Stop Falling In Love With Deals: Institutional Real Estate Lessons With Brian Murdy

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Show Summary

In this episode of the Real Estate Pros podcast, host Michelle Kesil interviews Brian Murdy, principal of BTM Investors, who shares his extensive experience in asset management and real estate development. Brian discusses his journey from being a CPA to becoming a key player in the multifamily real estate sector. He emphasizes the importance of honesty in business, the need for strategic portfolio management, and the trends he observes in the consulting space. Brian also offers valuable advice for early investors and highlights the significance of building strong relationships in the industry.

Resources and Links from this show:

• • • Investor Fuel Real Estate Mastermind
    • Investor Machine Real Estate Lead Generation
    • Mike on Facebook
    • Mike on Instagram
    • Mike on LinkedIn
    • Brian Murdy’s Website
    • Brian Murdy on LinkedIn
    • Brian Murdy’s Email: [email protected]
    • Brian Murdy’s Phone Number: 203-915-3694

  Listen to the Audio Version of this Episode

  Investor Fuel Show Transcript:

  Brian Murdy (00:00)
  going into the GFC. In my portfolio, we had an office building in Southern California. The property was about 83 % occupied. My asset manager said, hey, look, I think if we can get it to 90, we should sell it. And at that point in time, we’d already made $40 million. It appreciated 40 million on a 60 million investment. So we made a very, very good investment earning a profit on that.

  Michelle Kesil (01:56)
  Hey everybody, welcome to the Real Estate Pros podcast. I’m your host, Michelle Kesil And today I’m joined by someone I’m looking forward to chatting with, Brian Murdy, who is the principal of BTM Investors in institutional real estate. So really excited to have you here on the show today, Brian.

  Brian Murdy (02:17)
  Thanks, Michelle. I’m looking forward to being on it as well and answering whatever questions you have and learning just from your questions as well.

  Michelle Kesil (02:25)
  Yeah, absolutely. I think our listeners are going to take something away from all of your consulting and development expertise. So let’s dive in.

  First off, for those not yet familiar with you and your world, can you share what your main focus is?

  Brian Murdy (02:41)
  Sure, my main focus right now is on asset management intermediary consulting, as well as working on a couple of development opportunities that my partner and I have uncovered in the Eastern US. So that’s what I’ve been spending most of my time on. And on the asset management consulting side of it, what’s interesting is you’re seeing a lot of family office who I’ve been working with that they bought a lot of property over last several years.

  have staffed up, but they really not created all the policies, all the things needed to actually run it and report it. And now they’re sitting on these assets. How do we handle it? How do we run it? How do we do it efficiently? What’s the best course of doing it? I work with them in setting that up.

  Michelle Kesil (03:25)
  Awesome. And is this all across the US?

  Brian Murdy (03:29)
  Yes, yeah, yeah, all across the US. Over my career, I’ve managed properties, ⁓ all main food groups, the five main ones plus a few others across the US, and I’ve had clients both domestically and internationally.

  Michelle Kesil (03:45)
  So what got you started in this business?

  Brian Murdy (03:47)
  ⁓ happenstance started out as a CPA and the first clients I had were real estate and banking clients that focused on real estate. And as ⁓ the SNL crisis hit and you had all the problems, next thing you know, at age 26, I joined an insurance company as an accountant. And within nine months, I was running the syndication area of that company as a 26 year old. Didn’t really know what I was doing, but no one else was there above me.

  So it’s either take over the reins and learn as I go or let it flounder.

  Michelle Kesil (04:21)
  Yeah, wow, exciting. And so what got you into the world of multifamily and development today?

