How2Exit Episode 34: Deborah Smith - Co-Founder and CEO of The CenterCap Group, LLC.

Ronald Skelton  0:06  
Hello and welcome to the how to exit podcast where we introduce you to a world of small to medium business acquisitions and mergers. We interview business owners, industry leaders, authors, mentors and other influencers with the sole intent to share with you what it looks like to buy or sell a business. Let's get rolling.

Hello, and welcome to the how to exit podcast. Today I'm here with Deborah Smith. Deborah Smith is the co founder and CEO of the Center Cap Group LLC. And heads the firm's strategic capital mergers and acquisition and execution efforts. Prior to forming the center cap group, Miss Smith was the CO head and admin of m&a and senior managing director with CB Richard Ellis investors. Miss Smith has worked on mergers and acquisitions with Lehman Brothers, Wachovia securities Morgan Stanley, and she has been involved with more than $100 billion of mergers, acquisitions and restructuring transactions. Welcome Deborah, thank you for being on the show.

Deborah Smith  1:09  
Thank you, thank you for having me on.

Ronald Skelton  1:11  
You know, I want to start off by just commended you I understand what the industry you're in. And we talked about this on our previous conversation, the industry you're in is led by old white guys, right. And here you are like you own and we're worked with and own a boutique investment bank, because that's the best way to put it?

Deborah Smith  1:32  
Yeah, that is absolutely the best way to put it. 

Ronald Skelton  1:39  
Let's just jump in, tell us how you got into this space and how you like, the origin story side of things. Let's just start there.

Deborah Smith  1:42  
Sure, I'll work a little backwards. And we started the Center Cap Group in 2009, in the great financial crisis. We can debate whether that was a good or a bad idea. It's good, because we're still here. Bad, I think it could have been a lot easier if we started in a different time design than what we did. But in any event we did. And it was on the back of a belief that there wasn't enough advisors in this space, who understood real estate. The product itself, that there were many banks, and we were covered by many when we ran CB's global m&a effort. And we felt a lot of them are much more transaction oriented, they were very high level in their approach, and didn't approach it from the buy side. And we were approaching it from the buy side, we had just come from the buy side. And so we were making investments and deploying investors capital on their behalf. And so the decisions we made had real consequences. And so we wanted to leverage that expertise and our view of the world in a different way. And so we began the center cap group. You know, and coming into that time, pre CB we had, had worked at Lehman Brothers on on essentially re transactions in the public markets. So with that background, too, we didn't feel we could move into working with REITs on our own, A: because we didn't have a balance sheet and B: the the public markets were doing horrendously poor during the great financial crisis. So we ended up going on to the private side instead, and focused on capital raising, and the private context. And we focused on m&a, which was started out to be honest, and operators of real estate, but also investment managers, or folks who managed the real estate, and looked around and didn't see a whole lot of competition there. So it's let's give it a go. And over time, it has been challenging as we've grown the business for a variety of reasons. You know, just a big one where we're small. We were, you know, when we started, we had no office, we had no name, we had no space, we do anything. And we didn't have no resources. We were you know, some some women who decided to pave path their own way. And and over time we've grown and every year, we've gotten bigger than the year before. And as I tell my partners, our business has gotten more complicated than the year before. And today now we have three different business lines that capture all of our services. And and it's great, it's it's been, COVID has been horrible in many, many ways. But for the real estate markets, it's actually been very good for a variety of reasons. And so which is kind of led us where we are today. And I would say I still love this job as much as when I started, which was fresh out of college. I'm one of the few bankers that I still know outside of my two partners, that is still doing the same job from you know, for 25 years.

Ronald Skelton  4:37  
And I'm a huge fan of the underdog. So and I think it breeds and I'm a big fan of starting in a recession or something that being the underdog starting in a recession breeds a sense of perseverance and likely toughness, that will create some pretty amazing companies. You guys are doing remarkable stuff now, and a lot of that thing, you know, comes from being told you can't, or start starting in half and to solve things down solve things, that would would have been easier in an easier market, right? So, you know, now when the market turns and all these other guys that started in the soft market when things were wonderful, they're freaking out and thinking about shutting down, you've been there seeing that your skin's tough on it, you could just push right through it and move on.

Deborah Smith  5:24  
Yeah, and look, I think over time, you know, if I look back to when we started, and what we went through, I think we're out of our minds, honestly, we were totally crazy. And I don't think we fully, I'd love to say we were you know, super smart about starting your own firm and building it out. But it was more a case of what do we need to do if we're going to do this? What are we going to do now. And when we took in our first client, it's like, well, now I need a bank account. Now I need a company name. Now, you know, we need stuff, if we're going to give this a go, and we kind of just put the milestones in front of us, and progressed forward on the basis of, you know, I don't think we ever thought we couldn't succeed. I just, it just never crossed our mind. We were this is what we were doing, we've made the decision to do it. And this is how it was going today. And and I do think you know, I had grown up in the utility space at Morgan Stanley. And and I do think, you know, banking has historically been very male dominated. And it still is today, I look around at the top. And I don't see a whole lot of women, as clients that I work with, or even in the banking space in our industry at all. And I think about that quite a bit. But I also look around in the market and realize that, you know, as a result, sometimes we window, sometimes we won't, but we've had to earn it and to do it on our own merit. And, you know, we started this feminina 30s. And we've had to do it on the back of our own merit and be smarter than everyone else, work harder than everybody else have better ideas than everybody else in order to succeed. And, you know, I don't think either one of us were born entrepreneurs. I'm a banker. And I have figured out how to build a company, and how to run a company and you know, to get us to where we are today. And it's been quite a journey. But there's been plenty of times when I've thought, oh my gosh, I have no idea. I didn't know how to do that, or I've never even thought about it. And but it's there and it's in front of me. And I just got to get it done. And I just got to figure it out.

