Investors don't invest in deals, they invest in sponsors

Shams Merchant

the number one thing I tell clients and what I believe how investors approach things anyways is investors don't invest in deals, they invest in sponsors.

Ed Mathews

If you're within three feet of me, we're probably talking about real estate, much to my family's chagrin. But here's the thing, most people see 7% rates and freeze. I see opportunity. They're waiting for the perfect deal, and well, I've analyzed thousands of them, and perfect just doesn't exist.

Welcome to Real Estate Underground

Ed Mathews

So I talk to operators across every asset class, flippers, multifamily syndicators, note investors, and whatever else is working. No sales pitches allowed, just real lessons from people actually doing it. I'm Ed Mathews, and this is Real Estate Underground.

Ed Mathews

Greetings and salutations, Real Estate Undergrounders. It is Ed Mathews with the Real Estate Underground. Thank you so much for making us a part of your day. I'm really excited about this conversation

Meet Shams Merchant

Ed Mathews

we're about to have. Selfishly speaking, I'm doing something that this man is an expert at so I'm gonna be picking his brain from a from an Ed perspective as well. But hopefully you get something out of it. We'll keep the audience in mind as well. So Shams Merchant, thank you so much for joining us today. Welcome to the show, and it's good to see you, my friend.

Shams Merchant

Thanks so much for having me, Ed. Big fan and really happy to finally get to be on the show.

Ed Mathews

Yeah, cool. Thank you. Yeah, y- you- Yeah I elicited out of you that you actually are a listener, and-

Shams Merchant

I am.

Ed Mathews

So besides my mother, my wife, and, that's about it, I appreciate-

Shams Merchant

I think you got- I appreciate you listening a lot more listeners than that, than you give

Ed Mathews

credit for. Yeah, there's- there's a bunch of you out there, so I'm, but I'm grateful for you and everybody else, too. So for those folks who haven't discovered you or the CRE Law Group,

What a real estate securities attorney actually does

Ed Mathews

I want you to tell us a little bit about yourself and what you do for a living.

Shams Merchant

Yeah. In a really basic sense I'm a real estate securities attorney. So structure, syndications, investment funds for clients all across the country and internationally as well. So everything from, a basic y- standard syndication to go acquire, say, a multifamily property, all the way up to your very complex 100 million-plus investment funds ran by, a large private equity group. So everything from that to, to to the other end of the spectrum, I handle all of it. Also represent clients in the actual acquisition and disposition of these properties. So as a pure real estate lawyer- Yeah which is what my original training was when I graduated law school before I shifted more to doing private placement structuring and security structuring. So we help our clients with that as well. And l- we like to think of ourselves as a full service shop. Everything from the legal structuring to the acquisitions to the sales. And then even nowadays, we really, we consult our clients and advise them on capital raising strategies, marketing strategies everything else, because I'm also in the business myself as a private equity entrepreneur and in- investment firm owner. We've brought all of it in-house, and we're able to guide our clients through the full process from the, the beginning stages of just putting together a vehicle, an investment vehicle, all the way to successfully raising the capital, buying the deal, selling the deal, making money, a- and everything in between.

Ed Mathews

Gotcha, gotcha. Yeah,

Leaving the big firm: what it was worth and what it cost

Ed Mathews

so your career is fascinating because y- it's a, in, in my old world of technology it's a fairly classic story of leaving big and going small. But in the, i- in the world of, the legal world- world, I thought the holy grail was to work for big firms

Shams Merchant

I used to be. And I think it used to be for sure. And that's what I was attracted t- to the big firm as... The reason I was attracted to go to a big firm- Yeah as well was that reason, right? I thought it was the holy grail. Yeah, and then you left and when I moved there- then I left. So I didn't make it there, and then you find out what the reality is. Yeah. But for me it was it was... I think when I look back at it I think it was a good decision to go to a big firm because I did learn a lot. I got to work with a lot of large clients, and I got to get a lot of great experience. That's what I took with me when I left. So I- Yeah I did get a lot of value out of being there. It wasn't the best place for me to build my career, but it... there was a lot of value that was provided. And now, nowadays, I get to give that value to my clients because I've, I learned so much there. Cool story. I got to work with a couple of billionaires there actual Forbes ranked billionaires. If you Google them, the, like the little list comes up on Forbes, and it says their actual net worth. Their... the tracks, their net worth changes on a weekly, monthly basis or something. I don't know how Forbes tracks it, but these are actual billionaires. So it was really cool getting to work for them and their investment firms. And now I have all that knowledge, and I can take that- Yeah to help my clients on a, build institutional

Why can't I just use ChatGPT to write my PPM?

Shams Merchant

quality funds and syndications and all of that because I have... I've seen it done on a very big scale. I know how to now do it on a diverse, basis.

Ed Mathews

Sure. So it's interesting. The, y- I had a friend of mine, and I'm gonna ask this question because he asked me, and I told him he was out of his ever-loving mind, and I want you as the professional to tell him why, because I know he's listening right now. And that is why can't I just use ChatGPT to create my offering memorandum and, and- and other PPM documents?

Shams Merchant

Oh yeah, I get this question these days on a weekly basis. There's a handful of reasons, but I'm gonna give you just a few of them without, belabor- Yeah belaboring the point.

Ed Mathews

They all end in major lawsuits, by the way, right?

