WS1875 Business Secrets For Completing $8 Billion in Acquisitions | Highlights Jeff Toporek

In this highlight episode, Whitney  interviews Jeff Toporek, a guest who has completed over $8 billion in real estate acquisitions. Jeff shares his background and career journey, starting with his organizational behavior degree from the University of Michigan. He then worked at J.P. Morgan during the early stages of commercial real estate securitization. Jeff's passion for real estate grew as he found it to be tangible and creatively fulfilling, with opportunities to work on architecture and interior design projects.

Jeff explains that their company,  FD Stonewater  focuses on niche strategies in the real estate market. They have three main business lines: federal consulting, development, and investment and asset management. Their federal consulting business advises owners on attracting or retaining the federal government as a tenant. In their development business, they specialize in building mission-critical facilities for federal and state governments, as well as corporate built-to-suit projects. Their investment and asset management business includes a single tenant strategy and a government adjacent private sector strategy.

When it comes to solving problems, Jeff emphasizes the importance of brainstorming and open communication within the team. They prioritize finding solutions that solve specific pain points and improve internal processes. Jeff also discusses their approach to technology, focusing on finding solutions that solve specific problems rather than adopting technology for the sake of it. They use Juniper Square for investor communication and document signing, and Prophia for lease abstracting, which has greatly improved their asset management processes.

Don't miss out on the full episodes of!  Click the links below to tune in and gain valuable insights from industry expert Jeff Toporek.


https://lifebridgecapital.com/2023/09/11/completing-8b-acquisitions-jeff-toporek/

https://lifebridgecapital.com/2023/09/12/behind-the-scenes-of-real-estate-operations-jeff-toporek/

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Transcript

Whitney Sewell: This is your daily real estate syndication show. I'm your host, Whitney Sewell. Today, we've packed a number of shows together to give you some highlights. I know you're going to enjoy the show. Thank you for being with us today. Welcome to the show. I'm looking forward to the conversation and honored to meet you. I can't say I've had too many guests who have completed more than $8 billion in acquisitions. Welcome to the show.
Jeff Toporek: Yeah. Thanks for having me, Whitney.

Whitney Sewell: Glad to be here. Honored. And so Jeff, let's dive in though. Obviously the listeners and myself want to know a little bit about your background and I mean, getting to the spot of completing 8 billion in acquisitions. That's, that's something, right? Not many of us can say that. What was before real estate, Jeff, and then let's go through your career in this business a little bit.

Jeff Toporek: Yes, I graduated from the University of Michigan with an organizational behavior degree. I was more of a choose your own adventure, not really sure where that was going to take me. And I was at J.P. Morgan in 1994, really when commercial real estate securitization was just starting. And I worked there and worked on their first two securitizations. which is a really exciting time coming out of the early nineties recession. And then I ultimately realized real estate is something I really enjoy doing. It would felt tangible to me. I could walk to it. It had a very creative component to it with the architecture and interior build outs and different space uses. And, uh, was it just a product on a piece of paper? And I then left and went to Estill and I was at Estill for about eight years. The firm at that time was literally 20 people. I was one of three associates at the firm and just got tremendous exposure to, to really everything about real estate and That's where a lot of my transaction experience came from was working on big portfolios, selling the first two funds for Blackstone and just getting exposure to all sorts of people in the business that at the time I probably had no idea, you know, how amazing those people were, but I was in situations at a really early age of getting to interact and learn from, you know, some of the greatest mentors in the business.

Whitney Sewell: Wow. So how long was that until I was like your progression to where you're at now?

Jeff Toporek: That was from 2000. Sorry. That was from 1996 to 2003. And then in 2003. Kind of coinciding with starting a family and buying my first house, that was a little bit of a crazy thing to do was to ask my wife if it was okay to start a business on the principal's side. And lucky for her, she said, look, I grew up in a two bedroom apartment. If it blows up, we can always, as long as we love each other, we can always go back and live in the apartment together. In 2003, I left with one of my current partners today, David Stade. He and I worked together since 1998. And we started the principal business really doing a single tenant investing. When we left East Hill, we, we had our first venture with Fortress and then that kind of snowballed into a second venture with Fortress. And then we had another one with Garrison. And one of those ventures, we, we bought our first government deal and that's where we met the remainder of our partners. They advised us on the transaction and we were in the trenches with them for, for three years and really got to know them really well. And ultimately decided to merge our companies when they left a larger firm and kind of joined forces in, in 2010. So at the time it was six partners at that point. And now the firm is 10 partners and 43 professionals around the country. So, it's been an exciting ride.

