Q&A with Fadi Ephtimios
Director of Wealth Management and Investment Advisor of Group RMC.
Please join Family Office Insights for this luncheon on Wednesday, February 21st at 12PM. If you care to join us, please email firstname.lastname@example.org.
Family Office Insights sits down with Fadi Ephitimios, Director of Wealth Management and Investment Advisor, to discuss his real estate co-investment group that invests in, sponsors and is General Partner in under appreciated income producing office properties in secondary US markets. Group RMC only charges upfront fees in the form of shares and does not charge any recurring asset management fees or any back-end performance fees, allowing for a unique low price and risk sharing structure.
Family Office Insights is a voluntary, “opt-in” collaborative peer-to-peer community of single family offices, qualified investors and institutional investors. Join the community here www.familyofficeinsights.com
Tell us about your background and your company, Group RMC.
I have been in financial services for about 22 years, primarily managing other peoples’ money. I have also been investing in real estate since the early 2000’s so I have a keen interest in this area. as an investor in real estate. A number of years ago a group of family and friends started successfully investing in real estate in Canada. We had done really well so some of our acquaintances expressed interest in joining forces, so we decided to form Group RMC. I have been a Limited Partner since 2002, and officially came on board as a Partner 2015. Group RMC is a real estate co-investment group based in New York and Montreal. We invest in, sponsor, and are the General Partner in undervalued income-producing office properties in secondary US markets. We currently oversee, mostly in the Midwest, over 9,000,000 square feet representing approximately $1B in asset value.
Our niche and specialty is in secondary markets, primarily the sub-urban office space. We don’t invest in multi-family or retail spaces where we believe the market is overcrowded and saturated with competitors. We also buy off pension funds from major players like Blackstone and Honeywell because their assets tend to be in great shape and are usually up for sale for non-economic reasons, such as, unloading assets in a certain city to invest in others, which is where we have been able to find amazing deals and major cash flow.
We have a lot of Family Offices and high-net worth individuals that come in for every deal, and typically, we are almost always oversubscribed. Although it’s a good problem to have, we always have more money than we need; that said, we’re still always looking for more LPs because we have an increasingly high number of deal flow and room for new investors. In 2017, we went from $450M in assets to $1B, and we project that in 2018 we’ll have $2B in assets. There aren’t a lot of groups doing that amount in the areas we’re in, so it’s significant.
What type of deals do you like to source?
We find deals we like in the Midwest and a little bit in the Southeast. Since the recession, those were the areas that were hit the hardest, so we took advantage and got in at really good pricing. As deals come along, we’re always the first in line to bid on those assets. We perform our due diligence to prove to the sellers that we have the financing and are able to secure great investments for our LPs. Since 2011, we have built a strong reputation for sourcing great deals, purchasing at a 40-60% discount, and closing very quickly. So the next time an institution has an asset to sell, they first come to us privately as we’re the preferred buyer for these back-door deals unknown to the public. We do not market ourselves, but rather, word-of-mouth has been the way we’ve grown our business.
We find there is too much competition and saturation in cities like NYC. In our markets, we’re able to find great pricing per square footage for quality properties. Our focus has been in the Midwest, but now we are entering the Southeast region. The Midwest has been unloved for the wrong reasons. During the recession, great cities like Detroit and Cleveland were hit hard, but those states still have a high GDP due to their college towns, world-renown hospitals, sports teams, and small businesses. The perception that the Midwest is not as cool as San Francisco or Boston is not accurate. We’ve been in all those areas and that mispricing has been the best thing for us.
What are some of the challenges you face in this market?
As our business grows, we have numerous deals that come across our desks. Before we had 2 out of 10 deals that met our metrics, but now, we’re faced with a lot of deals that interest us; we’re super diligent when it comes to refining our list – via screening the deals through our metrics – so that says something. While pricing is still good in the areas we invest in, it is another challenge, so therefore, sourcing the best deals takes a little bit more work than it used to a few years ago. This past year we closed on 6 major deals, and our goal for next year is to do 6-9 deals. We’re not looking at deal sizes, but rather, how to increase the value of our assets.