Shams Merchant

Yes. But the biggest thing the biggest reason clients use lawyers at the end of the day is it's a risk-shifting mechanism, right? We have malpractice insurance. W- we

Lawyers as a risk-shifting mechanism

Shams Merchant

can mess up on things and still be okay, right? Of course, we don't do that, but we have- I mean- insurance for that you're human, so maybe. But. But the, the point is that if you create your own documents, one, ChatGPT, Claude, you name it, I've tried all of them. I use AI. I love using AI. AI can be a great tool. They don't create the offerings i- in a way that is SEC tested, like battle-tested documents with the SEC, right? Because they don't have access to those. They don't know which documents, which structures have already been tested, have already been litigated with the SEC. They don't have that information. Our documents, our structures have been iterated over 1,000 times, right? We know what works, we know what doesn't. We know what should be in there and what shouldn't, and that's a thing that the AI can't figure out yet, is what should be in there and what shouldn't is a discretion item. It's not- It's experience item. That's what you're missing when you do that, right? And then I tell my clients at the end of the day- If you do that and something goes wrong, the first question people are gonna ask you is, w- who is your law firm? Who counseled you on this deal? And if you say, "I did it," I can tell you, you're already in a, you're already in a bunch of- You're- deep shit. Yes. Excuse my language. You're gonna be- barrier here at all. You're gonna be... Yeah, you're gonna be even in more shit- when you re- that, when that's how you respond, right?

What you are actually paying for

Shams Merchant

So because you never shifted the risk into a professional to do it for you, right? And then the final thing I'll add is these days with AI, yeah, document delivery has been expedited to some level, right? We can get documents out faster. We can draft things faster. We can use data and build things quicker by using, we have proprietary systems in-house that we've built to do some of this. But that's not the value that we provide to our clients, right? It's the value that we provide, why clients engage us, is because we have a pulse on the market and the data on what works and what doesn't, right? Again, the discretion on what should be in there and what shouldn't. That's something AI is not gonna give you. That's what you're paying for. You're not paying for a, a stack of documents to use. You're paying for the strategic business and legal advice that is gonna make you successful in your raise, in your business objectives. Anybody can hand you a bunch of documents. I'm handing you the success of a successful offering. Yeah. That's what I'm, that's what I'm delivering.

Ed Mathews

Thank you for saying that. So the so the other question I had around that is, I'm curious about, when we talk

What LPs check now: green, yellow, and red lights

Ed Mathews

about the shift of risk I'm curious about what... Now you, your firm, you and your firm represent both general partners and limited partners. So let's talk about the LP side first. What are limited partners looking for these days in terms of what are the green lights and what are the yellow lights and what are the red lights in terms of things that, some of your, without getting specific, obviously w- some of your clients are looking for and concerned about?

Shams Merchant

Yeah, I'll start with the first one, which was w- we just talked about AI, right? Sophisticated investors can spot from a mile away that you used AI to, create documents and things like that. It's very easy to figure out if they have invested in deals before, because they know what to look for. And they're gonna be able to figure it out very quickly. It's a question that they'll ask, a sophisticated investor will ask oftentimes as well is- Who, who are your advisors, right? Who's your... Who's the law firm that you're rep- that's representing you? Who's your CPA, right? These are questions that good LPs typically ask because they wanna know who's backing you. They wanna know who your support system is. So that's the first thing, right? That's the first thing right off the bat. The second thing is aligning economics with what LPs are looking for in the market today, right? LPs don't want to see some crazy sophisticated waterfall model with five different hurdles and a bunch of crap in there. I always tell clients "We can make it as complicated as you want. We've done very complicated waterfall models. There's a time and place to do them and it has to be a reason why we're doing it, and we're not just doing it just to do it to make it overly complicated," right? Especially when you're raising capital from retail investors, you wanna err on the side of just m- making it more simple. Yeah. Because if they can't understand what they're investing in, then you've lost them.

Fee stacking, clawbacks, and real alignment

Ed Mathews

Sure.

Shams Merchant

So that's what they're looking for. They're looking for economics that are aligned, but also not overly complicated. They don't want bloated fees, right? They don't want you stacking seven different fees that you're charging them, right? You wanna take fees. You wanna take good fees. You wanna take reasonable fees. You wanna take market-driven fees, but you don't wanna stack seven, 10 different types of fees, right? There- there's a way to do it- it's not aligned, right? When you stack fees like that, you're not aligning yourself with the deal. That's the problem, right? And there are ways to still take a lot of fees and still align those fees to the actual economics of the deal, Such as? and to your... So such as clawback of acquisition fees or disposition fees if, the project doesn't hit certain metrics, right? So LPs look for that these days, right? They look for clawback, right? They don't want you taking a disposition fee if you don't even make a profit to them of a certain per- a certain return. W- like, why would you get paid that? Why do you deserve to get paid that disposition fee if you didn't even hit certain metrics? So adding in those little nuances there, they're gonna, they're gonna see that. And it's gonna help from a marketing perspective too, that, "Oh, hey, I'm cool with this GP taking a 2% disposition fee, but I like that it says in the documents that if they don't hit, some of the return metrics, then that fee gets clawed back to the LP so that the LPs can get a better return."

Ed Mathews

So is the expectation, the preferred interest rate return plus and then that triggers a, a, a clawback? Or is it,

Shams Merchant

Y- yeah, it could be structured in multiple different ways. Okay. It depends on what, how you wanna do it. But at, in a most basic sense it's a combination, right? It's- Okay we're looking at the overall return, right? If, let's say you're projecting a 17% IRR, right? You wanna have the clawback to where if you're not hitting, let's say 14% then the fees get clawed back so the LPs can try getting closer to that 17% projected return, right? Gotcha. Something like that shows that y- you're, you have

GP contribution has to be actual cash

Shams Merchant

s- you're gonna-

Ed Mathews

Skin in the game.

