YPMS Episode 13: How Tauro Capital Advisors Helps Entrepreneurs Buy Their Office Space For Long-Term Asset Building

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Show Notes

Casey Stanton
You’re listening to your perfect marketing strategy, the only podcast to teach you what marketing tactics are working right now, how to know which tactics are right for your business and the immediate steps you can take to deploy those tactics to grow your business today. Hey, it’s your host, Casey Stanton with CMOx, the fractional Chief Marketing Officer company. And I’m excited because we’re deviating a little bit from the traditional episode. And I’ve brought in a couple of directors from Toro Capital Advisors based in Los Angeles. And I got to know Jennifer, who’s an Associate Director there. And she helped me understand a little bit more about the whole world of hedge funds and raising capital and how different groups can help entrepreneurs, when they’re in positions where they need capital. And this is a whole world that I was pretty unaware of. And she and I started talking a few months ago. And I was excited that she offered to jump on this podcast with Anthony Johnston, who is a senior director, and Avi Youshaei, who’s another associate director at Toro Capital Advisors. So today, we’re going to be talking about what companies like Toro can do to help entrepreneurs, and this side of kind of big money that I think is really important as your business grows, or if you’re in a position where you need capital for some certain or specific events. So we’re going to be talking about those. So welcome to the programme, Anthony, Avi and, Jennifer, I’m excited for you all to be here. Thank you so much. Happy to be on the call. I appreciate this. Yeah, this is great to be here. Very excited to be here. Casey, looking forward to the programme. Awesome. So let’s just like talk about what’s happening right now. We’re recording this on February 1 2021. And things are just going nuts right now, with GameStop. Robin Hood, what AMC Best Buy all of these stocks? And I think there’s a good question that’s happening right now, which is like, is this a sticking to the man moment? Are we all just kind of excited that one fat cat? Is is getting screwed over by these redditors? Or is there something else at play? Anthony, can you kind of break it down for us what’s going on

Anthony Johnston
I can I can do my best. All my disclaimer is I do not work for a hedge fund. So you know, any aggressive activity on the internet directed to be just, you know, just know, this is done with a grain of salt. And really, my perception of it is, is really to give a broader aspect and a broader sort of reflection based upon where, and how sort of hedge funds operate today, and really how they’ve become an integral part in our global financial system. And where, you know, the misconception about sticking it to the man is is really has some unintended and unrealized consequences that may be missed. And and so without sort of getting into the nitty gritty on sort of stock trading and whatnot, and in no way Is this a, you know, the disclaimer is in no way this is a Is it a recommendation to buy or sell securities or anything like that. So I’ve put that in there. But just from a, from a broad perspective, is that what’s happened is something very interesting. And I think it shows the, the, the future of finance and the future of, of power being somewhat shifting. And it’s in in some ways, it’s, you know, power shifts, throughout history have been done great things, power shifts, and other situations haven’t been so great. So what the ultimate outcome of this is, is yet to be determined and will play out, you know, for play out through the years, right, and then or the minutes or however long this this sort of last but what these, you know, what the Reddit community and then with the expansion of other folks were able to do is is really highlight the power of of the retail investor on the stock market now.You know, if there was a moral question to be asked, I mean, hedge funds still, you know, historically have, you know, manipulated the market based upon a whole number of reasons and, and capabilities, right. But a hedge fund is really made up today of, you know, many people that work for the hedge fund, it’s not one billionaire that sits at the top and, you know, pulls the pulls the strings of, of, you know, of the stock market, you know, like a puppeteer, right. He has, they have many people that work for them. And, you know, and it’s an, you know, couple 100 employees that if a hedge fund goes under because of, you know, market manipulation, that that has broader impacts, and I think the broader impact that most people don’t realise is that today a hedge fund, you know, is not is trading, you know, certain amount of their, of their assets under management are from 401k administrators, they’re from pension funds, you know, that allocate money to hedge funds to deliver a certain expected return?

Casey Stanton
Let me just ask a quick question. So yeah, just just to, like, call this out, you’re saying that, like the local firefighters union, has a pension fund, and a hedge fund managers that fun, so it doesn’t just sit in the bank, they’re trading it actively in order to get some kind of returns?

