Julian Vogel: Fund Manager Shares SECRET Behind Creative Multifamily Fund Structures

In this episode of "The Gould Mine," we meet Julian Vogel, the mastermind behind Colony Hill's billion-dollar real estate funds. Starting as a commercial debt and equity broker, Julian's pivot to leading multifamily syndications with Colony Hills Capital has allowed him to build a Multifamily empire in a relatively short amount of time.  With a keen eye on contrarian markets and a unique fund structure that prioritizes long-term growth, Julian shares his model for success in real estate. Discover the insights and strategies that propelled Julian from the conventional to the extraordinary, all while maintaining a delicate balance between professional ambition and family life... Welcome Julian, to The Gould Mine...

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Transcript

•  What's up Gould miners. Today. We welcome to the show Julian Vogel the managing partner at Colony Hills capital a family office and fund that's specializes in multif family. Investments for a good portion of this episode I geek out with Julian as we explore the way that he structures his funds and his deals. It is a very unique structure and so we spend quite a bit of time nerding out and Diving deep into the way in which he structured his funds and his deals later on. In the episode we cover some of the markets that Julie is currently investing in and why he's chosen to invest in some pretty contrarian markets and lastly Julian uncovers. The three variables that he considers when underwriting and analyzing a deal before investing in it and how you can use these same variables when analyzing any investment opportunity. This is short episode miners but it really packs a punch so without further Ado. Let's welcome to the show Julian Bogle Julian welcome to the gold mine thank you sure having yeah man you know I uh like I said I've been following your stuff for a little bit little bit of time. Now and I know we've been trying to get this thing on the calendar for quite some time. So I'm glad that we could finally make it happen. I know that you started out as a broker. Yes uh mortgage an equity broker yeah that's right right so you started off as as a mortgage broker. So what what inspired you to make the transition right out of brokering debt uh into doing multif family. Syndications um so first firstly being a broker is feas or famine right. You you eat what you kill uh. You live off commission. So I had years where it was amazing and then I had years where right real estate's a cycle where it Eed and flowed and I got a wife in three kids so I kind of got a I got a little bit tired of the ups and downs of of commission-based compensation and wanted not only did I want to be on the sponsor side of the equation just so I could learn more um gain more experience in real estate in general. But I also to be honest. I just wanted the consistent sort of salary based position um so sort of the Stars aligned at the right time when I moved back to Western Massachusetts from Manhattan and connected with Colony's capital and was able to bring at that time six years of experience in commercial solely commercial mortgage and equity brokering which I had done for a top 15 firm. I' done it for my own on my own as a as my own business um Etc so was able to bring all that experience to the table that's awesome man so what brought you from Manhattan into was it was it just the the the family life and everything so like what kind of yeah. Manhattan is is not a place where I felt great pushing a stroller. You know down the street and all these fumes and sounds and smells and I'm from Western Mass. Which is you know small and lots of grass and space. So it was a good. It was a good ship. It was a good move that's awesome so. I'm actually the reason M I'm actually thinking about moving there um. We're uh. I don't know if you know this up. I'm I'm in hotels so uh run a run me and my partners we buy hotels and we're looking at one right. Now in Manhattan. It's looking like it's it's going to be a go and if that happens like I'm like dude. This is the perfect excuse for me to go out there. So I'm always curious to hear like yeah great maybe as a single guy which I am but like. Once the stroller comes around you you want to teach their own. I' I'd say you could probably hack it as single as once you're married even with one kid. It's doable but once you get past the the first kid it starts to unless you're a billionaire. It starts to get a little bit uncomfortable yeah. I I can imagine I imagine so uh well.