Ronald Skelton  7:26  
It's interesting, as in the real estate space, I had a friend of mine who she started her own brokerage and the in, that's kind of the what I call the good old boys club here, too. Right? If you're not one of the top, all the top brokerages here were traditionally owned by old white guys, right. And here's here's a young woman, you know, probably at this time, probably in her 30s 40s Starting a brokerage and was playing against the field, when she started getting some traction, they were given a hard time. I owned a real estate company that had quite a few listings, a little investment group. And so I called her up and said, Hey, switch, you know, switch over to be your own broker and get out of underneath that, you know, the brokerage is just giving you a hard time. And I'll give you 37 listings tomorrow. And that caused the wave. So I'm a huge fan of that. I love I love it. Let's talk a little bit about like, how real estate plays in the mergers and acquisitions. You know, there's there's a, I know, at my level, which is a lower level, you know, $15 million, low lower deals is the kind of the circle I fly in. And the people I work with are do the same. But it real estate plays a role at that level all the way up to you know, the billion dollar deals, companies own assets, companies own real estate. Let's talk a little bit of around. How does that play? And what does it change? We were talking some before we hit the record button. Let's kind of rehash what we did there.

Deborah Smith  8:54  
Sure. So real estate, I mean, there's two kinds that gets bifurcated into two kinds of wealth. There's the folks that actually own the property themselves. And their earnings as a result come from cash flow from the properties from NOI. And so then you're in the world of if it's a collection of assets, then you're looking at Cap rates, and you're looking at NOI trends. And that's if you own the real estate, which is how REITs operate, and how you know, Stanley offices or estates operate as well. And there's that value embedded the value of the company comes from the embedded of the assets you have. And then we can have an argument around platform value and the value of the management team, etc. On top of that, when in their investment management space, which is where we spend a lot of time as well as that world. It's the investment manager can manage $5 billion dollars of real estate but they don't own it. They just manage it and what they're doing is they raise institutional capital, and then they own a small piece of it, and then all of their earnings is coming from fees, whether it's Asset Management fees property management fees, could be acquisition fees, disposition fees. And so is fees drain. So as a result, the value of their earnings is actually from fees, it's not from NOI at all. And so when we talk about the bigger managers that are out there, that that's what that's how we're valuing them is we're looking at those fee streams, and they trade off multiples a lot of the time on their earnings, which is different than when you talk about cap rates or real estate properties, right. So even though they're both touching the real estate, it all comes down to how much of it that they own, of that real estate. And then if they're getting fee streams from it, that have a value that's attached to it. And then those fees streams, similar to cap rates, where a cap rate is based on the quality of the cash flows, if you have stronger cash flow, it has a lower cap rate, it's the same concept in on the investment management space, that the bigger they are, the more stable their fee streams are, the higher the multiple, they will command if they're looking for an exit strategy. So it's very different because a lot of people when they think have big, massive investment managers, and they have billions dollars of assets, it's quite possible that a company has is managing a billion dollars of assets and is barely breaking even. And that's what's really interesting, what when you get down into it, you just have to look at where the value for the company is coming from, whether it's coming from the asset, or whether it's coming from the services that you're providing to manage those assets.

Ronald Skelton  11:31  
You know, we talked a little bit about, like family offices and private equity groups that have accumulated a huge mass of real estate or hard assets like that, and how you guys are in the past or currently can take those and move those into an asset of their own under an investment manager.

Deborah Smith  11:53  
Yeah. Yeah. And that's it. We we have been talking about it for some time. And if you think about it, the concept of what we're talking about here is is rate roll ups of contributing your assets to a structure and then using it for growth is in many ways the foundation of the REIT industry. And we can go through many of the REITs in the public markets. That, that's where they came from, then you had, you know, you had a manager that had one property, and they they unmade that on top of it, maybe they're in all of it. And then there's another asset and other asset, but these are all separate into their own SPE's, that it's hard to, unless you're going to cross collateralize. How do you get the value of the portfolio itself that it brings, right on the basis that one plus one is three? And how do you do that in a tax efficient way. And so a lot of the conversations we're having with owner operators today, and they're owning a big portfolio of assets, either on their own behalf or for usually high net worth is usually high net worth investors is to contribute those assets into a REIT. And you take back OP units, so it's tax efficient, and then you don't trigger any taxes until the assets, you've moved them up, and you switch the stock into read stock and sold it. And so there are very tax efficient ways. Now, we can take those assets, put it in a bigger company, use that to raise capital, and to grow their business, right, in a very tax efficient way. And so it's an attractive option for folks. And that, as we said, the genesis of the REIT industry, it's very attractive for folks because it is tax efficient. And you don't have to divest you still own a piece. Although it is spread across a portfolio, you still own a piece of the assets.

