DJ Van Keuren joined us on the podcast to discuss how family offices evaluate real estate sponsors and their deals.

Mr. Van Keuren currently works for a Family Office who has over 30 years of experience in contrarian and distressed real estate investing producing a gross IRR of 32% on over 200 deals since 1998. Individually, Mr. Van Keuren has over 25 years’ experience in finance, investment banking, and real estate. Among DJ’s experience includes; Raising and securing over $350MM in capital from Institutional Investors, Private Equity Funds, Family Offices, and Direct Capital Sources. Mr. Van Keuren has been a Director of capital markets (equity & debt) for both a domestic and international real estate development company with a focus on luxury condominiums, luxury multifamily apartments, active adult communities & hotels. Additional experience includes acting Director at a boutique investment banking firm where he focused on real estate and energy, COO for ONYX Capital, an alternative asset, real estate due diligence and capital markets group and Managing Director for the Horison Management Group where he acted as the Fund Manager for the American Dream Real Estate Fund.


Mr. Van Keuren is a member of the Harvard Alumni Association, past President and Board Member for the Harvard Real Estate Alumni Organization (HREAO) and a Board Member for the Alumni Advisory Board at the Real Estate Academic Initiative at Harvard (REAI). Mr. Van Keuren is also the founder of www.usfamilyofficerealestate.com. DJ received his B.A. from Ball State University, attended graduate studies in Real Estate from the NYU Schack Real Estate Institute, and received his Masters Degree from Harvard University in Management and Finance.​

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Transcript

RealCrowd – All opinions expressed by Adam, Tyler, and podcast guests are solely their own opinions and do not reflect the opinion of RealCrowd. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. To gain a better understanding of the risks associated with commercial real estate investing, please consult your advisors.

DJ Van Keuren – First off, you got to make sure that you’ve got a quality sponsor, and you know there’s various components that you want to look for to see that they sort of check the boxes because that’s who you’re working with, that’s who you’re trusting, that’s who you’re putting your faith into and the deals–

Adam Hooper – Hey, Tyler.

Tyler Stewart – Hey, Adam, how are you today?

Adam Hooper – I’m fantastic.

Tyler Stewart – Doing well?

Adam Hooper – Doing really good.

Tyler Stewart – Nice sunny day outside. Adam , who do we have on today?

Adam Hooper – Oh switched it up there, I get to intro. Today we’ve got DJ Van Keuren, he’s currently works for a large family office down in Southern California, been in the real estate space for gosh, 30 years, and is also the founder of the US Family Office Real Estate which is a educational base where family offices that are interested in real estate can come learn and network and just figure out what’s going on in the space.

Tyler Stewart – He’s a thought leader in the space if you go to any conferences that have family offices, odds are you’ll see DJ there, trying to help educate family offices on what to look for across the industry.

Adam Hooper – He did a survey across a bunch of family offices and his network, that’s really the first time that a survey of this scale has been done to get the temperature on how family offices are looking at this asset class. Family offices are either often shrouded in mystic and they’re shrouded in mystery but, you know we talk about kind of some of the differences, what make family office approaches unique and also what makes them more like traditional investors than we might think.

Tyler Stewart – Absolutely, it still came down to the fundamentals of you’re building a relationship with a sponsor, doing your due diligence and it wasn’t too far off from what everyday investors try to do when they’re looking at real estate.

Adam Hooper – Quick break down, we would look at how family offices look at real estate, talked a little bit about their allocations of the cycle how that’s maybe changed, strategy at the stage of the cycle product type, product mix. I thought also interesting that DJ commented that real estate is often times the second largest wealth creation tool outside of how they make their primary capital. Again, kind of underscores real estate can be a great wealth generation tool and those that have access to it tend to use it.

Tyler Stewart – This was a good episode to hear inside the minds of investors who really invest into real estate all the time and how they look at the space.

Adam Hooper – We’ll go over the results of the survey, you’ll hear from DJ on all types of things about famiLy offices and again drilling back down to wrap it up with those fundamentals so, I think that’s a good overview. As always, we appreciate your comments, feedbacks, ratings, wherever you listen to the podcast, we appreciate those ratings and reviews. If you have any questions or comments, send us a note to podcast@realcrowd.com and with that, let’s get to it. Alright DJ, thanks for coming on the show today, joining us from the beautiful state of Colorado, we appreciate you coming on.

DJ Van Keuren – Well thanks for having me guys.

Adam Hooper – Well, why don’t you start us, tell us a little bit about your journey in the real estate space, and how you got specifically into the family office business, tell us a little bit about that world.

