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Robert Brunswick:
Welcome to Counting Capital Podcast. Our next session and one that I’m really looking forward to, it’s my pleasure to introduce you to Chris MacDonald, Founder and Partner at Buchanan Street. Chris, what a treat. This is really going to be fun. We’ve done this a few times together.
Christian MacDonald:
We have.
Robert Brunswick:
I think just to remind you, what our podcast is really about is kind of providing education and experience and perspective about real estate investing, investing in general, and maybe some career comments that you might make as we talk to some young folks who are just starting out in their careers as well as existing clients of ours and some of our registered investment advisors.
Christian MacDonald:
Great.
Robert Brunswick:
I thought it might be fun to start off with for them getting to know you a little bit about where you’re from. Tell us about your early career and how you ended up where you are today at Buchanan Street.
Christian MacDonald:
Sounds great. That could be a long story though. I’m 62 years old now.
Robert Brunswick:
Well, I appreciate that. Yeah.
Christian MacDonald:
Actually, I’m originally from Marin County, California.
Robert Brunswick:
Sure.
Christian MacDonald:
Grew up in the Bay Area, went to school at UC Santa Barbara College, majored in economics, which I really enjoyed. Then I got into the real estate business real soon after there in the early ’80s. I’ve been in the business now for nearly 40 years. The first 15 or so years, I started the business as a kind of traditional mortgage banker, which in those days, those were independent, usually independent companies that represented insurance companies and placed loans, sourced loans and placed loans for insurance companies. Then we also, one of our insurance companies, Copley Real Estate Advisors, had placed a lot of equity in the markets in those days. We underwrote equity joint ventures for Copley, and then I went on, I was a direct lender with Wells Fargo Bank.
Robert Brunswick:
Sure.
Christian MacDonald:
That gave me some great credit training. Then in 1990, I joined you at Pacific Union Realty Finance, where we raised capital debt and equity for real estate owners and operators.
Robert Brunswick:
Chris, as I hear you describing it, you really have been involved in all gamuts of the real estate capital business. I mean, from a life insurance correspondent to being a credit officer at Wells Fargo Bank where there was also some life insurance correspondent work. Then after that, you really followed in, you kind kind of work the entire capital staff, both debt and equity. Now fast forward from that platform to Buchanan Street Partners and really the next step of the journey. You seem like you’re having more fun today, but you’re really not doing what you were trained to do. How do those kind of reconcile one another? It’s still real estate, but you’re doing something completely different.
Christian MacDonald:
Yeah, so Buchanan Street, I oversee investor relations and raising capital as it relates to our high net worth investors and our advisor relationships. To your point, I’m not in the day-to-day real estate business any longer and haven’t been really since we started the company 22 years ago. But I have a good background in real estate and I enjoy talking to investors and I enjoy working with investors and also their advisor relationships and talking to them about what we have to offer and how that can help complement their investment portfolios.
Robert Brunswick:
As you reflect back on your experiences, what would you say has enabled you to be so good at what you’re doing today and enjoy it so much? What skills along the way have you learned? What aptitudes do you have that lend themself to enabling you to really do what you do today?
Christian MacDonald:
Well, just having the background in real estate to begin with for so many years. Obviously it gives you credibility when you’re talking to investors and convincing them why it’s good to invest in real estate. You have a lot of credibility having been in the business for a number of years and been in the trenches and putting together transactions and raising capital and doing underwriting loans and that kind of thing.
Robert Brunswick:
Sure. You probably understand a good transaction from a not so good transaction from the years of placing debt and equity for third party borrowers too.
Christian MacDonald:
Sure.
Robert Brunswick:
Yeah. That makes sense. What options do real estate investors have today? Where can they put their money to work?
Christian MacDonald:
Well, there’s several areas they can put their money to work today, but I would say typically, or for your typical investor, it would be the publicly traded REITs or real estate investment trusts.
Robert Brunswick:
Sure.
Christian MacDonald:
They’re traded on the major exchanges. It’s the non-traded private REITs that are mostly sold through the broker dealer network really as more of a retail product. Then there’s private equity real estate funds like we offer at Buchanan.
Robert Brunswick:
Sure. I think for a lot of our audience today, or they might think about that one-off investment opportunity, it’s brought to them by a developer or a syndicator, so where did that fit into that kind of listing that you just broke down? Is that more of a private equity opportunity?
Christian MacDonald:
No, I would say yeah, it’s private equity. It’s a one-off investment insurer, but I don’t think your typical investor today has access to a lot of one-off deals. I mean, your family offices more typically will invest in a one-off deal. Your country club syndications are one-off transactions, but that’s not I don’t think how your typical investor today invests in real estate.
Robert Brunswick:
Why is so much money flowing to real estate today? I mean, it’s amazing. We read about these big funds getting built, more people want allocation to it, it seems like the days of primary allocation to bonds and equities really has changed a bit. Can you kind of paint a picture for us a little bit as you see it and your clients talk to you or the RIAs talk to you about asset allocation and then why specifically real estate? Because clearly it’s grown within the asset allocation model.