Whitney Sewell: Speak to your all's focus now, and maybe what is that the focus 10 years ago and what you all are focused on now?

Jeff Toporek: Sure. Everything we do is a, is a niche business. Real estate's not rocket science. If you're halfway smart and you can roll up your sleeves and, and really try and, and really try and get dirty and be creative, you can be, you can be successful and semi, semi dangerous and We have always focused on very niche strategies. We have three different business lines. So we have a federal consulting business where we advise owners around the country on how to attract or retain the federal government as a tenant. So that's a national business. So former head of GSA is on that team, former other government officials and agency officials are on that team. It's a very kind of specialized product. Then we have a development business where we have a few different verticals there. We do built a suits for federal and state governments around the country, all very mission critical. Things like EPCA headquarters in Atlanta. We've done some VA facilities. We do labs for DEA. So very mission critical focus there. We also have a joint venture on student housing with Price Companies. We do corporate built to suits. We most recently won a couple of defense contractor deals that are pretty large, all very secure, highly mission critical assets. And then we have our investment and asset management business where we have our single tenant strategy, primarily with our single tenant active return fund. And then we have a government adjacent private sector strategy. So we've done other things in the past, but there's overlap within all of those across the platform. And really what we try and do is. How do you position yourself where your company is uniquely positioned in order to execute a transaction? That's something that is in 30 plus years in the business is not easy to accomplish. And you can really only do that when you have the experience and the talent to accomplish that.

Whitney Sewell: Well, I'd love to talk about that just a little bit. You just said, or you said a number of things, but I'm going to back up even a little more. You said you focus on niches, right? And you all have a number of things, right? That you all do right within the business. But, but then I love even at the end, you said, how do you make your company uniquely positioned to be able to complete the transaction? Are there maybe an example you can think of where, yeah, where that hammers home? Like we were uniquely positioned and able to do this maybe where somebody else couldn't have or something like that.

Jeff Toporek: Sure. There's, there's actually several, but along the very, very much the same theme. So in our single tenant business. That's very often perceived as a passive business where it's coupon clipping, you buy and put it on the shelf. You wait for the tenant to tell you whether they're going to renew or not. We take a very, very different approach. We really view, since it is a Michigan critical asset. Our job is to be a partner with a tenant and try and figure out how we can help them achieve their business goals at the site, yet also have the corporate expertise to be able to talk to the C-level suite. We've had a couple of leases that have had obligations for the landlord to execute expansions of buildings. We had one north of Grumman in Dayton, Ohio. We, we have a manufacturing facility right now in Yuma, Arizona that we're doing that with. And we have another defense contractor in Huntsville, Alabama. Very similar type of situation where most passive investors don't really have the development expertise to execute an expansion for a tenant. And typically those are very complicated because the tenant is still occupying the existing premises. You're not building a separate building, you're actually continuing their operation, getting the expansion done. So our development team comes in and really advises the tenant on how to value engineer, what they're thinking about in terms of design, getting really involved in the operations of adding lines to a manufacturing plant, not just using it as storage and helping them figure out the most cost effective way to get it done. And those tenants are not in the development and real estate business. They want to be doing what they're good at, which is executing their business. So having a value proposition where our development team can actually fully execute a real estate expansion for them is tremendously beneficial. And it's usually, it's a, it's a pretty easy win-win for both sides. And we typically get lease extensions and get the expansion done. That's been a great example of how we kind of work across the platform together.

Whitney Sewell: Instead of that tenant looking to move somewhere else.