  Brian Murdy (05:18)
  Well, I think for multifamily, it’s been a primary core ⁓ and what I’ve worked on for pretty much my whole career. One of the interesting parts when I first started out, it was a no heads in bed strategy with respect to institutional investors. If there was a head in the bed, they didn’t consider the real estate institution on meeting apartments and hotels. And when you really look at it over the last 40 years, you look at the analysis from the returns and risk adjusted returns.

  multifamilies only have the highest simple returns, but it’s had the highest risk-adjusted returns because there’s less volatility in there. Yes, every individual lease isn’t a credit lease, of course, because you’re leasing to an individual. But if you have 250 individual leases in a property, that’s actually more credit-worthy than leasing to one or two major tenants in office product. And that has proven over the last 30, 40 years in returns.

  Michelle Kesil (06:09)
  Yeah, absolutely. So what are some of the main keys that you would say have allowed your business to be able to scale and to run smoothly?

  Brian Murdy (06:19)
  I think some of the main keys is just having a lot of industry contacts over the last two, three decades and always treating people fairly and being straight up on it. think one of the biggest things that many people are afraid to do is report bad news. And I learned that early in my career when I was at a board meeting for a major pension plan. And I’d just taken over a portfolio and one of the properties, we just made a bad call.

  We thought it was going to go A and it went B and next thing you know, they’re sitting at 83 % occupancy. And I just told the board, I said, we messed up. I said, we thought I was going to do this, it didn’t. Here’s how we’re fixing it. And I had two of the board members come up to me after and say, thank you for being honest. We all know everyone makes mistakes and you’re the first advisor to admit that they made a mistake. And I learned a lot from that, that it’s okay as long as you have a plan to correct those mistakes because real estate’s not perfect.

  You’re not buying bonds and stocks that you manage and look at the companies here. Every property is very unique in its location and its design. So you have to be recognized that there could be unique things that will happen to it that are both positive and negative.

  Michelle Kesil (07:28)
  Absolutely. When you say positive and negative, are there specific examples from your experience that you can share?

  Brian Murdy (07:35)
  Well, sure. Well, the one I just gave and it was another one

  going into the GFC. In my portfolio, we had an office building in Southern California. The property was about 83 % occupied. My asset manager said, hey, look, I think if we can get it to 90, we should sell it. And at that point in time, we’d already made $40 million. It appreciated 40 million on a 60 million investment. So we made a very, very good investment earning a profit on that.

  one asset and I opted not to sell it even though my gut was saying just sell the thing into the market now. GFC hit next thing you know the property was worth 60 million again. So all the 40 million was gone and it took another three to four years before you got back up to that other level. we lost you have ultimately lost the time value of money over that over that four year period and I think the lesson learned is to not fall in love with your properties and not

  you know, realize that everything with that property is perfect. And, you know, that is the next thing to slice bread. And so if you can step back when you’re managing a property and look at it as if you’re buying it for the first time every time, not as though it’s been in your portfolio for five years and just look at it, you’re buying it for the first time. Would you want to own it today? You know, what are the factors that will drive you to buy it again today? And that’s important to look at every time.

  Michelle Kesil (08:55)
  Yeah, absolutely. When it comes to ⁓ development and new construction, what does that look like for you in your business?

  Brian Murdy (09:39)
  Well, right now I’m working on ⁓ two different development opportunities. One is one where I’ve been advising a family office on what to do with vacant land they have on waterfront land, ⁓ well located and how to handle it. So we’ve been working through the process, coming up with a feasibility report on the best use of the plan. And that phase has gone through and now we’re out marketing the property ⁓ with potential developers to get it.

  different perspectives on what they view for developing on that site. The other one is a very unique location. I would call it as class A location as you’re going to get. And it has a lot of factors in it that make it problematic for groups because there’s multiple players involved. There’s a lot of, there’s affordable, little a affordable housing requirements put in that city. And some people are just not willing to get over that hump. But when you look at

  of the location and the ultimate opportunity for it. Even at today’s rents with no increase in rents, you’re looking at north of a 20 % return to the investor base, which is a strong return for multi-family development at this point.

  Michelle Kesil (10:51)
  Yeah, definitely that is a strong return. What are you most focused on solving or scaling to next in your business?

