00:59:56,160 –> 01:00:02,000
means,” which isn’t, you know, my favorite thing to do. But “B,” once I like look into the information,

578
01:00:02,000 –> 01:00:07,040
I also have to explain to them that the existing position is worthless. And of course, going back

579
01:00:07,040 –> 01:00:11,200
to our conversation earlier, it’s like, well, what do you mean worthless? Like it’s an asset,

580
01:00:11,200 –> 01:00:16,800
can’t you just sell it? Like, you know, and you’re forced to have this conversation. So the reality,

581
01:00:16,800 –> 01:00:20,480
I think the reason I’m telling you this is like the reality is both ways. Like you don’t see a

582
01:00:20,480 –> 01:00:27,760
lot of like great publication about, “Hey, like I invested as an LP,” you know, let’s say,

583
01:00:27,760 –> 01:00:34,640
I invested in 10% of the deals that I see. I’m very selective. And here’s my returns over a long

584
01:00:34,640 –> 01:00:40,880
period of time. Here are GPs that are good. Like, there’s nothing out there. It’s like an extremely

585
01:00:40,880 –> 01:00:46,640
opaque space in terms of like the good news and the bad news, right? So that sort of like the

586
01:00:47,280 –> 01:00:52,160
the world, at least that I’m trying to address is like to make the space a little bit more transparent.

587
01:00:52,160 –> 01:00:56,400
In terms of where to find me, you know, I have a pretty unique name. I don’t think it’s that

588
01:00:56,400 –> 01:01:04,080
difficult. I mean, I write probably most consistently on Twitter. And Substack Twitter is like more

589
01:01:04,080 –> 01:01:09,760
short form. Substack is more long form. I would recommend people to check out like the top 15

590
01:01:09,760 –> 01:01:14,880
syndication mistakes article as a as a first start. And if anyone wants to email me, it’s just my first

591
01:01:14,880 –> 01:01:22,480
name at hey.com. Aleksey@hey.com. And just educate yourself. Please, like, you know, like,

592
01:01:22,480 –> 01:01:26,560
it doesn’t have to be through me. It can be through books. Something just just don’t, you know,

593
01:01:26,560 –> 01:01:34,640
make investment mistakes after spending so much effort in saving money. Yeah. You’ve earned the money,

594
01:01:34,640 –> 01:01:40,960
make the money work for you. Yeah, actually just sorry, just really quickly, he just made me remember

595
01:01:40,960 –> 01:01:47,920
something like I think a credited investor status is something that I have like a strong opinion on.

596
01:01:47,920 –> 01:01:54,640
I think it sometimes gives people this false illusion of being an investor. And it’s not that they’re

597
01:01:54,640 –> 01:01:59,760
not like they do have the status, right? But they might not know anything about investing. And what I

598
01:01:59,760 –> 01:02:05,760
found at least through my work is generally speaking the same trades that make someone really wealthy

599
01:02:05,760 –> 01:02:11,920
can actually translate to like pretty bad behavior on the investing side because you take risks.

600
01:02:11,920 –> 01:02:16,960
But notice that when you’re taking risks in an operating business, it’s risks that you,

601
01:02:16,960 –> 01:02:23,600
A, you control and B, you sort of like at least somewhat understand, right? Because you’re in this

602
01:02:23,600 –> 01:02:30,240
business. And then they sort of take that similar risk behavior, risk-taking behavior to like

603
01:02:30,240 –> 01:02:36,640
LP investments and they start like yoloing across a bunch of deals. And you know, sometimes it doesn’t

604
01:02:36,640 –> 01:02:41,840
end well. You know, so in some sense, this is kind of strange, but I have this theory that

605
01:02:41,840 –> 01:02:47,520
like almost the same character trades that make you really wealthy can actually like make you lose a

606
01:02:47,520 –> 01:02:53,760
lot of your money. I don’t disagree with that. Aleksey Chernobelskiy, thank you so much for coming

607
01:02:53,760 –> 01:02:58,720
on The TCO Method. I do appreciate your time. I want to do this again at some point. Yeah,

608
01:02:58,720 –> 01:03:03,360
I’m pleasure, Andy. Thank you so much for having me. Anything we can do to get the word out about your

609
01:03:03,360 –> 01:03:11,440
sub-stack, about what you’re doing for LPs and GPs, it’s hugely important, hugely valuable. Nobody

610
01:03:11,440 –> 01:03:17,360
else is out there doing it and beating the drum like you are. It is absolutely needed. I know that

611
01:03:17,360 –> 01:03:21,680
there’s some people out there who are very cranky that you’re doing it. I am not one of those people

612
01:03:21,680 –> 01:03:27,920
because I think that there has to be objectivity in business and the numbers have to work. And if you

613
01:03:28,720 –> 01:03:33,200
can’t make the numbers work, there’s no reason to do the deal. Everybody out in

614
01:03:33,200 –> 01:03:41,040
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615
01:03:41,040 –> 01:03:47,040
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616
01:03:47,040 –> 01:03:53,680
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617
01:03:53,680 –> 01:03:58,400
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618
01:03:58,400 –> 01:04:05,440
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619
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