Shams Merchant

Yeah, exactly. Exactly. Okay. Number two thing I'll quickly mention is that LPs are definitely looking for GP contributions these days and that if you're not putting in a GP contribution then LPs don't feel like you're aligned with them. Before it wasn't as big of a deal. These days, LPs are becoming smarter. They're making sure that the GP contribution is actual cash out of your pocket, not some GP contribution tied to the fact that you're moving the acquisition fee that you're getting of 2% and using that as a GP contribution into the deal. That's a no-no. Before you could do that. You could still do that to some extent. Depends on who your investors are. But if you really wanna level the playing field, if you really wanna attract good capital- You have to put in a pure GP cash contribution. Nothing complicated

Ed Mathews

Actual wri- actually write a check.

Shams Merchant

Actually write a check. Yeah. Yeah.

Ed Mathews

Right on. Awesome.

Shams Merchant

Those are some two big things that we've been seeing.

Ed Mathews

Okay. A- and so let's shift to the GP side a little bit. Obviously the, the predominant models here are 506, 506(c).

506(b) vs 506(c)

Ed Mathews

I know what I've been advised by our attorneys and I'm curious, what your perspective is on... i'm curious about the considerations for each and, what do you think the pros and cons are?

Shams Merchant

Yeah. That's a, that's definitely a loaded question. Totally. There's a lot of pros and cons to both- And intentionally. Yeah. Let me give you the, the best answer that I give to all my clients that ask me this, like the most fundamental question, okay? Okay. The fundamental question comes down, in my opinion, to your ability to raise capital, right? Because of the limitations that 506places on you to go raise capital, right? You can't solicit under B, as we all know. That's a huge drawback to using B. So what I tell clients is, "If you're gonna use a B," right? M- my default, let me put it this way, my default is C, right? I recommend always C. Here's what I recommend a B. So- In the interest

Ed Mathews

of full disclosure, that's what I was counseled to do as well.

Shams Merchant

Perfect. Your attorney knows what they're doing.

Ed Mathews

Yeah. Mine was good

Shams Merchant

and here's why I default to the C and only recommend B in a, in certain

Why Shams defaults to 506(c) every time

Shams Merchant

circumstances is that because of that limitation of non-solicitation, you only want to use B if it's a small raise or... and/or you have built out a robust and deep investor base that you can tap into. If you have that, right? Let's say you've been in this game, you've been doing deals for a decade now. At that point, and you have, let's say, half a billion AUM, right? You have half a billion AUM, you have a bunch of investors, you've been doing these deals. For sure you can do a 506if you're conf- because you have such a deep network, you can probably raise $10, $15 million by just your own network because you've been doing, you've been building it out for a decade. But if you're a first-time syndicator, you're a first-time investor, you're, it's your first or second offering, you're gonna need to go into the market to solicit capital. Unless you know someone that's gonna give you the money you need. And if you're gonna have to go solicit, then you have to just default, if that's not the case, right? If y- you're raising five, you wanna raise $5, $10 million and you don't have that network, and it's your second or third, fourth offering, and you don't, have that robust, deep network of investors, you have to be a C. By default, you have to go under 506(c), because you don't have an option. You cannot be handcuffed to just preexisting relationships under a B, right?

Ed Mathews

You only know so many human beings,

Shams Merchant

right? You only know so many, right? Look, there's exceptions. Got a client, he's an NBA player. Can't tell you who it is, but he's an NBA player. He's actually an NBA player close to where you are in the Northeast. Plays for a team in the Northeast. And he is recently doing more real estate investing, and he's raising capital. He's doing deals The exception for him is he can do a B because- He has access to a lot of high net worth accredited investors. He has a bunch of teammates. He even looks at this one at NBA or something.

Ed Mathews

Yeah, he's on text threads with, a couple hundred million dollars worth of net worth.

Shams Merchant

Easily. Easily. And so he can do a B, right? There are certain s- situations and, a- and there's a time and place to do the B, and that's a particular person that can do a B, right? For most people, they're gonna wanna do a C, because they need to go solicit capital. That's end of story.

The exception: the NBA player's text thread

Ed Mathews

And one of the things that was interesting about your firm and, i- is is your fee structure and how you work with clients, right? And I don't wanna get into the, the sales part of this. I really just wanna understand from an operation perspective, what's your philosophy in terms of I think the term you used is over-lawyering, right? Yeah. Yeah, so what are your thoughts on that?

Shams Merchant

That, yeah, that's one thing we don't do. We're deal makers, and like I said, I'm in the business myself, so I always approach things from a practical aspect as if I'm the one sitting on the other side of the table- Yeah because that's how I want... I counsel clients the way I wanna be counseled as an investor myself, as an entrepreneur myself. So it's, we approach everything practically, right? Everything is on a flat fee basis. You're never on the clock with us. I don't limit my clients to revisions to documents. We can make 100 revisions

No over-lawyering: flat fees, unlimited revisions

Shams Merchant

if you want, right? Within reason, but, like- Yeah clients res- if you respect clients and their time, and you don't limit them, and you give them the flexibility, they'll respect you and your time. I've never had a client abuse that, ever. So that's how we approach things. It's flat fees. It's you're never on the clock with us. We can... we're a strategic counsel to you. You call us, email us, text us whenever you want, and you're never worried about getting a bill. And I have a lot of clients like that because in between a lot of their large offerings, they have a lot of other things going on, and they wanna talk to us, and they wanna have conversations about, "I wanna do this, the next deal I wanna do, or the next project that I wanna do is gonna be this. Let's... I wanna talk to you about how to structure this." All of that, there's never a fee for any of those things. Once you're a client you're a client. We're never gonna bill you unless we're putting pen to paper to do an actual offering or a deal. Otherwise, you're... We value that as just part- Right of doing business. Yeah, it's a long- So that's how we operate it's a long-term play It's a long-term mission. Yeah. Yeah, right on. I love that. And that's why we have a really high client retention rate because, Clients love that. Yeah. They love the access to, great legal counsel without having to spend, 500 bucks on a meeting or something. And that's just stupid.

