John Lettera on Building a $1 Billion Real Estate Platform

0:02 our Centmillionaire Fireside Chat. So, Richard, if you want to make your way to the stage and also if we have John Lera, if you want to make your way up to the stage here, too. This is going to be how to build 1 billion in assets platform with John and Richard. Let's give them a little round of applause as they make their way to the stage. Great. Thank you, Charlie. Um, one of the fun things, um, we get to do running the family office club is just interview people that I want to learn from and then we just happen to do it in front of all of you and then try to keep it interesting for other founders. I try to ask questions that, um, I'm personally curious about. Uh, but we have here today with us, uh, John Lara. Um, probably met with him in person now, you know, 10 times. He's a co-founder and partner of Fairbridge Asset Management, which manages over $1 billion their real estate platform. Uh they're backed by multiple institutional investment groups including Oak Tree Capital which is backed by the billionaire Howard Marx.

0:57 Um he has over 20 years of legal experience. Um has been working for over 25 years in real estate debt uh originations. He also served in the US Marine Corps and uh did four tours in Iraq as well. Um let's give him a round of applause for that. Do we have any other veterans in the room that want to stand up? We can give you a round of applause as well. Any veterans? Thank you. Thank you uh for being here. Ed, uh Ed's the founder of Gold's Gym, which you might have noticed across the street, and he came and gave a keynote at our last event, I think it was, in Beverly Hills. So, appreciate you being here, Ed. Um so, John, uh thank you for being here. What else did I miss in your bio and introduction? I think you covered it all. All right, great. Um, well, over 30 years, you've scaled to the size of the business you have now. A lot of people don't get to that size.

1:55 They get stuck at 30 million, 50 million, under 100 million in assets. Um, what is the edge that helped you get there? Um, that might be simple to explain, but maybe most people don't talk about. That's a good question. First, I'll start by saying everything I say today comes from the perspective of real estate. So, I don't know how many real estate professionals are in the room, but that's what I know. It's all I do. So, usually when I'm speaking, it's not from an investment advice perspective. It's from a real estate perspective. And I don't think I necessarily have an edge. What I have always tried to do in my career is just be authentic, be myself, and be fully transparent with my investors. For instance, as I was coming out here, we just got off a long conference call going through every single default in our portfolio. And when I say be yourself, I really mean, for instance, I don't have the Ivy League school background. Born and raised in New York, as you could probably tell, especially when I start speaking a little bit more. And I like to be able to use that to my advantage.

3:01 For instance, for those of you in real estate, you know that real estate is 99% Everyone's trying to you, right? Everyone's full of in real estate. And just using that background, using my background, I'd like to think that I could really sniff that out very quickly. So, if I had to come up with any sort of edge, I'd say I spent a lot of time concentrating on the downside. And I've always subscribed to the theory that only the paranoid survive. And I believe that as long as I concentrate on the downside, the upside usually just takes care of itself. Interesting. Yeah. Uh Larry Neymar, we're doing a fireside chat with him this evening. He's the founder of the e channel. He sold for a billion dollars. And in his book, he said, "To survive in Los Angeles, you assume everybody is lying to you until they prove to you they're not." And um so I guess you're saying something pretty similar, right?

3:51 Yeah. Absolutely. Interesting. Okay. Uh, so I know you say you don't have an edge, but I think everyone in the room's like, he obviously has an edge. He's managing a billion dollars and very successful. So, um, what do others not see about you behind the scenes that maybe is a superpower of yours? I know you say you don't have an edge, but you obviously are doing many, many things better than the average real estate platform out there. But what about you personally do you think is a superpower besides being authentic, maybe not being afraid of having an opinion, etc.? Superpower. Wow. I'd say knowing what you know like I know what I know and I think you've heard me say this many times before you know I know real estate that's what I invest in. I subscribe to the Warren Buffett theory where you know diversification is just a hedge against ignorance. I I all I am in is real estate. My family office is invested in real estate. My fund is in real estate. I know real estate. I don't even know what I don't know. So when people come to me with all these other types of investments, I think you have to be disciplined enough to walk away.