DJ Van Keuren – Sure. My delve into real estate goes back to actually 2003. I was coming back from Asia, I was working on a project in Vietnam and, literally was, I remember sitting over in Saigon saying, “Okay, what do I want to do next? Because I’m leaving here and I’m going back to the States.” I was like, “I want to get into well real estate. Real estate’s always excited me.” I went out raised some private money and I started what was going to be the first single family REIT at the time so, I was about 10 years ahead of the curve and one of the things that I really delve into which I think is applicable to what’s happening today is a book about market cycles. I started to see some things that were happening that weren’t really making sense, and so I ended up selling the portfolio before the down turn. I went back to grad school and then stayed within the real estate space and you know through that I ended up doing some investment banking on the real estate side, so structuring some transactions, with the equity in debt and what not. What’s interesting with my background is in the 90’s I was an advisor so I totally get that retail side. Then I ended up moving into working with the big institutions like Carlyle and Apollo and what not and, and this all came about because one of the things that I realized was look if I want to be doing deals, I’ve got to be able to build up that investor database and investor know-how so that I can go out and, and circle back and raise money later on.

DJ Van Keuren – I’d been working for another number of operators and had just moved to Denver from New York City where I was working with a major developer at Mumbai. We were doing a lot of luxury hotels and condos in New York City and, and believe it or not I, I was a year and a half into Denver and I was like I haven’t met anybody here. I just started sending out some emails and meeting with people. I ran across a very wealthy gentleman out of Boulder, Colorado and he was a family office and when he died all his assets was going to his foundation because he didn’t have, really he had one kid he was going to leave some money to, but the amount of wealth that he had, he had to figure out a way to keep the business going to manage those assets and allow those people to help them build as well as stay employed. They asked me, “DJ we’re going to raise a fund, what do you think we should do?” And I said, “Well, you know we could the institutional route where often relationships were family offices,” and at the time I only knew two families. A year later I knew about 200 families and that’s where I came into the family office space. Believe it or not, 95% of the people that end up working for a family, they do it, they just fall into it, and the majority of time is because somebody has a big exit from the sale of their business, they’re now sitting on a couple hundred million dollars and they’re like, “Okay now what do I do? And well I trust my accountant, I trust my banker, I trust my advisor,

DJ Van Keuren – and you know, can you help me with this money?” That’s sort of the same way that I came into it, I just fell into it now I’m working with my second family for about two years now so I’ve been in a total of about five years and my passion has been real estate, and so that’s really been where I’ve I’ve focused on is real estate, in the family office space.

Adam Hooper – Let’s maybe take a step backwards and define what is a family office right? At what point do you go from being a high net worth, ultra high net worth to a “family office?” Is it a structure thing? Is it a net worth thing? Take us a little bit through that.

DJ Van Keuren – Yeah that’s a good question because a lot of the, over the years that name has been thrown around more and more that you’re a family office, the real number that ultimately comes out is that you have a net worth of 250 million or more. Along with that, not only do you have issues that you’re dealing with on the finance side so you’re, how do we allocate this money? How do we plan for future generations? But you’re also dealing with a lot of family issues, so that could be nuances between the family because now there’s all this wealth and you get some inner fighting or sometimes there’s just some inner issues that you’re dealing with. It’s also planning for future generations. It’s also making sure that you’ve got the best tax strategies that are possible et cetera. It just gets, it’s just more complex, there are people that might be worth a hundred million that have a family office but if you hire somebody internally, you really need to have those hundreds of millions of dollars in order to justify the cost to have somebody internally helping with that. It’s more of a holistic approach that’s being taken to with the wealth, and the family and the future generations. And that’s where they’ll have family meetings, they’ll have family retreats the whole deal. It’s just taking that next step, a lot of times people will say well they’re family office but they’re just managing the, the asset component, which is an important component, I call those the hard components so then you have the soft components

DJ Van Keuren – which are dealing with the family, relationships and what not so, that’s really what the major definition of a, a family office would be, is that holistic approach to the family and everything associated with it.

Adam Hooper – Perfect, and then how about a single family office versus multi family?

DJ Van Keuren – Sure. The biggest difference is that a single family office is just that, it’s one family. When they’re large enough they’ll have somebody internally that’s able to help with all the difference aspects that I brought up before, not only the hard components of the, of the investment side but also the softer, dealing with the holistic family component. A single family is just that. It’s one single family, could be Michael Dell’s family, could be the family, Hayman family that I worked for or the, the Gates family et cetera. On a multi family office, that’s a family that might not want somebody for themselves, working internally, they may not want the cost, they may want to go, to have more help with somebody that’s got a lot more experience and so a multi family is just that. They’re actually serving as that chief investment officer or that person overseeing the holistic component for the family, but they’re not just doing it for one family, they’re doing it for a multi, a number of families that are doing that. You look at somebody like a CTC, my CFO, they’re owned by the Bank of Montreal, they’ve got over 300 families for example, and one of the advisors might be working with 10 to 12 families, because you are limited as to how many families you can actually service, and service properly. It’s really just working with multiple family and using the resources internally in order to give those families the support that they’re looking for.