Ed Mathews

Yeah I once joked with a firm we were working with, not my present representation, but that "You guys can't find your keys for, your car keys for less than a few hundred bucks an hour." And,

Shams Merchant

Yeah you have a good example-

Ed Mathews

I offended them, and we, the, actually the relationship didn't last much longer, but what are you gonna do?

Shams Merchant

Yeah. A, a good example also I had is I recently started doing this with a client. So they're a very large family office that has a lot of money coming in from Latin America. So they're actually a family office in the States, but they manage money from other family offices that are in- spread across Latin America. And we have a standing meeting with them once a week just to catch up on projects and what's going on. They never get a bill for that. And when we started doing that, just, I... when I initially offered us to, to do that, because there's a lot going on and I had to catch up with them once a week to to make sure we're caught up on emails, make sure we're not missing anything, and we told them, "Yeah, this is not, we're not billing for this." I mean- They were thrilled. W- w- we got all their business.

Ed Mathews

I would be too, man. I'd fly... I'd get on a plane just to kiss you on the lips. I gotta be honest with you. That's funny. That's awesome. We'll

Shams Merchant

make it happen.

Ed Mathews

Yeah, right? It I'll be in Dallas actually in a few months, but,

Shams Merchant

Looking forward

Ed Mathews

to that we don't have to kiss. We can just have coffee instead. We can have

Shams Merchant

coffee, yeah.

Ed Mathews

My wife's a jealous woman, in, in terms of the... And I kid about that too, but in terms of as a private equity principle, yeah what are you seeing in the marketplace? You're in Texas, right? I don't know... One thing I didn't uncover in, in my prep for this call was where you invest. But so I'm curious about that, and what are you seeing in the market?

Shams Merchant

Yeah, great questions all around. Let me answer the one where I invest first to, straight off the bat. So all the deals I've done so far have been in Texas. And that's just because I like to invest locally- Yeah. Same as a lot of clients do, right? Same. Including yourself. Because it just, that just makes the most sense. We understand our markets really well compared to other markets. So w- I'm not limited to just investing in Texas, it's just the deals I've done have been in Texas. Sure. And you can

Ed Mathews

always, you can always be a limited partner, with a position with somebody-

Shams Merchant

Yeah in

Ed Mathews

Georgia who knows that market, right?

Shams Merchant

Or wherever. Sorry, let me actually clarify what we do, 'cause I think I think we didn't really touch too much on that- my fund actually is a feeder fund. It's a fund to fund model. I don't run my own deals. We invest in great sponsors, like you. We invest in other people's funds.

Where Shams invests, and the fund-of-funds model

Shams Merchant

So I raise capital from accredited investors and I analyze hundreds of deals, hundreds of offerings and work with, about 50 different sponsors right now. And we allocate LP capital to those sponsors. Got it. So that's how we invest. Yeah. Okay. So we're not running these deals. These are- Yeah these are ran by institutional quality, great sponsors that have a clean track record- Yeah and have achieved have hit metrics that we look for before we decide to invest with a sponsor.

Ed Mathews

Yeah.

Shams Merchant

Fair enough. And the number one thing I tell clients and what I believe how investors approach things anyways is investors don't invest in deals, they invest in sponsors.

Ed Mathews

Without a doubt. Without a doubt. Yep. Yep. And so I- I'm curious about the, the deals, the operators in which you do invest. Let's talk about asset classes. Where are you focused?

Shams Merchant

Yeah we're asset agnostic. Yeah I've done land development, I've done build to rent, multifamily, and retail so far. Now we're looking into industrial warehouses. That's something that's hot right now in Texas with data centers.

Ed Mathews

It's hot

Shams Merchant

everywhere. So looking into a play for that. Yeah. But we're asset agnostic. And so are my clients too. That's why we have access to all these deals because my clients do everything from- Sure multifamily to... I would say a lot, it's still predom- we started off as a firm predominantly representing multifamily syndicators. So the base is still heavy multifamily, right? Like still 40% plus. But the rest is spread out across different asset classes.

Ed Mathews

Yeah.

Asset classes, and multifamily's quiet comeback

Ed Mathews

Excellent. Excellent. Yeah. It's smart, right? Because even this show, I was talking with... I think we were talking before we hit the record button about- this show three years ago was entirely focused on multifamily and mainly because that's what I was focused on. And then, I went back to flipping and got interested in flex industrial and- Yeah realized that manufacturing is being repatriated. You know- Oh, yeah we've talked about warehousing and, you

Shams Merchant

know- Oh, yeah, 100% major

Ed Mathews

industrial, right? And so we've had guests-

Shams Merchant

Yeah

Ed Mathews

talk about all that stuff.

Shams Merchant

But I'll tell you, Ed, I think even multifamily is making a strong comeback in the sense that... Look, we had a lot of people jump into the space- Yeah a couple years ago, and it got a little crowded, right? Yeah.

Ed Mathews

Turns out it's hard. I think... Yeah. Turns out.

Shams Merchant

It turns out. Who would've thought? What a surprise. Now- Who- who's left now is a lot of the stronger operators, right? And it's less crowded than it was before. That's what I've been telling a lot of clients who are... who- who have asked me recently, "Should I get back into the multifamily space, or should I- should I maybe look into doing build to rent, or data centers, or whatever's the next hot, asset class?" And I said, "Look, I- I honestly feel like the multifamily space is so much less crowded now that there's great opportunities." And that's what a lot of my sp- operators that I work with are seeing too, because there is such, such a significantly less crowded space because- Yeah a lot of people got burned. Unfortunately, right? And- and some of them were good operators too. I'm not saying that the people got burned weren't good operators. There were some actual really good operators that got burned because- Yeah, they got over-leveraged.