4:59 Say no. And the same goes through for even a real estate investment. You have to be extremely disciplined. Everyone thinks they have the cutest baby. So don't fall in love with the asset. I cannot say that enough. Fall in love with the deal, not the asset. And you have to be disciplined enough to walk away if a deal is not going your way. You know, we're lenders. So, if I don't like the LTV, if I don't like the LTC, if I don't like my ratios, if I don't like the sponsor, I don't care how much I like that trophy asset, I walk away from a deal. There's always another deal to be had. Got it. Uh it reminds me of um you know, John is nice enough because he uh is connected to Pace University. He got us a venue, a couple of different venues we've used in White Plains in New York City at our last AI mastermind. And we were talking about using AI tools and how that could replace maybe in-person due diligence.

5:52 And and John said every single time he wants to walk the property himself with the person who is wanting to acquire the property. And I don't care what AI tools you have, nothing replaces that. And I thought that was really that kind of stood out during the day as something that you were 100% confident on and you were not going to change no matter what AI tools came up. Right. So yeah, and I'll reiterate again again how many people are in real estate in in the room? It's probably a lot, right? So, I I'm all for technology, AI. We utilize it. We have all the algorithms, the software. I could do my BPOS, my comps, but we're a national fund. And maybe this is my military training, but I'll tell any sponsor, any borrow when they call us up, I could be anywhere in the country within 24 hours. And when I tell my analysts the same thing when they're like, "We have something to do." And you know, the Marines were anywhere in the world in 24 hours. I think we could be anywhere in the country within 24 hours because I truly believe that till this day, no matter how much technology we use, real estate is a full contact sport. Someone in my company is walking the property, meeting the sponsor, and I want to meet the sponsor at the property. You're not at the property, we're done. Deal's off. So, we still walk a property, meet the sponsor. I want to be on the roof, in the utility rooms, every part of it. That's real estate.

7:09 Great. Um, how about So, do you simply outwork everyone in your mind? Is your is your work ethic miles deep? Or do you think you're more thoughtful and strategic than other people? Um, or is it a combination of of both in your mind? Or is it heavily a slant one way or the other? I would say I spend a lot of time making sure that whatever task I am doing in a particular moment that I'm fully focused and concentrating. I'm not one to multitask. I'm not answering emails and text messages as I'm walking a property. So, I think it's more or less that I I'm not sitting here saying I outwork everybody, but I would say that I do focus more and I've noticed than the average person. And maybe that's just a factor of my age. I mean, I'm getting up there now. I'mif 54 years old, so I'm not that into the phone, into the texting. I mean, obviously, I use it, but if I have a task, I'm not worried about who's emailing me at that moment.

8:04 And I'm very good at just answering emails at specified periods in the day. I don't feel the need to have to answer people immediately. Right. Got it. Um how did you first come across um the first institutional investor you closed? How do you go from raising capital from local friends, local contacts, family offices, and then jump into the institutional world? How did that happen for you? I could talk about this all day, but I'll be very quick. It it's definitely was an evolution and a journey. So very very quickly I started off just doing bridge lending in the Bronx. That's where I was born. I was raised in the Bronx for 10 years. I would not do a deal outside of the Bronx. It was what I knew. It was my comfort zone. I understood it and I knew I could make money. The minute you gave me something in Brooklyn, it was like another country. I wasn't going to Brooklyn. I wasn't going to Queens. In fact, till this day, I'm a just as a complete aside, I'm a born and raised New Yorker, 50 54 years old. I'm still yet to step foot onto Staten Island.

9:01 Never been there. So, um, and it and and it's truly just an evolution. You know, I started off doing just $100,000 deals with my money and my family's money and then eventually that grew to 200, 300, a million, and um, obviously as the business started to scale and the business started to grow, we would look at deals now around the tri-state area. And then the tri-state area turned into more of a national environment. And then I've never went out and and I think it's an important point about how to scale a business. I've truly never went out looking for the institutional money. And I think if you run a business as diligent and as successful as I have with my partners at the time, the institutions truly do find you. and we started getting knock on the doors for first leverage credit lines that eventually turned into institutional investors coming in and then just to bring it full circle that also brought a whole level and I don't know if this is one of your questions but it also brings an entire level of complexity and that complexity was learned very difficult along the way for instance many institutions started knocking on my door wanting to invest big money which I was happily ready to take however at that point in my career,