•  Let's talk about the journey to to Colony Hill. So so obviously you had had a um you had had some experience right. So sound like you were coming in you were green or you. A rookie were you automatically like kind of thrust into this like managerial position um with with the with the fund or or how did that all kind of play out. So Colony Hills is a family office Venture for Glenn Hansen. He's the CEO and the founder um and he start the company to grow his own wealth through multif family Real Estate Value ad Garden style and when I joined the company it was a lean team it. They were just starting to sort of grow and evolve as a company sort of Shifting away from this small boutique family office. Venture into more of like a institutional sub institutional sponsor sponsorship which is I think close to or what it is today right. Colony at this point has done 1.2 B of total capitalization. 12,000 units. We're about to acquire a 36 deal um and half of that has been in the last five years since I've been with the company and the company's also grown like in the last five years. Now we're 23 people. When I started it was six people um and we're on our third. We just launched our third fund so when I came on it was a lean team and I sort of had the Elbow Room to you know do my thing and also Glenn Hansen is a great leader in that he's an enabler in a good way. He sort of is able to actualize people's strengths and abilities by being your cheerleader and telling them that they can do it. As opposed to like hold up. You know um so that was empowering and it and it um. It led to good things yeah. That's fantastic actually I I was unaware of the family office component to uh. The fund I I find this very interesting. So I I I want to stay on this subject for at least a little bit of time right so what I've noticed is is there's really two distinct types of of uh investment ideologies. I would say amongst family offices right. There's there's some family offices that are very passive and then some that are like doing more direct um kind of Investments and so I'm curious as to like because I I don't know if that's always has that always been the case um. In your experience is this kind of like a newer thing where family offices are really taking the lead on investments and and doing direct stuff as opposed to being more passive kind of walk me through what your thoughts are on that because I I I find it fascinating yeah. I'll say that my experience with family offices is that every family office is as unique. As each person is and I think a lot of people are looking to raise Capital. It makes it simpler and easier to sort of compartmentalize family offices into a category. But the reality is each family. Office is head by a family and a unique person and they have their own unique desires and wants yeah as opposed to institutions. Right institutional or private. Equity or institutional funds. Often times have the same sort of culture and the same sort of Tendencies and the things that they're looking for are want what I find with family offices is it's like you know there's family offices who do cgp or LP Investments or there specific to certain industries or they're totally open-minded and eclectic or ones that want to do it. Their own way meaning they want to be owner operators um I I've seen a lot I'm not saying I've seen it all. But I've seen a lot of different variations. So I don't know if there's a simple answer to your to your question. In that way yeah well so so when it comes to the Colony Hills philosophy. It sounds like you're doing primarily you're the GP right.
•  So you're you're you're managing the fund how are you sourcing the the the equity. For these deals I'm assuming that some of it's obviously coming from from your office and then the rest your you're sourcing from other family offices like what what your what your um. Capital stack look like yeah. So first we got the debt the debt is usually from Freddy fixed rate five year to 10 year debt. Um. You have 30-y year am 55 to 70% loan to value or loan to purchase. Then we usually have a institutional GV partner who will provide 50 to 90% of the required equity and and the deal sizes. We're doing are 30 million to 100 plus million and so 50% of the 50 to 90% of the required Equity is coming from that GV partner and then the remainder or the GP Equity is coming from a conglomerate of our fund right. All three of our funds have been cgp funds where passive investors can sit as an LP in the GP position. Then uh principles and employees will also invest into that GP and then depending on the deal size we'll bring in a family office or we'll do a syndication to to round out the the stack. So it's it's not a simple stack either as far as how we're capitalizing. But basically you got the lp institutional partner and the GP and the GP is made up of us are fund and whoever else wants to wants the opportunity to invest in the K GP position. So that's a really interesting structure and and it's not the first time that I've I've come across this where you know effectively instead of like you know fundraising you're you're you're you're fundraising and you're putting all of your your um your your fund into the lp position. You're putting it into a CP position. What would the advantages be you know for for someone who's listening at home and like maybe they're retail uh investor. High net worth individual and they're looking at different fund structures. What would the advantages of something like that be versus like the traditional. Like you're just going to you know you get some pref equity and then you know you're in LP position so depending on the sophistication of the investor. If the investor has a wherewithal and ability to due diligence. Their own deals and just pick and choose the deals that they want wonderful. They should do that um most retail investors I know worth individuals. I know don't have the time or the experience to do that. They'll go into one-off deals because they like the market or they have a good feeling about something about the deal so they move forward but in my opinion. Most retail investors