His Capital Firm Looks Past the Usual Suspects

Jay Soave

The Opportunity Zone Expo Podcast
His Capital Firm Looks Past the Usual Suspects


Jack Heald: Welcome back everyone to the OZExpo Podcast. I'm your host Jack Heald and I am joined today by Jay Soave who is the managing principal at Cadence Capital Partners. Jay, welcome to the OZExpo Podcast.

Jay Soave: It's my pleasure. Jack. Nice to meet you.

Jack Heald: Good to meet you as well.

Jay Soave: Thanks for having me on.

Jack Heald: Oh, absolutely. Where's Cadence Capital Partners. Where's your headquarters? Where do you guys call home?

Jay Soave: I would say we're dual headquartered. At least that's what my partner would say. My friend of many years runs our Denver office and I'm in Chicago. I think there would be a little bit of a knife fight if we had to pick which one is headquarters.

Jack Heald: Tell us really quickly, bring us up to speed on Cadence Capital Partners. Give us the high-level, 30-second elevator pitch and then we're going to drill down.

Jay Soave: Sure. We are a capital advisory firm. We placed equity and debt for real estate sponsors only nationwide on the equity side. We really concentrate on the top 30 markets. And we're certainly well positioned and, and working on number projects in Opportunity Zones, which is obviously pertinent for this conversation. And then we also have a debt platform and we can place that in, in much broader markets.

Jack Heald: Tell us about the funds. Do you focus on specific sectors of real estate on the fund-by-fund basis?

Jay Soave: Oh, we are asset class agnostic. I think if you were to look at the deals that we work on or, or are working on, they're primarily multifamily hospitality, student housing, self-storage, and that's probably a medical office than senior housing. That's probably the bulk of it. My partner as background, he did brokerage at some, some big shops for quite some time, especially specializing in medical office.

Jack Heald: I'm going to ask you to speculate on something that maybe you have no opinion on, which is fine: student housing, I will confess that until I started talking to folks in the Opportunity Zone program, it hadn't occurred to me what has happened. It seems like a huge opportunity student housing has turned out to be. Do you see that continuing going into the future, given the pressure on the cost of a college education that seems to be happening kind of culturally with the government?

Jay Soave: Absolutely. When I first really started investing in real estate, I owned a bunch of student housing myself in or outside Western Michigan University and I love those types of deals. I think it's easy for investors who are getting into real estate to get their hands around. They oftentimes went to college, they oftentimes lived in student housing and after they got out of their dorms, they understand it. And I think it continues to be a need.

I'm sure, from your days in college and certainly from mine, a lot of the student housing was old single family homes and now you're seeing this kind of modern apartment, modern student housing where there's amenities and pools and we just wish, “God, I wish I went to school there in that building.”

Jack Heald: Sure.

Jay Soave: There's certainly an opportunity in a lot of investors like it. I think if you were to ask people today if you're going to do a market rates develop and sell; I think people are a little bit worried about the frost there because a lot of people liked that product. But I think it suits, it's all very wealthy OZ world because the current froth really isn't your concern. Since you have such a long-term horizon, cap rates go up, cap rates go down, even if they go out beyond 50, 75 even a whole basis point, it doesn't really affect you all that much. So, it fits well.

Jack Heald: Well it seems, it seems like a perfect fit.

Jay Soave: It is.

Jack Heald: But try to look at the possible headwinds.

Jay Soave: One of the things that I don't know, a lot of people realize it and you probably do, but there are so many Opportunity Zones in college because the students count as residents and they don't make a lot of money. There's, I know for instance, a University of Illinois Champagne, huge big 10 school that there's large swaths of the campus that are in an Opportunity Zone.

Jack Heald: You're not setting up blind pools; these are project specific-funds. Is that correct?