Christian MacDonald:
Sure. There’s been a huge transition, especially over the last 10 years. The part of it is because your typical investor has more ways to access real estate other than investing directly or through a syndication like the areas I just mentioned. But more and more capital is being allocated to alternative investments in general and in alternative investments include things like private equity and real estate for a number of reasons. They offer diversification to a portfolio of just stocks and bonds. They’re a non-correlated asset. They don’t trade with the volatility of a conventional stock and bond portfolio. There’s a lot of benefits that alternatives bring to bear.
Specifically real estate, real estate can offer several benefits to investors in their portfolio. In terms of core real estate or what we call income producing real estate that produces predictable cash returns to investors, acts very much like fixed income. As a matter of fact, a number of our investors and advisors, they use real estate as an alternative or complement to their fixed income portfolio, especially in the low yield environment that we’ve had over the past several years. Then what we call value added or opportunistic real estate, which offers a little more or a higher risk return profile than a typical core investment or income producing real estate offers enhanced returns.
Robert Brunswick:
Let’s talk about that for a second just to make sure everybody understands. Can you give us an example of a core investment profile, a value add profile, and more of an opportunistic? And is Buchanan involved with all those types of investments?
Christian MacDonald:
Yeah, generally Buchanan focuses on core to value add, maybe light opportunistic I would say. But core investments are probably are on the lower risk return spectrum in terms of your overall real estate investments, they generally are good quality cash flowing assets that offer a dividend day one. These are cash flowing assets where the yield is being returned to investors. And again, more of like a fixed income asset with limited price appreciation, or capital appreciation.
Robert Brunswick:
What about from a tax advantage standpoint? Is there tax benefits?
Christian MacDonald:
Definitely tax benefits as most of your income is sheltered by depreciation. Any tax is deferred until you sell the asset. And that’s why number of people use 1031 exchanges to continue to defer that tax. Then there’s value add real estate that’s moving out a little further on the risk return spectrum, you’re generally using a little more leverage. Those are more capital intensive and a lot of the return, instead of being in the front end or with income, current income, a lot of the return is on the back end when you sell the asset, after you’ve added the value to the property. It might be a renovation, it might be a re-utilization of a property, it might be just leasing up a property that’s not fully leased. Then once you create that value and sell the asset, that’s where most of your return is driven.
Robert Brunswick:
Then the last one, the opportunity side. I know we’ve done some adaptive reuse converting properties from say office to medical use. Is that an example of something that’s probably more opportunistic in its nature?
Christian MacDonald:
Yeah, value add or a more heavy value add or opportunistic. Opportunistic I think is the farthest out the risk return spectrum. You’re taking on a lot of risk, but you do a potential for much higher returns, ground up development type deals, especially if there’s entitlement risk, permitting risk, those types of things. You are shooting for higher returns, generally using higher leverage to generate those higher returns. And again, most all the return in those cases are on the back end.
Robert Brunswick:
And what type of things is Buchanan investing in today and how do people invest with Buchanan?
Christian MacDonald:
People invest with Buchanan through funds, and we’re investing in different types of products and strategies, including core income producing properties that are generating cash flow day one, that we distribute the cash flow to the investors. Then we have value add type transactions that we invest in also where we’re either buying assets that are not fully leased or assets that need to be renovated, getting those renovations going, leasing the projects up and then selling them.
Robert Brunswick:
And it’s not all one product type, so what type of products are you investing in terms of just the actual real estate?
Christian MacDonald:
We invest in a multitude of products, but I think we like apartments, especially class A apartments, suburban class A apartments, especially in secondary markets. States like Texas, Colorado, Utah, Arizona, where all the jobs are going, where all the people are moving. High growth secondary type markets, class A apartments have performed really well and should continue to just for all the demand drivers that are in place now that a lot of people know about and housing affordability issues and those types of things. Then we also invest in self-storage properties. We like the storage industry. We think that’s a great industry to be in. Storage typically provides predictable cash flow and seems to be resilient through economic cycles.
Robert Brunswick:
And I know you’re doing lending, so I’m trying to correlate or reconcile the lending business to owning properties. Help me understand why Buchanan does that.
Christian MacDonald:
Well, lending has been really in our history, prior to performing Buchanan Mortgage Holdings, we had made loans opportunistically through our funds. And a lot of the principals are myself, you, and Tim, have had lending backgrounds prior to joining Buchanan. When the opportunity arose to form more Buchanan Mortgage Holdings because of the void in the lending market, it was really natural for us. The fact that we’re real estate operators makes us great lenders because we can look at a project as if we were to own it. And another benefit is we’re not looking to take back properties, but if there is a problem with a borrower or property, we’re lending on things that we are happy to take back and we can operate them ourselves.
Robert Brunswick:
Sure. Without being known maybe as a loan to own lender, because obviously that has negative connotations, but I think certainly our ability to understand the operating side makes sense. I’ve heard you say often though, that the lending business that we do doesn’t have maybe some of the same tax benefits, but it has offered a nice proxy to what was otherwise a fixed income product for some of our clients.