Ronald Skelton  13:42  
So one of the things I do inside in the mergers and acquisitions space is I help other mergers and acquisitions, investors who have bought companies with considerable assets, use the asset that real estate do to raise money to either pay off the business or to buy another expand. So I'm working on a current one right now, where a gentleman I'm not saying to say names or where it's located, because it's in the middle, we're in the middle of this, but it's about $19 million dollars worth of warehouse space and manufacturing space. And he bought the business he there's that real estate, and we're using the real estate, he's gonna sell it or if the sell doesn't go through, he may refinance it, but he's gonna free up the cash to pay expansion add ons by other businesses. This seems like another way that if he held on to that, and that he's I know, he already has commercial, other commercial properties. But after he has, I don't know what the minimal number is 100 million or more of these, you know, assets to take that into what you're talking about, transfer that into some form of REIT tax efficiently. And now he has another way to raise capital without totally selling the assets are at least a little back from Yeah,

Deborah Smith  14:51  
yeah. I mean, we're working with a client right now where they have a portfolio of assets, and it's held with high net worth investors. But our client has has a chunk of the ownership in those assets, we're going to take some of those assets, put it into a REIT, right, because that'll be tax efficient. And then we're going to use the rate basis of assets to go out and raise institutional capital around a determined strategy. And you can do that it's harder to do when you're trying to do it off this asset here and that asset there, but if I can wrap them all on the one vehicle together, and then I can use it as a basis for an institution, because the institution needs to put out big chunks of capital, it can't be putting out 2 or $3 million, it's not enough, they have to put out larger checks. And they have to see growth, and they have to see a pipeline to where they can allocate their capital and deploy it into. And that's what makes it super interesting. And a really attractive way of how to take your your base of assets and how to use it to create growth capital for your business.

Ronald Skelton  15:58  
Now, your company does a lot of stuff inside of the mergers and acquisitions space, right? I was looking through the list of stuff I see like buyside, advisor, advisory diverse divest, I can even speak divesture spin offs and dispositions right. That's one of the things we haven't talked too much, you know, when a company divest of a division or spins it off and that type of stuff. Now you help it on the sell side or the buy side of that,

Deborah Smith  16:25  
yeah, we'll do both. We'll end up doing both. And in some ways, as a m&a banker, if you're not a buyer or a seller, if you're not a seller, or a buyer, for neither one of those, you're raising capital isn't the way that my world works. But yes, and so you know, will participate, if, if a company decides they want to divest a piece of their business, if they view it as non core, or a lot of times what happens with divestitures, you have two divisions or more in the one company, but you're not getting the value for one of them, right, because there's a mismatch. And it's usually when the businesses aren't completely aligned. And so you end up having a mismatch in your business. And so it's a case that the sum of the parts is actually greater than the whole. And it may make sense to divest that that business from underneath your broader corporate umbrella. I mean, it, there's a lot that goes into it, you know, it's whether your business can stand on its own without it, right? Again, it's a it's a way to monetize, and then you can take those proceeds, and then use it to deploy them in something else that can generate higher proceeds or higher return for the broader company as a whole. So yeah, we've done that we, go ahead.

Ronald Skelton  17:36  
I'll just say I see it a lot in the tech space, we're a tech company buys another tech company, they bring in the technology, they bring in the the engineers to work on some of their problems, some of the intellectual property they hold on to, but the core product that that company owned, that they bought, doesn't really fit. So at some point they to divest that they sell that off to somebody else. And, you know, they hold on to the patents they want to hold on to, and they got what they needed, and they got what they wanted. And the you know, that other little product, and you know, it could be for for a guy like me, it's a great product, right? You know, if you look at a Google or something, they buy a company, and it's only making 510 15 million, that that's just a distraction. Right? You know, so those, turn that back off, sell it do something else with it, just because they got what they needed. They kept the two key engineers they wanted from it, and the technology that they wanted out of it, right?

Deborah Smith  18:25  
Yeah, no, I think that's right. I mean, we helped a couple of years ago, our client was actually an insurance company. And they had a real estate portfolio. And we actually acquired our real estate subsidiary out of a broader conglomerate. When a conglomerate just decided that they did not want to be in the real estate space, they didn't want to be in the investment management space at all. The business there as a result, so they decided to divest it. And then we were fortunate enough to acquire it, we took the entire management team with it and moved it over. But that was the concept there is that someone, you know, didn't face the value on it. And and our client did. And so it made it was a natural transfer for to be spun out and moved into our company that of our clients.

Ronald Skelton  19:13  
You know one of the things I didn't ask before the show, but you guys are based out of New York, right?

Deborah Smith  19:17  
Where she Yeah, so we moved to Stamford, Connecticut, not long ago. 

Ronald Skelton  19:20  
Okay. 

Deborah Smith  19:21  
Yeah. So we were in New York for many, many, many years. And during COVID, we were one of those firms that that moved out of the city, although in our case, it was not, we were more likely than smart. We had actually decided to move out prior to COVID. And we were just waiting for our space to be built out in Stanford. It's and it's definitely a case, you know, we it's it all. It's whether you need to be in New York or not. And I think, you know, over time, we deemed that we didn't need to be as a firm and despite the amount of financial advisory firms that are actually based in New York What's become interesting as a trend, not just for us, but more broadly, is the number of firms that have have moved during COVID. And if the firm hasn't moved, the management has. And, you know, they've scattered all over the country. And I think it's a general trend that we saw a little bit pre COVID driven by tax considerations, mainly, where you have firms that are still maintaining a location in a city of Chicago, or it's California, somewhere here in California, New York. And but the just the price of the real estate, and the cost, it's, it becomes more efficient to set up regional presences in lower cost areas and lower cost settings. And but and bifurcate it and that through COVID went a step further, where the senior management is now commuting to head offices and in those offices anymore. And and they've moved I think, originally temporarily, but now have made it parliament with a lot less intention of going back. Because as we've all seen, the new concept of work life balances and flexible work schedules. And some of these impacts that COVID has, has brought to the real estate industry. A lot of those trends, I think are here to stay in some shape, or form. And the concept of going back and having a big office in a big city where everybody's coming every day, I think that model is over.