10:18 I didn't have an audit. I didn't have third party adviserss. I didn't have the correct legal counsel. I didn't have fund administrators. And that was a whole process for me to learn. And over the years, I went and I spent the money to get an audit. I did all my legal documents the correct way with the big law firms. I went and got a the largest fund administrator in the world and eventually scaled and scaled and scaled. Yeah. So would you say if someone here is in a room and they're at somewhere between 100 and 300 million of assets that maybe overinvest in institutionalizing if they want to welcome those institutional investors is that kind of the the AUM level to overinvest in all those things you just talked about once you're over 100 million for sure in your climbing. What I don't think there's necessarily a level I think that if you truly want institutional money you definitely need to have an institutional platform. No institutional will invest with you without an institutional platform and you have to be able to pass there. So there's third party due diligence people out there that do it like there's Mercers of the world and Fact Rights and you have to be able to pass their due diligence requirements and it took me many years to get the top ratings on each of these third party due diligence requirements. So spend the money and and

11:36 believe me, I wasn't making a ton of money in my fund where I could go out and spend $100,000 and start doing audited financials on a quarterly basis. But I did it. I didn't have the money to go hire some of the largest law firms. You know, our lawyers are Goodwin Proctor to do all my REIT documentation, but we did it. We now have offshore funds, Cayman funds, auditors, opus fund administration does our NAV on a monthly basis. Like these are all the institutional type things that you have to do if you truly want that institutional capital. If you don't spend the money, spend the time and do it, I am telling you, you're wasting your time. You will never raise a dime of institutional capital. Great. Thank you. Um, so we talk a lot about being ultra healthy, not just aiming at being ultra wealthy. Um, do you see your health as simply a smart investment or an advantage that gives you more energy in your business? Where do you see that all fit in?

12:29 I got to chase these borrowers. I'm constantly running after borrowers and who's not paying I got to get them to pay. So if I there's some I'm being a bit funny, but there is a little bit of truth to that. I mean, we've we've had several instances where there were some issues with with certain borrowers, but you know, health has always been a large part of my life. Obviously, I have a military background, so it was instilled in me at a very young age. But I also, if I don't start my day off with some sort of a workout, I just do not have that mental clarity or that focus that I need to get through the day. I I I believe it goes hand in hand. I truly do. Right. For sure. Um, was there some point of increased momentum, uh, a choke point you acquired or something that you did and then everything went straight up afterwards? It felt like like you just started going 70 miles per hour instead of 40 miles per hour between you know a million and a billion. Did you do you notice an event? Yeah, the event had nothing to do truly with an investment.

13:26 Like I've never in my 30 years of being in this business changed my investment philosophy. It has always been the same. And for those of you again in real estate, I just stick to the the basics of real estate, investing good assets, good jurisdictions, good basis. So that's never changed. But what truly catapulted my fund to get into the billion dollar realm is as I was saying the minute I institutionalized my platform the money started really coming in really started coming in and and what do I mean by that again just to reiterate the minute that we got or started to get audited financials and now I had one to two years of audited financials behind me the moment that I hired opus fund administrators as our fund administrator Now I have my NAV done, my NAV on a monthly basis and newsletters. Once we had that institutional platform, then the money really started coming in. That catapulted us. Great. Um, what's a a million-dollar insight that you could provide that you don't hear people say at investment conferences? Maybe it's counterintuitive. It's something you haven't said yet today. It's put big pressure on you. What's a what's a million- dollar insight for everyone here? I would say some of my best opportunities in my career have grown out of problems. And usually for the most part, I've noticed that problems

14:45 are a blessing in disguise. And they can be an opportunity in disguise, especially in real estate. And like I said, some of my best investment options, some of my best investments that I've done arose out of problems along the way. And I've always say to everyone in my company, you know, a problem is only a problem if it can't be fixed. And usually every problem could be fixed, right? We had a four or I guess a $5 billion real estate platform head on stage our last investor summit and he said that 90% of his problems are people problems. 90% of his opportunities or people opportunities. Um so as you've built up your team, any tips for those building platforms on recruiting best talent or who you look for or what you look for in their background? like do you hire a lot of past military uh folks because of your background or any other tips or suggestions on that side? Yeah, you just got to get out there. I mean, for me, almost every single person that I've hired has sat on the other side of the table. That's my biggest recruiting technique is just seeing how other people operate across the table, negotiating techniques, how they underwrite, how they look at real estate deals. I would say 90% of the people we've hired are people that I've seen doing business with. Sure. And then for