Anthony Johnston
Right, right. Sort of how it works is you have an administrator who manages that pension fund, and then they go out to the various fund managers, and allow them to essentially utilise their capital for unexpected return. So they there’s a fund manager that oversees the fund, and it may be multiple but fund manager who oversees the actual pension fund, and then they go out to the hedge fund managers, and and the hedge fund managers solicit them and, and get them to invest in their hedge fund in order for them to put that money in the market.

Casey Stanton
Does that make sense? Okay. So when we know what’s happening right now, you’re saying that the money that’s on the line, or that’s getting risked by Melvin capital, or anyone else who had a short position with GM, he or one of these other stocks, that money isn’t just the hedge fund owner? It’s also all of the people that they represent, which is a lot of folks just like in our communities, is that right?

Anthony Johnston
Broadly speaking, yeah, maybe maybe they, you know, without getting sort of into the nitty gritty of how the funds are allocated, and what fund money is being put into any given investment. Broadly speaking, yes, a hedge fund isn’t just made up of one or five people’s money, it’s really made up of both public and private money that is then utilised by some very smart people who, you know, put it to work in the market, right? So. So it’s not just it’s not it doesn’t represent one person’s capital and whether or not a pension fund money was at risk in this specific trade. I think globally speaking, if a hedge fund goes under, then ultimately that money being lost is not just their own, it represents public public good money from pension funds, and amongst other places.

Casey Stanton
Sure, that makes sense. All right. So that’s very interesting. Is there anything else here that you feel like is interesting to know about what’s going on right now with this whole? Robin Hood debacle?

Anthony Johnston
Yeah, sure. The other thing of note as well is, you know, hedge funds, like I was saying, have become sort of an integral part in our financial system. And they, you know, they deliver capital from anywhere to, you know, any for they deliver capital to markets for anything from stock trades, to real estate investments to business investment to, to, you know, public municipal bonds, I mean, their, their scope of investing, depending on the strategy of any specific hedge fund is quite large. And so, you know, if, if, if a hedge fund goes under, then that could represent losses for an entrepreneur that was using that hedge fund money to, you know, expand their business. Right. And so, I think that there’s, you know, there’s in some of that stuff through private equity versus hedge fund, and again, not to get in the weeds, but just the broad scope of it is that the, you know, hedge fund plays a more integral part in our financial system than maybe what is thought or what used to be?

Casey Stanton
Oh, that’s interesting. So your view is that hedge funds? Or maybe the truth is that hedge funds are an integral piece of our, like, financial markets.

Anthony Johnston
Absolutely. They are. Absolutely. And it’s in they became more so really, after the financial crisis, in the sense that many of these larger financial institutions relied on hedge funds to deliver a certain amount of return that they might have been limited to, because of regulation.

Casey Stanton
Interesting, okay. So hedge funds became more what interesting or advantageous, or just the only option?

Anthony Johnston
I would say, advantageous and interesting, or I wouldn’t say they were absolutely necessary, but they certainly became an avenue for larger institutions that may have been unable to sort of make certain trades based upon certain regulations so they could deliver this money to a hedge fund in their head and hedge funds could make those trades or make those investments on their behalf.

Casey Stanton
Got it. That makes sense. So I’ve got a question for Avi. What’s the difference between a hedge fund and what y’all do?

Avi Youshaei
We primarily deal with securing debt and equity for real estate investors, entrepreneurs and developers across the United States. And if I’m not mistaken, hedge funds, primarily deal with pension funds. And as Anthony mentioned, they have some lines of, you know, they go through other avenues as well. But we were primarily focused on the real estate aspect.

Casey Stanton
And in Can I ask Anthony, why real estate? Well, what makes real estate more interesting here for for y’all to have a focus on?

Anthony Johnston
Oh, well, one, it’s our sort of primary line of business and focus is that, you know, in to caveat on obvious point is that hedge funds do supply capital in what are called the debt markets. And so they will supply capital to a firm that will then go out and lend the money on behalf of their own investors and in the hedge fund. Does that kind of make sense? So a hedge fund might say, allocate $100 billion to Xyz. lender, who then that lender will go and supply the capital to someone like will will arrange that capital will they’ll utilise us to arrange that capital for a real estate investor. So that’s how the circle comes back around to a hedge fund being moult have multiple impact on the global market in the way of specifically around real estate. And so what we do is we become the matchmaker with real estate investors, who then get matched up with either a debt source or an equity source in order to achieve their business plan for any given property.