Adam Hooper – Got it. Now you said you were a financial advisor in prior career, how would you say the investing habits of a family office differ from that of just a high net worth individual?

DJ Van Keuren – That’s a great question. I’m also going to answer a little bit more to that too, because a lot of times people think of family offices as a institutional investor, right? You hear that name a lot. The reality is is that they’re much closer to the retail investor than they are on the institutional side. Now institutional side, they’ve got their boxes, right? They’re typically investing other people’s moneys. A lot of them are compensated for getting money out the door, to be honest with you. They’re looking at their box to invest into in their specific area, usually they’ve got to write a lot bigger checks, starting at 20 million let’s say on the equity side, so now you’re looking at real estate that’s 75 million plus. They’ve got their box of what they’re looking for and they’ve got to in the marketplace. The retail side, high net worth side, and the family office side, this is personal money, you have emotions that’s a part of it. What’s great is that family offices, they don’t have to invest, you know? They can wait and they can be particular on what they want to allocate to or what they want to invest into. The bigger difference, back to your, the biggest difference between what you’re saying, between the high net worth and the family office is that they’re usually taking into consideration, it could be multiple generations. My friend of mine is dealing with, his family office is 800 family members.

Adam Hooper – Wow.

DJ Van Keuren – That’s how far down it goes. I was talking to a friend of mine that runs the family office for the Rockefellers, there’s 300 and it could, they’re on their fourth generation and the first three have passed and they’re deceased and now they’re, they’re trying to make sure that that money’s there for, they’ve got a lot of mouths to feed basically, right? With a high net worth, they’re trying to create, really create their wealth primarily for their family and so they don’t necessarily have to think about how that’s going to affect hundreds of people or tens of tens of people. You’re not having to worry about as much necessarily, obviously you want to make sure that you’re getting the best returns possible and that you’re allocating et cetera, but you don’t have a lot of that other issues that comes with having a lot more mouths to feed.

Adam Hooper – Perfect. That’s a really good overview to kind of frame the work that you’ve done recently with the survey that you did to kind of get the temperature of how family offices are viewing real estate right now. Why don’t you tell us a little bit about what that survey was, some of the things that you were trying to look for, and then we’ll dig into a few of the kind of key takeaways from there.

DJ Van Keuren – Sure. I work for one single family, the Hayman family and they’re based out of, it’s a Beverly Hills Family. About a year and a half into working for the prior family, I’ll never forget because one of the first people who happened to be well known in the industry on office industry when I was trying to understand it, I said, she said, “Hey we had a conference, we had 60 families in Israel,” and I said, “Well what did you guys talk about?” She goes, “Well, you know, hedge funds 101.” I’m thinking to myself hedge funds 101? These are very intelligent smart people, successful people who have a lot of money, I can’t believe that. But the reality is is that, families who they created their money in chemicals or rubber tires or whatever the case is, they’re an expert in that field, but they don’t necessarily really understand hedge funds or real estate or private equity, ya know? Stocks, bonds, to that extent. There is an education factor there. So I started back about four years ago, just starting to provide that whether it was through a book or occasional podcasts or just materials to share. One of the things that I did about three months ago through the Family Office Real Estate Magazine is I put together a study which is the largest comprehensive, most comprehensive study of family offices and the real estate holdings that’s been put out there. We had over a hundred families. We had a good dataset. We did about 60 questions in there. And it was really to try and get an idea

DJ Van Keuren – so that other families could know, “Hey what are others doing?” They have this in like the insurance industry with the insurance investors and stuff, so that there can be an understanding to what the peers are doing. There’s definitely some reports that have been put out for high net worth that give some information and background about what their habits are. Eventually we’ll try to combine that to really compare what a high net worth is doing compared to family offices. Because I think that’ll be interesting too, to see where the real difference is there. And so that’s what we just finished up and that’s, so we’ve got some intel into some information that nobody’s really been able to have access to.

Adam Hooper – Perfect. What was the most surprising thing that you found when looking over the results of that survey?

