Listen to the episode and read the transcript on the shownotes page to today's episode here.

I think the story needs to go back a little bit, right back to the beginning. I grew up as a young boy loving two things: technology, and property real estate. I did my first programming course when I was six years old.

I did my first real estate project when I was 13. I actually led the development ... I was sharing a bedroom with my brother, and I showed my folks how we could knock through the toilet and effectively create a second bedroom or third bedroom.

I've pretty much spent my entire life trying to marry the two industries together. Where did Wealth Migrate come from? First thing that happened was that my father did what we were all taught to do. He went to school; he went to university; he got a good job. He actually became a financial director of a listed company. He invested. He paid his taxes. He trusted the financial industry. Yet, when he passed away at the age of 59, he died broke. That was a really hard lesson for me to learn because I sat back and I was like, "Well, hang on ... He's done everything that we're all taught to do, and it doesn't work."

I, at a very young age, started to look for alternatives. When I did the math, 49 percent of the world's wealth is held in real estate, and yet only 12.9 percent of the world's population actually had access to that real estate.

Then, in the Western world, which is England, Australia, and America,  if you take that 12.9 percent, less than one percent of people actually retire wealthy at the age of 65. Quite frankly, for me, Adam, those stats are disgusting. Yet everyone keeps doing what they've been told to do - not only my father, but 99 percent of other people followed in my father's footsteps.

We decided to do something different. As I said to you already, I did my first project when I was 13; I did my first development when I was 19. I studied construction management, so I got into the building game ... In 1998, I did my dissertation on how technology was going to change the real estate, and construction industry. I then went to London, and I did my masters on the same topic basically 20 years ago.

I tend to joke with people ... People in real estate, and construction industry 20 years ago couldn't spell IT. Nowadays, it makes a lot of sense, but those days, no one ever considered that it would have an impact on those industries.

I basically worked for an Irish developer in London for five years, while I did my full-time masters, and I sort of grew ... On the side, we were already doing houses. We were doing houses in London; we were doing houses in South Africa. We were buying/renovating them.

I had a bunch of friends come to me, and say, "Well, how do we do this?"  At the age of 25, I realized I'd be the world's worst employee and I resigned, and set up my own company, which is called International Property Solutions, or IPS. Effectively, we helped people invest in England, Australia, America, and South Africa. Over the years, we helped about 2500 people invest in those four different countries - primarily houses and apartments.

I noticed three big gaps in the market. Firstly, the majority of people didn't have enough money for a deposit. Secondly, if they had the money for a deposit, quite often, particularly if they were wanting to go internationally, they would consider themselves sophisticated, and so they wanted to go into commercial, but then they didn't have commercial ... They didn't have that money for commercial. The third type of person had enough money and even experience, but then have no idea what country to go, or even how to get started.

That was the first thing that happened. Second thing which happened was, in 2008-2009, we obviously had the global financial crisis, and there was a significant opportunity particularly in London. There was an opportunity everywhere, but I was really in the London market.

You could buy buildings for 50p on the pound, and there was an opportunity in Wimbledon, which is where the tennis is in London, to buy 48 units. I just had one small problem - I had to raise £10 million. Now, what was fascinating to me is I could buy these 48 units at less than 50 percent of what they were sold six months before that, with a 12-percent net cash-on-cash return. It's like an absolute no-brainer. Yet I needed £10 million.

I ran around to my 2500 investors ... I couldn't get people to invest together. People were interested in buying one apartment, but they wouldn't buy the building together. That created enough pain to say, "No, we need to build a platform to allow people to invest like an institutional investor."

In simple terms, the very next year I met my co-founder, Hennie Bezuidenhoudt, who's 20 years my senior. We were in Bondi Beach in Sydney, and him and another US billionaire were buying medical centers. Here's me. I'd helped 2500 people buy houses or apartments. I have a honors degree and a master's degree and, without being arrogant, Cum Laude at both of them, and no one had ever told me to buy a medical center. I asked him, I said why a medical center? He said, "Well, think about it. No matter what happens in the world economy, people will always need doctors." I'm like, "That makes sense."