Casey Stanton
Got it. Okay, that’s interesting. So, does turtle have relationships with multiple hedge funds?

Anthony Johnston
We would have not specifically hedge funds, but we would have relationships with the with the lenders who receive capital from hedge funds

Casey Stanton
Got it. Okay, that makes sense. I’m starting to understand a bit more here about like, what, what, what, like how these different entities exist to support one another?

Anthony Johnston
So the hedge funds supply capital to a lender, and then they’ll lender supplies capital to the investor.

Casey Stanton
Makes sense. Makes sense. All right, so let’s talk about where the rubber meets the road for an entrepreneur, folks that listen to this, the most often business owners with successful businesses, and they’ve got a team that’s oftentimes local, but also they have folks that are decentralised and you know, folks across the globe, when would an entrepreneur come to you?

Anthony Johnston
So we would, we would be utilised by an entrepreneur typically in that case, is that they have an expanding business. Historically, they have, you know, done leases on their specific real estate that they operate from, whether that’s manufacturing, whether that’s office, whether that’s whether that’s, you know, multifamily, for instance, but typically not in this case, but typically, we would, we would, we would mirror or match up with people that are operating businesses, we’ve matched up with operating businesses that are looking to expand from being a tenant in their building to ultimately owning their building.

Casey Stanton
Got it, okay. And tell me a little bit more about like how that happens. So they say, hey, I want to I want to get this building, I want to I want to stop being a tenant and I want to just buy the place or we want to move to a bigger place. Why would they come to you? And why wouldn’t they just go down to the local credit union or go to their bank?

Anthony Johnston
Great question. The time value of the time value that we bring to a transaction is we’re experts in our ability to know where the market is at any given time, based upon the debt or equity markets. And so, if you’ve never been if this is your first building, you’re looking to purchase, and you’ve never, you’ve never been down the road of getting a commercial mortgage. That’s where we’re there to to help you and ultimately guide you through the process of finding the right capital source, negotiating the terms and conditions and helping them understand the terms and conditions of the contract and the mortgage and, and the various aspects of a commercial mortgage. And then ultimately, knowing that there’s multiple market participants for any given real estate asset and driving those market participant. pitch to deliver the best deal for the investor.

Jennifer Santoso
So if it’s okay, I’d like to jump in on this as well, please. Yeah, so just similar to what Anthony’s messages, but just that in different words, hypothetically, if you’re a business owner, and you’re looking to own the building, instead of waste, you know, you may, you may head to multiple things and get their different rate sheets and whatnot. And, you know, you can only do so much with a vantage point that you have, and to Anthony’s point, it might take, you know, two three weeks to visit, you know, five to 10 banks to to get the information that they’re sharing. On our side, we have relationships with more than 1800 lenders, potentially more than, you know, potentially 2000. Plus, we also have relationships with more than 500 Equity Partners. And so with with one phone call to us, we can reach out to our network and efficient efficiently capitalise on those relationships to get the best solution for our clients.

Casey Stanton
That’s interesting. So that’s helpful to hear that your network is able to be used here. As an entrepreneur, we try to do the least amount of work to get the biggest outcome. So when going and buying our first office space or something like that, it seems to me like there’s a lot of learning that would be required there. And is it fair to say, Jennifer, that you all then shorten that learning timeline?

Jennifer Santoso
Absolutely, we do most of the work for the client, and Avi and Anthony, if you want to jump in here, feel free to do so.

Avi Youshaei
Yeah, I’d like to add, you know, we kind of act as the chief financial officer. And, you know, we understand what it’s like to be a business owner, you have so many different things going on, you know, for example, you know, if you have a convenience store or a restaurant, you know, there’s so many you know, you got orders coming in customers keep happy. And the last thing you want to do is, you know, start looking for a loan that you don’t fully understand and then sign up for it. And two years down the line, you know, gets stuck without being able to exit it or you might not be happy with the rate because it increased and you weren’t aware of that. And what we do is we you know act as your chief financial officers I mentioned and we jump into the loan, make sure that it’s a good fit for you. I always say it’s kind of like a marriage. You we want to make sure that we find and as Anthony said, We are matchmakers we want to find the perfect lender for the client. You know, every client has different needs and different goals in there. Every lender has the same requirements. So we’d like to keep both lenders and clients happy.

