Ep 113: Interview with Chris Powers of Fort Capital

Chris Powers owns Fort Capital LLP, a real estate private equity firm in the Dallas Fort Worth area. He’s a mentor of mine, and he’s grown his business to acquire $150M in real estate in a year. He’s still actively involved in his business, but he could also step out if he really wanted to, which is where I hope to find myself in a decade. Fort Capital currently has over half a billion dollars in assets under management focused on Class B industrial real estate, which Chris chose when he saw the need to pick one asset class and become really good at it.

Chris grew up in El Paso, Texas, and watched his father make a significant career shift, quitting his job as a lawyer to go to medical school and become a doctor. He noticed the contrast in his family’s financial situation during the years that his father went back to school, and it set off an entrepreneurship drive within him. He wanted to control his financial future and not deal with the uncertainty that he grew up around.

As many entrepreneurs do, Chris started small with two businesses in high school, washing cars and selling golf clubs on eBay. When he started college at TCU, he became friends with a man who taught him how to buy houses and closed on his first home in 2005 with no money down. He continued to buy rentals throughout college, eventually creating a management company and leasing businesses. In the oversimplified words of Sam Zell, real estate is easy: what are you paying, and what can you lease it for?

This was, of course, a very different era for home buyers, which made it possible for a college freshman with no money to buy property. When the financial crisis hit, Chris ended up buying properties that had dropped significantly in price. He was flipping these quickly, which meant that taxes ate away at his margins, so when given the opportunity to pivot he started to build student housing around TCU.

We’re obviously in a different cycle now than when Chris got his start. Even with interest rate increases and economic growth, banks have stuck to their standards. There have been fundamental shifts in the industry that mean even the rich and successful are still putting over 30% down on their deals. The truth is, we’re not building as much as we used to. Approval times are taking longer, and the country is undersupplied on almost all forms of real estate. There’s a lot of capital trying to get into the market, but landowners are suppressing supply.

In 2011, Chris got what he calls his real estate MBA. He assembled a collection of land, entitled it, and sold it for a huge profit to an institutional investor. Entitling the land simply means that he went through the process of zoning and approvals, so the chunk of single-family lots that he purchased got approved for multi-family residences. This was a revelation for Chris that when you sell to big institutions, they have completely different mindsets. They see profit differently, they see time differently, and there’s a huge opportunity to buy things as a small or mid-sized company and exit to the big players.

But why even sell? Why not continue to build your business and collect cash? Frankly, exits can supercharge the career of a real estate investor. Your return doesn’t count until you sell, at which point you gain a ton of credibility and validation. Once you sell, you’re known in the market, so posting a return matters. You also have to consider if you can grow your money faster by selling and re-investing rather than keeping your capital in what you have. How is your capital best deployed?

Despite the success, being an entrepreneur is scary as hell at times. This is universal, everybody experiences it, and Chris never felt it more in his life than at the onset of the COVID pandemic. He legitimately thought that everything he had built up in his business would be taken away from him. In November 2019 he started working on a deal of selling seven properties as one portfolio, and began marketing this to buyers. After three months of crazy hot interest, customers started to drop off immediately in March 2020. He barely got the deal off and was down to one last interested customer. What followed were months of pure uncertainty, and he told his team that he knew he was going to make a series of both great and terrible decisions during that time. By June, the industry started to stabilize, and he was fortunate that industrial had been a positive note in real estate during that period.

Raising money is a bottleneck for some private equity heads, and easy for others. For Chris, he can raise a million dollars in 90 minutes. Almost as soon as he sends out an email about a new deal, the funds start filling up. He focuses a ton on the investor and the investor experience, because in his eyes that’s the first customer; if you can’t fund deals, you can’t grow. He has hundreds of investors in his database, people are starved for yields right now, and he’s in a fast-growing market. Everything is made easier through Juniper Square, which is a popular investor management software. Each investor has personalized communication, document transfer, and data room access through their portal on Juniper Square, which streamlines the operation for Chris.

The truth that Chris and I have realized is that real estate is not fully passive. It’s pitched as passive, but there’s a ton involved in terms of operations, marketing, and sales. You need a competitive advantage to succeed, and Chris is able to raise money faster and easier than the competition. It’s also a space that rewards activity as a means of gaining credibility. Chris has other operational nuances that give him an edge like cold calling owners and a broker incentive program. Most importantly, he’s relevant to the market that he’s in; it’s hard to gain relevance when you’re managing remotely. He uses social media as an advantage too; through Twitter he’s able to meet people, expand his network, and grow his brand.

As you grow in real estate, or any business, you’ll find yourself making more and more deals and your business becomes more complex. Chris highly recommends powering through what he calls the messy middle. It’s hard, and it takes a lot of work, but you can’t continue to operate the same way as you did when you only had one or two properties. Once you develop smooth processes, a good structure, and gain experience your business can find exponential growth. But you need to invest in the infrastructure to manage and operate the business effectively. 

Chris provided a lot of wisdom in this interview, and I highly recommend you give the full episode a listen to hear what he has to say.

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I started the Sweaty Startup in December of 2018 because I believe the Shark Tank and Tech Crunch culture is ruining the real spirit of low-risk entrepreneurship.