How to Raise Capital for Real Estate Deals with Victor Menasce

Victor Menasce (00:00)
not to ever force anything. it’s really looking for that alignment between the goals for the money and the goals for the project. because when that alignment exists, it’s almost, I don’t want to say it’s effortless, but almost because there there’s just that natural fit. it’s like a glove, like a pair of shoes, you know, if, if you’re trying to do something that’s forced, it’s not going to work.

The analogy is it’s like a pair of shoes, right? If you see the most beautiful pair of shoes and God, it’s your lucky day, they’re on sale. If they don’t fit, you’re not a buyer. doesn’t matter how deeply discounted or how beautiful they are. It’s all about the fit first.

Scott Bursey (02:06)
Welcome back to the Real Estate Pros Podcast powered by Investor Fuel. I’m your host Scott Bursey And today we are shifting gears from deal finding to fundraising. Our guest is an absolute powerhouse in the world of strategic capital. We are talking about Victor Menasce of Y Street Capital. Victor is bringing the pure high octane fuel of institutional grade equity deployment and next level investment structuring.

If you’re ready to stop trading time for money and start building a real capital machine, buckle up pros because Victor is about to lay out the blueprint. Victor, welcome to the show.

Victor Menasce (02:42)
Great to be here.

Scott Bursey (02:43)
It is just awesome having you here. Welcome to the Real Estate Pros Podcast. And for our listeners who may not be familiar with your journey, please give us the front row seat on how your career ignited and where you’re putting your fuel now.

Victor Menasce (02:55)
Sure. I start my career path into the world of real estate development was not the typical career path. I started out actually as an electrical engineer, developing microprocessors. So that was the bulk of my time in the tech industry, rose through the ranks of both public and private, both telecom and semiconductor companies did one IPO, five mergers and acquisitions, involved in a couple of different startup companies and

Had some of the greatest fun ever working with super smart people, have chips in all kinds of different applications all over the world. And 2009, you might remember something was going on in real estate in the U S decided to make a hard left turn in my career and move out of the tech industry into the world of real estate and haven’t looked back. today our company is, I’m happy to be based in Ottawa, Canada. Our team is predominantly U S based.

We’re active in 11 states in the US, two provinces in Canada where we build multifamily apartments, senior housing, flex industrial, light industrial, storage, and we have several thousand acres of land as well that we’re developing.

Scott Bursey (04:05)
That’s an incredible story, Victor. You know, what really caught my attention about you was the way you’ve been able to move beyond transactional real estate and consistently structure and deploy institutional grade capital, demonstrating a true mastery of the private equity landscape. You are a pro who understands that scaling requires sophisticated fuel.

Victor Menasce (04:27)
Yeah, absolutely. when I think about it, the limiting factor a lot of folks run into is, and I hear this very consistently, they typically point to some missing resource. I don’t have the right team. I don’t have the right capital source. That’s usually the number one. But usually if that one gets solved, there’s another one lining up right behind it that’s a constraint.

that’s going to stop them dead in their tracks. So even if they get the money, they’re missing some of the other elements. So it’s, understanding what that cascade of constraints are. because if, if you’ve solved one and then you hit the next roadblock, two seconds later, it doesn’t help. so it’s really understanding what it takes to execute these projects. They’re all hard. I don’t care what anybody says. They’re all hard. even the ones that look simple and straightforward will often humble you. so it’s, it’s really about.

putting together the right team, the right skill set and, with the right track record. then only then will you attract the cap.

Scott Bursey (06:14)
Victor, thank you for that amazing insight. Now let’s start our engines. What is Y Capital’s biggest advantage in sourcing consistent quality investor equity in today’s market?

Victor Menasce (06:27)
I think we just aim to be good stewards of people’s capital. At the end of the day, we’re never here to sell anybody anything. It’s about offering people the opportunity to collaborate with us on projects that we believe are strong. Doesn’t mean it’s a fit for everybody. Some people say, it’s a little bit like asking your definition of beauty on the magazine cover. That’s a bit in the eye of the beholder for one person.

It might be a medical office complex for somebody else. It might be a light industrial complex of 200,000 square feet at an 8 % cap rate. Like that, that definition of beauty is different from, one person to the next. But when you have that match on the investment thesis, it’s really about, getting, well, let me back up. Whenever you perform due diligence on anything, you want to look at it through three different axes. What’s the sub market.

What is the team that is being ⁓ entrusted with with stewarding this to completion? And what are the specifics of the deal? And if you don’t hit on all three of those, that’s not going to work. So you always want to be looking at it through the lens of those three. That’s how we present our projects because we think it’s important to understand all three of those. You need to understand the investment thesis at the sub-market level and be convinced of that.

That’s necessary, it’s not sufficient. So that’s where the other two come into play.

