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How Mark Blumenthal Became A Top Industrial Real Estate Investor

Mark Blumenthal

Location: Zoom
Date: 4/7/2020
Profession: Senior Vice President, Partners Capital

Q & A

Tell us about yourself. Who are you and what do you do for a living?

My name is Mark Blumenthal and I’m a partner and Senior Vice President at Partners Capital, where I’ve been now for the past 6 years.  Partners Capital is a real estate investment company here in Southern California, and we focus in the western United States. 

We predominantly invest in industrial property types - that’s 3rd party logistics, distribution buildings, some manufacturing buildings and some specialty industrial products like container storage yards. We do have a few creative, innovative office reposition deals as well.

I oversee all aspects of the business from investment procurement, underwriting, closing, value reposition strategy, development, implementation, financing and eventually selling the asset.

What's your backstory and what led you to Real Estate?

Before my last couple years in college I was just having fun, playing sports and being a troublemaker.  I was very blessed in that way. I wasn’t thinking about real estate or making money.

It started with a condo purchase in 2005. I was 20 years old and had been left a little bit of money from my grandparents.  I was a junior in college at CSUN with no real estate experience at the time, and I wanted to be smart with the money as opposed to going out and spending it on drinks and bottles at the club.  So, I bought this condo next to campus as my first investment property.

It was a great eye opening experience for me having gone through my first purchase and sale agreement, working with escrow, getting inspections etc.  Here’s this novice kid with really no real world experience being engaged and doing his best to understand exactly what he was getting into.  

While I was still in school I started looking for some internships in real estate.  My mother has been a residential real estate agent for as long as I can remember.

The one thing about residential that I always didn’t like was that it’s such an emotional business.  There’s such an emotional focus. How do you feel in this property? Does it speak to you? Can you see your family here?

I’m much more analytical by nature. I determined pretty early on that commercial real estate would be the focus for me because it’s about dollars and cents.  If it doesn't make money, it doesn’t make sense. 

My first internship was with Sperry Van Ness in Woodland Hills, where I was working with a couple of predominant multi-family brokers.  I ended up getting a job with them when I graduated college, and they had just moved from Van Ness in Woodland Hills to Marcus & Millichap in Downtown Los Angeles.  

This is now 2007. Here I am, this bright eyed, bushy haired kid just graduated from college.  The world is my oyster, and I’m ready to just crush it.

Then 2008 happens and the market just falls apart.  Market velocity (transaction volume) in Los Angeles fell off 96 percent in that year. If senior guys with long established client lists weren’t transacting, there was no way that the new kid was going to be able to make any type of headway in that environment.  

So, I ended up lasting there for about only 9 months.  There just wasn’t anything happening. Properties were with 50% of what people paid for them 18 months earlier. 

That was a tough pill to swallow and no one wanted to transact. People would be very argumentative and angry. It was a very tense time in the world.  Looking back now 12 years later, everybody has a little bit of perspective on that and can understand and appreciate that. 

I needed to start getting an income coming in and I also wanted to expand my skill set. That’s when I made the decision to leave the brokerage side of real estate and move to the principal side of the business. There were pros and cons to being on the principle side, but at the time it was the right move for me.  

I was very lucky.  The father of one of my best friends growing up is a commercial real estate transactional attorney, and also has a syndication group (small private equity firm), that does commercial real estate and passive business investments. His father and I always maintained a great friendship, played golf together and he’s been a mentor of sorts to me through the years. He invited me to work on his team as an analyst to cut my teeth and learn the principle side of the business. 

I ended up spending about three years with him.  He invests nationwide, so I learned many markets across the country, from Florida, Ohio, Texas, Minnesota, Arizona, California and Nevada. We were pretty much all over the board and we put out around $150-$200 million in that amount of time.  

Something very cool and unique that we did together, was even before auction.com was being used.  We were working directly with special asset groups from lenders and buying REO property directly from them because they didn’t have a platform yet to market those.  They worked with local brokers occasionally to market and sell the asset. Other times you could just contact them and see what files they had sitting on their desk and they’d send you an Excel file with 10 properties that meet your macro criteria so that you could start digging through, put offers out and transact.  It was very archaic when you think about what we have now with auction.com. 

We had a great run together, but I wanted to expand from that perspective. I needed to continue to grow, and that’s always been one of my driving focuses in life - continuing to learn.  The only way to do that is to make a choice to push yourself further and further.