Ronald Skelton  21:26  
And I am concerned with the commercial real estate space. Because usually with commercial real estate or any real estate, you're always trying to figure out what the highest and best use of the facility is real estate, I think that's going to have to shift for a lot of these big office spaces, right, just because a lot of people aren't going to come back. And I don't think they should, I don't think they necessarily should come back. So and I've seen this in some other countries where they overbuilt office space, and things shifted. And then they started doing like conversions of condos and other stuff out of the space. But what do you see as the risks of the real estate market due to the shift in mentality of like, where workers need to be to complete their job?

Deborah Smith  22:07  
Yeah, you know, I think had of COVID there's winners and losers, right. And I think the market was in becoming increasingly efficient, pre COVID. And was due for a disruption in some shape or form. And real estate investors love disruption, right? As long as it's not credit driven. If it's not credit driven, you know, then disruptions are great. And there'll be winners, those who are willing to take the risk and make better turns out to be right, and losers who either make the wrong bets or don't do anything. And it turns out to be wrong. And I think what happened with COVID it, there's a multitude of things happen, firstly was the changes to, you know, office practices, which will I hate to stay. And we can argue whether it means smaller footprints in big cities, or whether you move to suburban, or whether you don't do that, and you just have people now work from home, you know, two days a week, and then you have shared office space, your office becomes more like a shared office space that, you know, you have E commerce as a result impacts retail, because more people work from home. And once you think about that, what happens with E commerce and people buying online? There's a flow down effect, because then it's like, okay, well, how does that impact boxes? But retail box? How does that impact your online service providers? How does that impact logistics? Because now I have to get it to? And then how does that impact the industrial space? Right, because then you've got last mile logistics you worry about its changes to be warehousing, cold storage is a space that's really taken off. All these things happen. As a as a flow down effect, right? With those two things. On top of that you have people moving, so then you have differences in where people are choosing to live. And you know, where there was a concept of, you know, maybe our entire concept of top 25 multifamily markets is due for an overhaul, because those top 25 today are not the same as they were a year ago, right? We've seen Florida and Texas and the southern markets that are really taken off. Well, that's going to have an impact on Office, on industrial on data centers, all of these things will be impacted as a result. Now then the question becomes, you know, where are they moving is a parliament, where how the changes how long they will last? And I think we're seeing that play out. But for us as a firm, it turns out to be great, because, you know, we had we had written over a year ago about the impact on cold storage industry more than a year ago. And and that was that all of those messages we were talking about have turned out to be correct. At least in our minds, that turned out to be correct. And but the cold storage industry is there's a lot of interest in it institutional interest, and there's a shortage of cold storage space. And so that's a really cool space, you know, for for an advisor to be playing in right now. Because there's operators and there's capital. And there's a wonderful opportunity to pair the two. So we're, we're definitely seeing that. And then, you know, we had recently published on active adult living, which is a nice throw out space from senior housing for seniors, as opposed to senior housing. And that's another space that's taking off as people reevaluate what they're doing when they become older. And for seniors who who don't need to meal plans and are perfectly healthy and perfectly active and just don't want to own real estate. There's a lot going on in that space, too. So for us, again, to be in the middle of capital, looking for opportunities and owner operators who have the opportunities, it's it's a great time to actually be an advisor right now,

Ronald Skelton  25:45  
I get that. I'm intrigued by what I refer to as, like, I didn't realize the butterfly effect is what they call it when one little thing changes as a reply little thing. Like there's a consumer butterfly effect when consumer behavior changes, it changes entire industries. Yes, it

Deborah Smith  26:01  
does. Absolutely. And look, I think I saw a survey that UPS said that, in this day and age, they did surveys, and for consumer who buys something, and they order before midday, it's like 60 to 70% of those surveyed think they expected the same day. And if it's after five, they expected the next day, just think about the logistics that goes into that. Right? If you order something, think how that material it just shows up, and, and all the things that needed to happen in the industry, in order for that situation to evolve. In order to get that product to you on your plate, right. It's it's the last mile logistics where we're seeing crazy things like, you know, putting in car parks or converting back sections of big box retailers, right, because they don't need as much retail space. And you can use that as last mile and move warehouses out, right in order to have the two. But it and similarly, I mean, we're seeing some really amazing things where technology rolls into this to where you have cold storage facilities, and you know, you're renting spaces, and you're renting parts of it, you know, and somehow through systems and data analytics that can figure out which blueberries belong to which vendor, right, and that blueberries down to that person, those blueberries you don't have that person, it's really amazing the amount of data analytics and technology that is propelling the industry forward, and to be able to manage and help manage with all these changes to the industry. And it all comes because we've got a change in consumer, and it all flows down.

Ronald Skelton  27:39  
So if you guys are listening to this and your outlet and the acquisition mode, acquiring a logistics company, or real estate that can be converted to cold storage slash last mile sounds like a hot field to look at.