  Brian Murdy (11:03)
  Well, I think the most thing you’re looking at is continuing to broad your client base. And I think, as I mentioned to you earlier in our prep, was that one of the things I’d love to do is expand more into more sovereign, not sovereign, more high net worth environment, high net worth world. My world has always been in the institutional, the pension plans, the endowments foundation world. And a lot of the money is now coming up through high net worth.

  You look at all the Microsoft millionaires in Seattle or the Google millionaires in the Bay Area. And these folks have investments and they’ve had portfolios that are tens of millions of dollars that they’re now expanding on and tapping into that market to help them understand how to manage their properties, how to manage the back office for them. They may be sometimes great at picking the properties, but once you own it.

  and managing it and how do you handle reporting to their investors? How do you go through all that? And that’s something that is needed and I’d love to focus more on going forward and tap into that market.

  Michelle Kesil (12:10)
  Yeah, definitely. So does that look like collaborating with other investors on projects?

  Brian Murdy (12:17)
  Yeah, I think some collaborative and the one development I’m working on in both of those developments, actually I’m collaborating with another firm, someone I know very well and trust. so that firm and I are working together and we bring different aspects to it. And I think it involves me going to some more conferences along those ways. I think the folks there are slow to trust and that’s good.

  So it takes time for to gain your, for you to gain their trust and for you to be able to get into their confidence that you can start helping them and trust you with their management consulting assignments.

  Michelle Kesil (12:58)
  Yeah, absolutely. What does it look like for you to connect with these potential clients? Is that through networking or other types of strategies?

  Brian Murdy (13:08)
  It’s

  a combination of networking, both from talking to my existing networks, as well as I mentioned, going to different conferences and expanding my networking to doing posts on LinkedIn that I’ve done. And just continue to do that. And as I get one client, I ask them to, hey, if they’re high net worth, they have four other people they know. Can you recommend to them and just network that way too? I think that’s…

  the best endorsement you can get is from an existing client that’s very happy with your work product.

  Michelle Kesil (13:39)
  Yeah, that’s important. Those relationships are everything in this space.

  Brian Murdy (13:44)
  They really

  are and as I’ve said, they’re easy to lose but difficult to gain. And so the most important thing is to always be straight up with your clients and work with them. And what I’ve always managed in my career is the model of no surprises. You don’t want to surprise them even with good news. And say, hey, guess what? We sold that product for 10 million more. Well, if I’d known that, I would have planned for this, this, and this, the client might say.

  Michelle Kesil (13:50)
  Mm-hmm.

  Brian Murdy (14:11)
  So you want to be able to give them good news and bad news at even pace so that they understand it all and they’re aware of where everything is in this life cycle.

  Michelle Kesil (14:11)
  Right?

  Yeah, that’s definitely important. What are some of the common trends that you’re noticing when you’re consulting and, yeah, helping people?

  Brian Murdy (15:12)
  I think some of the common trends are ⁓ with respect to smaller groups that are non-institutional is the lack of having a whole cell analysis, a true whole cell analysis ⁓ where you look at how the property fits not just within by itself. And I think that’s a common fallacy that most people do. They’ll do a whole cells, say, look, this property still.

  generate another 10 % return over the next couple of years, we should hold it. But if the rest of the portfolio is generating a 12 % 13 % return, maybe you want to cut bait on that one and go invest in another product. And that’s one of the things that a lot of folks don’t do is they don’t look at investment as part of a portfolio. And you have to see how it fits within your portfolio, how it fits within your strategy. I had a…

  portfolio manager worked for me one time and it was a billion dollar portfolio. It was a small property in there, smallest property in it. It had a five million dollar prepayment penalty. And my PM said, we can’t sell it at the prepayment penalty. It’s just too much. And I told him, run the numbers as if we sold the property and took the entire hit now and never reinvested. And he came back and he said, in five years, we have 20 basis points higher return. And I said, now run it as if we invested at our average property.

  and he did that, now we have a 50 basis point return. This is because the problem was you were looking at that one asset, that debt associated with the asset. That’s not associated with the asset. It’s tied to that asset. But that debt is portfolio debt that we assign to the asset. And I think you have to always look at that. You can’t always just be so tied down on a product and the property as if that’s the only thing going on with it. It’s part of an overall portfolio and overall strategy.