"Secondly, no matter what happens, doctors stay in their premises for a long time." I thought back to when I was a child and I thought, in my case, the doctors actually passed away, but the medical premises are still going strong. "The third thing is doctors are very good at being doctors but they're not accountants, so they find very good long-term favorable leases."

I literally thought about that. I was like, "That's Real Estate 101." You've got a tenant that is economically resilient; stays a long time, and signs a favorable lease. I couldn't believe it; it was so simple, and yet no one had ever taught me this.

I said to him, "How do I participate?" He said, "No, it's easy. It's just for friends, and family. They invested up to 5 million Australian dollars each." I was like, "Ah, okay, there's the catch." That company, today, has gone on ... It's listed on the Australian Stock Exchange. Today, it's worth over $700 million. When it started 10 years ago, it was $40 million.

I think I did one better. I actually built the platform, and we launched it - the first version of the platform  - in October 2013. Ever since that day, I've been investing alongside partners like that, but allowing people to participate and invest from ...

Originally, we started $100,000 dollars; then we got to $10,000; then we got to $1000. We're about to launch version five, which will allow us to get to $100. Our dream is to eventually get it to a dollar per person per investment, so that truly the 99 percent can invest like the top one percent.

The first one is whether they had an impact, and yes, they had an impact. They definitely had an impact. We were paying lawyers copious amounts of money to figure out how we could invest. We started off  [inaudible] already with the minimum investment of $100,000, because we were only dealing with the sophisticated, accredited investors.

Then, the Jobs Act came out, and it was quite interesting because I was dealing with just a normal lawyer, and what I mean by that is just the normal real estate lawyer. Even in October 2013, after the Jobs Act had already come through, I phoned him up, and I said, "Well, surely this allows us to do all of the different things?" They're like, "No, no, no, you can't.".

Then, Fundrise came on the scene, and then Realty Mogul, and I was like, "Well, hang on, dude. You're telling me that I can't do this, yet other people are already doing it." It had a material impact for us because it got a lot more clarity around what you could, or couldn't do, and things like getting 506(c)s, and broker dealers, et cetera ... It just made it a lot more transparent as to what you could, or couldn't do. Before, though, it was very murky as to what you were, or weren't allowed to do in terms of using technology to help people invest. That answers your first question.

Obviously that clarity is nowhere near as good as countries like England, where they've got a hell of a lot better in terms of explaining what crowdfunding is, and how it works, but it is actually ahead of countries like Australia that haven't even got out of bed yet, in terms of crowdfunding.

I'm talking about equity crowdfunding to put it in simple terms. England is the most progressive regulator in the world, and what was interesting is that they did it differently from everywhere else. In America, the regulator basically [pull out] the Jobs Act. It was quite draconian, and the intention was to sorta get everyone to play by the rules.

What they did in England, but did differently, they went out, and they found five platforms. They did a due diligence on those teams and those platforms, and they said, "Right, we're going to work with you for next year, and we're going to create the regulation with you." Because of that, only after a year or so - don't quote me exactly - 12 to 18 months, they then brought out the regulation, and any new platforms then have to comply with the regulation.

Read the transcript and listen to the episode on the shownotes page here.

My background is I've been in real estate since I graduated, since college. Being at Carlton, this is only my second job I've ever had. My first job, I worked for Prudential, when they had a realty group; when they used to own real estate. I was involved in the principal business of real estate at Prudential, and then I did mortgage loans for Prudential for about four years.

Then I came to Carlton and I've been here almost 20 years. Pretty much what I've been doing at Carlton is really focused on raising JV equity and debt for real estate deals; typically on the larger side of deals. It's hotels, office buildings, recapitalizations, like partner-buyout deals, developments. You pretty much name it, we've done it over the past 20 years. Like I said, typically, on the larger side, that's our thing, but we do do smaller deals also. For us, it's the same amount of work to do a big deal than it is a smaller deal so we really do the bigger deals.