Jay Soave: That's correct. So, we're an intermediary and the way we work as we reach out to sponsors, Opportunity Zone side, maybe we see an article or we just have relationships with people and they say, “Hey, are you involved in the Opportunity Zone world?” And we say we are. And then we have a conversation, underwrite the project, and determine if it's something that we want to take on. And most of the time it's a single asset raise. And we're looking to find a single investor. We're not syndicating where we're working with family offices. OZ Funds, a number of established real estate operators, historical operators who have OZ capital and placing them into deals. It's kind of a 90/10 typical LP/GP structure.

Jack Heald: One of the things I saw on your website that I found certainly worth following up on. And I'm just going to read you a quote right off the website.

Jay Soave: Sure.

Jack Heald: I think it's very good. This is from Cadence's website. "We pride ourselves in looking past the usual suspects to help our clients engineer the most efficient capital stack possible." And then you talk about your network of funding. Talk about the “usual suspects” and what makes Cadence different.

Jay Soave: Yeah, that's a great question. What we do is as much as I'm prospecting, everyone is prospecting for clients and new opportunities to work on, to generate revenue. We also realize that it's fundamentally important to our business to have a wide array, a range of capital as we can. And so as much as I have calls with potential clients on a weekly basis, I'm having calls with new capital sources as well. And, and what that means is, I mean everyone knows who Carlyle is.

And saying, “Hey, I've got a relationship with Carlyle,” isn't really helping all that much. But what is helpful is to continue to foment and find new relationships, particularly on the, the family office side of things. I think that's a pretty tough nut to crack, but we have done a great job, I think, of doing that and continuing to do that. We actually have three people working full-time who are trying to find and establish new relationships with family offices. We speak at family office events. We just kind of make ourselves known and, and through that process of being present and maybe seeing someone a few times you, you can get an introduction or entree into that, into that family office and, and those are great investors and I think a lot of people have interest in them.

Jack Heald: I'm guessing they tend to be really a better fit for OZ-type investing because I think they tend to be a little more patient.

Jay Soave: I think 100%. I think people like them for OZ and non-OZ for that exact reason. They can be patient, they don't have necessarily a strict set of criteria that they have to match because they're fund documents and they can, they can be opportunistic in their holdings, meaning that they can sell when it's appropriate to sell right away or they can hold on for 10 or 15 years. And they're really robust and their capabilities generally speaking, so a great source of capital that has, or just continually trying to add more and more to our, our database. And, it's not simply, “Hey, there's this family office and we have an email.”

And so that's the end of it. It's a reach out campaign where we're actively trying to have introductions, getting on the phone in person meetings to not just introduce ourselves, but to say, what do you want? You know, what kind of assets excite you? What’s your average equity ticket size, what geographies do you like and what's your risk profile?

Is it value add? Are you a core investor? So that when would deal comes up and we have an opportunity to work on something. We don't send out a blast to everyone in our database. We say, “Okay, well they like multifamily deals and southwest located and Opportunity Zones that get $10 to $20 million checks.” And when we have a deal that matches that, their name pops up and then we send it to them. It's very bespoke. We don't blast things out. We’re trying to make it a very concerted effort to not only find these sources to, to value their time, we don't want our email popping up being like "This guy again? Oh Great. Another one of these guys.”

But rather the opposite. We found that to be true where it's known this is something that has maybe not hit the target every time, but it's going to be close.

Jack Heald: Right.

Jay Soave:And then if it's not close, they're going to give us information that says, “OK, I know I like hotels, but I only like full-service hotels.” And then we add that to our database. And every time you kind of go through the database, you can be very succinct or specific about what someone would want.

Jack Heald: How has your business changed or adjusted or been affected by the Opportunity Zone program. Has it been additive to your business? Has it been significant? Has it changed it significantly? What have you seen in your business because of the Opportunity Zone program?

Jay Soave: Yeah, so I think it certainly provided an avenue for more business from a just strict business perspective. But it's also provided me a lot more opportunities to kind of get out and be on the speaking circuit. I don't often advertise it, but I'm a tax lawyer or a tax lawyer for 17 years. And as, as much as I tried to run away, this is kind of drawn me back in. I can kind of look at things a little bit differently than I think a lot of intermediaries can. Where I think there's value to Cadence is that we're doing this on a daily basis. This is all we do is find new capital sources, make new relationships and people may have heard one or two or three groups, but when you're doing it every day, our database keeps growing and growing and growing.