Jeff Toporek: Exactly. And they have those choices. If there's an existing plant somewhere else with the capacity, they could actually just move there. We've had that come up in the past, but most of those people who are at these facilities don't really want to move. And it's getting that information on the ground with the facilities, people to understand their pain points of what do you need and, and walking the facilities and understanding what they do as a business. We don't really view our job as just a real estate landlord, collecting a rent check. Um, we're trying to be their partner to help them succeed in their business. Cause ultimately if they succeed, it's a pretty easy translation to we're going to succeed.

Whitney Sewell: Yeah, for sure. No, I love that. And it sounds like y'all have been creative in, in adding these other ways that y'all have been able to do this. So you listed so many. And it's interesting, and of course doing this for, you know, 30 plus years, I can see this happening, just the evolution of how the business has grown and y'all's expertise and all these things, y'all are focused on niche. But, you know, when, maybe you can talk us through like just the thought process as a, as an organization to determine, okay, we are going to go into this and become an expert in this other niche as well. Or maybe this niche over here, or how do you, I just have shiny object syndrome, right? Obviously when you all have grown, like you have, you got a lot more, there's a lot of things you could do, right? And so how, how do you all determine that a little bit as a company and how do you lead in that way to determine, okay, this is a niche that we should pursue or not?

Jeff Toporek: Yeah, I could give you two very recent examples of Look, we, we try and diversify, but we try and do it organically. We try and do it where the company is prepared and is able to take on that additional business. Uh, we're not a volume shop. So the quality of what comes out of it with our brand name on it is very, very meaningful to us. So we want to make sure that whatever we take on, we can execute at really the top level possible. And so, you know, we, we recently expanded into corporate built-to-suit. It was a natural transition because we were already doing that on the government built-to-suit side, building secure facilities for them. And so the natural deviation, one standard deviation away is extending it to corporate. It just so happens that the two first deals that we participated in RFP We won partially because our track record on having done it for the government was so solid for 15 years of executing for the government. That was an easy decision. Do we know that was going to be an easy decision? Not really. But we also have to be careful in, okay, how much of that business can we really take on? We want to be able to really deliver high quality assets. We were looking to expand into the industrial space and this I think will give you a good sense of kind of how we think about things. We started looking at markets like Charleston and Charlotte and really started to realize the institutions already started coming in. So one key criteria is We always look at secondary and tertiary markets. And then from a middle market standpoint, we try to be in that 10 to $75 million deal range. So we're not competing against the bigger institutions. So if we are the institutional face within the middle market and run it like an institution, that's where we feel like we've been able to create the biggest success. But when we were looking at the industrial market, we really lacked conviction. And so what we did was we hired someone from the outside that had a 20 year logistics background, former military, really understood the business from a global perspective. And what we ended up doing was creating a business plan from the ground up that was for emerging markets, near shoring, inland ports, and identifying land opportunities around that. I mean, that's kind of as niche as you can get. And ultimately what we need is that gut check of do we have conviction in anything we do? If we're wishy-washy and kind of feeling a little neutral, not that excited about something, it's not a deal that we need to do.

Whitney Sewell: Do we have conviction about what we're going to do? And if we're, yeah, wishy-washy, there's too many, there's too many variables, right? There's too many roadblocks that are going to happen or mountains that are going to have to be climbed, right? If you're wishy-washy, you're not, you're not going to want to climb the mountain, right?

Jeff Toporek: Well, and, and the last thing we want to do is get into an asset or a business that in your gut, you feel like is potentially going to be a problem because Guess what, when it's a problem, those problems percolate straight to the top. So they ultimately become my and my partner's problems. We're not looking to lose more sleep at night. So, you know, look, even to the best of your predictions and your best of your due diligence, there are plenty of deals that we go into that don't necessarily start off on the right foot. And you've immediately got to figure out a way to get it back on track. And being nimble and having that experience of it gets back to solving problems and being creative and really just being relentless. You, you have to, when you have passion about something and you get roadblocks that get thrown in front of you and someone's building a brick wall, well, you can feel closed in and you can feel like there's no way over or through it, but you've just got to be creative and having a great team around you is one of the best ways to get that done of being able to brainstorm different things and being using the different levers of, of, of how to get through situations.

