Getting Started With Smaller Deals To Gain Traction

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Welcome to How To Scale Commercial Real Estate our guest today is Glenn Hanson Glenn is the Found CEO of Colony Hills Capital with 30 years of multifamily experience managing complex organizations and is a creative entrepreneur his former CEO and chairman of a multi-million dollar company he Co-founded River Valley Investors Angel Investment Group Glenn has formerly invested in 25 varied startups 00 00 – 07 51 How to solve problems without litigation Glenn Hansen is an entrepreneur and started and funded 25 companies from plastics and manufacturing to aerospace FinTech banking medical and real estate Glen says that the key to success as an entrepreneur is to focus on a solution and not get angry or vengeance in litigation Glen s real estate company has scaled to 1 4 billion in assets under management 07 51 – 15 26 How to Avoid Litigation When Scaling Your Business Glenn shares that Stephen Covey s book Seven Habits of Highly Effective People was a key inspiration for starting his own business He ran his company using the seven habits of highly affected people and provided training to all of his direct reports He says that litigation is not worth the time money or emotional stress and recommends avoiding it by being prepared to just write a check He transitioned his business from an LP fund to a GP fund and raised 20 million dollars in the process They own all the assets of their GP fund and use it to acquire deals 15 30- 20 06 Tips in selecting your partners Glenn shares that it is important to carefully pick who you want to be a partner He adds to take note of contracts made sometimes there are trip levers where they only have the opportunity for them And as we scale there are always people trying to take advantage of the newbies coming in 20 06 – 21 46 Closing Segment Reach out to Glenn Hanson Links Below Final Words Resource Mentioned Stephen R Covey – The 7 Habits of Highly Effective People Tweetable Quotes How do you solve that without litigation The first thing you might wanna do is be prepared to just write a check and be done with it and move on So we approached it from the standpoint of litigation but we don t do it with vengeance or with anger We just do it as a tool to get to a solution – Glenn Hanson —————————————————————————- Connect with Glenn Hanson visit their website at www colonyhillscapital com Connect with me Facebook LinkedIn Like subscribe and leave us a review on Apple Podcasts Spotify Google Podcasts or whatever platform you listen on Thank you for tuning in Email me sam brickeninvestmentgroup com Want to read the full show notes of the episode Check it out below 00 00 00 Glenn Hanson How do you solve that without litigation The first thing you might wanna do is be prepared to just write a check and be done with it and move on 00 00 08 Glenn Hanson But this was too big We couldn t we didn t have that kind of cash Right So we approached it from the standpoint of litigation but We don t do it with a vengeance or with anger We just do it as a tool to get to a solution same thing with issues on the property Just focus on a solution 00 00 24 Sam Wilson Glen Hansen is an entrepreneur He started and funded 25 companies from plastics manufacturing to aerospace FinTech banking medical and real estate 00 00 44 Sam Wilson And today he s got multifamily real estate with 1 4 billion in transactions Glen welcome 00 00 50 Glenn Hanson to the show Hey thanks for having me Appreciate it Sam pleasure is mine in 00 00 55 Sam Wilson Every guest who comes in the show asks the same three questions which are where did you start Where are you now And how did you get there 00 01 01 Glenn Hanson Oh wow In terms of real estate or in terms of business 00 01 05 Sam Wilson Oh and I left one part out in 90 seconds or less wherever 00 01 08 Glenn Hanson you like All right So I started in a family business when I was out came outta high school and I latched onto that as a Machine tool maker And I grew that business with my brother from 73 and we sold it in 1999 and we grew it from nine employees to 400 00 01 29 Glenn Hanson Wow So it was significant in size As a result of that I retired at 47 2 years past my targeted retire Goal and bought a bell jet ranger helicopter flew around the country got bored And I called it my Winnebago in the sky And I got bored So I started funding startup companies in 2001 and did that progressively for several years 00 01 55 Glenn Hanson And then One of the companies I started was a roll up of pet cremator and that s where I was reintroduced with the concept of scaling a company and focusing on the segments of success that I found which is that the company can t go to China wildly profitable scalable doesn t need skilled labor and is recession proof 00 02 16 Glenn Hanson Multi-family investing apartments Real estate fit that formula So that drove me into the real estate business on scale We my wife and I we had bought two families for 20 years prior and never made any money at it aggravated with investors I mean with intent with the tenants So we never saw that