Christian MacDonald:
Sure, sure. It’s just lending offers investors interest income primarily, which is taxable as ordinary income, but it’s a good … A lot of our lenders use their IRAs or profit sharing plans or a tax exempt entity to invest in that business.
Robert Brunswick:
RIAs are a big I’ll say component of your activity in our business today, so what is an RIA? How do we work with them and why is that a focus for Buchanan Street?
Christian MacDonald:
RIAs are registered investment advisors. They provide financial advice to their clients and they’re registered by the SEC, and they have a fiduciary obligation to do what’s in the best interest of their clients, which is a little bit different than the fiduciary obligation of a broker dealer. They generally work with outside managers versus selling their own products, so there’s no inherent conflicts and they don’t get paid by commissions. We like working with RIAs because we know that an RIA is recommending Buchanan because they think it’s a good solution for their client and their client’s portfolio versus getting paid a commission by Buchanan.
Robert Brunswick:
Makes sense. Chris, I’ve watched your career evolve and you mentioned earlier, I’m going to say you’re midway through your career, a lot more to go in, many more chapters to be written. What do you enjoy most about your work? Because you seem like you got a little giddy, extra giddy up in your step these days. You seem like you really have found your passion. As you think about what you do at Buchanan, what do you enjoy most?
Christian MacDonald:
Oh, I just enjoy working with individual investors and their advisors and helping them find a good solution for their portfolio as it relates to the portion that they want to allocate to real estate. And just getting to know these people on a personal as well as professional level. It’s been a number of years now that I’ve been doing this, and I’ve developed a number of close friendships with a number of our investors, and that is really rewarding and fun.
Robert Brunswick:
Chris, we’ve talked a lot about business, but I really know that you have some personal passions outside of work that you’re quite involved with, and many of those might have started from some relationships with your clients. Can you share a little bit about that for our audience?
Christian MacDonald:
Sure. The other thing I really enjoy about my job is learning about all the great things that a number of our investors are doing here in the community and with their charitable work. And that has led us to find some great causes to help benefit through our children’s charities, Buchanan’s children’s charities, and also on a personal level that my wife Susan and I have learned of a few things that some of our investors are doing and really think very highly of them and have gotten involved in supporting those. Most of those are centered around underprivileged children also. Then in terms of my personal interests, I happen to have a very strong interest in animals and particularly dogs. Do a lot of things around dogs as it relates to helping them get adopted from shelters with a special program that I’ve developed.
Robert Brunswick:
What is that program called? Remind me.
Christian MacDonald:
It’s called Smart Start.
Robert Brunswick:
There you go.
Christian MacDonald:
Basically a lot of dogs have a really tough time making the transition from the kennel to the home. What we do is we provide training with a professional trainer to folks that adopt dogs to help them make that transition. Whether it’s some behavioral issues that need to be worked on, whether they need to be socialized further, whether they need to be able to walk on a leash, particularly with big dogs. It’s not a real big chore for the owners. We provide training for the dogs and their owners for whatever the need might be to help these dogs make the transition. And that’s important because a number of dogs that get adopted after a week or so with their adoptive family, they end up coming back to the shelter because it hasn’t been a good experience for whatever reason.
Robert Brunswick:
That’s exciting, Chris. Good for you. I know it’s something you’re quite passionate about. And so as we kind of wind down here, if you could pretend like you’re talking to some students at a college university or getting ready to go interview for their first job, or some folks that are passionate about the real estate industry and want to know how to get started or access them like you did years back, what advice might you give to a young person as it pertains to starting out in their career?
Christian MacDonald:
Well, starting on the finance side myself, I think that provides a great background, and particularly with the banks that provide credit training, because underwriting alone and going through the process of underwriting alone is going to be something you can use throughout your career. It’s going to help you evaluate-
Robert Brunswick:
Collateral.
Christian MacDonald:
… any transaction, collateral, whether you’re buying the property or making a loan on a property. There’s a number of banks that have credit training programs. I think that’s a great way to go.
Robert Brunswick:
That’s great. Well, I can’t thank you enough. I mean, we’ve been doing this for a long time together and it’s fun to now have this opportunity to make a difference in our communities. I remember the day you told me you wanted to join Pacific Union Related Finance. I think as I recall you said, “The good news is I’m joining. The bad news is I’m not going to start for” … Was it six months, or?
Christian MacDonald:
Six or nine months.
Robert Brunswick:
Six or nine months. And you traveled around the world on went surfing and we’ve been together ever since.
Christian MacDonald:
Worked out well.
Robert Brunswick:
It’s worked out great. And aside from being a great friend, we’ve been partners for a long time and we’ve done some amazing things. I hope you’ve all enjoyed hearing more from Counting Capital and our podcast. Chris is a great wealth of information and has really enabled us to really grow our principal investment business through his passion to investor relationships and raising capital. And with that, we’ve done some good learning today and we will look forward to next month’s session with you. Thank you for your time today.