Jay Soave: And a lot of the groups who, who we work with aren't going to show up on a list of OZ investors. They're family offices, they're discreet. And so it's given us an ability to use our database more effectively and also it provides for an ability for us to expand our database because of number, I think withfamily offices in particular, this program is really catering to them to a large extent because they have gains and they're , they're usually sophisticated investors. And tax planning is a part of that.

Jack Heald: Tell me about the team there at Cadence. How are you guys structured? As I was, as I was doing my research, it looks like you've got a pretty solid structure and some good players.

Jay Soave: Yeah, we were about 13 or 14 strong now and continuing to grow. Particularly I think we're looking to expand our debt platform. Uh, but we're a very flat organization and we're a very team heavy team first. And culture is of paramount important to us. Everyone needs to get along, everyone needs to row in the same direction. I think that is critically important for an organization. And we have weekly calls, so we have six or seven producers now and we have weekly calls. We talk about deals and, and then to extent anyone needs help on a deal. We Say, "Hey, I'm having a little bit of trouble with this one, does anyone know anything" or "I've got a new deal" and someone can pipe up and say, “Hey, you should contact this group or you should contact this group.” Because twe share a database with everyone.

There's no, this is my capital group and that's yours. Our database is shared. Everyone can kind of work together as a team to get things done. And I will tell one of our deals, it was just announced and will be on our LinkedIn website soon in our actual website where it was a deal in Denver's Rhino neighborhood. It's an office building and a hotel complex called the WTC Denver or Trade Center Denver. And we brought in. It's a hard deal. It was a big deal.

The local developer had some good local experience but had never done anything of that scale. It's about 600,000 total square feet is 300,000 square feet of office. And we identify the need for an OGP partner. And as we were going through that process, I had a conversation with Galvin Company, which the big developer in Chicago saying, “Hey, we want to be in Denver” or “Hey, we're having trouble identifying some projects” or people who say, “Hey, well we've got something out here that you should look at.” They got on a plane, went out there and now they're the code OGP there. And we then identified and brought in Goldman Sachs to be the first to do their first Opportunity Zone investment in the project.

Jack Heald: Goldman Sach's first OZ investment?

Jay Soave: That's what I've been told.

Jack Heald: Wow. Well that's quite a feather in your cap there.

Jay Soave: I'm working on a deal in Arizona. Same thing happened. It was a build to suit for a well-known a company. And this one group said, “Hey, you should you should talk to this group because I know they'll look at these,” and lo and behold, we got a term sheet for them. So, we're just a very collaborative, very good, informal, a fun group who really enjoys working together. But you know, we take business very seriously.

Jack Heald: When it comes time to underwrite, do you guys have some specific proprietary approach to how you vet these projects? I'm not so much asking you to reveal secrets, as I am thinking about processes. Tell us about that.

Jay Soave: Absolutely. Jack, I think that's a great question. That's a question that we get often from our capital sources or especially when we're first starting to get introduced to them is what do you do to vet these deals? And when we first started going three years ago or so as before I joined it was, it didn't have the best answer to that question. Other than it looks like a good deal. And so, we just started to develop our own proprietary system to score deals. And so, what we did is we, we actually worked with the University of Michigan first year MBA students we used had six of them who bid on and worked on our project for two and a half months exclusively. So, it's part of their multidisciplinary action program. So, we've got six people dedicated full-time to help us come up with this scoring system.