Jennifer Santoso
Okay. Yeah, the very last point I wanted to add is that in the world of finance, from you know, my perspective, there are, you know, X number of vehicles or tools that you can use. And the one thing that I’m incredibly impressed by with Toro, is their ability to be incredibly insightful and creative with their capital solution. So you might come in for one thing, it might be the case that Toro advises another that’s better for you than you had imagined to begin with.

Casey Stanton
Got it. That’s helpful. Okay, great. But But like, let’s call it out, like, what are your incentives here? Why would you do all of this work? What’s in it for y’all?

Avi Youshaei
Well, we, we obviously get paid, what would be a commission based upon the amount of money that we placed with any given source? So it’s, it’s, it’s, it’s both financial, but we also look at as a company in the sense that we’re not measured by the amount of money we make, and we’re not measured by money. A lot of this space is crowded from a marketing perspective, simply by the dollars that are transacted or the revenue generated. And for us, it’s really about how many people we help and how many generations can we help? So, you know, I, in our business, we want to be the trusted source, not for the entrepreneur today, but his kids and their kids. Right. And so, you know, we want to be the entrepreneur that helps generationally not just the single use.

Casey Stanton
Got it. Okay, that’s helpful to understand that.

Jennifer Santoso
And I’ll add to from my perspective, so not only am I you know, inspired by Anthony’s response, but for, for me, this field is of interest to me, because I’m all about creating what’s next, you know, creating the new, the new version of what’s next in the world and being on the commercial capital side is just, you know, one exciting way that I can participate.

Casey Stanton
Cool. Yeah, that makes sense. Thank you. So, I’d love to hear though, like, how has COVID changed the perception of how finance is happening? Has anything changed? Or is it a lot of just perception, changing?

Avi Youshaei
Well, I think it’s, it’s perception changing. So if we go back to the conversation about when we open regarding, let’s say, Best Buy and GameStop and Bed Bath and Beyond, what do you, Casey, what if I asked you that what do all of those three companies have in common? A sad decline? In what specific type of well in retail, there you go. So, so So, you know, the the transformation from retail has been happening Well, before COVID this is not a specific COVID phenomenon. What has exacerbated the transformational shift has been COVID. And not to say that all retail is bad, you know, and an all at office for instant is good, right? That’s not it, you can’t look at it that myopically within within the asset class of retail, you know, there are some good still shining stars, right, we still people are still lining up at the grocery store, people are still going to CVS people are still going to people are still going to this, you know, sporting goods, things like that, like there are certain there are certain curated and specific type of retail that is still doing okay, within the COVID environment. Right. But as a whole ageing, you know, look at suburban shopping malls. What What is the future of a suburban shopping mall?and where

Casey Stanton
That’s a great question.

Toro Capital Advisors
A great, it’s a great question. And it’s not an easy answer.

Casey Stanton
Right if it’s not experiential or fast, it’s not going to get good traffic wouldn’t wouldn’t you say? It needs to have like some kind of experience to get people sucked in or it needs to be the fastest way to get the the thing that you want faster than Amazon.

Avi Youshaei
Correct. And, and not just experiential, but curated to be specific, something that is something that I can’t get on amazon prime, really, if I can’t buy it on Amazon Prime, or Walmart or Target online, and I can’t have it delivered to my door, then. Yeah, you’re right. I mean, if you look at sort of, let’s take another example that I think is, is looking like a positive shift is, let’s take Nordstrom furnance for instance, right? Nordstrom has typically been a big box retailer, in most shopping malls. They provide a little bit of a higher end product and that then let’s say a Macy’s or, or, you know, a Sears or, you know, in a JC Penney’s, for instance. But, but, you know, Nordstrom has created a very good online presence. And then, you know, I think the future for Nordstrom is to have what’s called a I think it’s called a Nordstrom local. There’s one in Brentwood and it’s there’s been a couple sort of smaller test markets, where you actually order the product, it goes to the Nordstrom local which is a much smaller footprint. You go in you try on all the clothes and then they process what you bought and process your return all at the same time. Oh, interesting. So so so you can still exist a Nordstrom can still exist, but are you are you taking the the great aspects of on demand with online shopping, and then still creating that experience within me going into a store? me getting make sure my suits are tailored, and then whatever I didn’t buy, I don’t actually have to take home. I just leave it there. And they process the return for me.