who are focused on their nine-to-five job should be invested into a fund or with a sponsor that they trust and um and they believe in and that has a proven track record because their money is then is Diversified. Their 100K is spread out over a portfolio as opposed to a direct deal and then further if the fund is an attractive investment vehicle such that it gives the investors outsized returns plus diversification that's a home run so that's what a cgp fund does but um even if it's not a Cod you be fund. If an investor has the option between a direct deal or a fund. I think most of the time they should go for the fund unless they're unless they know what they're doing you know and they're able to pick and choose their deals. You'd probably know more about this than I do so forgive me if I sound dumb. But I believe that a lot of the depreciation benefits of um you know the a lot of the tax benefits a lot of depreciation benefits pass through to the LPS right so being in a cgp position like how does that impact or affect or like what would what would some advantages be taxwise and are there any disadvantages or things that uh someone who is participating in that kind of structure would would not benefit from. So I don't think that's a dumb question or point at all. I actually like as I finished my sentence. I had a thought bubble of like Yeah. The only discrepancy really is the tax advantages right and I thought to myself and then that's your question. So so so the discrepancy is is like it with the fund as I speak to our cgp fund. The investors still gain access to the depreciation and the tax losss but they only gain access to the full benefit of it. Once the fund is fully deployed if they invest into the fund and we're sitting on 20 million bucks but we only put five million to work into one or two deals um. They're only going to get you know the the benefit of that $5 million right. The $5 million invested the depreciation from that five million. They have to wait for the full 20 million to be invested to gain full access to the you know the depreciation. The cost seg studies Etc. They'll get it eventually but it's something that a investor needs to take into consideration right if that's that is the benefit of investing directly into a deal versus a fund because they gain access to that depreciation almost immediately because right their their money is fully invested into one deal as opposed to a a blind pool or a um. So it's delay. It's I guess to summarize. It's either immediate benefit or delayed benefit right. It depends on the person's situation if the person has a deal they sold they didn't do.
•  They don't want to do 1031 and they want to gain access to tax loss to reduce their capital gains or or neutralize it. Then they should probably be investing into a deal right away as opposed to a fund if they don't have that situation my recommendation would still be a fund because eventually eventually they'll get the tax benefits and the diversification if that makes sense yeah absolutely that makes sense now coming back because I'm actually really curious about this right and how you're structuring these deals and everything so it sounds like the majority of the equity is coming from like a JB partner and then you are essentially G the GP on that so would the JV be uh in an LP position or would they be in a also in a CO GP position with um with us. So they they are the glorified LP the JB partner um. They're the ones who were getting promoted off of um when I say promoted AOS I mean. Once certain return hurdles are met. We get a disproportionate share of The Upside and they get a lesser disproportionate share right. They get a whatever the inverse would be unless it's pref Equity right and pref Equity. The then the JV partner has a capped UPS side um. They get first preference on the cash flow but if the deals a 50 irr they only get their 12 to 13% and you know the common or the GP Equity gets all the upside yeah that makes a lot of sense. So now I understand the structure. A lot a lot better and um what it sounds like to me is that if you're JV so you have you have JB partners with with Deep Pockets and then we're we're using the fund to kind of fill in the rest right um the GP portion of the of the capital stack and um I mean that makes that makes a lot of sense to me so and it also means that like from a raising perspective if you're trying to you know raise for the fund are you mostly targeting retail investors in the fund. Then um or are these uh is this institutional money. I'm I'm I'm genuinely curious sure yeah so because these funds are smaller relative to the larger institutional LP funds that are 150 million plus our fund. One was 20 million our fund. Two is 25 million our fund three we're targeting 30 million um. Most institutions don't want to stroke uh. You know a 15 to20 million check and be majority of the fund vehicle. They want to stroke a 15 to20 million check and be 5% of the fund or 10% of the fund right. They don't want to be most of right so that sort of precludes a lot of institutions from our fund even if they like the strategy and the flip side is because the fund is only 5% plus or minus of the equity. In each deal we can't raise too much into the strategy because then we would need a corresponding um AUM or portfolio that would be massive um to give you a real-time example of what I'm explaining fund one was 20 million. It was invested into seven properties 380 Million worth of real estate fund. Two 30 is 25 million. It's invested into 400 million worth of real estate. If we raised a $100 million cgp fund. It' have to be a billion dollars of AUM right um which we're not comfortable doing in a two-year period because that's the investment period so because the bucket's not large enough those institutions aren't interested which basically restricts us to retail investors. Ras crowdfunding platforms uh broker dealers you know that special in the retail space. So that's that's who's filling up our funds you know I'm just thinking about this Julian and and like based on what you're telling me because this is I'm not going to lie.