I took a job as a junior acquisitions associate with a group in Beverly Hills owned by two brothers with an exceedingly impressive portfolio.  They were playing on a much different scale than I was accustomed to. They have single assets that are worth well more than the total amount of capital we deployed in the three years at my previous job.

We were working on much larger transaction sizes and we were working with large institutional equity providers in the LP position as we were operating as the GP. That really opened my eyes to what institutional real estate is all about.  The work was exceedingly more engaging, detail oriented and helped me grow personally and professionally.

I did miss not having that feeling of touching the real estate.  There wasn’t that physical connection, and at the end of the day real estate is all about the physical connection that you can make with a piece of property.  Touching it, going by it, understanding how you can generate revenue, how you can take it from its current condition to maximize value, what it’s going to cost you, how long it's going to take, the financing, your proforma, your refinance, your recap, your disposition etc.  That’s something that I missed while playing in the intuitional world.

An opportunity presented itself for me to partner with Bobby Khorshidi at Partners Capital.  It was definitely more of an employer/employee relationship when I first started with Bobby, but over time we figured each other out.  It was a growing process, and we continued to grow together, but especially at that time he had just left another partnership and was figuring out his own world and what he wanted Partners Capital to be in this new market. 

I was looking for a place where I could take ownership of a company instead of just being a cog in the wheel.  I wanted to be a prominent member of making sure that the company grew and achieved the potential that I knew I could help process.

One of the best decisions that we made together was to get out of retail properties and move into industrial properties about 4 years ago.  A lot of the stabilized deals that we had just completed or were just being completed when I first started have been sold and the cash has been moved closer to home in industrial property here in Southern California. That has paid dividends tenfold for us, our investors and our longevity in the real estate market.  

I’m now a partner at the company and I oversee 95% of our investment business.  Our team has grown, we’re entering some new markets shortly and we’ll be hiring some strategic new hires for those markets. We’re very excited about what the future holds.

What is your current investment volume at Partners Capital in terms of number of deals and deal sizes?

On average right now we’re typically good for between 4 and 5 transactions per year.  Those will range anywhere from $4-$12 million in total capitalization per transaction, and we’re aggressively looking to grow.  We also have the Archway Fund, which is our privately capitalized, direct lending platform specialized in financing short-term bridge loans secured by commercial and residential real estate nationwide.  

We’re launching two new funds through the Archway Fund brand right now.  One is to continue our bread and butter business, which is the bridge loans, and then we’re also going to have a non-performing note fund.

The next goal is to set up a fund structure for industrial real estate investment in the western U.S., and that will be also done with our new programmatic partners based here in Century City. That will allow us to increase our volume hopefully to 10-12 deals per year, still sticking within that same size range which I do like because it’s a little bit sub institutional level.  You can flex muscle that private guys won’t be able to compete with, and you’re also under the radar of the cheaper cost of capital institutional buyers that can accept a lower yield, while generating fees/funds from operation.

Can you talk about getting your real estate investment fund off the ground? What worked well for you in sourcing and acquiring property during that time?

When I first started with Partners Capital there were some existing relationships, mostly on the retail brokerage side that were in place and I brought in a good bit of my own contacts as well. 

I think really any realistic commercial real estate investor will say that broker relationships are the lifeblood of our business. Building, maintaining and developing stronger bonds within the brokerage community allows you access to off-market or pre-market deals.  Especially when you're playing in a sub institutional investment world, off market transactions are what are going to reward the buyer with the most upside in it and in a transaction. 

There are multiple avenues for obtaining those types of deals. It can be through title officers. It can be through property or asset managers.  It can be through your lending relationships, be it direct lenders like Wells Fargo, Chase, Bank of The West etc.. Or your loan brokers.

However, the ones that are directly tied into the transaction business of commercial real estate are going to be the brokers.  The more strong bonds that you can build with those particular individuals that are working in the market that you want to focus on, the more you increase your own reach and deal flow.

By just making one relationship, that individual has relationships with a load of clients and they have teams that also focus in your area.  So you can expand your individual reach simply by building these key relationships.

Every investor needs a top 15 list of brokers in your strategic markets that you can pick up the phone, shoot the shit, have lunch, see how they’re doing, check on their family, go to their birthday parties and things like that. 

When you have that type of bond with somebody, you know that you’re going to be a first phone call when a new opportunity presents itself. That’s going to allow you to conduct your business, to arrange equity from your LP investors, to get your offer out, and to make sure that you are strategically positioning yourself to be the front runner for a particular asset.

That’s really what I brought to Partners Capital.  That dedicated focus to not just work with what we had already going on, but to expand who we are, what we’re offering, the relationships we’re building and how we’re obtaining these opportunities.

