Using Private Capital for Passive and Active Investment

How significant is the value of sticktoitiveness, and how is it related to real estate investing? For Kevin Dureiko, it meant leaving himself with no choice but to keep going and execute to make life favorable for himself and for his family. He brings on a unique aspect of real estate today regarding debt. Listen in!

 

Kevin Dureiko is a fund manager at Birch Dobson LLC BirchDobson.com. He is managing Birch and Dobson’s capital raising and deployment to short-term bridge clients. This fund specializes in funding short-term, value-add, and stabilization of income-producing assets. 

[00:01 - 03:22] Opening Segment

 

Kevin on transitioning to the debt aspect of real estate Creating a company to buy debt - going through learning curves The ins and outs of launching a debt fund

 

[03:23 - 11:33] Total Control of the Capital Stack

 

Opportunities in multifamily syndications considering value-add and exit gameplan Kevin explains the profile of an ideal investor for debt-only deals Expanding and diversifying assets - the significance of connections

 

[11:34 - 17:55] The Virtue of Sticktoitiveness

 

Kevin gets in-depth about the build-to-rent vs. build-to-sell projects When life happens, it is all about figuring it out and taking action

 

[17:56 - 20:01] Closing Segment

 

Reach out to Kevin See links below  Final words

Tweetable Quote

 

“I just keep on pushing… It didn't matter what really was happening in the economy, what's happening with myself, I just got to figure out something because I'm not a nine-to-five guy, never have, never will be. I had to be something else. It’s life and putting together an action plan.” - Kevin Dureiko

 

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Connect with Kevin Dureiko on Linkedin. Visit his website and email him at [email protected]

 

Resources Mentioned

 

Three Feet From Gold by Sharon L. Lechter and Greg S. Reid 

 

 

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I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.  

 

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Want to read the full show notes of the episode? Check it out below:

Kevin Dureiko  00:00

Having an innate ability to look past problems, there's no such thing as a roadblock. It's just how do you get around it? I don't know what it is, what’s instilled that in me, but I just don't give up. I don't take no for an answer.

 

Intro  00:13

Welcome to the How to Scale Commercial Real Estate Show. Whether you are an active or passive investor, we will teach you how to scale your real estate investing business into something big.

 

Sam Wilson  00:25

Kevin Dureiko is a husband, father, private debt fund manager, and also a capital raiser. Kevin, welcome to the show. 

 

Kevin Dureiko  00:31

Thanks for having me, man.

 

Sam Wilson  00:32

Hey, man, the pleasure is mine. Three questions I ask every guest who comes on the show in 90 seconds or less. Can you tell me where did you start, where are you now, and how did you get there?

 

Kevin Dureiko 00:39

I started in 2007, I had created the company to be debt buying funds, then realized that that's more of a game that I don't want to be into for many various reasons, transitioned into the debt portion of real estate. And now our three and four funds will be syndications, ground-up construction, and obviously just continuing to do real estate debt.

 

Sam Wilson  01:00

Right. So this is obviously you gave me a 2007 to 15-year span that you just said it's 15-30 seconds. That was pretty impressive, by the way. When have you thought about how you created a company to buy debt, like what we had, I mean, just wake up one morning and have a, you know, thing struck my brain, and here we go, we're gonna buy debt. I mean, how did that work out?

 

Kevin Dureiko  01:23

I wish it would have been that easy. But listening to the tales of my family and our history, my grandfather was a marshal, and in Connecticut, a marshal is basically a debt collector. Basically, told me, you know, you can buy judgments, buy debt, buy mortgages for less than what they are. And I was like, Man, that's crazy. You can buy money for less than what it's worth, right? And then there was like yeah, that was a concept you couldn't even comprehend. So I just went on this learning curve of what you can do with this type of stuff. And it just basically led me here.

 

Sam Wilson  01:54

Oh, wow. All right. But as you were into this, then you quickly figured out that, hey, you know what, that's one thing. But buying debt that's attached to real estate is probably a better spot to be, was that the conclusion? Or am I missing something there?