•  I've heard of this before uh this type of fund structure. But I haven't really taken a lot of time to think about it. This sounds like a fun structure that could really like promote a lot of like win-win situations because you're probably able to give a much higher rate of return to your LPS corre right and also like to the JV partner right the lp and then also the the people in the fund right because usually the GP is making like a crazy Equity multiplier right um. If if you hit your your hurdles and and obviously like if you if you crush it out of the park so this sounds to me like if you. If you inverse it um you can find a partner that comes in they they want to stroke a big check right and they also want to see that they're being like rewarded for cutting you that big check with like you know pretty generous hurdles pretty. You know uh generous promotes and whatnot you know in terms of like what they're what they're getting and then also on the same side on on the other side with the GPS uh with the Coe GPS. The retail investors are going to be able to like have their their money work for them as well. Like in a much bigger way. This is so fascinating I'm so glad that we did this podcast just cuz. I'm learning a lot too right now uh so. I'm like dude. This is cool man I I'm uh this is this is really awesome so so a lot of a common question. I get with this fund is why are we doing this like why are we giving up. Whatever percentage of the promoter carried interest on a deal for this fund. Why don't we just go out and raise a more typical you know 20 over an8 LP fund well. When I started with Colony I spent a year knocking on institutions. Doors sitting down with endowments large PE firms and then then BAS Bally saying to us to me hey. I like your track record I like the strategy. But in the fund space you're an emerging manager and we really want to see you on fun three or fun four with realized return so come back to us when when you're there which is like a decade later um so after hear. After hearing that for a year I basically huddled up internally with with the principles and I was like look. You know even though this asset type is arguably no offense to hotels. But the most resilient acet type out there. I mean Class B multif family right survives almost every storm I can think of uh and we have a track record. We're still perceived as being very risky. So with a risky investment. There has to be adjusted returns right. There has to be juicy returns to cover for that risk so where can we give where can we give investors that from or promote. That's where the GP that's where the cgp structure and strategy came from and then investors really caught on to it um. It's not a. It's not a long-term fix though because it comes with a lot of complexity from an administrative standpoint from an accounting standpoint. It's just it's a lot so for now. It's good. But in the long run we definitely want to move away from it. It's a more simple vehicle but for now it's good. It's good to lilypad or Leap Frog you know from one funds to the next yeah. This is um well. You know honestly you and I should talk offline because I'm I'm. I'm really curious um how you're doing because I mean we're we're kind of running into the same issue um you know as as emerging fund managers ourselves um you know 23 hotels in the portfolio. I guess isn't enough because NOP yeah you have still want to see think of their decision set think of what they have to choose from. As you know these large passive investors they have the world is their oyster. They could pick anyone. They want right right fascinating so switching topics now and and by the way if you are like ever thinking about putting together a fund like I hope you rewind and listen to that over and over again.