Howard started Carlton. Howard's now passed away but I'm running things now. It originally was started as an auction company in '91.  We're doing a lot with the ROTC, and loan-sales-backed REOs and whatnot for the banks in the early 90s.

Then, in '98, Carlton sort of changed its focus to doing JV equity along with the debt because, at that time, Carlton realized that what the world didn't need was another mortgage broker. We had to figure out a way to make us a little different to everyone else. In '98 is when we changed the focus to JV equity, and it's when I came on board.

Throughout those years, I've been pretty much doing JV equity for trophy deals, like we did the recap of the General Motors Building for Harry Macklowe. We recapitalized Sears Tower, now called Willis Tower, for the owners, who, before they sold it to Blackstone, because Blackstone owns it now.  We brought in equity for our clients to buy the Bank of America Tower, at San Francisco.

Then, 18 months later, we brought in a buyer of the building to buy it from them, who happened to be Trump, along with his Chinese investors. They still own that building, as far as I know. It was a 1031 exchange that they did. We brought them in to recap, or sell that deal, so to speak. That's sort of how I got involved in what we do, but, like I said, our focus is JV equity.

Typically, we bring in an investor who typically invests in 80 to 90 percent, and it usually comes from one investor. It could be some sovereign wealth fund, or someone off the radar ... A high-net-worth guy, family office. It's typically one investor and they put in 80 to 90 percent of the deal.

Investors, typically, usually means you're syndicating it out to a bunch of people, or investors, or you may have one. If you get a hundred million dollars of equity, one guy puts in 10, one guy puts in 30, one guy puts in 50, and one guy puts in five. We don't do that. That's syndicating.

We bring in someone to do all the equity. What they are is they're like the entire LP. They're joint venture partners in a particular deal. They're buying an interest into a real estate deal. Our sponsor puts in 10 to 20 percent of the equity. After certain returns they get a promote. The LP investor is rewarding them for doing a good job and meeting their pro forma and doing all the day-to-day work. Everyone's happy because everyone makes the return that they want.

We do have a crowdfunding platform where it is individual investor equity, where they do put in $250,000 or so, per each. We tend not to focus on the $5,000 to $10,000, or $20,000 per person investors, on the crowdfunding site. Typically, it's 250, and more. That said, though, we probably have done three, or four deals, where we raise for example, I did a $55 million hotel deal/portfolio, in North Carolina, in Charlotte, and the Raleigh area, last year. We brought in investors from the crowdfunding site.

For us, it's still not big enough. Until we can get to a point, where we have to raise substantial amounts of money, we found that it's become too cumbersome unless you're a shop that manufacturers deals every day and you raise the money where it's like a manufacturing line. It's probably easier to do. For us, we focus on each deal and it's hard to raise $5 million for a deal and make any money. That's not our focus. Now, we've sort of gone back to focusing more on raising equity individually. We never stopped with it actually but we focused less on the crowdfunding than we were two years ago for example.

We also bring the debt along with the equity. We still do the debt; people rarely come to us just to do a loan. They come to us; they want the equity and the debt comes along with doing the deal. We basically raise the entire capital stack aside from what the sponsor puts in himself.

We tried crowdfunding because they changed the laws, so, basically when the Jobs Act happened it opened it up for a lot of investors and websites. It was more of a technology aspect to have individuals to invest more into real estate easier. We thought it could've been an opportunity and it is an opportunity for some groups. Some of these crowdfunding groups are very successful in doing this, but that's all they do 100 percent. They don't have it as a side business.

For us it's more of a side business and to really make it successful you had to put a lot of time and effort into it which, for us, as Carlton, didn’t make sense. We were making lots of money doing what we did before. It didn't make sense to put that on hold; stop raising $100 million of equity for a big deal and start raising $2 million for a small deal. Even though you can do it multiple times and maybe a little bit faster it just wasn't enough volume for us, personally, to make the money that we're used to making by doing crowdfunding deals.