 

Kevin Dureiko  02:06

No, that was the conclusion. And then you figure that you can that you do put out or the debt that you do collect can be assigned to a real estate deal that can have pliers. There are so many different ways you can put money into more money. It’s just made as the natural course and natural set that we went with.

 

Sam Wilson  02:22

Got it. Was there a particular asset class you focused on? Or was there you buying distressed debt? Were you buying, and what types of debt were you guys focused on?

 

Kevin Dureiko  02:32

Mostly distressed debt that our contract related that goes liens a house, we'll buy that lien out, and then eventually collect that.

 

Sam Wilson  02:41

Interesting. Okay, very well, I know, there's a lot to unpack there. Is that is that the same? Is that the same model you're using today? Or is that changed?

 

Kevin Dureiko  02:50

That's changed considerably or was not in that business whatsoever.

 

Sam Wilson  02:55

Okay, cool. But you said you guys are launching a debt fund here. Have one launched right now, I guess. Can you walk us through that fun and how that functions?

 

Kevin Dureiko  03:04

Sure. Yeah, we take accredited investor capital, we lend it out to real estate investors, the simplest form. So, if you're a guy in syndications, we're coming in with the stet. In your LP money, we're financing that portion of it, we're doing fix and flips. And up until recently, we're doing 30-year term rentals, long-term rentals.

 

Sam Wilson  03:23

So this is not a conversation I've had with anyone on this show yet. You guys are bringing debt to syndications in the first position like you guys are the bank. Is that what I'm hearing?

 

Kevin Dureiko  03:33

You're hearing correct. 

 

Sam Wilson  03:34

Okay. Well, interesting. Tell me more about that. How did other asset classes you're focusing on? Do you see an opportunity? Why do you see opportunity, is there more color to that?

 

Kevin Dureiko 03:44

Multifamily syndication. That's where our main asset classes we want to see the value add, we want to see a little bit of experience, and we want to see an exit in a game plan. So you come to us with a deal for 5 million, you need to put 25% down or something along those lines, and we'll pick up the rest. That's really

 

Sam Wilson  04:01

That's really intriguing. How are you guys making money on that? I mean, obviously, you're collecting the interest on it. But is there? Are you flipping that debt? Are you holding it in-house? How are you guys monetizing those new debt positions?

 

Kevin Dureiko  04:15

In sheet, we don't sell anything. The model that we're running, especially with our fund, is that we want to have total control of the capital stack. It allows us to give you, as an investor, security knowing that our problem you could pick up the phone rather than me selling it to Wall Street, and then you'd have to deal with all that.

 

Sam Wilson  04:34

What type of investor, and I'm sorry to narrow in on this because this is just a unique thing that I think you bring into the market maybe it's unique, or maybe I'm just, you know, head in the sand. But I have met a lot of people that are out raising money for a fund that is the I mean, the raising money basically, you know, 100% lender, first position on a deal and then holding it in house. I mean one that's a lot of capital to raise. Right, correct, and two units to be a particular type of investor that is good with whatever the interest rates are that you guys are charging and in return, you're getting on that capital. So what type of investors typically come to you guy to say, Hey, man, I'd love to just come in and be debt only on a multifamily deal? I mean, there are some pretty competitive terms out there from other sources. So tell me about the investor that is your kind of ideal investor.

 

Kevin Dureiko 05:22

My investor is somebody that doesn't want to tie the Capitol up for a long period of time. But they want to be able to be having an asset-backed way to secure their money. So the debt that we're putting on multifamily properties isn't the length that it isn't the NA in the Friday, the government-backed debt. It's the Restabilization debt. So the purchase, maybe a one or a two-year hold, at some renovation budget into it, and then we're going to be taken out by sale or refinance.

 

Sam Wilson  05:51

Got it. Okay, cool. How have you guys changed the way you guys structure your loans last 12 to 18 months?