DJ Van Keuren – You know there’s a couple things that was really interesting, one has to do with the big talking point, which has been, at least for six to nine months and I’m sure you guys have talked about opportunity zones, right? And there was always talk that well, family offices are going to be the ones that are really funding this. And from the surveys, only 24% of the families said that they were going to invest in an opportunity zone and the remaining was either maybe or no. And so it’s, and a lot of it has to do with that wait and see mode, because we’re still waiting for the regulations to come out. Where the monies are coming from, outside of the large institutions like an insurance company or a bank or whatnot, but the individual check writers are really, are coming more from the high net worth than it is coming from the family offices. That was quite interesting to me. Another thing too is that one of the areas of allocations, there’s a huge and has been a huge push for doing direct deals from family offices over the last couple years. But there is also a significant amount of families that were looking to invest into private funds of sorts. So not just a one off deal, but a fund that would have multiple deals. Those were two big areas that I think really stick out. Because there is, has been a big push toward direct and also the discussion with the opportunity zones.

Adam Hooper – Now with direct versus funds, maybe we could take again a second to go over that. Direct in the family office space, is that them acquiring assets and operating themselves with their internal management? Or is that partnering with a third party sponsor, that we would in our world call them sponsors?

DJ Van Keuren – Well, there’s two types. That’s a good question. On the direct side I think I want to clarify something that I think’s very important. Because and this is something I don’t think people realize. When people go out searching for capital and they’re like, “Well, I’m going to call one of these large families or they can write me a $5 million check,” and, “Hey, they’ve been doing real estate for 30 years,” the reality is is that the family offices that participate in investments, let’s say directly into real estate, They’re not the real estate families. Because their attitude is that look, we’re going to do it ourselves rather than give somebody else the money. Now if you look at a tech side and you went to a Mark Zuckerberg or whatnot and said, “Hey here’s this great tech company, there’s a great opportunity.” They’ll write a personal check for that because they understand the industry, they’re going to understand what’s happening per se, but it’s like look, you got to have somebody that really specializes and really understands that niche, whereas real estate they’re like look, I’ll just invest it into my own deals. For that family offices, you do get some families that will do deals themselves, but over 40% are looking to invest as the LP. And that could be, obviously working with others. One of the biggest things to do, because they don’t have that expertise, is they do like to look for local operators that they feel good about working with. Because they only want to find three or four different operators to really work with,

DJ Van Keuren – so that they don’t have to continue to go over and over and over again. It’s all about trust, it’s all about a relationship. Once there’s that trust there, then they can, they’ll continue to support that operator into multiple deals, which is what operators want, right? They want to be able to have one source, or the ability to raise money, which is great with what you guys do because it gives them one point of access for capital, right? So that they don’t have to necessarily go out and find those X number of investors in order to work on a project.

Adam Hooper – Perfect. Then how about just overall allocation to the asset class. Were you able to uncover anything in terms of kind of look going forward or are they bullish on the real estate as an asset class? Are they pulling back at this stage of the cycle? Anything you learned there?

DJ Van Keuren – Yeah. Familiesknow that we’re about to go into some sight of a downturn of some sorts. They’re very cautious of that. And the majority of the families feel that there is going to be somewhat of a downturn within the next 12 to 18 months. Some of them feel it’s a little sooner, some of them feels a little bit later, but as a whole, everybody is like, okay something is going to be happening. And I have my philosophy on that, on the whole cycle thing. I know you did a fantastic podcast with Glenn Mueller who I have the biggest respect for and I consider him the Godfather of market cycles to be honest with you. They do run in certain spurts. With a lot of them, the majority are holding tight. So you’ve got let’s say 50% that are saying, we’re just going to stay where we’re at, and then the other 25 and 25 to equal the hundred is either their increasing a little bit, or they’re cutting back. So for the majority of them are staying where they’re at. The biggest area of interest for families, which is an alarming, 77% of the respondents are in that multi family sector and that is the biggest area of interest, and then it’s followed by office, retail and hotels. And office, retail and hotels are, there’s over 25% that have an interest in those areas as well. But multi family, hands down is the biggest, biggest area of interest, they like the steady cash flow. They also like the diversification of all the tenants et cetera. And they hear what’s going on in the market so they, that’s one of the areas

DJ Van Keuren – that they’re definitely holding true to.

Adam Hooper – What sort of a total portfolio allocation are the respondents, and again maybe this is obviously real estate focused, so maybe the results are going to be a little bit skewed from the greater family office world. What percentage allocation are you seeing in typical portfolio to real estate as an asset class, whether it’s direct or into funds?

DJ Van Keuren – It’s about 17%.

Adam Hooper – 17%?