Deborah Smith  27:53  
Well, there's plenty I mean, there's now I mean, you see some of the bigger institutions, you know, even turning old dark malls where the malls because you know, we've talked about the death of malls for years but uh, converting those now to logistics, or they're turning to an industrial centers in order to accommodate the Matt, you know, the gravitation towards e commerce. And I think the underlying element all of it to all of it, if I had to pick one thing, it's COVID has given people a sense that they can demand convenience. It's all about convenience, right? It's about you know, we reevaluate work life practices and commuting to an office, why will I go? Why should we travel two hours to an office, when I'm just as efficient here at home? What do I need to do that for it, I can do two hours extra work here and do it just as well. Right. And so we've learnt through through the last couple of years, I'm an institutional scale, because these changes, and isolated it's not like 15 years ago, or 20 years ago, where a person in a company wants a flexible work schedule. we've institutionalized these practices. And that's why I think it's really difficult to go backwards. Once you've given it and people like it, it is hard to then take it away. And I think that's the market we're in and technology has allowed all of this to happen.

Ronald Skelton  29:17  
Again, I think that's going to happen with a lot of that they found a higher and better use for the real estate to manage and cashflow an asset. And I think that's going to have to happen with a lot of the big office space. They're just going to have to have a higher and better use for that space. Or, you know, I wouldn't say higher and better because they probably were really profitable as as office space that's going away and it's no longer going to be a good use of the property because they're going to have our time felittle So yeah,

Deborah Smith  29:46  
ye ah, I mean, even if you think about it, so the multifamily apartment industry went through some of this change maybe 10 years or started 10 years ago, maybe a little longer, where the demand for convenience, right leads to amenitized spaces. Right, because people want to, you know, have access to a lot of amenities that they don't have to go far they want access to shops and more, you know, to be able to go to parks and all these things on a localized basis. What I think will be interesting to play out now is where the multifamily spaces, apartment buildings now incorporate shared office space. And recognize that if you think who the people are that you're renting to, and amenitized multifamily apartments, and the value for those amenities over square foot in an apartment, and even the concept of having micro apartment buildings, at what point do you think about putting, you know, shared office space in those buildings? Or alternatively, you know, how about the office, the office players now putting apartments in line with where their office properties are? Right? And looking at, you know, how much can stir can convenient start playing into that bridge between multifamily and office, if we recognize that people aren't going to always want to commute back and forth? And and I think some of these things are definitely playing out. I don't think we have the answers to some of these things yet. But it is, you know, there's always change and and it's again, it's just figuring out how to play that change. And and has history has taught me that real estate investors are super smart. They're super smart. And they can figure out how to navigate through this and see where the opportunities are, in order to play it out.

Ronald Skelton  31:27  
Yeah, there's a co working space in Dallas, I really like it's where I started my first podcast, I rented a studio from there. And then COVID hit and none of my guests would show up because it was an in person one, right. So I had to retool and figure this out. So that's why we do it all at a restream. Now, I had people wanting to fly in and be on this other show I was doing. But the cool thing, what he did is what you're talking about his co working space is on the bottom floor. And it's pretty good size. But it's on the bottom floor of a huge apartment complex in Dallas. Right? So a lot of the guys that I meet there, and I was like, oh, cool, you know, how far do you commute? Oh, I live upstairs. Yeah, you know, they move there, they live upstairs and they you know, I'm kind of old school myself, I want to go somewhere sit down. And when I sit there I work, I have an office, my office happens to be 26 miles from my house. But that's because I live in the boondocks. But, uh, I think that's a great play on some of the highest and best use for real estate you acquire, you know, if you acquire a business that has the real estate, around, they're talking to my acquisitions, and mergers, guys, and all of a sudden, this market changes on you. And now you're holding a big office building that you don't need the space for anymore, but you own it. And I can think of three or four, you know, business owners that I've talked to, that they bought their buildings, right, and they have these big office space, and now they're thinking about selling them. I think it's a brilliant, brilliant idea to convert the, you know, top so many floors to condos and stuff like that, and the bottom two floors for co working space, your people can continue to work some smaller footprint of what they need. And then you rent out the other office space for people that are in your, you know, or in your apartments upstairs condos, what do you want to call it, and the nearby one. So I think that's a, that would be a brilliant use of that. Let's talk about some of the other spaces inside of this, you guys do so much. Kind of what are the other trends you see going on in the market right now.