  Michelle Kesil (16:57)
  Yeah, definitely. That’s something important to note.

  So when you’re doing consulting work, is there a specific type of client that you are typically serving?

  Brian Murdy (17:07)
  It’s different. I’ve worked for institutional clients. I’ve worked for lot of intermediaries where brokers and mortgage bankers helping them with their management and their businesses. ⁓ Brokers, found, ⁓ are obviously very intelligent folks, but they are not always the best business people and best organized. And they end up spending a lot of time doing things they don’t need to do. So if I go in there and help them,

  realigned our their team and relook at it to free up time for the lead brokers to do what they do best, which is get new clients in and sell product. ⁓ That’s what I focus on and to take time off their hands that is managing the back office. And so I work with them on that, be a little more efficient. I’ve worked with groups in helping set up research functions, capital market research that they didn’t have. Another group I’ve worked with this, as I mentioned, on asset management, they

  looked at their portfolio and they had a massive portfolio, but they really were not evaluating and managing it as according to what it deserved, attention it needed. They were very thin, staffed. And so I came up with a plan for them to implement and utilize and grow their exercise for that plan now.

  Michelle Kesil (18:23)
  Yeah, absolutely. A lot of the listeners are investors that are maybe earlier on in their journey. What would you suggest for them?

  Brian Murdy (18:32)
  I think if they’re early on in their journey and their investors work with someone that has had a few turns in the cycle, meaning that they bought property, managed the property, sold it, and done that several times. And you can see proof is in the pudding that they’re successful at what they do. To get in with someone who’s in their first transaction or the first one, it’s hit or miss. You may be great. The property may be phenomenal and you’re excited. You got a great one with them in the next two or three or not.

  It’s always important to look at the track record and ask for that track record of information to understand how they do things. And don’t be afraid to ask questions. think a lot of, even though you’ve made a lot of money, you have a lot, you could be, some folks are intimidated by the experts in it, the other side of it. And it’s your money. Don’t be afraid to ask questions. Even if you think it may not be the…

  silly question, no question truly silly because it’s important to you. It should be important to them and they should address it. And so don’t be afraid to ask questions that you need an answer to that you don’t feel comfortable about. And ultimately, if you don’t feel comfortable, don’t be pressured into it. There’s so many more products out there, so many more properties out there. Go to the next one and take your time. had a meeting with a major state pension plan one time and she asked that and said,

  your investment committee, she said it has as a one veto rejection. So one of the 13 people on the investment committee veto a transaction, the transaction is bailed. And she goes, well, how do you do that? How do you buy properties? And she says, you’re vetoing it. And she said, well, our answer back to her was that there’s a lot of other properties out there. If obviously someone felt that strongly to veto it, it’s probably one that we all shouldn’t buy. And we go on to the next one.

  Michelle Kesil (20:18)
  Yeah, absolutely. That’s great advice. Awesome. Well, before we wrap up here, if somebody wants to reach out, connect, collaborate, learn more from you, where is the best place that people can find you and reach you?

  Brian Murdy (20:33)
  My website www.btminvestors.com has all my contact information. Reach out as my cell phone on there. can just, you can, you know, my email on there as well. You can fill out the form it has or just email me directly and reach out to me. My email is very simple. It’s brian at BTM Investors. I kept it very simple for that.

  Michelle Kesil (20:55)
  Perfect. Well, I appreciate your time, your story, and your perspective. Thank you for being here.

  Brian Murdy (21:00)
  Thanks, Michelle, I enjoyed chatting with you. Take care.

  Michelle Kesil (21:03)
  And for the listeners tuning into our show, if you got value, make sure you’ve subscribed. We have more conversations with operators like Brian who are building real businesses and we’ll see you on the next episode.