DJ Van Keuren – That is a number, you know we’ve, another group that does a great job and has been doing surveys, but they do it on a much more broader scale in private equity and hedge funds and everything else is Campden Wealth and we’ve compared our statistics to them and they’re spot on. That’s the average allocation. That’s come up a little bit from last year. Last year it had gone down in the U.S. to about 10.3. The year before that it was about 16.2 and now it came back up over the last year.

Adam Hooper – Interesting. Do you think that’s going to change over time, or it sounds like most are going to stay fairly consistent without going forward, that kind of 15 to 17% of the portfolio?

DJ Van Keuren – When you look back, the second biggest area of wealth creation outside of the main area where families have made a lot of money, is in real estate. That’s because of all the tax benefits. That you’ve got a hard asset, you’ve got a real asset. It’s tangible, right? And so that’s always going to play a main part of a family office portfolio and it should for high net worth too. It’s an area that continues to grow, continues to do well. There’s been talk before where it’s like look we should add that to the broader index as one of the major asset classes and you know that’s being compared. And return-wise, in fact it’s funny because my patriarch, he had a second, family had a second area of wealth creation where they sold a business at the beginning of 2011. Then he really heavily started investing in real estate, more so than what they were doing in the past. And he’s like, “Look, I’ve made more money in real estate than I have in anything else that I’ve done.”

Adam Hooper – Wow.

DJ Van Keuren – That’s really what is across the board, but something that I think is very interesting too that I do want to make point is that, over 30% of the respondents, their hold time is 15 plus years. They look for long term holds. You had about the same amount within, you know, five to seven was about 18%. Same thing at seven to 10. Just a tad bit less from 10 to 15. There’s two areas here where if there’s ability to kick off that income stream and help for future generations, that they’re all for it.

Tyler Stewart – How are you seeing family offices use real estate? You said there’s a view that in the next 12 to 18 months there’s going to be a downturn, yet we say family offices increase their holdings in real estate. How do they view real estate in terms of comparing it with the market cycle where we are, how they use that as a strategy?

DJ Van Keuren – That’s a good question. Last year, like I said, I mean there was that, they were, people were holding true. It goes back to if you’ve got, if you’re looking for the long term, and this is just from a fundamental of real estate, right? That if you’re able to absorb a downturn but you’re able to still have positive cashflow, it really doesn’t matter if your asset’s worth zero. Because if you’ve got that cashflow that’s able to pay for the debt and like I said, it’s positive, then you can outlive a cycle and you can get through that cycle. They don’t feel that there’s necessarily a recession coming, but they know that there’s going to be some changes that are happening which is just part of the economic cycle. They’re not necessarily sophisticated on where we are or what that’s going to look like, but the number one thing, and I did a survey about four years ago as well, with a different sample size, and it’s the exact same result, which is the number one thing that families want to know is where are we in the real estate cycle? They do feel that something’s coming around the corner, but a good deal’s still a good deal, regardless. I mean you guys know this, you can take money down markets. And whether that’s stocks or real estate, it just depends on what that property type is and where it’s located and what do the financials look like for that opportunity?

Adam Hooper – Now you mentioned a little bit on the product type, multi family obviously being the most sought after, I guess. What about strategy in terms of more core, with your comments too, of being where we’re at in the cycle, most, I think the general impression of the family office is they’re, they have the wealth and they’re investing to preserve it, right? So kind of capital preservation is one of the primary strategies of a family office. Have you seen that strategy shift across the kind of core, core-plus opportunistic spectrum?

DJ Van Keuren – That is very very interesting. This is where in some ways you have a contradiction, right? Because 72% of the respondents look for opportunistic opportunities.

Adam Hooper – Interesting.

DJ Van Keuren – Then second, which is over 65 is value-add. Then you’ve got development, which is half of them want development and then 44’s a distressed and so you get down to the core, core-plus and that’s in the 25% range. And so right, it sort of contradicts the two areas where, because on the value-add side, usually that’s a three to five year play, right? For that opportunistic or development. They’re getting in, they’re getting the moneys and letting it go. But some of that I think, the way that I would interpret that is that they want to get those higher rates returned, but they also take a longer term perspective of their capital in the real estate space.

Adam Hooper – So taking on riskier projects at the outset but with a longer term intent, so kind of stabilize to hold.

DJ Van Keuren – Stabilize to hold would definitely be one, yes, that would definitely be one of those areas for sure. Obviously they want to be tax efficient so if that’s where you start getting into 1031’s but, when you look at some of the statistics that we’ve got on the 1031 side, not as many people are doing 1031’s as you’d think that are doing 1031’s. Like you were saying, let’s get it stabilized, but we still want that opportunity for a higher rate of return. If you do a deal properly, you’re going to end up, whether you refinance it after a value-add or you do a development deal and you’re able to return the principal, now you’re playing with the house’s money. Obviously that’s sort of the best of both worlds, right? You’re getting your money back, but you’re also able to click on coupons on a go forward basis.