Casey Stanton
And it reminds me of my trunk right now, which is full of returns. We just buy everything just so that we get the one thing that we want and then return the rest.

Avi Youshaei
Right

Casey Stanton
Exactly. Yeah. Right. And like the logistics of that it’s got to be awful. Because, you know, I don’t know what happens to these products that I returned, but I’m sure they have to go through some kind of review and QA process to ensure that like, I didn’t damage them, or there’s no spill on it, or they weren’t worn. So what you’re sharing is like a pretty smart move, it seems like,

Avi Youshaei
Right, right. And so so the the, the the retail that is going to be that is going to be that’s going to survive is is the retail that creates that experience that is curated and then also has a well incorporated as well incorporated. The sort of online aspect.

Casey Stanton
Yeah, that makes a tonne of sense. So you think COVID has changed the perceptions of how people Well, not really the perception is the reality of how people experience commerce, which is if it’s not clicking, collect or deliver To my house, I just don’t consume it right now. That’s my experience living in Philadelphia. And as we kind of progress in the future, you think it’s we’ve effectively sped up where we are right now, this would have taken a few more years for places like GameStop and BestBuy to decline. But because of COVID, folks just aren’t showing up. And they’re still ordering everything, but they ordered it on Amazon or walmart.com, or wherever. And you see a future where there are smaller mobile more boutique, like service related retail, where there’s something added on top of the typical retail

Avi Youshaei
Yeah, yeah, I think so. I think, you know, I think the the, really the, the, and I haven’t looked to see how they’re doing sort of COVID. But if you looked at sort of where, where I think the sort of the performers in future retail was, you know, a company like Warby Parker, for instance, right, their business in started entirely online. And then as a way to create a footprint and deliver, you know, I think that’s tile of business where the the brick and mortar location really becomes a no, no caveat, there’s a minute, where the brick and mortar location really becomes a marketing expense versus a revenue driver is I mean, if you look at let’s say that the the, the retail that has historically been in Fifth Avenue and Rodeo Drive in Beverly Hills, you know, I would assume that based upon the rents that they’re paying, those those, those retail stores don’t make money, but they are an advertising expense to drive traffic and, and and, you know, and and have it presence when someone’s driving down the road

Casey Stanton
Absolutely. Do you think that’ll last? Do you think the rodeo drives will will last?

Avi Youshaei
I don’t I honestly, I if I had a crystal ball, I tell you, I don’t know, I think that maybe the footprints gets smaller, and maybe it still is a more curated approach, like a Nordstrom local is going to take. And, and and us, you know, how you manipulate the retail. Within as a property owner, I think, you know, is a big question. I honestly don’t know if those if those places still exist. I would assume like I said, it’s continued to not be a driver of revenue, but really a marketing expense. I think the Nate do still exist in some capacity. Sure.

Casey Stanton
Yeah. That makes sense. Okay, so there’s two ways that I understand that you all can support an entrepreneur, one was helping them buy their own building, and I think we’ve understand a bit more about maybe where the markets going there. But is there a way to work with you all, just for the general aspect of wealth building? For us entrepreneurs, we have businesses that produce money, and it what happens to that money? Once we, you know, have all of our financial instruments kind of like, you know, filled out? Right, yeah, then what? And I think the answer is, what I’m learning is that the answer is real estate is a great place to go. How does an entrepreneur come to y’all for real estate support outside of just their, their office building?