 

Kevin Dureiko 06:01

We've structured it a little bit more stringent. When it comes to experience, the leverage is relatively the same, we're still looking in a 65 to 75% range. And that's all depending on, obviously, the property. No loan is cookie cutter, no deal is cookie cutter, no borrowers cookie cutter. So it's an ala carte. You're out what the best scenario is for the property. We're not alone in our own lenders. And that's a terrifying string of words if you really think about it. So looking for the best portion deal. And the most part is getting your invested capital back to your investors. Because everybody needs to be happy. We don't need a string of lawsuits. So we're securing our capital with a great asset, a great income-producing asset, this particular type of investor that you know, wants to tie their money up for a shorter period of time, other than syndication itself. And we go about it that way.

 

Sam Wilson  06:51

Right. So your investor again, and you know, just be careful understand that somebody says, hey, look, I'm good with maybe a lower return profile, but yet I know I'm first position debt. And you know, where I don't want my money tied up for five to seven years, this is great. I'll get clipped my coupon and then hopefully, we'll exit in a few years and then do something else with it or, you know, invest, is that what I'm hearing? That's basically it. Cool, man. I like that even the reason I dig in on that is that I think all myself, in particular, came up speaking just for myself here is that I get this idea that there's one particular type of investor, right? It's like something the other day that was like, hey, invest in this and a 5% return. And I'm like, for me, personally, all of my investors' conversations through my own profile, what it is that I want, which is obviously not the right thing to do. But it's interesting just to hear out there that there are other investments or investor profiles are like, oh, you know what, I'm cool with just a coupon and a three-year plan, and then we're back out, and then we do something else. So that's, that's just a good encouragement to all of us to, you know, silo our thinking around who our investors are.

 

Kevin Dureiko  07:54

Yeah, it's diversification, just like our fund is fitting and reaching out through these that we are right now. At one point, I was only a debt fund, now we're getting into the ground up, rent, sell. And the best part about those types of assets, along with multifamily, is you can hold them, I can still pay a return regardless of the scenario. And that's happening, but we have to hold it longer. We hold it longer if you want. If I could sell it, return all the invested capital, and everybody's happy, we can do that. So we're leaving ourselves different avenues for investor capital to come in; you get to talk to a lot of people like yourself, I share you talk to a lot of people on a daily basis. And their sentiment of what they expect out of the market is different for nearly every person. So you know, people options or via syndication, different type of LP bucket or what have you. We can structure something that generally is going to fit people.

 

Sam Wilson  08:45

Tell me about this, 2020 changed a lot of investment theses. How has yours changed?

 

Kevin Dureiko  08:53

Absolutely changed the way we look at everything, honestly, don't know what's going to happen anymore. We have a country invade another country. And we know our capital markets. So basically, dried up secondary, you might not see it too much on the front end. But on the secondary market. I don't know if you've seen it in the last couple of weeks or last week. Rather, Sprott mortgage just closed its doors are the largest mortgage originations in the country, and they just shut the doors. So 190 million, probably toxic assets that are gonna hit the market in the next weeks. What's that going to do to the market? We don't know. So we've taken the ability to be able to change be liquid, the debt markets aren't going to plus out with providing just debt capital, but our investors still want a solid return. We'll start building some houses and markets that need either a home value on rent or home sale. You figure it out and just keep on moving.

 

Sam Wilson  09:46

That's really cool. I like that. I mean, build to rent is something that, gosh, here in Memphis, it showed up, maybe seven, eight years ago is when I first heard about it, and it was like, Oh, that's interesting. I would have never really thought about that. And yeah, it seems to have kind of caught fire across the country. And I hate to say it, but we're becoming a nation of renters. It's just a sad reality of it. But it's also, you know, if we're becoming a nation of renters, then why don't we provide what the people want? Which are rental houses. So it sounds like you know where you guys have gone? Tell me, how have you scaled that? How have you, I mean, because that's a whole new operating business, how have you guys entered that market and done it in a way that doesn't just create a new job for you?

 

Kevin Dureiko  10:28

The partnerships you gather throughout the years, so it's not something you can just jump into? You have to know markets, you have to know how it works in certain areas of the country, or ships with the right people. So that many people in that building space over the last decade? And through conversations and what are you doing here? What do you do on there a lot of the best opportunities right now and build the rent are developers that still have land from 2008. Fallout. So you have people in the South that bought big tracts of land, that are sitting on these things with low inventory, that you could just print houses with waiting lists.