Through starting your business, have you learned anything particularly helpful or advantageous?

Everything in life is a choice.  Looking at the world from a vacuum and assuming that we’re talking about equal minded individuals who want to be successful, grow and be productive members of society.  There are no truly bad choices.

You make a choice with your time, your energy, your focus, your friendships, what you’re willing to give up, what sacrifices you’re going to make and all of these A or B decisions.  These are all choices that you make. The more quality choices that you can string together in your life, the better off you will be. The more successful you will be, the higher the outcome of positive nature it will be.

I look at everything that I do and everything I have on my plate through that lense. I’m 34 years old now. I’ve got more responsibilities now than when I was 24. That’s what happens with life.  I only have so much time on my hands so I have to have certain priorities and make certain choices.

The fact that I made certain choices when I was younger has helped me get to a point where I now have more freedom, I can do things for myself, I can help my family or my friends and that is something that’s extremely important to me.

No matter your age group, no matter your existing economic status, no matter what, you have to have a simple desire to be successful. Have a desire to grow and be a productive member of society.  If you look at the world through a set of choices, that will help guide you in a way that no text book, no life lesson, and no mentor can help push you in that direction.

The next thing I’d say is the most important thing you can ever do at any career is READ EVERYTHING.  The old adage, “devil’s in the details” can never be more perfectly put.

You have to understand all of the moving pieces, the risk profile and look at them as a layer of risk.  Look at the entire document, be it a mortgage statement, a lease or whatever it happens to be. Look at those details as in-depth as possible.

You will be surprised how many pitfalls can be avoided simply by having a thorough grasp of the information, which can only be had by making sure you read.  

To what would you attribute your success as a real estate investor?

Drive and dedication.  The biggest thing that drives me is the fear of being average,  I am personally petrified of just being average, not amounting to much, not having success, not having the ability to make certain choices or do something luxurious or lavish without having to worry about it. 

That doesn't just mean monetarily. It’s a lifestyle. It’s an outlook on life. This is what drives me unconditionally to outwork my competition, to find information or knowledge or a better and quicker way than anybody else out there.  You can call it my Mamba Mentality. That’s what has driven me very far in my career and it’s something I'll never let go of because it’s in my DNA. It’s who I am.

What would you say makes you different from other real estate investors in your space?

I try to boil it down to a simple fact.  Commercial real estate is a shark tank. The minnows get eaten and the sharks swim and eat on the minnows.  There’s so many different analogies that you can use for what our industry is.

For me it’s simple. I want it more than the rest.  I make sure my business is aligned with that. I make sure my effort is aligned with that. I make sure my team is aligned with that.  That’s what separates me from the competition.

What accomplishments would you say you are most proud of and why?

On a personal level, getting married has been a fantastic milestone. Outside of personal things like my incredible wife and my dog that I love, it’s just waking up every day and doing what I love.

I get to show up every day and work on something I’m passionate about.  I have autonomy. I have responsibility. I have a partnership. I am surrounded by an incredible team.  All of that provides me with a tremendous amount of fulfillment. 

Not a lot of folks have that.  I feel like a lot of people are lost in their careers or they’re unhappy or they don’t like what they do and they feel defeated or beat up by their work.  That’s a very cynical lifestyle to have to go to work and be miserable because you need to generate revenue.

I just feel blessed that I get to do what I love.  I’m jumping out of bed at 5:30 in the morning to go to the gym and get to the office because I’m happy and very passionate about what I do. The fact that I have so much passion for what I do makes me very proud. 

What's the biggest challenge you've had to overcome and how did you go about it?

I went to CSUN, and most of my contemporaries went to USC, UCLA and other more predominant schools. CSUN is not considered the top tier school in Los Angeles, and I wouldn’t say that ever hindered me.  If anything, it gave me more drive because I knew that I had to outperform, outsmart and outwork my competition. 

When I was in college, I had a friend that was in USC’s Real Estate school, and he invited me to a private USC networking event.  He didn’t tell me that it was a suit and tie event, that you had to get a name placard or anything like that.

I snuck into the event, I took meetings with people for internships and I told everyone that I was interviewing with that I was going to school at CSUN.  More people loved that fact that I had snuck in and had the drive to be there than caring that I was not a USC student.

Today, knock on wood, I don’t know that I really have much adversity.  Truthfully, the biggest adversity that I have is capacity. That’s just traditional growing pains for any business. 