And as part of that, we reached out to our capital relationships and asked them to complete a very short survey. Kind of what do you think is important when you're underwriting a deal? So put all that into our scoring system, kind of ranking the priority that the capital sources gave us as to what they find important. And so, every time a new deal comes in, we kind of run it through this program to get a sense of whether this is something that we can execute on. And so, while it's not really a substitute for anyone's own underwriting it is it's meant to give them at least some comfort that this has gone through some kind of process, before it goes out to them. And then we're not just okay blasting things out the second they come in and hit our inbox. And I think that's important. It's a nice thing to have for our capital and it's known primarily, frankly for us. Because time is everything. Yeah. I can't, I can't get back last time, so I don't want to be working on deals that I can't get funded.

Jack Heald: So, what are some of the potential pitfalls that the folks are going to run into in the Opportunity Zone world?

Jay Soave: I think there's several. One I think that there is on that the development side some developers think that this new program means that  in determining the returns that are acceptable to an investor, that you can kind of bake in the tax return, the tax benefits and, and maybe the IRR of the 10 year hold is very low. And based on the people who we work with, that's just not the case. They're not going to take into account the tax benefits. They're going to say, “Listen, it's got to be a good real estate deal anyway and the tax is gravy.” Maybe you might get over a little bit more beneficial waterfall promote structure then do you typically would, but you know, it's still got to be a good real estate deal, tax benefits on a loss aren't really beneficial.

Got It. It's got to be a good deal. I think that's one to part of this is some of these groups, a lot of developers are merchant builders there they’d build it and then they sell it. Yeah. And some of them are not set up too, just don't have the personnel to manage a long-term hold. And this is a 10-year deal. And so, they might not have the infrastructure, or they just got minimal infrastructure.

And so that can create some issues for reporting and watching over a deal or what is a pretty extended requiring hold period. One of the things that we're working with as we're speaking to a well-respected developer in New York who's got a smaller $50 million  Co GP fund who we're going to work with to kind of provide asset management services, geo-underwriting services, potentially construction management services so that family offices who may not have a ready capabilities or have no desire to kind of do the asset management aspect of their Opportunity Zone investment have an option to use a third -party who has great development experience and has the capabilities and operations to meet all the compliance requirements required by the Opportunity Zone rules as well as just regular real estate investment.

Jack Heald: I want to ask some deeper questions about that. If I'm a sponsor or I'm a developer and I've got a deal that would make a lot of sense in an Opportunity Zone, and I'm one of those typical merchant builders. What I'm hearing is Cadence has the ability to fill in that big gap once this project is built out. I would normally just want to flip it, I'd want to sell it. You've got a process, or you've got a way to help me participate in this when I wouldn't ordinarily be able to.

Jay Soave: That's right. It's not completed yet, but we're working through and it's kind of like going to be a la carte menu of services and, and that is going to be an option is Mr. Developer, or Mrs. Developer. We have this capability. I know that you're not typically a long-term holder. We can provide you the reporting and asset management services for this project as well as go find new capital. So, yes, we can provide that service to them.

Jack Heald: Community development, impact investing is a really big part of this program. In fact, I would say that the spiritual core of Opportunity Zone investing is impact investing. I know you're kind of removed from the feet on the ground, but how do you see Cadence fitting in with the spirit of the program?

Jay Soave: That's a great question, Jack. And I think it's something we really don't promote heavily, but hmm. We encourage everyone who, when we completed a deal, to donate a portion of their proceeds to charity and, and also to donate a portion of their proceeds to a charity that may be near and dear to the sponsor. I think that there's a lot of things in the world that I'm could use a little financial help and they certainly appreciate it. And if we're fortunate enough to complete a deal and to help people out, we we'd love to give back and allow some of our own personal love affairs on the charity side to get some cash.

Jack Heald: Do you have a favorite charity that discovered over the years?

Jay Soave: I do. There's two in particular that I really believe in. One is Imerman Angels. My friend from college - Johnny Imerman - he had a particular cancer and survived it. And through that process you realize he didn't have anyone to talk to, to kind of get him through that. So, he started Imerman Angels. All it is, is it matches survivors with people who have cancer. If someone who's been through what you've been through and is there to kind of help you, just emotionally get through the process and say, “Hey, this is going to be hard.”