Last year we closed 3-4 deals at the same time raising $140M in cash for assets from Blackstone and Northwestern Mutual. Whenever 20 deals come across our table, we know to look at Northwestern’s first because we know the quality of their assets. It’s about spending time on the right deals. Sometimes the deals may seem great initially, but the broker or seller may not have all the up-to-date information upfront or is unresponsive to our inquiries, which is not a good sign. This has helped us identify the good sellers from the bunch, those of which we would choose to engage with in the future. The word out there on the street is that if you don’t have all the correct information at the time you present to us, then you shouldn’t even approach us.
How are you different from your key competitors?
We never sit and talk about our competitors because we never came across any competitors in our deals. There is, however, a large 50-year old Family Office in Canada that has real estate integrated into their structure. They invest in a lot of different asset classes in both the US and Canada. We were not aware of them until we ended up bidding against them on the same property; once we won, and then they came to us backdoor to co-invest with us. We move very quickly, commit quickly, and turn over the deals quickly. A lot of groups are very slow getting it under contract, so there’s flexibility in the speed that we can move, which is a big advantage to have in real estate.
How are you changing the landscape of your industry?
I recently spoke at the annual Family Office Super Summit in Miami and was approached about our co-investment structure and how it works. At Group RMC, we don’t charge management or performance fees. We only charge a co-investment fee because we want to truly align with our investors. This allows us to mark up the asset value upfront 3-4%, which allows us to take more shares than the assets, so the cost of us going in is a little bit less than for our LPs. We put in about 25% of our own cash in each deal. Family Offices don’t like fees or nontransparent activity, so we aim to serve our LPs in the most fluid and open way possible. We invite our LPs to join us when we do site visits for potential investments – we once had 30-40 LPs join us to view a property in Kansas City, which allowed them to see the underbelly of our work. That said, even though we welcome the company, many of our LPs usually don’t join us because they trust our judgment and the choices that we make. We talk to our LPs regularly because we have so many deals going that we need to be in touch with all the time, so they definitely feel taken care of. Our amazing Investor Relations Team communicates with our LPs on each deal, describing why we like it, why it’s worth it, and how the deal goes, so as to keep everyone in the loop. We are also planning on hosting an annual general meeting to give as much access to everyone as possible.
How much are you looking to raise and who is your ideal investor?
Our LPs are typically Family Offices and high-net worth individuals. While we don’t have a minimum investment, the smallest amount we’ve seen has been $250,000-$500,000 with the bulk of our investors choosing to come in at $1M-$5M; we also have a handful of bigger investors. We did, however, have to put a cap at 20% per deal, because sometimes an investor would want to take the whole deal. We take up to 20-25% of each deal, 2 Family Offices usually take 20% of each deal, and the rest of the 40% gets spread across other LPs or new investors. And since we are always working on new deals, we always have room for more and more LPs. We like having a diverse investor base.
What’s your mission?
A lot of our conversations are centered on keeping our current LPs happy by treating them like partners. We hope that our current LPs will be around with us for the long-term. With our open door policy at HQs, our LPs often drop by for coffee just to catch up with us at our offices. We are proud of that comfort level and the trust we have built into our LP relationships.
What’s next for you?
In a year or two, we are looking to set up an IPO option as a liquidity mechanism so that we can have more money flowing. Our challenge now is allocating the money, which is an amazing problem to have, but sometimes we don’t have the space for the big check sizes our investors want to come in with. We sometimes have to do financial gymnastics to fit new investors into deals. We want to have the IPO option so that we can be ready for anything.
We are also focused on giving access to our good investment opportunities, so as to everyone involved. We are dedicated to keeping our current LPs happy and continually focused on attracting new ones. We are also staffing up in accounting and hiring a CFO; we’re looking to professionalize ourselves as much as possible, but still without becoming this big corporate entity. We are growing, but we still want to run a clean, nice, and transparent family business that can still sharpen up in all areas so that we can ultimately build Group RMC to house $15B in assets.
A consistently high achiever with over 20 years’ experience in the Financial Industry, Fadi Ephtimios has demonstrated leadership in delivering the best possible service for his valued clients. Fadi joined Richardson GMP in 2015 to bring clients a wider universe of investment options and greater transparency regarding costs and reporting.
Over the past 15 years, Fadi has co-invested alongside the principals of Group RMC in real estate properties in Canada and the US. He has a deep understanding of real estate as an asset class and currently advises several family offices in regards to real estate investment opportunities.
If you have any questions, please contact Fadi at email@example.com.