Whitney Sewell: Any, any tips on, on how you and your, you and your business partner solve problems together for the business?

Jeff Toporek: A lot of it is, is brainstorming. I think that there, for us, there's no ego in the room. There's no pride of authorship. If there's an issue, any one of my partners, even if I'm not involved in the deal, should feel like they can call me and pick my brain. Because at the end of the day, I don't necessarily need the expertise that they have. They just need a sounding board to strategically think through whether it's a personal communication situation or just thinking of something outside of the box. And sometimes the best way to do that is to talk to someone who's not in the trenches, who doesn't know how to do that or doesn't know the specifics of it. But you trust their opinion and that's the big part of it. We've got 10 partners. We've been partners for a long time. There's a tremendous amount of trust there where you know that everybody's rowing in the same direction and trying to achieve the same goal and really having open and honest communication. If that breaks down your ability to get to a creative solution, Um, really kind of goes away. You need to hear the good, the bad and the ugly of what it is that you can do differently. And you need to learn from some of those mistakes and try and not repeat them. Yeah.

Whitney Sewell: For sure. Well, I just wonder, obviously, I think all the listeners can relate to, well, so many things you've mentioned here, whether it's shiny object syndrome or running off, Hey, we can go do this thing or whatever, should we, right. But even the, the, how you're working with partners, right. And the brainstorming and the no pride of authorship, that's like. We're all coming together for just to get to the goal, right. And making these determinations and brainstorming, thinking out loud. And I, yeah, it just makes so much sense. I guess one more thing before we have to end this segment, what would you say is a, is a challenge right now for Elk Deaston Water? I mean, what's, what's, what's the challenge you all are working through right now?

Jeff Toporek: I think everybody is going through challenges today, right? The capital markets are severely challenged, lack of liquidity on the debt and equity side. And we're working on problems that might be a year or two from now and just try and get that risk off the table. And I think for your listeners, While you need to focus on the problems that are right in front of you, you also need to keep your eye on the ball of where the next two to three moves might be down the road and how you're going to go solve those because they impact the decision you may need to make today. And so having the forethought of where things might be headed and anticipating what those issues might be. That's where I think we're spending a lot of our time. We don't necessarily have fires blazing today, but I remember during the great recession, I had, we had two years where there were no fires blazing and you're trying to just figure out, well, there's going to be something like, how do you anticipate it? And, and I think having had enough experience, I think we can anticipate some of it and take advantage of some of it. I mean, an easy example was when the market got wonky on the, on the forward curve, where basically the market said, Oh, we don't really believe what the Fed is saying. It gave us an opportunity to actually do some forward hedges. and take risks off the table within a three week window of being able to do that. Now, that came from a kind of a silly conversation I had. I had never really done a forward hedge, but we call one of our banks and said, hey, is this something that we can do? The one thing I know I'm pretty good at is asking what I think are really dumb questions. And I've been always surprised at how they're probably not dumb. So making an assumption of you think one answer, but you never ask the question. is, is something that I think is a, is a great recommendation for anybody. I've been shocked my entire career that most of my dumb questions aren't actually that dumb.

Whitney Sewell: Jeff, grateful to continue the conversation. And I know something I get questions often about is, is us doing say single asset syndications or multi-asset funds and why we would do one or the other. And, and you're so much more experienced than I am at this, but so I'd love to hear a little bit about. Just that evolution of the fun model for you all. And there's going to be a number of things that even Jeff and I have already talked about that I know the listeners are going to take from this, but let's dive in there. Jeff, get us started a little bit about maybe where you all started a little bit with the fun models and let's kind of move up to today.