Avi Youshaei
Great question. So, you know, I think that, again, you don’t just purchase real estate to you, you know, someone just doesn’t purchase real estate, so they can sort of go from a tenant to to an owner, right? That’s not the only reason. You know, most people have real estate because it is an investment and the investment is if you look at, if you look at let’s say the stock market, who who’s sort of going crazy, like, you know, like, I’m sure you Casey and I and know from sort of the late 90s with the, you know, with the sort of internet bubble, is that, you know, the the stock market is is can be a very emotional and very highly fraught environment in certain places at certain times. Where real estate investing Yes, there are sort of, there are ebbs and flows in in real estate, historically, and on commercial real estate, it’s been sort of an upward curve. There are down years of course, and COVID no exception to that. But, you know, someone would invest in real estate because as if you think about what a stock buy actually represents the fundamentals around the stock purchases, I’m giving you my money, right to purchase a share of that stock, and I’m investing in the future cash flows of the The business, right? So a real estate, a purchase of a real estate asset is no different in that you’re taking your money and you’re buying a real estate asset, and you are expecting future cash flows. But with real estate, you also get appreciation, you also get depreciation from a tax perspective, you get a hedge against inflation, because it’s a hard asset. It’s a real thing. And so those are all the reasons why people would, as opposed to, you know, once they’re sort of investments have capped out, they look to real estate as a secondary place for for for capital preservation and appreciation and cash flows and depreciation, so it really becomes a holistic sort of asset.

Casey Stanton
Yeah, it sure sounds like it sounds like a smart asset to be investing in. Well, if someone was to work with y’all, what size real estate property? Are they looking? What would be ideal for you? Are we talking about something that’s north of a million?

Avi Youshaei
Yeah, so typically, we would, you know, because of the, the time value of money and the time value invested is that, you know, sort of our minimum deal that we typically work on is a loan of about a million or more, give or take, depending also on the asset type. You know, I mean, you know, for instance, if someone is buying a Walgreens, for instance, and, you know, it was, you know, an $800,000 loan, those are very complex. And, and thus, you know, that’s something that we would probably do, but, you know, the, the, the sort of goal would be around a million or more.

Jennifer Santoso
I’ll add to that quickly. So a lot of people just wonder about the range. Absolutely. We, we aim for the million dollar and up and we can work towards, you know, 100 million or so. So we are currently working on a project where it’s 100 million in size.

Casey Stanton
Good. Thank you, Jennifer. That’s helpful. All right. So just to wrap up here, it sounds like if someone’s looking to diversify their portfolio, or if they’re looking to invest in real estate, if they own a successful business that’s doing well, and they’re currently leasing, and they want to see if it makes more sense to be an owner. Those are the kind of folks that y’all might want to talk to you. Does that sound right?

Avi Youshaei
Absolutely.

Casey Stanton
Awesome. So they could check y’all out at www.taurocapitaladvisors.com. I feel like I’ve learned a tonne here and I’m, I understand now where organisations like yours fit in in the market, I think I have a better understanding of hedge funds. And I feel like I’m a little more intelligent, when it comes to understanding what’s going on right now with Robin Hood. So I’m really grateful. What I’m reminded of so some of my big takeaways here is number one, that once you have a successful business, to take that capital that comes in and put it someplace smart is obviously a good decision. One great place to put it is potentially real estate. And if you don’t have enough capital yourself to cover the purchase of something and you need some support, or if you want someone else to act as that CFO Toro Capital Advisors is an opportunity or is like a potential partner for that. So that’s one thing I took away. Second, kind of just reminded here of the future of retail, and how organisations that have been focused on digital retail were able to capitalise on the COVID economy, no one going out and shopping. So that will still happen. It sounds here like there’s still going to be just as far as we can all predict, there’s going to be a lot of pressure. for local retail to be experiential, there needs to be something there for people to interact with in order for it to make sense to go. Otherwise, e commerce is probably just going to continue growing at a very rapid pace. I’m also taking away from here that at some point, you know, my team is distributed. But for other organisations that we work with, they have a single location where folks come to work every day. And I know a lot of them are leasing. Because I’ve seen the p&l, I’ve seen what they pay per month for that property. And if they could turn that into an ownership, that may make sense for them longer term. And if they don’t have the capital to do that purchase on their own, or they don’t have the resources, like the knowledge or the experience. Y’all could be a great fit. So this is this is a different side of business than we typically talk about. But I just feel like I understand this a little bit more. And I’m really grateful for your time. Anthony, Avi and Jennifer, thank you so much for coming on