Scott Bursey (07:53)
fully agree. If you only hit out of two out of three, you’re going to have a breakdown. know, Victor, that clarity around capital sources is key. Pros need to know exactly where the reliable fuel comes from. Let’s shift gears here just a little bit. What is the one crucial risk factor in a new deal that you’ve learned investors often overlook when deploying capital?

Victor Menasce (07:58)
That’s right.

I don’t know that there’s just one. I think there’s many. When I look at risk, I view it through the lens of separating impact and likelihood. So you always want to put together kind of a comprehensive risk management plan where you look at it and you dissect all of these different elements. mean, if we’re sitting here today in, let’s say it was February of 2020.

And I told you that we’re about to be hit with a global pandemic and the, you know, the, the world’s going to be shut down for two years. do you have that factored into your underwriting? You’d look at me like I’m insane. And yet here we are. So, you know, it’s not just assessing the likelihood, it’s also assessing the impact. And so you don’t know what’s going to come at you out of left field, whether it is an oil price shock or a,

an unexpected rise in interest rates or a supply chain constraint. You can’t get critical materials. You go on down the list. There’s so many different things or a refusal from a regulatory authority or maybe public opposition that results in a special election that overturns a city council decision. That happened to us. You never, never know what can come at you.

And so it’s really about understanding both likelihood and imp…

Scott Bursey (10:12)
Being able to hit those curve balls. Thank you for that transparency. know, understanding the blind spots, Victor, is non-negotiable. That foresight can save years of struggle and protect an investor’s future. Let’s be honest.

Victor Menasce (10:26)
100 % 100 %

Scott Bursey (10:27)
Absolutely.

Absolutely. So let’s continue to smash the gas here. Beyond multifamily, what overlooked real estate asset class do you see as having the highest unbalanced risk to reward ratio for capital currently?

Victor Menasce (10:43)
I think the answer to that is hyperlocal. There’s examples where many markets today, for example, are saturated in multifamily. think of Austin, Texas, Nashville, Houston, parts of Dallas. mean, the list goes on and on. And yet there are still some areas that are underserved. If you’re taking a market averages approach and, you know, let’s say your investment thesis is I’m going to build more multifamily in Atlanta because Atlanta is growing.

that doesn’t make sense to me. If you say this particular node in this particular sub market has a shortage of housing and it’s transit oriented and, and then there’s an investment thesis that maybe makes sense. So it’s really answering it in a hyper local context. And we could talk about, you know, many different asset classes. There’s some communities.

that have a shortage of industrial because there just isn’t enough land that is zoned for industrial. Then you go to Dallas and there’s tens of millions of square feet of empty brand new construction industrial where the market in my view is saturated. So it’s hyper local.

Scott Bursey (11:52)
And having that thesis in place is everything. You you have to have that nucleus strategy. Couldn’t agree anymore. Finding those undervalued sectors is how you can get alpha returns. Every pro listening should be able to, you know, has to watch that space and take your advice. On that note, what long-term vision do you have for the company?

Victor Menasce (12:17)
So I’ll say our medium term vision is to add 5 million square feet of industrial to our portfolio. So that for sure is front and center for us. We’re continuing to be active as well in other asset classes. We’re currently building quite a few hundred units of multifamily apartments, active adult. are some, continue to be some great opportunities in several submarkets.

But I would say if I narrowed it down to one thing, it would be adding additional square footage in the light industrial space in very specific segments.

Scott Bursey (12:50)
You know, you’ve touched on the macro a little bit, Victor, but which macroeconomic or regulatory trend poses the biggest threat to passive capital raising in the next 12 months?

Victor Menasce (13:00)
There’s a lot that’s misunderstood.

Money finds always goes where it’s treated the best. you know, often people talk about, want a certain rate of return. And I think that’s probably not true. They want the best risk adjusted rate of return. So for example, if you had a multifamily project back in 2022, that was offering, you know, a rate of return in the mid teens, mid to upper teens, and then interest rates go up.

a lot of those projects in the end didn’t deliver those types of rates of return. So maybe those rates of return ended up being in high single digits, seven, eight, 9%, sometimes worse. For many investors, they would ask the question, well, why would I take any risk for 8 % when I can get 5 % risk-free just by buying T-bills? And so it’s understanding that risk-adjusted rate of return that matters.

When any investor places capital, everybody should have this clarity that there’s four buckets of where you put money. There’s your safety bucket. These might be the gold coins under your pillow. There is your cashflow bucket that feeds your business, your lifestyle on a day-to-day basis. There is a growth bucket and then there’s a risk bucket. And oftentimes people typecast themselves and they say, I’m a cashflow investor. Okay.

for that bucket, you’re a cashflow investor. And maybe you’ve decided that you’re going to put all of your eggs in that basket and that’s your decision to make. But the more sophisticated investors look at the asset allocation through the lens of those four components. And so then what’s appropriate for the growth bucket? What’s appropriate for the risk bucket? What’s the appropriate allocation within the portfolio? That’s where I think the conversation needs to go.