Jeff Toporek: Sure. So when, when we started the business, we had a joint venture with Fortress. At the time they had 4 billion under management and I think they have 45 or 50 billion under management today. So they were a much smaller firm. And that's where we really started with our first single tenant venture. We had a vehicle that co-invested side-by-side with them. And it was just really a very small collection of friends and family, truly people that we just knew. And then we did a subsequent venture with Garrison. It was a couple of guys that left Fortress. Then in 2010, when we merged our company, we actually did a single investor fund with, with the DuPont pension fund. So it was much more institutional. We also had some of our private investors in that vehicle as well. And then after we liquidated all those, all those ventures, we kind of took a step back and said, okay, what do we think is the, is the best model here? And we really started doing some, some private friends and family capital raises. And I remember this is before technology really, you know, came about, but I was sending emails with documents. They had to be paper signed. And this wasn't really that long ago. And it would, it would probably take me three days of working 15 hours a day to send those out, making sure they were customized and all that. And so we did that for about eight years and then we, we started using a portal service that actually was a failed technology attempt and then Juniper Square came along and said, well, we can do the portal, but we can also do the upfront documentation with DocuSign and the tracking and things like that. And we said, great. And so we stayed in that business and continue to do that depending on what the deal structure is. And, and did those syndications for over eight years and then organically that network grew. And what we started to realize was we were raising capital on a per deal basis, but it was requiring the same amount of documentation as if you were raising a fund and getting none of the benefits of having a portfolio. And when you're buying single tenant assets, you really want to have that diversification. In December of 2022, we decided to launch an Evergreen fund for our single tenant active return strategy where we can use portfolio financing. We could do 1031 exchanges within the actual vehicle itself. Investors have redemption rights and can contribute capital over time. We could take in So selectively 401k money, it could be available for accredited investors only. And it really gave us a lot more capabilities than we had before. And so we moved into that fund model. That's really more focused on accredited investors and institutions, but it's a pretty broad. way to do that, where I can actually manage a true portfolio now within that construct. Doing that on an individual deal basis, especially for our single tenant strategies, just didn't make sense. And fund structures are not one size fits all. For a single tenant strategy, an evergreen makes the most sense because I keep adding lease expiration and I'd, in a closing fund, I would hit it or eventual brick wall, but an open-end fund, I don't have to do that. I can continue buying. There are plenty of other strategies that we have within the firm that we do close down. We do joint ventures and things like that. So this was very specific to that strategy.

Whitney Sewell: Yeah. Now that's just some great things to think through there as far as why you might have an evergreen fund versus single asset funds. That's what we've done. Majority of our deals have been all single. asset funds, but then we did, we have done a larger multi-asset fund, but never an evergreen fund. How, I know it's evergreen, but how long will that stay open or what is kind of the life cycle of an evergreen fund or what does that look like?

Jeff Toporek: I think we are targeting around 500 million of of equity where we believe that sort of a truly robust, stabilized portfolio. At 150 million, it'll have enough diversification. But at 500 million, that gives you the ability to sell assets as either sub-portfolios that fit a particular strategy, we'll have the opportunity to selectively buy some of our built-to-suits. We're not going to buy all of our deals. That doesn't make a whole lot of sense. And so there's the opportunity for us to churn within the portfolio. For like our government portfolio, we kind of know what the development pipeline looks like. And so we could sell assets. And that's really the intention over time is to sell some of those assets, uh, and then just bring in some of the new developments. So still works with everything else we're doing within the company. And so from a perpetual life standpoint, I just think that once we get to sort of that five or a million, it'll sort of have a different kind of life. Yeah.

Whitney Sewell: For sure. For sure. And you all are, will you all have other funds going on at the same time or will you all be strictly focused on this evergreen fund?

Jeff Toporek: For single tenant, this is going to be the sole vehicle for, for that strategy. We have other joint ventures. We likely down the road, we'll do other funds for different product types. But right now this is, this is the sole bond specifically for single tenant.

Whitney Sewell: Yeah, you mentioned a Juniper Square and the listeners are very familiar with investor portals. We use a portal called Invest Next for the same reasons, right? And no doubt technology has changed our space in a big way. And it's kind of, I think, morphing into more and more ways that technology, right, is changing our business and the security in the syndication business, but maybe you can speak to that a little bit. Your all's approach to technology, what that's looked like, how that's changed and some key pieces of technology you all use today.