 

Sam Wilson  11:05

That's crazy. If you'd asked me that question, I would have failed that were true and false. You had said, Hey, there's, you know, tracts of land out there from the leftover from 2008 that still aren't developed that have been like, now false. They're really not the case. That's a needle in a haystack. So it's either your partners know those people with those land or finding that needle in the haystack. How that how's that working out?

 

Kevin Dureiko  11:27

A guy who knows a guy who knows a guy. And that's just usually how it ends up working in almost everything.

 

Sam Wilson  11:34

Isn't that a fact? Man? It's not a fact. It's who you know, me this, give me the breakdown on build the rent versus build the cell? Because I know you guys are kind of doing Bowles be deciding what you sell what you build the rent? Is there a particular type and size that you guys are building? You're saying, Hey, this is we're doing this in this market? And this and that market? Because there's, you know, wants and demands? I mean, can you kind of give me the land on this if it were about what you guys are seeing?

 

Kevin Dureiko  12:01

Yeah, so the best part about build-sell-build-rent is that it's the same product. So you go into the deal, like, Hey, we're gonna build sell this thing? Well, what if the market really takes a turn? The rental market itself isn't getting any smaller. So we can fight theory be able to rent the property out, service our investors that coupon, and hold it until the time comes where you can sell it again. Do we think that the land for everything is absolutely not, but that is the plan when it comes to building and to selling? But we do build to rent portfolios? Absolutely. But we're going to take the opportunity to give our investors their capital back and their return before anything else.

 

Sam Wilson  12:47

Right, right. Are you guys building Whole neighborhoods? Are you doing a one-off infill? Lots? I mean, how does that work?

 

Kevin Dureiko  12:54

Most of it is in Florida, you haven't broken ground on the bill to sell and build the rent yet. We have a partnership that we're putting together in Florida, they have the land. It's already permitted. So it allows us to build for we're not doing big tracts of land because this developer has already put it together, it's already given you already. He's just allowing us to get into the community as an investor, which he does not normally do. So we get to piggyback on what he's already accomplished in the area already establishing his communities is a big builder, not to say, you know, he's like all over the south, he's got different developments or dealings. So it's given us our unique opportunity to work in that market without having to move equipment and not having to do all the permitting. It's already there. He's just allowing us to come into it. And starting with three to three to five homes at a time and little chunks because nobody has a crystal ball. We don't know what the markets are going to do. But, you know, if we do 345 House chunks, it served us - the investor and the builder, everybody should win. 

 

Sam Wilson  14:01

Are any of these houses going multi-generational, I've seen that in some of the build-to-rent space where they're doing, you know, 1000 5000 square foot house, multi-generational you guys seeing any of that in the product, you guys are putting out?

 

Kevin Dureiko  14:13

There the product that we're putting out, it's going to be 1700 to 2300 square foot range, the perfect starter home, it's in a little bit more of an affluent area that we're you know, nice properties up a high demand for single-family homes and rentals. So, depending which way the market goes will kind of dictate the size of the home, the bill quality, and a certain threshold that we have to hold, especially in the community. But it all comes down to what people want it before they are more on the 2400 square foot range rather trended down a little bit, and that's not because of anything else other than we want to make sure they're not sitting there waiting for a particular buyer. You want many buyers, right?

 

Sam Wilson  14:55

Right. You want a product that has the largest pool of buyers waiting for We're absolutely let's shift gears a little bit here. And let's talk about some maybe softer skills that you have developed over the years when you think back on your journey from 2007. Until now, what are some things you feel like you've done really well that other people should emulate?

 

Kevin Dureiko  15:16

I just keep on pushing, and dependent didn't matter what really was happening in the economy, what was happening with myself, I just got to figure out something because I'm not a nine to five guy, never have never will be, had to be something else. His life and putting together an action plan. Know what the ability wasn't where it came from, man, I wish I could tell you what you could bottle it. But that sticktoitiveness not making money for a long time, knowing that there's gonna be something on the other end. I mean, that takes a special type of human, and I wish I could bottle it. Give it to people.