•  There's there's something there there's something there whether you choose to do anything with it is your decision so where are you buying properties right now Julian. Where's like the where the top uh markets um so believe it or not we like New Jersey a lot right. Now uh we also like Southern Connecticut delaw where Virginia um Ohio Ohio is discovered now but we liked it. We still like it um. We historically were very bullish and owned a lot in the Southeast and Texas. But since Co I mean everyone and their mothers focused on the Southeast and the sun belts in Texas and so number one there aren't a ton of good deal opportunities there because there's so many eyes on it number two at least our experience has been that it's been plagued recently by a massive rise in insurance premiums tax reassessments and then you know a lot of people bought deals using floaty rate debt right. So a lot of those Sun Bel deals are are suffering from that um versus. The Northeast has been sort of overlooked. New Jersey in particular has been overlooked a lot of the sponsors who used to own a lot and be focused on New York New Jersey Connecticut. Kit are now focused on the Southeast. The reality is I'm just focused on New Jersey because you got. It's just a good example. Market um we're looking at deals in Atlanta as well by the way. Despite everything I just said New Jersey is one of these markets where insurance is vanilla. Tax reassessments are vanilla. It's a tiny State. The GDP is massive. The affluence is massive. It's difficult to build so you have a supply constraint. You have an educated wealthy ENT pool um and most people are not looking at deals there because it's stigma right. It has the stigma of being a blue State and of like um affordable housing restrictions and Rental restrictions Etc. But the reality is that doesn't that's not the the truth on every deal on Jersey. That's a deal deal. Tru on some deals but not every one of them. So that's we're contrarian investors we like to go where other people are not going well it's it's like I've always said it's you want to go where the money you don't want to go where the money is. You want to go where the money's going to be that's right right and and so um that's interesting that you're investing in some of those some of those not states that I wouldn't necessarily think uh to even look at right and what's the you know if when you're underwriting a deal when you're kind of going through the the um. The early stages what what is it that you're looking for in a deal that gives you like tips you off hey. This this could be a good one if I can simplify a pretty loaded question right. I'd simp simplify to three sort of varibles. The first is you're going in cap rate so you probably if you've listened to podcasts with me. Before which sounds like you have I've I've been talking about this a lot which is neutral dep positive leverage so most people don't know what that is what that is is where your cap rate matches or exceeds your borrowing interest rates. So if I can borrow at 5 and a half% I need to ensure for a prudent investment that my going in cap rate noi divided by purchase price for those who don't know equals or exceeds my interest rate that means that I'm making more yields than my lenders so that and it also tells me that I have a healthy cash flow. I'm getting it at a good basis that's first variable. The second variable I look for is not to bank on rental growth but rather lost capturing lost to lease lost to lease is where my property is charging. 1,800 bucks for a two-bedroom and the property next door is charging 2,100. So I have a loss to lease of $300. So how do I capture that loss to lease is it. Because of mismanagement by the seller is it because there's necessary cap xack or renovation dollars that the seller just doesn't have the capacity to spend um in order to adjust ify increasing RS by 300 bucks to stick with that same example. How do I capture it so once I figure out if there's a game plan or ability to capture that okay. Now I'm not banking on rental growth that a good going in cap rate I'm banking on capturing money.
•  That's being left on the table and then lastly what's my exit cap rate um. How does that's probably the most powerful lever in any underwriting to determine whether or not. It's it's conservatively underr or not um. I'm not about. We're not underwriting deals with a six cap on exit right now especially a multif family. Even though most institutional groups want to see that I think they're being overly conservative and subconsciously um cutting themselves out from the market from participating in the market when they want to see that on an exit cap reason is is. Nobody believes that between now and the next five years interest rates are going to stay at six % if we're going with that rule of neutral deposi of Leverage based on cap rates most for see if you look at the silur forward. Looking curve interest rates of the fed or overnight rate rate coming down by 100 basis points so that would mean by in the next year or two years rates are in the four and a half percent range so why would I underrate a negative cap of 6%. More conservative would be maybe five and a quarter five and a half maybe 5%. So that's the other place that's the third variable I would say as far as what we're looking for to make the deal work yeah that and by the way that that's a really like I think holistic approach to looking at it right you're looking like beginning middle end right like what are things look like right now. What's what are things going to look like in the middle. What you know what are things going to look like in the end and and how are those variables going to impact um the the Vitality of the deal so that makes a lot of sense to me Julian uh well. Listen I know that we're coming up on time for you and I want to be respectful of your time so two final things for you here. If anyone wants to get a hold of you. They're they're interested in and maybe investing with you Julian uh. Obviously we're going to put the links down in the description box below but where can they find you uh. Www.c Colony Hills capital.com Hills is plural and our website is has all sorts of calls to action to register meet with us you know probably a dozen places on the on the landing page for you to get a hold of us all right. So you can't miss it. You go to Colony Hills Colony Hills capital.com and uh and you will you will know how to get in touch. That's right with Julian love.
•  Man well listen in traditional Gold Mine fashion would love for you to leave the audience with one final gold nugget. Um I would say this is for life and for business in general stay present don't get caught up on what you want or what the future is going to be. What you think the future is going to be be where you are enjoy. Your life life is short stay present. That's my that's my nugget Bubba Man. Well I appreciate you coming on the show and thanks so much for stopping by thanks for having me.