as a place to go in business 00 02 40 Glenn Hanson We we learned about scale We learned about the industry my experience at up till 2008 when we started gave me the skills I thought to dig in and grow the real estate company So you 00 02 53 Sam Wilson started investing in multifamily in 2008 00 02 56 Glenn Hanson Is that what I mean Yes 00 02 58 Sam Wilson Yeah and that of course was right when everything was just going the markets were going south in in in a hurry 00 03 03 Sam Wilson I mean what gave you the confidence then to say Hey look I think this is an excellent place to be and 00 03 07 Glenn Hanson we need to be buying Yeah So 2008 September when I launched the business the Lehman brothers were still in business a few months later is when they fell apart and the world tumbled and as a result I had I was funding 25 startups 00 03 23 Glenn Hanson So I was feeding a lot of capital into multiple companies in different industries So I recognize that I didn t have enough B To maintain that And so some of those would have to be jettisoned or find their way without me And I had to find a source of significant capital to satisfy my lifestyle 00 03 44 Glenn Hanson And the pet cremation business I mentioned earlier was ongoing and I had operators there We sold that in 2016 but I was able to focus on the real estate business and what gave me the confidence was the experience in the past recognizing that recessions passed I never anticipated that the downturn was going to be what it was 00 04 06 Glenn Hanson So it was three years from the date I started until we bought our first deal And the first transaction was a 35 million dollar property And the irony there is we bought it out of receivership from General electric and they wouldn t even let me bid on it because I didn t have experience 00 04 26 Glenn Hanson So I said I may not have experience but I know how to run a balance sheet and the guy you took it from had experience and he failed So maybe you could gimme a shot So they said if I can if I could show proof of funds they would let me bid on it So anyways we did that and we got a shot and we won the deal 00 04 42 Glenn Hanson Wow that got us started Yeah that s a heck that s a big deal Heck of a 00 04 46 Sam Wilson first start I mean most people who are buying their first multi-family property don t start with a 35 000 001 let alone one in receivership obviously you got a significant experience in business but how did you know Hey this is even a good deal 00 04 59 Glenn Hanson Yeah So the first thing I did was I hire A fellow he s still with me today and he is a partner now but I hired a fellow that worked for a competitor in the area that had scaled a real estate empire to 25 000 units And he was an acquisition person for them And so he came on and he knew what to do 00 05 16 Glenn Hanson I hadn t I did not know it was his doing that created our success for sure 00 05 21 Sam Wilson That s amazing That s amazing Yeah You re bringing on talent from another another organization that has the industry experience to say Hey this is what we should be doing 00 05 29 Glenn Hanson Yeah Yeah And it s all about the team 00 05 32 Glenn Hanson Right And even today what we do I guide the team but I m not the expert in any segment They I ve got people that have come from the industry and know what they re doing 00 05 42 Sam Wilson Right That s amazing Yeah I think one of the words that you use or two words that you used before we kick this off was something you said programmatic scale 00 05 50 Sam Wilson Can you give 00 05 50 Glenn Hanson some more points to that Sure In my tool and dye business that I scaled to 400 people is statistically average size of the company And that industry is 10 10 people Wow And to give you an idea that what can happen and through the process and The disciplines when I say programmatic scale is that what you need to do is set the goals in place get the team involved and then believe your own story that you re going to do it 00 06 17 Glenn Hanson And then you have to talk it up share it with Other people tell people what you re going to do And what happens is the dream becomes bigger than life or the people involved including myself and you build momentum But inside of that building of scale you need systems and procedures and that s the hard part 00 06 36 Glenn Hanson And we re struggling with that today I mean we re we have significant amount of properties under management and we use third party managers We have to manage them tightly it s for us it s worked and we re in multiple states So it programmatic scale is what that s all about 00 06 55 Glenn Hanson What I just described keeping that into control 00 07 00 Sam Wilson Absolutely Absolutely Yeah I ve heard somebody say that it that problems never go away They just change 00 07 05 Glenn Hanson actually Yeah It s all the same Yeah Right Yeah Right 00 07 09 Sam Wilson I think every entrepreneur wants to solve all the problems on their desk and then it s like well by the time you make it to I guess you guys are at 1 4 billion in assets under management you re still going oh wait there s just 00 07 19 Glenn Hanson