Ed Mathews

That's right here.

Shams Merchant

Yeah, it's over-leverage and the- and the market just, skyrocketed. Rates skyrocketed. There's only- Yeah.

Ed Mathews

There's only a few number... a finite number of chairs, and when the music stops, you don't find a chair.

Shams Merchant

Yeah. Yeah.

Ed Mathews

That's it.

Shams Merchant

But because of that, and everyone that's now out the market, and now the new people that are not... are too scared to now jump back into- Syndicating multifamily, there's created this opportunity for people to... that have some experience, that have done it before- Yeah to now jump back in and do it a- and find great deals. Yeah. That's my personal opinion of the market right now.

Ed Mathews

Yeah, I... and I think in your part of the world that's probably... that's absolutely true.

Shams Merchant

Yes.

Ed Mathews

Because I... the, a lot of the deals that I get s- sent are- are from Texas, the Sun Belt. That-

Shams Merchant

Yes

Ed Mathews

that is still a-

Shams Merchant

a- That's a big caveat. You're right. It's still Sun Belt. Sun Belt is still where I would say- midwest is on, is- Midwest. Yeah is

Ed Mathews

very hot.

Shams Merchant

Yeah. North Carolina that... North Carolina is great market right now too. Yeah. A lot of- Yeah a lot of deals out there. North... South Carolina as well. North South Carolina. Yeah. That that Northeast lower... I gue- I- I mean, what would you call that? What would you call that? That's

Ed Mathews

Southeast almost. South.

Shams Merchant

Yeah.

Ed Mathews

I think if you're from Carolina, you would say that's the South. But- That's

Shams Merchant

the South.

Ed Mathews

If you're from the Northeast, that's the southern part of the Mid-Atlantic. But, I'm,

Shams Merchant

yeah. I think that's a- No offense. Yeah. I think it's a good market as, as well. Seeing a lot of good traction there and good opportunities for clients.

Ed Mathews

Yeah, absolutely. And I'm also curious about the what you're seeing in terms of the, the market shift. You mentioned multifamily, but also we're also talking about, flex industrial and warehousing and other things. Yeah. Are you seeing a- A- as you're starting to see multifamily come back in your world, what are you seeing? Obviously the- the government is trying really hard to repatriate manufacturing into the US.

Shams Merchant

Yeah. And I am seeing-

Ed Mathews

And if there, you're seeing that.

Shams Merchant

I am seeing that. I, I- Okay I am seeing on the industrial side, there's two products that are active, that are that are ripe for more capital, more investments. Sure. One is obviously data centers, but those are very complicated- Yeah and you can get burned easily if you don't know what you're doing in a data center space. There's a lot of large

Data centers vs flex industrial

Shams Merchant

capital coming into that space, a lot of large private equity firms- Awesome and it's hard to compete with those guys. The flip side of that is flex industrial. Amazing asset class. Great asset class. Very high demand and less competition and less big firms in the space. So smaller operators- Yeah have the opportunity to be able to be involved in this space. We have clients that are doing flex space ground up developments and acquisitions a- all over the country. And obviously in Sunbelt and Texas where I'm based but this, these are projects that are happening all over the country. And it's a it's a good asset class to look into and to potentially invest in. So-

Ed Mathews

Yeah. Flex industrial is interesting to me because, y- and I'm speaking Northeast specific, right? The... It's interesting to me in that you have a huge portion of the population here in in Connecticut specifically, but the Northeast writ large that is has already paid off their house, right? Another huge chunk have sub 4% mortgages. They're not going anywhere, right? Because the replacement cost of what they already have is too high.

Shams Merchant

Yep.

Ed Mathews

And you have, I'm gonna guess two-thirds of the market that isn't moving because of that, just that alone. And so what we're finding, or what I see is plumbers, electricians HVAC guys, kitchen kitchen re-

The Northeast case for flex: nobody is moving

Ed Mathews

renovators, bathroom renovators, they are thriving. And they're not allowed to park their trucks- Yeah In their neighborhood 'cause it's an HOA and they frown upon pickup trucks with ladders hanging off the side. Yep. And so they need a place to park them, and they need a place to put the materials, and they need a place to meet with their clients and, here we are, right?

Shams Merchant

That's exactly the the type of clientele that you would want in a flex industrial space. A l- a lot of m- mechanic type shops as well not heavy mechanic, but y- these people that wrap like- I don't know if you've seen the car wraps- Car wraps, yeah that people are doing. Oh, I've seen all of those. Very high margin business. Yeah right? I know some very successful entrepreneurs in that space. Oh, yeah. They do very well. They're also artists those are... Yeah, those are great type of clients to have in a flex space. But you're absolutely right. I think with AI as well, there's been a lot of private equity money moving into the, the trades, right? HVAC, plumbing, all of that. Heard of that. Those businesses are growing more, and there's more capital coming in from Wall Street into those businesses. We have clients who are buying, that switched from real estate to buying those businesses instead- Absolutely a- and raising capital to go do that because they're such a... It's a moat against AI, sure. It can't replace, can't... AI can't automate any of that stuff.

Ed Mathews

Somebody has to replace that faucet, right?

Shams Merchant

Yes. And- And there's a high margin businesses too usually, with very sticky customers. And no pun intended. And so- and so that's why the flex space is growing naturally too, I think. Yeah.