Adam Hooper – Now you also mentioned earlier a family is going to look for anywhere kind of three to four sponsors that they’re going to partner with and just kind of leverage those relationships. Want to talk a little bit about the relationship side of this and how do family offices look at building a relationship or doing diligence because they’re bombarded with pitches for opportunities all the time, right? How do they kind of sift through those? And maybe take us a little bit through what that process looks like of either identifying a new manager they want to work with or when they see something interesting, how does that process unfold to build those relationships?

DJ Van Keuren – The biggest issues with family office is just being able to find them. That’s why if there’s a platform like what you guys have that you’ve got families that are a part of that, you know that’s a great way to, a great in per se, but it is all relationship driven. That could be from you refer me to somebody or I do something for you, I provide you good return and then you’re going to start talking about it. But families are relationship driven. They don’t have, and I’m talking to this on the majority, right? I’m not talking about families that created their wealth in real estate, but they don’t have a formal process of how they really screen sponsors, and how they really screen the opportunities in general. I’m a big component. When I get asked from other families I’m like, well first off, you got to make sure that you’ve got a quality sponsor. There’s various components that you want to look for to see that they sort of check the boxes, because that’s who you’re working with, that’s who you’re trusting, that’s who you’re putting your faith into and the deals are secondary, right? But also what happens is that once they’re comfortable with those sponsors and who they’re working with, then the deal becomes less important because they’re trusting those people. So you know it’s, it really comes down to they’re pitched all the time, I think you just brought that up. I get probably five a day about deals that people are sending me and just selling me, instead of starting by adding value. That’s one of the biggest things that they can do

DJ Van Keuren – is to say, “Hey, this is what we’re doing. It’s nice to meet you,” and don’t ask them for money out of the gate, but start to build that relationship. One of the things that I would do, quite honestly, is if I was sponsor working with you guys, I would send them various podcasts about different things that you guys have covered that are a value-add, right? You guys have some tremendous resources that, and some great podcasts and whatnot that I think can really be helpful for the sponsors to utilize and say, “Hey, this is something that was discussed the other day, you might want to take a listen, it could be helpful,” et cetera. And just start doing that. I can tell you this as if, if we’re working on a project and we’ve had just a couple projects that we’ve worked with other families on that we’ve said hey, do you want to sort of come along? You know what I’ll do is I’ll meet family and get to know them, send them a thank you card, be there if they’ve got questions. Let them know for that, and then I won’t even, if there’s a project that we’re working on, which at the time, let’s say I don’t have anything, I might say hey, we’re working on this deal, do you want to take a look at it? I mean that’s literally the pitch because it’s like we’re doing this, we’re putting money into it, do you want to take a look at it? And they’ll be like, “Hey yeah.” And that’s a really laid back way of doing it, but that’s what’s really appreciated on families. And then when they do start investing, don’t expect that $5 million check. They might write you a $250,000 check just to test you out.

DJ Van Keuren – They might write ya $100,000 check to test you out. Or depending on how large a family are, they could do two million, but if they wrote you a $2 million check just be aware of that there’s a $10 million check sitting around the corner, because that was just their minimum that they were starting with.

Adam Hooper – Right.

DJ Van Keuren – It’s a longer term process for sure. And so you got to look at it like a nine month to two year endeavor, but once you get them, they know other families and they’re going to refer you to other families if you do a good job. And make it fun. Because I can tell you this is that, the nicest people, the best people I’ve met are people that are extremely wealthy and they’re just good people. And you know, there’s some ways you can just hang out with them and do things that they’ll appreciate and that just really helps build the relationships.

Tyler Stewart – You mentioned a number of times you’ve got to trust the sponsor. Could you lay out for me what that process looks like for you when you’re looking to build trust with a sponsor? What questions are you asking? What resources are you looking for? Are you looking at track record? What do you need to see from the sponsor to build that trust?