different problems 00 07 20 Glenn Hanson Yeah Yeah Well we don t have 1 4 billion under management We ve sold this We ve gone along Okay We have today we have about 500 probably 500 million Okay Under management but we ve traded And like I mentioned our average labor IRR is 37 on the portfolio so that s and no losses 00 07 40 Glenn Hanson Yeah 00 07 41 Sam Wilson That s absolutely fantastic I love that You you said earlier that that you have Really it sounds like developed a formula for success Can you talk to me 00 07 49 Glenn Hanson about that Yeah I can that started in 1991 when I read Steven Covey s book seven habits of highly affected people And I ran I started running my company using those strategies 00 08 04 Glenn Hanson At that time I had 27 direct reports and I trained all of them myself and the Procedures and systems and provided the manuals and the books that we all carried every day And we followed that discipline and that s the magic for me of being able to scale 00 08 22 Sam Wilson Got it When you think about your your over the course of your business career what are some things that maybe you didn t get right or that you did wrong that you could help other people avoid 00 08 32 Sam Wilson Repeating 00 08 33 Glenn Hanson Wow I did a lot wrong that s let me think of wrong 00 08 39 Sam Wilson or a mistake you made you said man I I could have 00 08 42 Glenn Hanson avoided that Well litigation I ve had litigation that I could have avoided and I would say that when I started this business my attorney told me he knows people in it 00 08 51 Glenn Hanson And the first thing they do is set aside a budget for litigation and it s too easy to get caught in the ego of litigation And I would Today My my view is run from any litigation Okay It s just not it s not worth the time money or emotional stress So that that s probably the most current I mean What else 00 09 12 Glenn Hanson What else can I share Well yeah I 00 09 15 Sam Wilson if you can give some color to that I mean cuz there are people obviously they re scaling their portfolios and when you say Hey set aside a budget for litigation is there and I m not asking for particulars necessarily but is there a scenario or something that you think of when you say that you say Hey here s a way either to avoid it 00 09 31 Sam Wilson Something you could have set up differently Was there was it just some of the crazy stuff where we here where somebody got shot on your property and then they 00 09 38 Glenn Hanson it ranges from property issues and more more directly to the financial community For instance we had a closing that a property didn t receive the 00 09 50 Glenn Hanson At close to pay the taxes from the seller So lean was put on the property by the state and we had to go back and get the seller to Give us the money They wouldn t do it So obviously that leads to litigation Right Got it So how do you solve that without litigation The first thing you might wanna do is be prepared to just write a check and be done with it and move on 00 10 12 Glenn Hanson But this was too big We couldn t we didn t have that kind of cash Right So we approached it from the standpoint of litigation but We don t do it with a vengeance or with anger We just do it as a tool to get to a solution same thing with issues on the property Just focus on a solution 00 10 28 Sam Wilson yeah that s great That s great advice Yeah And those are things that I mean some of those you just can t avoid It s like you 00 10 34 Glenn Hanson can t yeah 00 10 35 Sam Wilson They show up Yeah And that s that s really interesting when you said Hey just start setting aside a budget for it 00 10 40 Sam Wilson Cuz it s at some point when you get enough assets under management enough people enough property it s probably just bound to happen is what it sounds 00 10 47 Glenn Hanson like Yeah By the way I didn t say set the budget aside It was my attorney when I started the Told me that would be a good idea And I m thinking my brother and I ran we ran 38 000 contracts over 30 years 35 years 00 10 59 Glenn Hanson And we have one Indi indication one incident of litigation And that was it So I said we re not gonna have any litigation Well the real estate industry seems to attract it for sure Yeah So yeah beware 00 11 14 Sam Wilson Absolutely Absolutely And there are things that are beyond your control I mean there are people I gave earlier I ve known some people who ve had 00 11 21 Sam Wilson Violence that happen at one of their properties and suddenly yeah They re being drag into court and it s like wait I didn t I had nothing to do with this And yet here I am how did this how did I get here This is great Right So yeah that s wild You talk about talk to me about funds You guys have multiple funds that you re running now 00 11 38 Sam Wilson And I think earlier we talked about what you called seven years of struggle 00 11 42 Glenn Hanson Maybe yeah sure we started out seven years ago to raise 150 million in an LP fund And I hired a series seven employee that was came from a large institution had raised billions of dollars and she was unsuccessful and it was largely due to the fact that we were a