Deborah Smith  33:18  
We're also seeing still, on the end, we talked a little bit about capital raising and some of these trends and being able to get into the middle of some of these conversations. And you know, we look at the world as providers of capital and uses of capital. And our goal is to find the trends where the provider wants to be, and make sure we have the the opportunities that need the capital for them to deploy, and help them match up and help them move forward. Which is it sounds a lot easier than I just described. I was I was listening to, to be able to do that. But I think another piece of our business where we operate is on the investment management side. And it is the buying and selling of the investment managers themselves. And why why are we seeing that? We're seeing that because over time, there's been a couple of trends that have happened and everyone knows the big names of Blackstone, KKR, Apolo all these bigger guys, as and they are alternative investment managers, you know, they have commanded such a an extraordinary amount of the capital that is that is raised in the space. And so you have a bifurcated industry that's happened over a period of time. We have large guys and you have small guys. And the question is how did the small guys become large guys? Right? Because, you know, with with any business, you get economies of scale that show up in your ability to raise capital, liquidity, valuation improvement, ability to access talent, and opportunities all happen with scale. Right. So how do you do that? And I think what we're finding is, you know, we typically in the past operate around the two to $7 billion AUM manager where we would buy or sell those types of managers. A lot of those managers got bought. And in the past five or so years, what we're seeing is a gravitation of of the next generation of investment managers coming up into that space. And the question is, you know, we often get as well, how do you compete? And then how do we make ourselves look like someone that we can raise capital? Right? How do I raise capital away from these other guys, and I think, you know, a couple of trends that have happened. The first is managers have become a lot more focused within a sector, right? So the concept of, of being a jack of all trades as an allocator, those fewer than what we're seeing now, where there are multifamily specialist, right, or they're an industrial specialist. And they usually have firms that owned the real estate, or use high net worth capital. And they've decided to convert into an investment manager. That's the trend. So they and so as a result, they take those high net worth assets, they flip it into a structure, and they go raise institutional capital around it, we tend to see more on within a sector specific, because then your argument is, look, I'm not trying to compete with those guys, I'm an expert at this, this is what I do super well, I build apartments, I operate apartments, I build cold storage, I operate cold storage, I'm an expert in this field. And that's why I need you to put capital into this into this space, because I can deploy it, and you get the time and attention. And I'm good at it. Right? And so then the next part is okay, where do you manage it. And that's come along with it is that if you're going to be an expert in the space, it's, we see a gravitation towards also managing the real estate yourself. And those managers we call vertically integrated investment managers. And that's the next generation that is coming up through the through the industry. And then our goal is a fun is to look at those managers and figure out which ones we think are ready for primetime, that can be paired with institutional capital, or if we think there's still a ways away, but we can help. We have a consulting business that does like market readiness, institutional scorecards, where we can go in and look at a manager and determine where their strengths and weaknesses are from a institutional market positioning, right. And then as well, to help them look different, we've looked at hundreds of managers, and to be able to look at a manager and say, Look, this is what you're good at focus on this, you got to be disciplined, focus on it, and to work with them to in order to that next step is we do a fair bit of work there, too. And the reason why it's we view ourselves as as almost like lifecycle bankers. So once we start working with a company, we like to work with them through the evolution in time. And so we value we're very value related in terms of the relationships we have. And so a lot of our relationships today, a long, long term, they're repeat, or they've come in through a referral from someone who is our client, or was our client, right? And that just is a great business for us. Because we get to see these companies grow and prosper. And to be able to play a role in that is really super cool.

Ronald Skelton  38:18  
So in almost any, just like the market cycles and everything else, you know, I'm sure a capital does, too, right now, do you see that there's more capital available for like dry capital, medical, dry powder, sitting on the shelf looking for opportunities? Are there more opportunities looking for capital,

Deborah Smith  38:35  
No more capital than if I had to take a guess there's more capitals and opportunities.

Ronald Skelton  38:41  
So there's, there's plenty of capital out there looking for the right opportunity. Your your job is playing the matchmaker, right,

Deborah Smith  38:48  
Tango matchmaker provides, you know, along the way, you know, it is definitely a matchmaker role executing through that transaction to get it done. And which is equally complicated. I often find with companies that are not where the founder or the owner or is not far away from the negotiation table, it's a legacy company, or, you know, it's even in the private markets, you know, people park with their companies a lot slower than they parked with their assets. Right? They're much more, they're a lot more comfortable flipping their office building than they have flipping their company that owns the office building. And and, you know, the one thing I've learned from being in this business a long time, is that what people think they want and what they think their expectation is never the case. That's never how it turns out ever. And it's because once they see something in front of them, like Well, here's a this doesn't work. And and so, you know, and I'll pick an easy example. You know, whenever we sell a corporation in the private markets, culture is never listed as the number one thing. It's not. And you know what, it's the number one thing it's the number one thing, people will take like less economics in order to preserve it.

Ronald Skelton  40:03  
And it's the number one reason why integrations fell as they fell to match culture and environment and human human beings. If you're buying something that's not physically just an asset or a piece of real estate with no human beings involved, anytime you got employees, human beings, executives involved, you have to deal with the human element of that. And that's the culture, the environment, the management structure, the the communications process, all that comes into play. And a lot of people do overlook that. And

Deborah Smith  40:31  
they definitely do it. And you said it, right. And, and it's a lot of people miss that. But integration issues, really is code for culture. That's really what it is. And you know, and so we've learned a long time ago that whenever we work with a client, is to tell them look, this other side, we can run a process, and we can treat as a transaction, and you can look at just selling it off, you can do that, but you're not going to be happy with it, you know, we tend to tailor hours. And that's what I mean by we're not just transaction oriented, it's we look at the focus on what's the aftercare, or whether this transaction is going to last, because if it lasts, they'll refer us or want to work with us again, right. And so we've got very focused on this cultural aspect, and making sure you like each other, you don't have to want to play softball or soccer together, but you have to have shared philosophies on how to grow your business, what you think of your team, what are the next steps, and most importantly, whether you think you can resolve differences, right? Because no company goes, no transaction goes perfectly as you plan. And you have to be able to adapt and adjust to situations. And so you need a partner that is going to work with you on those things. And those skills only come by communication and talking to them a lot.

Ronald Skelton  41:51  
And I think I'll add to that, that the other thing that you have to communicate is opportunity, like for individuals in the company, what is the future opportunity inside of this new entity, new, you know, thing that's happening, where what's available for the individuals, because that's the like the old, what's the old book, Who Moved My Cheese, people are resistant to change, right? If they don't, they don't know that there's something in front of them that's exciting and interesting, and they have a room for growth, or to learn something new and a place a place to be there's some safety things there. You know, especially in different, you know, different people have different levels of needs for safety, but everybody has some need for that, to know that you have a job the next day that, you know, if you fail to communicate that I honestly think that you're that's why a lot of these big integrations. They don't they just don't make it.