DJ Van Keuren – For us we’re a little bit different just because of my background and understanding of real estate so that’ll come back to say what I look for is what’s the track record, like you said. What have they done in the past? Have they been through a downturn in the past? If you’ve got, if somebody’s been through the last cycle and they were around before it started and they were able to weather that storm, I would play that up significantly because that wasn’t an easy time for a lot of real estate operators. If you were able to get through that I’d definitely go through that. Outside the track record I’d also go through and say what’s the team done? How long have you guys worked together, right? And what other similar type of products, projects have you worked on? If you’re doing multi family, is that what your track record consists of? Is it multi family or have you been doing hotels? And now you’re moving over to multi family. I would look at that. A big on is that if you say you’re going to do something, you do it. If you say that, “Hey, I’m going to send you over a list of our track record for what we’ve been talking about,” do it. And don’t wait a week, don’t wait two weeks. Because what starts happening is okay, if you have this information together, then it shouldn’t have taken you two weeks in order to send it to me. Because that’s, you’re sending me a message of how organized. One of the biggest things that I would do, and this is from my days working with the big institutions, if you work with a large institution

DJ Van Keuren – they’re going to ask you for everything under the sun. They’re going to want to know all the details just across the board, so what I would do is I’d actually create a war room of such, whether it’s in Dropbox or some type of a program, I think if you guys have that then you definitely want to upload as much as you can. You want to put it out there. Put together the bios of everybody, put together the track record. Put together the, if you’ve got financials, put together the financials. Just put all that data information that you can that’s going to be asked about. Which I’m sure you guys have a checklist. Put it all together and I’d even put it into a hard copy and I would send it to them. Because if that binder is an inch or two thick, I’ll tell you exactly what’s going to happen is that they might flip through just a few pages, but you’re sending a message that says, we’ve got our act together. We know what we’re doing. This is not the first time, we’ve done this before, right? And I think that that, that right there is going to get 90% of the way to the finish line because they haven’t had to ask. They’re like, “Here ya go.” And it starts drawing that, like I said, even if they only look it through a couple pages, you’re sending them a message which is extremely positive.

Tyler Stewart – When you’re building the trust with the sponsor, how much time are you actually spending on the deal or are you? Is it all sponsor first?

DJ Van Keuren – If you take the approach to get to know them, keep them in touch. If you’re working on a project you can even send emails and say hey, we just closed on this project, just want to give you a little FYI. If you’ve had another milestone you can send an email and just say, “Hey I just want to let you know of a milestone that we just hit.” If you had a sale with a return even better. Because you can say, “Hey we just exited, here was our return.” It might have been a deal that you started three years ago or four years ago, it’s still relevant, right? You still had a successful close and you also had a successful outcome, share that. That’s where you’ll get to the point to say, “Hey, we’re working on another deal, you want to take a look at it?” And by that time they’re like, they’re familiar right? They’ve seen your name come across. They’ve seen some things that you’ve actually done. And then what they’ll say, most likely, they’d probably say, “Yeah, I’d like to take a look at it.” Okay now, you’ve sort of gotten over that sponsor issue and now you’re on to the project. And the deal itself, right? That’s where you want to get to that point. You want to get to the point where it’s just, “Hey, you want to take a look at this?” And if they say yes then you know that you’ve gotten over that hump and now you can focus on the deal at hand and that’s where you make sure that don’t take anything for granted. That they understand this or this understand that. You want to make any presentation as simple as possible

DJ Van Keuren – on the key points and what do they want to know? They really, you know, anybody wants to know what are you investing into? How long’s it going to take? How do I know that you’re going to probably be successful? That comes from what you’ve probably done in the past. Am I going to get my money back, right? Do you have a vested interest in this? And then what supporting information you have that that’s good, that it is a good deal that you’re taking on, so you can be successful.

Adam Hooper – You said there, does the manager have a vested interest? I think that’s something that we see in our industry, and I’m curious how that plays out in the family office world is I think people are inherently skeptical of any time that someone brings them an opportunity that they’re going to taking advantage of, right, or they’re on opposing teams. I feel that that’s not necessarily the case, right? When you’re investing with a manager who’s making decisions on your behalf and is out there to try to maximize profit for all, you’re really on the same team, right? I’d be curious how the family offices view this partnership or this relationship as a, do they view it as opposing parties? Are the family office interests not necessarily aligned with that of the sponsor or do they see it as more of the same team kind of approach?

DJ Van Keuren – I guess the question is is that are you indicating that the sponsor has a financial, that they’ve invested money into the deal and a substantial amount according to them? Are you saying a sponsor that doesn’t put any money in?

Adam Hooper – Well, ideally the sponsor’s going to have money in the deal, right? That’s pretty much a given for most, again most good managers are going to have their own capital invested in the deal as well.