first time 00 12 05 Glenn Hanson We couldn t get any traction and especially at 150 million dollars So along the way we tried different approaches and we failed And then along the way we we converted it to a GP fund and we lowered the amount that we wanted to raise to 10 million we were able to get traction on the 10 million from our own family and friends to get started and break escrow so that we could go ahead and continue the raise 00 12 31 Glenn Hanson And we raised 20 million for our first fund and that 20 million we bought 380 million worth of real estate So there we were able to as a GP take a GP piece right That s what the fund was We were able to leverage that money to a significant Amount of real estate So fund two which we re in the process of raising now is a 30 million fund same model 00 12 57 Glenn Hanson And we re at we d launched in January and we re at 15 million raised so far So what I learned from that is start small and make sure when you start you can hit your target even if it s 5 million And then that gets the confidence credibility out there I also learned that they re very expensive to manage 00 13 16 Glenn Hanson There s a lot of regulation around the administration and accounting So that s perhaps why people don t wanna get involved with somebody doing the first time fund is you don t realize when you start how much work it is outside of running the real estate empire It s almost its own to keep the fun 00 13 36 Glenn Hanson Going 00 13 37 Sam Wilson right Tell me the transition I just want some clarity around you said you started it initially as an LP fund and then said right That s not working Let s move it to a GP fund Yes Can you clarify 00 13 49 Glenn Hanson that for me Yeah So LP would be a different part of the stack capital stack than the GP So the GP fund funds only the GPS which has the higher risk and higher return 00 14 02 Glenn Hanson So our fund documents say that we re targeting a 20 25 internal rate of return and an 8 cash on cash So you can do that when you re in the GP stack So when you 00 14 16 Sam Wilson guys come in you re coming in cuz obviously if you set aside let s keep this easy numbers here and I m sorry if I m getting into the weeds on this but let s say it s a million dollar raise 00 14 24 Sam Wilson And just again make making this easy numbers That is the limited partners equity but then the general partners may be throwing in a half a million dollars themselves So that maybe they told And so you guys are coming in and so the total raise let s say it s 1 5 You guys are coming in as the 500 000 GP 00 14 40 Glenn Hanson side 00 14 40 Glenn Hanson Yeah we have to part The fund is considered liquidity We can use it s considered capital that we control but they still to this day they still want me and my partners to put money in the game Absolutely So 00 14 57 Sam Wilson with that fund are you guys going out and acquiring your own assets or is it something where you re working with other general partners to go and find deals 00 15 06 Glenn Hanson No that we own all the assets Got it Got it 00 15 09 Sam Wilson Okay Okay Yeah Very cool I like that And then also so so I guess on that front then how are you guys funding the limited partnership side Is that something where you re just going out and just raising One on investors one one at a time 00 15 21 Glenn Hanson Yeah So prior to this interview you sent me a list of asking me what s the hardest thing I ve ever done 00 15 26 Glenn Hanson Yeah And it s raising tens and hundreds of millions of dollars worth of capital for what we re doing today That is the hardest thing I ve ever done And we re we re out there We re hard on a deposit We don t have all the money yet and we ve got to perform and out of 37 transactions there s only one time we couldn t close 00 15 46 Glenn Hanson And so we ve we ve been successful but it is not easy Sam it s hard It is 00 15 53 Sam Wilson absolutely hard Yeah I think people underestimate that How difficult raising capital can be I always just say it s like herding cats It s getting everything done and across the finish line everybody signed everybody s money and everybody wired 00 16 05 Sam Wilson It s like man this is this is a lot like work 00 16 07 Glenn Hanson It is it is real work it s but yet after you get going it s it s the easiest thing I ve ever done once you re once it s operating Right I mean try running a machine shop with 400 people and 1800 custom parts That s pretty tough this becomes easy I guess at 00 16 24 Sam Wilson that point that s absolutely incredible 00 16 26 Sam Wilson Tell me about that one deal I m really curious What did you learn from the deal You couldn t get done 00 16 31 Glenn Hanson Yeah So we were working with aggressive money which we seemed to find occasionally not always they re disingenuous in terms of their their approach to you ve probably heard loan to own 00 16 42 Glenn Hanson Yeah So we ve run into some of those kind of Targets And we were short 1 8 million on a 36 million deal And the CapEx budget was 12 million So it didn t matter that we were short 1 8 we could have continued raising the capital after Sure But they