Ed Mathews

Yeah it's an interesting play. And yeah, I had a friend of mine ask me, knowing what I know today, would I go to college? And the honest answer was, I was an English major with a mass comm minor, right? Do I use that? Yeah, but but, I learned how to write. Okay, fine. Yeah. But could I have learned that on YouTube? Yeah, maybe.

Shams Merchant

But these days AI does most of the writing though.

Ed Mathews

Yeah. I'm still a snob- how- when it comes to that though. I let it- On YouTube I let it- Yeah I let it ideate, but I don't- Sure Yeah. I, I- Sure I'm still a snob when it comes to writing, but I don't think- It's getting better though. Yeah, but I'm an old guy, so I wo- I would imagine- my kids and their kids will probably rely on- AI to do a lot of that. But it's interesting in that the trades in particular, unless you are a technical person, an accountant,

Would you go to college today?

Ed Mathews

an attorney, an engineer, that where you need to go to college, right? There's no other way to learn it. Us liberal arts people out there, would I go spend $400,000 on an education? Meh, maybe not. And I went to- Yeah a pretty good school.

Shams Merchant

But the- it is a, it is something to consider. Yeah. Is trade school. Yeah. Trade schools, I think that, are great options I think these days. Yeah but even the legal profession, we're w- there's gonna... M- my opinion is there's gonna be much less lawyers in the next, couple of years. I just, that's my honest opinion.

Ed Mathews

Yeah.

Shams Merchant

Hopefully no lawyers come and, shoot me. But like-

Ed Mathews

I- in all candor, I went into school with the intent of being an attorney, right? Yeah. And I got about six months into my first year and thought, "Man, I just can't imagine being in my, 50s negotiating contracts for a living." And- Thank,

Shams Merchant

thank God you don't, you didn't do that because it's, in five years, AI's gonna be negotiating most of the contracts.

Ed Mathews

But here's the thing, man yeah. Now I'm in my mid-50s-

Shams Merchant

Yeah

Ed Mathews

and I negotiate contracts pretty much on a daily basis. So I probably should've went to s- law school, but, what are you gonna do? I,

Shams Merchant

I still think it's a great decision not to go because I'm telling you with the way that this the, the technology is changing, there's just gonna be such a less need to have as many lawyers, right? There'll still be a need for lawyers. I'm not saying that the, that we're going away.

Ed Mathews

Really good ones.

Shams Merchant

Yes. I'm just saying we're just, there's gonna be fewer there because you don't need a s- team of five associates to run a $200 million deal. I could run a $200 million deal by myself- with the technology that I have today. Yeah. I could easily review everything and be on top of it because I have so much... Like there's so, it's so powerful. It can- Yeah do the work of five associates for me. I just need to do the higher level discretionary thinking and the strategic, thinking with the clients. That's what they're paying for at that point. The drafting, every... let me tell you something, Ed and maybe again, I hope no lawyers come and shoot me.

Ed Mathews

You can tell me. They don't even know where you live.

Shams Merchant

Don't give them my address. Today, I think that AI generally can redline a,

One person can run a $200 million deal now

Shams Merchant

a typical contract for me better than a first-year associate because that AI that I have has been trained on 1,000 contracts that I've done, right? It knows exactly how I'm gonna negotiate this one, and all I'm doing is then using discretion afterward, after the first pass to go in and make decisions about what I wanna fight with on this deal. Give a yes, no, maybe. Exactly. Yeah, exactly.

Ed Mathews

Yeah, right on.

Shams Merchant

That's it. Yeah. That is the honest truth. I don't understand any firm right now charging clients $10,000, $15,000 to do a first pass of a contract. That's just stupid. There's no way. There, it I don't know how you do that because the technology can do it for you.

Ed Mathews

And it's interesting. Your industry, my old industry in technology, that whole concept of the junior associate or the junior programmer or the junior marketing person or the junior salesperson, all of those people are going away. The dynamic total- to hang a left completely on our conversation, the thing I- the thing I wonder, though, is you need baby lawyers, you need baby programmers to become adult lawyers and adult programmers, and you can't get adults if you don't have the babies, but the babies are getting wiped out by AI, and it's gonna be a fascinating 10 years. Yep I can't I actually Friend of mine Kas Hoag just sent me a, an author that I'm gonna I just was listening to a podcast of the author, Jeff Booth, and I'm I just bought his book, Price of Tomorrow, which was, like written in I wanna say 2020 talking about deflation in the context

The baby lawyer problem: no juniors, no seniors

Ed Mathews

of abundance, right? Which is what AI's promise is. And it's y- the, the There's this challenge that I think we have as professionals. One of the ways that I get work done in the past, I'm sure this is true of you as well- is I had interns and junior associates do a lot of the work. And so I was managing that process, and I was editing that process, not-

Shams Merchant

Right

Ed Mathews

I'm not creating within that process- Which made me more efficient so I could spend more time with clients and yada, yada, yada, right? I think all of that's going away.

Shams Merchant

100%.

Ed Mathews

Yeah.

Shams Merchant

I couldn't agree more with you.

Ed Mathews

So this is gonna get, this is gonna get interesting. So anyway I completely digress, but I appreciate your patience. Yeah so let's get into the final five. Yeah,

Shams Merchant

sure. Let's do it.

Ed Mathews

So I'm curious about, obviously you've done very well. You have your own private equity firm. You're a successful attorney. Yeah and nevertheless, you show up to work on Monday morning. The bills are paid, right? You're doing well. But so if you stop working, you'd probably be okay, at least for a, a long time. Nevertheless, you get up on Monday morning and go to work, right? So I- Yeah look at that as purpose, and I'm curious what yours is.