Deborah Smith  42:41  
Yeah, and I think that's right, and which is you know, we tend to focus on this a lot, because we want them to last. And we recognize that economics is important, but governance is important. Employees are important. Culture is important. Growth is important. And all of these things work together cohesively. And so you know, one of the pieces of advice we give to folks, when you go through negotiations, as should always hire an advisor, but separately, it's that all these things move together. So never let someone on the other side of the table, negotiate one piece without the rest, because they're all triggers to the same little piece. Right? So you need to if you tug on economics, well, how does that impact governance? How does that impact employees? Or how does that impact my future growth plans, all the things tying together, so we always encourage folks, that if if there are changes in terms of changes that the buyer or the seller both ways, one, to get the cohesive package, give me all of them, I'm not going to address these things piecemeal, I watch a whole list. And then we'll go through your list. And we'll provide a cohesive response to that list. Because too many, what ends up happening is, is if it's just one thing in isolation, you think, Oh, that's okay, I can work with that, then there's another thing and another thing, and all of a sudden, you end up with something that is so far away from where you originally were, that it's no longer acceptable. And that's the problem. And then at that point, you have to say no, and, you know, the no may be well received or may not be that it's to save yourself the angst, you know, deal with all this stuff upfront. Go through it and be cohesive in your responses.

Ronald Skelton  44:20  
100% agree. So, looking at everything we've talked about so far, we're at probably around the 45 minute mark. Now let's let's first of all, let's make sure everyone knows how to get a hold of you. So I'm going to put up your Is it okay to put up your LinkedIn profile? Double check that real quick. I'll show it. So if you're if you guys are watching this I it's on the screen. It'll be in the show notes if you're listening online on the podcast, so it'll be in the show notes. I'll put it right there. And then for those who are driving or something like that, oh, that's mine. Oh, I almost clicked on mine. There's yours almost. I do have yourself that's cool. For some reason, I thought I clicked on mine. I was like, Don't Don't do that. Okay, so it is Deborah Smith and it's spelled D E B O R A H Smith S-M-I-T-H. And it's the LinkedIn is linkedin.com/in the same way it is. And it's Deborah Smith, hyphen, center cap, C-E-N-T-E-R-C-A-P, center cap, right. And then I'm gonna show 'em your URL for your website too. So if you're watching, if you want to take a look at what they can do, how they got to get a hold of them, or want to just kind of do a little research on the company itself. It is www dot center cap group.com. And I have that on the screen. Now if you're watching you see that? If not, it'll be in the show notes. And Deborah, how would you prefer that they reach out to you is that you want them just to go through your LinkedIn profile and connect,

Deborah Smith  45:43  
Sure. They can just go through LinkedIn. That'd be great. 

Ronald Skelton  45:45  
Okay, that'd be fine. Cool. So I'm gonna leave the LinkedIn on there while we talk, it won't get in the way. And let's talk. Like I said, we're getting close to the 50 minute mark, we're kind of getting in that range. Let's start talking about what are the three big takeaways that you want people to understand about what you guys do and what you offer? And how that can impact, you know, their business and their bottom line?

Deborah Smith  46:08  
Okay, good question. I think for us, we have US selling sells as all things real estate, that's what we are, what we aren't, is we don't view ourselves as a broker, we view ourselves as an advisor that works very closely with our clients to help figure out the solutions that work for them and their company to secure growth. That's what we do. And anything within that old things, real estate, whether it's capital raising, whether it's looking at what to do with your business, within the real estate space, or whether you just want someone to come in and help you think about what your marketing campaign should look like, you know, whether you'd be attractive to institutions, what you would need to do in order to get to that place, if you're not already, we can help with all of those things. And I think for us, we've you think we're the only firm that has this combination of services within the one team. And so we as a result, we work with all sides, from owner operators, REITs, property managers, service providers, you know, to was the investment managers on the other end of the spectrum. And so we marry all those things together. And the goal for us is to be in the middle of the hourglass, and to connect the two, appreciating that we look at the wool from both sides. And so we think we can get a much higher quality advice that's actually based on on experience, but also based on what we see and the conversations that we have with folks.

Ronald Skelton  47:36  
So two questions for you. First of all, where can you operate me? Were you guys just in New York? Which I doubt but national

Deborah Smith  47:41  
national? Yeah. Okay. Oh, I have a we can travel anywhere at times there, but where our mobile phone. And so we can go anywhere. And we've done deals all over the country, with managers and owner operators, etc, in all different parts of the country.

Ronald Skelton  47:58  
What about international? Do you do anything, internationally, or maybe

Deborah Smith  48:02  
We cross over to Canada at some, at some times, we have not done as much internationally unless there has been a US focus. And the reason for that is come back to our this has been our market. And we know our market. And when clients come to us, it's on the expectation, we know this market. And so we lean into that, I think you know, where we're looking to expand overseas. And the first step will probably be the UK. And we're having some conversations there. But if we work with enough folks who have a foreign presence that have offices in the US that you know, it's time for us to be expanding outwards. But we always have to make sure we have the right team, because we're very focused on our brand and what it means. And so everyone has to stand up to their quality of their brand.

Ronald Skelton  48:49  
We have a lot of listeners that are in the UK and think Australia have to say the last big rollout project I was on we had team members from Australia, Canada, and sorry, we had people coming to meetings for Canada was Australia, the UK. I have connections that are doing deals in Switzerland and other areas too. So I was just curious of where you guys could and then you know, is there a minimum range? Like is there a, like you need to have so many assets under management or tried to raise a certain number of money before you guys work with them?