 

Sam Wilson  15:46

That's awesome. Man. I love that. What are some things you say when you say that? Are there some particular scenarios that come to mind where you're like, Man, this was something where I feel like maybe other people probably would have given up or just, you know, run over?

 

Kevin Dureiko  16:00

Yeah, so let's see. Here I was an engineer working for an underground utility company. I live in Connecticut currently, not for long, but right now, you shut down for half the year. Can you tell it is when the grounds are frozen, right? So was a Cauchy, when the ADK a year for the year. One year I just woke up. So I can't do this anymore. I can't sit here. You know, being away from that, people thought I was crazy. Basically, jump forward a little bit and meet my soon-to-be wife. And I was like, Okay, now I really got to figure this out. And a couple of years after that, I'm gonna retire her. And now she gets to stay home with my one son and to be a second daughter. And it's one of those things you just don't know how it's going to end up. And that goes to the sticktoitiveness. And just making any money on the side hustle to figure out your life. And it's just like 2007 Now, there's been some bumps, but steadfast. The company's been around, and it just figured it out.

 

Sam Wilson  16:59

Right, right. Yeah. No, I love that. I love that. Yeah, cuz there are a lot of people that do give up too early when they're probably right. Run to the brink of success, and they don't know it. So that's a–

 

Kevin Dureiko  17:09

Is that the book Three Feet From Gold?

 

Sam Wilson  17:11

What’s that now?

 

Kevin Dureiko  17:13

That book Three Feet From Gold? Everybody turns around?

 

Sam Wilson  17:14

Haven’t read it, but there you go. There's our book recommendation for the day, Three Feet From Gold, and what the write that one down. Tell me this, what's a mistake you've made as other people could avoid?

 

Kevin Dureiko  17:25

Selling assets. My father was a blue-collar real estate investor, wish I would have known what I know now. And not have and sell the assets in retirement, which he could have just held on to everything. basically told me how you can have this stuff, you really want to know that cash out without your retirement, I'll figure it out. And what I should have said was, well, let's put some lipstick on these things, get a little value out of them really set you up for retirement. That's what I should have done. But I just didn't know any better.

 

Sam Wilson  17:56

Didn't know any better, man. Isn't that a fact? And that's, that's a lesson we share in common where you go, oh, golly, like, I look back on everything I've sold, and I go, I shouldn't have sold any of that. Now, maybe one or two were dogs. But outside of that. It's like, Why did I sell anything? Didn't make any sense. That's awesome. Kevin, thank you for taking the time to share with us both done well and the mistakes you've made. You've shared with us about your debt fund, how your thesis has changed, and what you guys have invested in changed and really brought us a unique angle here on, you know, the debt side of multifamily syndication. I mean, that's the real neat. You guys are raising a lot of capital so you guys can go out and be that first position debt. And then also the opportunities you guys see in the builder and build a sell market certainly are built to sell space. Certainly appreciate that. Are there any other closing thoughts you have here before our listeners before we sign off?

 

Kevin Dureiko  18:49

Keep going don't stop as much information as you can. I mean, I've been doing this for a while I still watch every podcast and read every book. It just never stopped learning. The best investment you can make is in yourself.

 

Sam Wilson  19:03

That's absolutely right, Gavin if our listeners want to get in touch with you or learn more about you, what is the best way to do that?

 

Kevin Dureiko  19:09

Then you can find me Google me, a pretty hard name to miss out on. There's only one of me under Dureiko. Throw that into Google. And then, you can find me on my website BirchDobson.com.

 

Sam Wilson  19:26

Awesome, Gavin. Thank you again. Do appreciate your time.

 

Kevin Dureiko  19:29

Thanks, brother.

 

Sam Wilson  14:34

Hey, thanks for listening to the How to Scale Commercial Real EstatePodcast if you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google podcasts, or whatever platform it is you use to listen If you can do that for us that would be a fantastic help to the show it helps us both attract new listeners as well as rank higher on those directories so appreciate you listening thanks so much and hope to catch you on the next episode.