Shams Merchant

Yeah. Yeah, great question. I think my purpose is I wanna build something. I like building things, and I wanna build something that outlasts me and that I could potentially, give to my kids as well someday. So I've always wanted to build something. That's why, I went into this, the private equity space myself as an entrepreneur, 'cause I wanted to build something there. And then same thing with the law firm. I want, I wanna build it even bigger. Yeah

The Final Five

Shams Merchant

help as many clients as I can be the best in my space. I'm really competitive wanna be number one. And so that's- Sure what gets me up in the morning is I wake up scared that today I'm gonna be number two.

Ed Mathews

That's

Shams Merchant

good. Yeah. That's good. And, and- That's called fire yeah. That's a good thing. And that, that scares me more than anything in the world. That, that I wake up and someone says, that I get a text saying, "Hey, I heard you're the number two attorney in the country that does this work." That's the scariest text I could probably, call I'd probably get. I wanna be number one.

Ed Mathews

Good. That's awesome. I love that. So I'm also curious about, obviously you've had people who have guided you along the way, mentors. And so I'm curious about the best advice you ever got and who was the person that gave it to you?

Shams Merchant

Yeah, best advice was from a, a gentleman that I worked for in law school while I was clerking. He's a real estate attorney in Houston. His name is Brad. And, Brad was a great real estate attorney, but even more what Brad was really good at was bringing clients to the firm. And that's what Brad taught me. He was like, "Look, you could be a great real estate attorney." And this is back then, this was six years ago and we were still doing contracts and everything, the usual way, not with AI or anything, right? And Brad said you could be the best real estate attorney, but you're still gonna end up being a, a commodity.

Shams Merchant

There's still a bunch of other attorneys that can do what you do. Even if you're the best you w- legal work at some level is still a commodity." Which is even more true today with AI. And he said that what differen- d- what differentiates you is your ability to bring in clients and to grow the business. And he said that's what's helped me." And that, that taught me at an early age that not to just focus on getting good at the actual technical aspects of the work, but also to understand how to develop business, bring in clients, b- get out there be on a show like yours, right? Put my name out there to the world. A lot of attorneys don't do that. They don't do it well. And I think it's a skill that, that, that gets left out. Hundred... Always gets left out of law school, for sure because they usually go to law school to become lawyers and not to build businesses. But- but I've always been a business person at heart, so I went to law school to build a business- Yeah Not just to be a lawyer,

Ed Mathews

yeah. I have a a, a mentor of mine who, to sum that up in, in one sentence, and that was, "Always be of service," right? Yes. Because that way they count... your clients come to rely on, on- Yeah not only the commodity that you bring to the table, but also the human aspects- Yeah,

Shams Merchant

It's the- and the expertise it's all the other value adds. It's not just the legal service. Clients come to me for everything. They say, "I need help raising capital." Not just doing, not j- I just want legal work. I want you to introduce me to a, 500 new LPs." I can make that happen. I need an accountant. I need fund administration. I need this, I need that," right? I can help with all of that, right? So it's... I'm always looking for ways to, what can I help you with that's not just- Yeah my pure legal services, right? I- can help with... Yeah, I'm in the business, so I... Tell me what you need. I either I've already have a resource for it, or I can go find you one.

Ed Mathews

I either know it or I know a guy.

Shams Merchant

Or I know a guy, yep.

Ed Mathews

Or a gal.

Shams Merchant

Exactly.

Ed Mathews

So I'm also curious about the, the decisions that you've made over the years professionally. I think we learn way more from our mistakes than we do from our successes. A- and so I'm curious about a decision that you made along the way that you look back on now knowing what you know today, and think, "Oh, man, I'd love to have that one back." And how did you manage your way through that?

Shams Merchant

Yeah, I think the decision was, when we talked about a little bit at the beginning of the show, was moving to a big firm, right? Again it was a... I'm not saying I, I fully regret the decision. I think I should have, though, stayed in a more of a boutique setting longer and learned more hands-on skills than going to a big firm. I wish I stayed more at the boutique level- And didn't really, have the hiatus at a big firm. Though, again, it did provide value that I still use today and contacts and things like that, but I could have done without it, for sure.

Ed Mathews

Yeah. It... And it's a different skill set, right?

Shams Merchant

The, the- Yeah

The decision he'd take back

Shams Merchant

the- you're a cog in a machine. Exactly. Well- but now I'm back where I belong, and, within a year of even going back to the bouti- b- boutique setting I hit seven figures in, in, in revenue in, in business within, within one year.

Ed Mathews

Yep.

Shams Merchant

So it was just like- Yeah a light switch went off. And clients were just coming in from all directions. So one year from moving to a big firm to back to boutique-

Ed Mathews

Yeah, you were back s- you were back

Shams Merchant

in- seven, seven figures. Yeah. Yeah, that first

Ed Mathews

year. That's also a char- that's also a, a comment on your character, right? So I'm curious about how you take in information. I, What's the author and what's the book on your nightstand, virtual or otherwise, these days? Oh,

Shams Merchant

I don't know who the author is. It's just a, it's a book somebody handed me. I don't even know who gave it to me. It's just been, it's been on my nightstand, and I haven't had the chance to even really read past the first chapter. But it says eight manifestations or something like that. Eight, eight manifestations for your life. And I'm not big on this whole manifesting thing, b- but I think it, it's helpful, right? I think the mindset i- is what it's helpful, right? And for... So I've been reading that 'cause I don't practice it enough. I don't practice the mindset enough. I'm too into the day-to-day. And so I'm trying to have more of a how do I s- slow down and create a, a, be intentional about my mindset- Sure so I can m- make higher level decisions. Yeah. And so that's what it's called. I think it's called eight... I don't know. Were you able to find it? I

Ed Mathews

I was just typing it. It's The Eight Secrets of Powerful Manifesting Mandy Morris.