Deborah Smith  49:25  
Yeah, that is an excellent question. Historically, we have focused on the institutional market. And so there are bigger equity checks, they're larger sized companies that we have dealt with. What we have gone through over the past couple of years, is that we've realized that when you know the market as well, as we think we do, there you see a lot of managers or a lot of owner operators who are not in that institutional class yet, but we think we can raise capital for them. We think we can work with them. And so we're looking at alternative structures where maybe we can take some ownership of warrants or options was something in order for our compensation programs still to work. And then we can work with them. Because I think what we are very good at is is finding opportunities that work for institutional capital, we're good at going in and assessing and saying, Hey, yes, we think we can raise capital for this. We're pretty good at that. And so now it's time, I think, for us to say, well, we're advising these institutions, why aren't we, you know, being investors or participating as well, you know, put some put some bet behind, you know, some of our speak. And because there's been plenty of times where the institution has gotten involved in a transaction, and it's turned out to be wildly successful. And we're sitting there thinking, well, we should have participated in that. It was our idea. And so we're looking more at those avenues. And you know, we'd had cut them off in the past simply because of size. But now we're like, you know, what, this is a great manager, this is a great operator, they have something special, and let's figure out how we can pot with them over the long term, to turn them into one of these larger guys, or help them grow and give them advice along the way. So you know, and it's our firm, we can do what we like. So we're looking at different ways to structure that in order to to more I would have a wider participation in our industry.

Ronald Skelton  51:21  
Awesome. So I've asked a bunch of questions. We've talked about various topics, if you could step into my shoes, what question would you have asked, What did I miss?

Deborah Smith  51:31  
You know, what? I don't ignore, you're a great podcaster. You're a great processor. I, you know, it's, if you were ahead of us do anything? And I don't think there's good answer to it. So maybe this is why I didn't ask it is whether inflation or interest rates will have the greatest impact on where the real estate pricing goes next? And I don't know the answer to that, right. Because historically, inflation is great for the real estate industry. And historically, interest rates have not been great, but when you have both of them moving at the same time, you know, how does that play out? That's going to be tough to figure out. But so far, we're not really seeing a whole lot of impact of interest rates on the pricing of real estate yet, and I'm not sure we're seeing a whole lot on the inflation. But if it continues on, and both of those things are happening, it's you know, how's it gonna impact the industry will be very, very interesting.

Ronald Skelton  52:24  
So the residential markets actually typically have like, what is that 12 to 15 year cycle where we, you get a bubble and you get a correction, you get a bubble? I've never really analyzed the commercial side, is there a there's an ebb and flow inside of the commercial side to or

Deborah Smith  52:36  
Yeah, I mean, it tends to flow again, with the with the trends of where things are, but you know, with the real estate market has been so heated, you know, since the great financial crisis, the real estate market has only gone up, it's only gone up. And so in the, in the past that many years, 12, 13 years, folks that have been in the real estate market or entered at 12, 13 years ago, I have never seen the market in anything great. And you know, over the last few years with COVID, if for the most part, and I know on the newspapers, we spoke about talking about what's going on with malls, and we talked about hotels that have been outside of those, the market has performed really strongly. And pricing is expensive, things are expensive now. And so you know how that gets impacted with these next things will be interesting. But as a due for a correction, or whether this correction will come from one of these two things that's still playing out, we will eventually write something on this. But you know, once we have a stronger handle on how things are playing, but so far, we're not seeing a whole lot of impact yet.

Ronald Skelton  53:42  
Cool. What would you consider a leading indicator that that's starting to occur?

Deborah Smith  53:47  
I think, you know, on interest rates, if if they're if it's perceived that is going to last a longer time. And any interest rates will take a bite, particularly if you're an ally, and your earnings is not colding pace with inflation. And so as inflation if it continues to grow, and it continues to do Sorry, to Kim continues on at the REITs that it's at, and it continues to eat away at people's ability to pay those rents, then obviously, that impact will flow downhill. And so this is still I think it's still playing out as as we speak. So it's a little bit of stay tuned.

Ronald Skelton  54:27  
Awesome. Well, I appreciate having you on here. We do need to wrap the show up and stuff. Is there any parting shots party in the bold statement you want to make on the end there? Is there anything that you want to add before we wrap up the show?

Deborah Smith  54:40  
Yeah, you got to take some risk. If you don't know it's all risk reward, right? Isn't that what we tell our real estate investors? In order to get the reward you got to take a little risk and you got to take a little risk that means you have to be confident and what you think is going to play out and cross your fingers and your toes and hope you're right.

Ronald Skelton  54:56  
Well thank you for being on the show. It was great. We had covers from great information hang out for a few That's after we end the recording. And I appreciate your time. 

Deborah Smith  55:04  
Thank you. 

Ronald Skelton  55:05  
That's the show. Hey, it's your host, Ronald Skelton, I want to thank you personally for watching the show today and invite you to call our new hotline 918-641-4150 That's 918641415 Whoa, call us and tell us about our show, ask questions, suggested guests or even tell me about a business you have for sale and we'll reach back out to you. Again, that number is 918-641-4150 call our hotline leave us some information. Thank you, the investors and entrepreneurs professional mastermind. The investors and entrepreneurs professional mastermind combines that additional peer to peer mastermind introduced first in Napoleon Hill's famous book Thinking Grow Rich, with accountability partnering, where your peers help you ensure that you set goals take action and get results. If you want to scale blow past roadblocks and achieve success faster than you might think it's possible, I suggest you take a visit over to tiepm.com That's T i e. P m.com. And check out the investors and entrepreneurs professional mastermind