I want to do more business, but there are other things that need to be in place in order for me to do that. I wouldn’t even call it adversity, but rather a challenge that I’m actively working through - Getting into new markets, or growing our platform and making those strategic new hires to add additional deal flow etc. Making sure that we’re securing deals and that the capital is there for the investment side. Making sure the operations team is staying on top of everything so nothing slips through.  It’s just about growing and making sure we continue to be a well oiled machine as we do.

What's your ultimate goal?

Ultimately, I’d like to get the portfolio to 10 million square feet and see if one of these big institutional guys want to come do a portfolio buy. Then I’ll move into a nice home in Beverly Hills.

Software & Tools:

What platform/tools do you use for your business?

The Microsoft suite of products are so paramount in our business - Excel and Word being the two largest.  Excel is one of the strongest and most robust financial analysis tools in the marketplace with so many capabilities that are built into it. 

For anybody that’s getting started, I highly recommend taking a beginner, intermediate and advanced Excel class that you can find online. 

We use LoopNet and CoStar almost daily.  We have corporate accounts with them, which provide us with their full suite.  You have property level data that is fairly well complete with historical information like assessment’s, transactions, leases, photos and other great property level data.

That’s a huge benefit for us because when we’re analyzing property it’s important to know the whole picture.  We are really “story” buyers, and I think that I would say that probably speaks to most investors. Who owns it? How long have they owned it for? What have they done with the property? What value has been added to the property? What’s the existing income? What’s the power? Etc. The platforms are also great for getting notifications about deals that hit the market, even though most of our investment business is done off market. 

Another tool that we’re using right now very heavily is AIR Catylist.  They have a service that’s similar to CoStar and LoopNet, with some distinct differences.  It’s definitely more programmatic towards industrial real estate. I’d say that their bread and butter.  In certain cases they’re actually better than CoStar in terms of their historical data, which is great.  

We also use Argus, which is the most robust discounted cash flow modeling software for commercial real estate in existence.

What tools, other than software, do you use for your business and why?

I use a Laser Pointer, which is huge for determining measurement, ceiling height, and distance.

Resources:

What courses have you taken that have been beneficial to you?

I took an advanced underwriting class at UCLA in their extension program. It was focused heavily on excel work, and it was a really great class.  

I also took an Argus Certification program to make sure I completely understood how to use Argus on an in depth level. 

What’s your general sentiment on online real estate investing courses?

Everyone is going to learn in a little bit different style and scale.  Certain environments work for people and others don’t. If you want it to happen, you’re going to figure out how to learn it.  My advice would be to just be honest with yourself and put yourself in a position to learn in the best way for you. Are you better in a classroom setting, with a tutor, online, etc? It’s all about making the right choice for you.  

Personally, I think online learning is great and it’s the future.

Where would you steer someone looking to learn more about business and real estate?

First, I’d start with Am I Being Too Subtle by Sam Zell.  The second thing I’d say is to get an internship. Be it with a commercial real estate brokerage or with a commercial real estate investor, you have to understand what it is that you’re getting into before you just jump in and say, “This is for me. This is what I’m going to dedicate my life to.”  I’m a strong believer in dipping your feet in the mix.  

After that, or even while you’re working, you should further your understanding and education as in-depth as possible.  Start reading Lease’s, start learning how to underwrite in excel, and start studying various marketing materials on various deals to familiarize yourself with the lingo.  Just continue to expand your knowledge base because the more knowledge that you have, the greater speed at which you will be successful. That’s done through having discussions with seasoned real estate professionals, asking exhaustive questions, following up etc.  It’s not just about the first answers, but the follow up questions that those answers open up.

What are you doing to continue learning and growing in your field as well as personally?

Personally,  I’m learning to have more patience.  Patience is not something that comes very easily to me.  I’m learning to have more of it, which I think is really good because it’s expanding out into many areas of my life.  It’s important to have that patience, gain perspective and then make articulate, informed decisions.

Professionally, I continue to grow by incorporating all of the things I mentioned and making sure I’m staying up to date on all of the ongoings.  Real estate is a living, breathing organism. Trends change. Demand changes. Needs change. Philosophy. Theory. These are the macro pieces that define the physical product.  I am making sure that I’m staying as informed as I can with the items that are either directly or mostly directly correlated to my physical investment business. This allows me to see the marketplace from a more clear perspective and make informed decisions.

Final Question:

What advice would you like to share with people based on your experiences?

The overriding theme for my story is that you have to have passion.  You have to have a desire. You need to push yourself to be smarter than or as smart as anyone else in the room.

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