DJ Van Keuren – If, once again I mean one, that helps, right? Because they know that they’re not going to want to just bow out because they’ve got something to lose. And that can vary, right? Because to somebody $200,000 could be everything to them, where to others it’s more like two million, right? That varies amongst what that sponsor really has but having something that’s meaningful in there one is first and foremost is important, but no, families definitely look at ’em that they’re on the same side of the table, that’s why they’re hiring them. They’re hiring them basically to help have a successful outcome. It’s not against them. If they’re investing as, where it gets a little bit different is the level of understanding in the real estate market. Now, when my family that I worked for before, I mean this gentleman created, he turned a million into 600 million and he did that through real estate, but he worked with local operators. He would bring in all the money himself. He’d just say here’s the 90% and let’s structure this deal or whatever the case is. But he also had clauses in there that says that if there were certain issues that came in, came up, he had the right to step in and to remove that local operator to make sure that that deal was successful. Now if a family’s coming in as an LP and they don’t have that type of control because they maybe only put in 10% of the money, or 20% of the money, they’re not going to look to step in because that’s why, that’s why they’re hiring them, that’s why they’re working with them

DJ Van Keuren – is to piggyback off of their expertise. And but I will tell you this is that one of the big things that families do talk about is either the level of reporting or communication. That it’s not like, okay that’s the last time you’re going to hear them, make sure you keep in touch. You tell them what’s going on, right? Make sure that you’ve got good reporting to tell them how their investment is doing. And if you’ve got to give them updates, even if you said look, we’re going to do a quarterly update, we’ll give you a call or whatever. They might say I’m too busy, I can’t do it, but at least you’re offering that. So I think communication is a big factor after the fact that you start working on a deal together.

Adam Hooper – Yeah, that was another question, do you see any differences or I guess higher expectations of the type of reporting or frequency of reporting in the family office space? Is it usually a typical kind of quarterly report that you’re going to get, or do you see more frequent or monthly reporting? What’s typical in that space? At least from what the family would desire?

DJ Van Keuren – It’s really more on a quarterly basis. One of the biggest issues that families have is a lot of times they’re going to have, you know you’ve got your stocks and bonds, and if you’re holding at one of the major brokerage houses, they’ve already got those statements that are being sent out on a monthly basis, et cetera. But with families they’ve got a lot of LP interest. They could have deals coming from all different places, and because they’re private they’ve got all different types of reporting. Quarterly is definitely good and the simpler you can make that reporting just to be precise, the better you are. And one of the biggest issues families do have is that in-house consolidation. Because they do have investment information coming from all different types of operators that they work with or sponsors. And so that’s where that internal, whether it’s the CFO or the CIO is working on trying to get all that information into a centralized database of sorts. The better you can have that reporting provided, the better the families like it.

Adam Hooper – Perfect. Well I think that’s a pretty good, pretty good in depth overview DJ, of kind of what’s going on in the family office space. As always on the show try to kind of relate what we talked about to what our listeners, again primarily high net worth individuals can take away, from the results of the survey and just your experience in the family office space, what are some of the maybe key takeaways that a high net worth individual can learn from how family offices approach this asset class?

DJ Van Keuren – Well, I’ll tell you what. It’s the fundamentals regardless of whether you’re high net worth or high net worth or family office. It comes down to the sponsor first. Make sure that you’ve got a good understanding, that you are comfortable with what they’ve done in the past, and if you can’t get comfortable with a sponsor, the deal doesn’t mean anything. The deal’s secondary. It’s to continue to focus on that, the sponsor first and foremost and then secondary is the project. And you’ve got to make sure that it aligns with what your objectives are, whether that’s to get current income or you want to try to get a higher rate of return. I think with the downturn that we’re about to see, which isn’t going to be a long downturn, but a short downturn, if you can work with somebody that does have a track record of going through the last recession is only going to increase your opportunity to weather any storms that could be coming up.

Adam Hooper – Perfect. If listeners want to learn more about your survey, about what you’re up to and your educational tools out there, how can they found out about what you are up to in the family office world?

DJ Van Keuren – The easiest thing to do is just to go to my website which is djvankeuren.com. It’s D-J, V as in Victor, A-N K-E-U-R-E-N dot com. That’s just some information on myself. The one thing that I do do is that if anybody has questions I’m happy to help, my personal email’s on there and I’ll try to get back to you. Sometimes it might take me an extra day, so I can’t do it the same day, but anything I can do to help or try to give some insight, I’m happy to do so. Once again I think that knowledge is education and I also think that people need to take advantage of the resources you guys have as much as possible, because they are some great resources you guys provide.

Adam Hooper – Well thank you, and we’ll put those links down in the show notes so listeners out there can just go click on that and find out a little bit more about what you do in the space.

DJ Van Keuren – Great, sounds good, thanks so much guys.

Adam Hooper – Thanks again for joining DJ. Listeners, as always we appreciate your comments and feedback. If you have any questions, send us a note to podcast@realcrowd.com. With that, we’ll catch ya on the next one.