Oh, this part now maybe sounds hard, but it's not. It’s just to have a sounding board. It's free, you just have to contact them, and they hook you up. I love that Johnny is an awesome human being. And then the other one is Open Heart Magic. And one of my buddies is a board member there I believe. Open Heart Magic, it’s magicians that go to children's hospitals and do magic for sick children. That kind of speaks for itself, but really helps to brighten up what can be a tough time for them and their families.

Jack Heald: Okay. Let's find out about Jay Soave, the man. Sure. I'm picking up a whole lot of blue and gold. Fill us in. Give us the whole University of Michigan, blah, blah blah. Hail to the victors stuff. Go for it.

Jay Soave: I am. I am a massive University of Michigan Fan. Aye. Me and three of my buddies, including my partner out in Denver, own a house three doors from the stadium. So, we tailgate there during the football season. It's quite a bit of fun. And I know way too much about Michigan Football, Michigan football, recruiting, Michigan basketball. I love it. I grew up in Michigan. I've been a Michigan fan my entire life. And some may say I have some issues with that but love it.

Jack Heald: So how did you get into this business?

Jay Soave: As I mentioned earlier, I was in law. I was an attorney and I practiced for seven or eight years with some big law firms. And the nine after that was at Tishman spire in New York, big real estate, full-service operator and got introduced to all aspects of the real estate business. They're a developer or asset manager, property management, development, acquisition, disposition type stuff. And I just fell in love with real estate in general and I received an excellent daily crash course in real estate underwriting and real estate capital. Tishman has Tishman Speyer has done a number of large joint venture, one-off type deals where they're, they're finding and raising equity from a number of groups. And so, I love that aspect of the transactions. I love transactions, I am a transaction junky myself.

Jay Soave: And so, the ability to work on a known number of transactions all at one time, is exciting to me. And lastly, I, I always wanted to do something entrepreneurial. So, as I had Procrustes my law career, I thought it was time to break out and do something, that kind of stuff. It satisfied that. And as I was thinking about that, I was having conversations with my partner Michael Bennett, who is one of my best friends and he had moved out to Denver from Chicago. He had been starting his own shop, tell them how he was expanding and getting into the more equity raised for everything else. And we just started talking and, and I made the leap in January of 2018

Jack Heald: So, so you landed at Cadence at the same time that the Opportunity Zone program kicked off? Has it been a bit of a crash there as well?

Jay Soave: Yeah, so it's, I mean, certainly this side of the business is something new for me. I mean, it wasn't in the service on that guest at a law firm, but this is a lot different frankly. The Opportunity Zone buzz really didn't start to catch fire until probably like September or October of 2018 people started talking about it. You started hearing a little bit about it and you know, may, June, July, and I think everyone came back from vacation in August and was like, “Oh my God, look at this thing. And it just kind of exploded from there.”

Jack Heald: Alright, well I think this is a good place to wrap it up. I appreciate your time, Jay. Any last words for our listeners?

Jay Soave: Nope, Jack. Well, thank you for having me. I really appreciate it. I appreciate anyone who wants to speak to Cadence about any deals that they're looking for capital for upsell or not, or any people who are looking for direct, real direct Opportunity Zone deals, the others? So, it's you and a sponsor and I got some great deals.

Jack Heald: So how do folks get ahold of you? What's the best way to get ahold of you or Cadence Capital Partners?

Jay Soave:           Sure. Our web website is www.Cadencerec.com, my email address is the letter jsoave@Cadencerec.com and my phone number (312) 217-2680

Jack Heald: Very good. And I will remind our listeners that information will also be available in printed form on the podcast website so you can go there to get it if in case you happen to miss it. Well this has been a terrific conversation. I've enjoyed getting to know you, Jay. Thanks for taking the time here.

Jay Soave: Same here Jack.

Jack Heald: I'm Jack Heald for the OZExpo Podcast on behalf of Jay Soave of Cadence Capital Partners. Thanks for joining us today. Please be sure to subscribe. There are new podcasts published every week and we will talk to you next time.

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