wouldn t let us they they said if you don t have all the money we re not closing 00 17 05 Glenn Hanson So we couldn t close 00 17 07 Sam Wilson can you clarify that Who who wouldn t let you close I mean 00 17 10 Glenn Hanson certainly yeah the the partner the partner that was putting up the cash Right What happens is the game is once you sign with these guys they re exclusive So you can t go out and get competitive money while they re controlling your calendar 00 17 25 Glenn Hanson Right Got it So you get to the end then if they decide they don t wanna fund what are you going to do You haven t talk you haven t been able to talk to anybody else so you either better have 12 million bucks to Take their place If that s the number or yet you re forced to give up the deal Wow So well that s a 00 17 44 Sam Wilson risk 00 17 45 Sam Wilson I think we should all listen and learn and 00 17 47 Glenn Hanson avoid well that s the thing that I wanted to share with everybody is be careful who you pick as your partner When it comes to finance I mean you have to be sure they re genuine Number one number two are they are there Satan clauses inside their contracts that are gonna trip their are their trip levers where they re deliberately targeting an opportunity for themselves 00 18 09 Glenn Hanson And you wanna watch for that And as we scaled the business we got exposed to a lot of people And many most are fine but there s always somebody that s trying to take advantage of the new the newbie coming into the game 00 18 23 Sam Wilson Yeah That s a painful lesson learned I think like like I said a painful lesson learned the hard way 00 18 28 Sam Wilson I mean that nobody wants to be in that position How would you identify That money partner like that Now how would you pick em out of a crowd 00 18 37 Glenn Hanson Yeah you can see it in their term sheet When they send the term sheet over you can see the language will jump out at you If it makes you cringe in your stomach 00 18 45 Glenn Hanson Feel upset then you found it it shouldn t be that it shouldn t be hard Right right It should be It should be They want to do a deal with you They wanna make it work Obviously if you break certain rules or you can t pay your bills they ve gotta take over the property We get that Right 00 19 02 Glenn Hanson Right 00 19 03 Sam Wilson It ll be right there in the term sheet I like 00 19 05 Glenn Hanson that Yeah Yes You can see it You can see it right out of the blocks and then just guard yourself against it and don t accept exclusivity at that point for sure Absolutely what we ve been able to do is write in a breakup fee 00 19 18 Glenn Hanson And if we don t like it the way it feels as we get into it we pay the fee and find another partner 00 19 24 Sam Wilson Interesting A breakup fee That s yeah that that s very cool I love that Thanks taking the time to share that with us One last question here for you The markets are crazy Multifamily has experienced incredible cap rate compression 00 19 37 Sam Wilson We ve seen prices going wild Where do you see risk in the multifamily market right now if you see any and then how are you protecting your guides yourselves against that 00 19 47 Glenn Hanson Yeah I was a during my stint of retirement I traded my own book of business in commodities So I traded the indices and everything else you can imagine 00 19 57 Glenn Hanson And I learned that nobody knows where it s going to go Sure So I think the biggest risk is by not continuing with your business plan So we re still buyers We ve just found a better way to finance and it s we couldn t do The way we did three months ago we had to change the way we looked at the capital stack 00 20 13 Glenn Hanson But the risk is that people are pulling in their horns thinking the world is going to end And the reality is that people still need a place to live The Democrats or Republicans support housing and the interest rates will come down And as long as we re buying cash Which we are So what we just have to wait 00 20 31 Sam Wilson I like that I like that And that s that s what I keep hearing over and over right now is that as long as we re buying cash flow who really cares So that s absolutely fantastic Glen thank you for taking the time to come on the show today Certainly learned a lot It s been a a very interesting interview just from your history in the in the tool and dive business and growing that to as you called it programmatically scaling your real estate holdings 00 20 55 Sam Wilson You ve done some really cool things and and I think learned some hard lessons that you were willing to share with us today So thanks for helping us avoid those mistakes ourselves Certainly appreciate it If our listeners wanna get in touch with you and learn more about you what is the best way 00 21 06 Glenn Hanson to do that 00 21 08 Glenn Hanson Yeah Reach out to colony Hills capital com 00 21 11 Sam Wilson colony Hills capital com We ll make sure we put that there in the show notes Glen thank you again for coming on Certainly appreciate it 00 21 18 Glenn Hanson Yeah Thanks for having me I appreciate that too Take care Sam Click here to visit this podcast episode