Jeff Toporek: Yeah, great. So technology for us has to really start with, is it solving a problem? Typically we are always looking. We're not just sort of sitting back and someone's pitching us on technology. It's, it's actually the opposite. We've identified a very specific issue and then we are looking for a solution to solve that issue. And typically that revolves around, it's a pain point for our people internally. It creates dissatisfaction with their, with their daily roles. So we're looking to solve that in, in ways that technology can provide a solution. And we were an investor in Canberra Creek, which is a prop tech fund. So we get to see a lot of technology, not even stuff that they necessarily invest in, but they're looking at the whole universe of technologies. We start to see things from energy savings. How do you monitor that stuff? We are invested in a company called Prophia that they do lease abstracting. I mean, lease abstracting is a pretty rogue task and they do it in a way where I can have the data coming from not just a lease, but all my leases in a building, all my leases in a portfolio. I can aggregate all the analytics. But when I'm searching for something, I have the document right next to me that shows me exactly where it is in the document. And so when there's a lease amendment that's done, we just upload it into the system. It automatically updates within 24 hours. And so they're using components of AI to actually accomplish that, but also an overlay of human interaction where they're doing quality control. We're in the midst of adopting another product right now that we're, that we're testing. Hopefully we will adopt it on kind of our pipeline management. And it's funny kind of like in the interim, when we identify that there's a problem, we use something called Smartsheet, which is just a robust version of Excel. And we'll basically create checklists that are interactive or what, what have you. We'll, we'll create a universe in there. And one of our tests for technology is, well, you have to beat what we did in Smartsheet. in order for us to even consider you. And then we have to have, you need to give us a roadmap of what it is that you're going to be substantially better that I can't do in my Smartsheet environment. And you need to deliver a team that is responsive and provides good customer service. You get to learn a lot in an onboarding process. And your team basically has to be ready to onboard. They haven't done it before. Be prepared. I mean, you've got to have that internal conviction in order to accomplish that too. It's been really interesting trying to create this ecosystem. I talk a lot about the Holy Grail. When I was pursuing the Holy Grail for a long time and people ask me, well, what's the Holy Grail? The Holy Grail is basically one dashboard where all of my data from all of my source documents, whether it's leases, loans, GV documents, service contract, all feed into one dashboard. And then I can go into the layers from there. I hate to say it, but I've given up on the Holy Grail. I don't think it's going to exist. So what we've decided to do is, is pick the best products within our own ecosystem. We don't even need them to kind of like talk to each other. I think that's a whole other level that it, that's starting to happen out there, but I still kind of have my doubts. So now I'm a skeptic of the Holy Grail.

Whitney Sewell: I think we're all looking for that though, having all that in one place, like you're talking about, because it is a hassle, right? It's like, it would be nice to have all that in one place. But what, you know, what, what are your, you know, if you said, you know what, these are like my, you know, three pieces of technology that we must have, or that you would even recommend listeners to be sure and have or look into, what would that be for you all?

Jeff Toporek: Yeah, I think if you're, if you're doing any sort of syndication, you need to have the front end capability of being able to communicate with your investors and get those documents signed in as easy and quick and painless way as possible. And then have that communications part of the portal where you're delivering information and communicating. So we use Juniper Square for that. I think that's a really just critical, critical tool. I think that from an asset management standpoint, I had mentioned Prothea, and I just don't think we can live without it at this point. It does all of our lease abstracting. And what we've really noticed is that the, the network of people who use that is really robust. Think about all the different people that touch a lease on a daily basis. So we have our asset management team that looks at it, our, our, our internal counsel, external counsel, our, our lenders, our, our brokers, property managers. There's so many people that touch that one living, breathing document. And it's really the one source of truth. We know that that data is rock solid and there's not a missing piece of information when you're looking at the, at the contacts. One thing we haven't done yet is the same thing for loans. There are some products out there, but another thing that we look at is What is the value proposition for us on what is it going to cost relative to how much work we need to do? There's some pretty robust products out there. They're, they're definitely very expensive. We were just sort of waiting for a point where the right product does the right price points out there.

Whitney Sewell: Thank you for being with us again today. I hope that you have learned a lot from the show. Don't forget to like and subscribe. I hope you're telling your friends about the Real Estate Syndication Show and how they can also build wealth in real estate. You can also go to lifebridgecapital.com and start investing today.