Scott Bursey (15:33)
I appreciate you highlighting that hurdle, Victor. You you have to stay ahead of the game to track the landscape. Staying ahead of the regulatory curve is essential for anyone dealing with investor funds. Point well taken. If you had to distill success, you know, your capital raising deployment down to a single principle, what I guess would it be?

Victor Menasce (15:58)
not to ever force anything. it’s really looking for that alignment between the goals for the money and the goals for the project. because when that alignment exists, it’s almost, I don’t want to say it’s effortless, but almost because there there’s just that natural fit. it’s like a glove, like a pair of shoes, you know, if, if you’re trying to do something that’s forced, it’s not going to work.

The analogy is it’s like a pair of shoes, right? If you see the most beautiful pair of shoes and God, it’s your lucky day, they’re on sale. If they don’t fit, you’re not a buyer. doesn’t matter how deeply discounted or how beautiful they are. It’s all about the fit first.

And we understand it when we talk about shoes, but then get weird about it when we talk about money. It’s exactly the same. Unsophisticated investors are not clear on how to place their capital, but sophisticated investors are.

They’re very clear. There’s about a dozen different criteria. And if you hit on 10 out of 12, it’s not going to work, even though it looks like it almost works and that can be seductive. So it’s really assessing that fit.

Scott Bursey (17:02)
You talk about the fit. Absolutely. It all boils down to discipline. It sounds simple, but that discipline is the core of long-term wealth. You know, never deviate from your core investing thesis as you put it. Couldn’t agree more. Okay, Victor, it’s time for the money question, where you supply the high octane fuel. You you said at the intersection of capital and opportunity. For a pro who has mastered the asset side of things.

You know, they know how to find, manage and execute deals, but wants to fully build out the capital side of the business to handle deals of any size. What is the most impactful strategic shift they need to make today to transform into a true capital partner?

Victor Menasce (17:50)
the key is to develop the relationships that match types of projects that you’re looking to undertake. So if you are looking to do large scale, I don’t know, multi-thousand acre agricultural land deals, well, go find the folks that are looking for large scale multi-thousand acre land deals. If you’re trying to take somebody that’s only invested in, you know,

90 day CDs and take them up through 180 degrees to invest in something completely different. That’s probably not going to work. It’s too heavy a lift. really, you know, sometimes you can take someone who is already investing in similar assets and suggest, well, why don’t you look 10 degrees to the left here at this opportunity? You might like it better. That’s, that’s probably about the extent of what you can do. Now there are some investors.

that are truly asset agnostic. say that they say they are and you look at their track record and yes, they truly are asset agnostic. But then you need to look at what are their other criteria. One of the words that we hear a lot today when we talk with investors is we have to acknowledge that the last couple of years have not been kind to commercial real estate, especially in office, to some extent in retail.

There’s just been a lot of saturation in multifamily apartments. A lot of the value add deals that were inked in 2021, 22, and certainly 23 have not panned out for a whole host of reasons. We could talk for 30 minutes on that alone. so many of the capital sources that are in the market today are using this word called opportunistic. Well, that’s code for buying distress.

And so what often is happening is folks that would have otherwise invested and I’ll say normal good deals are saying, I’m not even going to mess with that. I’m only going to buy stuff that’s deeply on sale. I want to get something from a lender. And I’m keeping my chips on the side for that. So a lot of capital that would have been normally in the market today is going after those opportunistic, those distress type opportunities.

that’s changed the pool of capital that’s available. it’s not good enough to be good. You have to actually stand out.

Scott Bursey (20:11)
That is some rocket fuel right there, Victor. And that’s clearly why you’re standing out. That was a nice breakdown. And listeners, Victor showed us that capital is the ultimate scaling mechanism. Pros shift your focus this week. Instead of just modeling the asset, model your ideal investor and figure out what fuel you need to bring them. Victor, this has been Pure Fire.

Thank you so much for joining us and for those of our listeners who would want to follow your journey or collaborate with you, what’s the best way for them to reach you?

Victor Menasce (20:44)
So our company is ystreetcapital.com. the letter ystreetcapital.com. Like I said, we’re developing in 11 different states. We also have a consulting division where we help other owners develop projects all over North America. And as well, I’m the host of the Real Estate Espresso podcast, a daily show, seven days a week, over 3000 episodes published to date. So we’ll love to continue the conversation on the Real Estate Espresso podcast.

Scott Bursey (21:12)
Awesome, Victor. And Victor, thank you so much for joining us today.

Victor Menasce (21:16)
My pleasure, great to talk to you.

Scott Bursey (21:17)
And to our listeners, we appreciate you. If you got value from today’s episode, please subscribe. We’ll be filling your tanks up with a lineup of exceptional guests, just like Victor, who are making huge moves in the market. Until next time, keep your standards high and your vision clear. We’ll see you on the next episode, everyone.