That said, in the future it's the way the future technology is gonna be. It's definitely going to be an aspect. It's not there yet. I think there may be one company out there that focuses more on the institutional investors doing it through the crowdfunding type of business or platform or technology-based platform, but right now it's not really there for the bigger deals.

Right now if you have a billion-dollar deal no one's going to invest over the internet. It still takes a bigger personal relationship. We don't have that click, like on Amazon, where you buy something so quickly it's too late. People aren't gonna do that when it's a billion-dollar deal. You still have that personal aspect of it which is what we thrive in and we like that.

Eventually it will become more technology-based but at the end of the day I don't think a huge deal will be getting done through the internet without a lot of relationships and personal interactions with the investors and the sponsors.

On the deal I mentioned in North Carolina, in Charlotte – the hotel deal – we portioned off a small part of the deal to offer to crowd investors. It was a $55 million deal. I'm trying to think of the numbers exactly but it was around $2.5-$3 million was raised through crowdfunding. Then we had a fund from the West Coast do the balance of the equity and the sponsor put in their equity. Then the balance was debt.

In that scenario we did lay off some to crowdfunding and gave some to an institutional investor. We did do that and we will still do that in the future, but I will tell you, it just takes a lot of people. That was a lot of people in the mix. We did it in-house. We were running our crowdfunding site which we still have and we still use it. We're not as active on it as we were, but we did it in-house. We had a few guys here that really focused on trying to find the $250,000 investors to invest. That's what we did. It was all done in-house; we didn't outsource it to someone else.

Expected Returns

Obviously, the safer property types that investors are looking for is multifamily rentals. We're doing a few value-add multifamily rentals now in various parts of the country. Those deals pan out to mid to high teens and they're 14 to 18 percent - the returns they're expected to generate. If it's more of a core-ish type of multifamily you're in the low teens, say 12-percent IRR.

If it's a development deal it's 20+ percent IRR for multifamily. On hotel deals we're still seeing deals that are projected at 20-, to 25-percent returns because people view it as probably more that it's a riskier property type of the group; aside from condos, which are also a riskier aspect.

Some cities’ condo market is still very strong.  We're doing deals in Seattle and in California. It just still makes sense and those deals are making 25-percent IRRs and they're still selling. There's still velocity. The condos that get hurt the most in New York are really just the $10-million-plus condominiums; what they call, I guess, the Billionaire's Row in Manhattan, but there's still plenty of deals which are still happening today..

If you look at the price market, and the price per unit of a condo, today, the $1-, to $2-, to $3-million range, in New York, that's small. In the rest of the world, it's probably expensive, but, in New York, it's a small deal. There's still a lot of velocity for those type of deals. We're still getting deals done where the ultimate unit price is $1 to $3 million per unit because that still sells. $10 million units are harder to sell because it's a different market. That's the ones that are harder to capitalize unless you have a great project. There are some great projects which are gonna have the $10 million and up units but  they're irreplaceable locations and they're one of a kind. The fringey deals; those are the harder ones to capitalize in New York. Outside of New York we're doing other condo deals in Seattle and California which are on the lower end of pricing and there's still buyers for those condos.

Minimum Deal Size 

We do big deals. That's our MO but typically the minimum deal we would do is probably 50 million where we do the equity and debt. We have done lower. If it's an easier deal - we think we can get it done quickly - we could do a lower deal or if it's for an existing client we would do a smaller deal than 50.

Typically, retail people who come to us for equity and debt 50 million is our minimum. That said though it could be 40 if we can still do it but the bigger the better because the way we look at it is it's just as hard to do or the same amount of time to do a small deal than it is a bigger deal, so I really rather do the bigger deal because for us everyone makes more money and that's really what it's all about.