16:02 any investors here in the room that may hear a real estate pitch from anyone during this event, um what advice would you have for them on making wise real estate investments? We heard you need to visit the property, walk it in person, you know, with the person that you're lending the money to in your case. Um any other tips for investors here in the room that allocate to real estate? Yeah, I could tell you my two turnoffs like where where I just walk away from a deal. Number one is I'm not a fan of the whole sweat equity like um oh I want 80% loan to cost and I'll say let me see your 20%. Well I own the property for five years and it's worth this much so that's my 20%. You know that's that's not equity. Um make sure there's skin in the game. Anyone who is truly does not have true skin in the game I would not do a deal. I would not do an investment and I would not do anything with that individual whatsoever. So to me skin in the game is very very important. The other thing I hear all the time which is another very very large turnoff for us is where people consistently on a real estate transaction are always offering me equity upside in the back. And for instance if I come out and I price a deal at let's say 11% and two points someone may come back and say well how about you do 10% but a 10% equity kicker or some sort of warrant on the back end.

17:22 And it always bewildered me on why someone would be willing to give up just, you know, a 100 basis points but yet offer me a backend equity split. Like why are they willing to give up that backend equity? Makes zero sense. I am so much cheaper than equity could ever be. And that always raises a red flag for me as well. I mean debt should always be cheaper than equity. Right. Right. So from from your perspective, you're like, why would you offer that if you really believe in what you're doing? Because if you think you're going to do amazingly well, you want to keep all the equity you can. From your perspective, is it smart or sharp or something that you do do to ask for equity even if the person doesn't want to give it up? Is that something you guys do? No, we we don't do it. And maybe this is the lawyer in me speaking, but there's a lot of legalities on and conflicting legalities on taking equity and debt even in the form of warrants. It could be construed to merge. There's a lot of legalities on why we don't get involved at all with equity. I mean, we've been involved in early in my career on some equity transactions where if it goes into litigation, not only can it be merged, but there's you have to pick and choose your remedy, either you're an equity owner, you're a debt owner, if you're a debt and you're trying to wipe out all the equity, you don't want the cost to merge it. I mean, I could just go on. There's derivative and shareholder lawsuits that you could get involved in to tie up, you know, the foreclosure process. So, we just I I prefer and I think I mentioned this to

18:41 you and and a lot of your investors came back to me and um and I you mentioned that at the last one where I said I prefer to sleep at night and and not remain awake and by controlling the capital stack and being at the top of the capital stack knowing I could wipe everybody else out. That's where I want to be. Right. Right. I remember uh talking about like, you know, do you lose sleep at night? And you're like, no, we're the reason that other people lose sleep at night. Right. Um, so I like I like the way you said that. So what about for people in the room who are meeting with someone, they have their own real estate platform? Any quick tip on like following up with a busy investor, getting their attention, breaking through the clutter when they have 100 deals coming in per week? You obviously were able to do it. Um, any tips for them that you haven't said yet? I I do. Listen, the value add in real estate is a good deal. If you have a good deal, you do not need to follow up with any investor. And I could tell you now, I get hundreds of emails a week on deal flow. And the minute I see a deal where I'm like, that's a good deal, I'm chasing that person. They're no longer chasing me because I want that deal. So, if you're not getting a call back or you're not hearing back from someone, I wouldn't necessarily look at the person you sent it to. I'd look at the deal because again, the value add in this business is deals. Everybody wants deal flow and good deal flow and it is so

19:58 difficult to get, right? I think that's uh pure gold because what we always hear is, "Oh, I've got lots of deals. What I'm missing is the capital." Um I could do a billion dollars in deals this month if I had all the investors. But so does anybody who can access LoopNet, right? It's like, you know, you want the one out of a thousand deal and that's exactly what you're saying is that and a lot of people don't see deal flow connected to their ability to raise capital, but if you have amazing deal flow, which is like why you're here on stage to get access to more deal flow. If you have amazing deal flow, you're gonna raise more capital because other people don't have the same deal flow you have. Right. That's like another way of saying what you just said. 100%. That that's that's it. Awesome. Great. I think that was a great note to end on that we didn't uh plan on asking you about, but I think that people really need to hear that like much more often and it hasn't come up on stage much. So, um that's awesome. Let's give John a big round of applause. Thank you. Thank you.