Shams Merchant

I think that's it, yeah.

Ed Mathews

Okay. All right.

Shams Merchant

What color is the book?

On the nightstand

Shams Merchant

Does it say what color?

Ed Mathews

Yeah, it's grayish blue, I think.

Shams Merchant

I think that's it, yeah.

Ed Mathews

Okay, cool. I'll put it on the list.

Shams Merchant

I- Yeah.

Ed Mathews

I'm not a- Yeah I'm not a zen kind of manifesting kind of guy, but I do fundame- I absolutely believe in living life purposefully, right? And-

Shams Merchant

Yeah, I think that's what it helps you with a little more, is like just intentionally, creating, having more purposeful thoughts, right?

Ed Mathews

Yeah.

Shams Merchant

I think, I don't do that. Again, like I said, just too involved in the day-to-day. And, and-

Ed Mathews

It's so easy to get sucked into the-

Shams Merchant

Yeah

Ed Mathews

into that, the maelstrom that is our lives and lose sight of the bigger, more important picture.

Shams Merchant

Yep.

Ed Mathews

So I'm also curious about how you define success in your life.

Shams Merchant

I think it goes back to the first question. I think to me, success like I said, I'm very competitive. To me, success is actually being recognized as being the best in my space. Like that I know that's not like the best, that's not like this like grounded answer, it's okay. There's no-

Ed Mathews

No wrong answer

Shams Merchant

but like that to me, because that's what I've always wanted, it's not like I wanted X amount of money or an X amount of things. It's just being recognized as being the best in this space, because I truly believe that the value I give to clients is the best. I don't think there's anybody else out there that can give the value that I give to clients, and I just... So I want everybody to know that. I want, yeah. So that's how, that, that's what success is to me.

Ed Mathews

Right on. So when you're not talking about real estate or y- your legal endeavors, what do you like to do for fun?

Shams Merchant

Oh, I love this question. Okay. It's right behind me. I love F1. So I'm a really big F1 fan. You live in the right

Ed Mathews

place for that.

Shams Merchant

Yeah. You can see a bunch of McLaren gear in the back, so that's my team. Love Lando Norris, and F- F1... I fo- love following F1. And then obviously I can't, as, as a sport, I can't go physically drive a a a a race car.

Ed Mathews

Yeah.

Shams Merchant

I started playing a lot more golf. And so been trying to get more into it. I've never really liked the sport growing up. I regret it now because it's hard to learn a sport in your 30s. I'm like, I wish I started in high school, because I really do love the sport, but man, is it hard to learn a new sport in your 30s. Yeah. So just been trying to learn golf and getting better and playing more.

Ed Mathews

So I can give you a little bit of help there. I've been playing golf since I was six, seven.

F1, McLaren, and learning golf at thirty

Shams Merchant

Oh my

Ed Mathews

gosh. It's-

Shams Merchant

I wish I started that early

Ed Mathews

it's no easier that way either. For, for me, it has to do with the fact that y- you actually ha- I actually had to have had talent for the sport. But no amount of work can fix the things that are wrong with my game, but it's still, There's a book, my f- one of my favorite books, A Good Walk Spoiled. Oh. You should read it actually. It's a very good book. Okay. Good. But, Thank you. Yeah it talks about that playing golf isn't just about playing golf

Shams Merchant

Okay Yeah

Ed Mathews

It's competitiveness. You're not really playing the other three people in your foursome, right? You're playing the course. You're playing against- Yeah the course.

Shams Merchant

Yeah. When you're playing- And- you're playing against yourself

Ed Mathews

and against yourself,

Shams Merchant

yeah. Yeah. There's some weeks where I'm I got it, man. I, I- Yeah I'm And then, but then, and oh, I figured it out. And then- Yeah I'll go back on the course, and it'll just It's like I'm starting over from scratch. And-

Ed Mathews

Honestly I've been there. I, l- literally, I've been playing for 35-something years, right? More than that. And 40-something years. Oh, my God. And there are days, not that long ago, where I stood over a ball to address, and I'm like, "I don't think I've ever done this before, ever." That was the feeling in my head.

Shams Merchant

That's awesome. Yeah. Yeah. It's like- It's like, "Oh, boy" I've had that feeling-

Ed Mathews

It doesn't go

Shams Merchant

away. Yeah. That's what attracted me to the game, and-

Ed Mathews

Right

Shams Merchant

now that I've started playing I'm so hooked, and I just- Good I think about golf every day. I

Ed Mathews

just want to play. Well good. Welcome, welcome to welcome to the club. Some of us even have jackets. I don't, but some of us do. That's

Shams Merchant

so cool.

Ed Mathews

Yeah. Shams, if if someone wants to get in touch with you or learn more- Okay about your firm what's the best way to do that?

Shams Merchant

Honestly, if you Google my name I will pop up everywhere. And that's the best way to contact me. There's a bunch of information online with my phone number, email, everything. It's all public. So just Google, Shams Merchant, S-H-A-M-S Merchant. Click on the link, and schedule a meeting, give me a call, shoot me a text. It... I'm very easy to get ahold of. I always make myself very e-accessible to clients. And so- Okay you can reach out to me in a pl- m- myriad of different ways. So-

Ed Mathews

Awesome. Awesome

Shams Merchant

yeah.

Ed Mathews

Shams Merchant, thank you so much. This was an absolute pleasure. I'm glad we finally got to meet. And I wish you nothing but the best. Continued good fortune, sir.

Shams Merchant

Yeah. Thank you so much. I loved being- All right on the show, and thanks for having me.