Michael’s story, like many, is unique. In his mid-thirties, Michael Episcope decided to pursue his Master’s in Real Estate and start his own business guiding individuals and companies towards the best real estate investments to build wealth. This episode outlines Michael’s unique story, the importance of making smart investment decisions, his journey in entrepreneurship, and maintaining the wealth you’ve already accumulated. There’s a little bit for everyone in this episode!
Michael is the former president of the DePaul Real Estate Alumni Alliance and a sustaining sponsor of the DePaul Real Estate Center. He has been a Vistage member for more than six years and lives in Chicago with his wife and three children. He enjoys traveling with this family, snowboarding, and frequents ski resorts all over North America.
Michael is principal of Origin Investments, co-chairs the Investment Committee, and oversees investor relations, marketing, and company operations. Michael brings 25 years of investment and risk management experience to the company and believes that calculated risk-taking in inefficient markets is the key to building wealth.
Interested in Impact Investing with Evan and Holladay Ventures for recession-resistant returns and having a positive impact on your capital? Set up a call with our investor relations team to see if it’s a good fit: https://holladayventures.com/investors/
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The Color of Water: A Black Man’s Tribute to His White Mother
The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers
TRANSCRIPT OF THIS WEEK’S EPISODE:
Evan Holladay: Welcome to Monumental, everybody. I’m your host, Evan Holladay. Today we have on the show with us, Mr. Michael Episcope. Michael, how are you doing?
Michael Episcope: Good. Thanks for having me, Evan.
Evan Holladay: Yes, very glad to have Michael on the show today. Before we go into Michael’s background and get started, I do want to say a little bit about Monumental and what we are doing here today, and what is the purpose here. We’re really wanting to dive into individuals like Michael who are making massive monumental change and positive impact in the world, whether it’s leaders, entrepreneurs, real estate investors.
Those making an impact in the world and helping share what they’ve done, their trials or tribulations, their ups or downs, to help you on your journey of making a monumental impact. Also, if you haven’t already, please share this episode, and also share the podcast with somebody that you know, or share it on social media and also please leave a rating and review on Apple Podcast, or wherever you’re listening today. That really helps us spread the word of our great guests like Michael today.
Michael is the Principal of Origin Investments and brings 25 years of investment and risk management experience to the company, and believes that calculated risk taking in efficient markets is the key to building wealth. He frequently shares his knowledge with individual investors on their blog, Forbes, ValueWalk and HuffPost, and his expertise has made him a frequent speaker on the real estate investment panels and podcasts.
We’ll dive into a little bit more of what Origin does, and how they do it but with that, let’s dive into a little bit of your background, Michael.
Michael Episcope: Sure. Happy to fill that in a little bit. I’ll give you the long version rather than the bridge version. Going back, this is actually my second career. My first career was as a commodities trader. I spent about 15 years in that business, 10 of it trading. I’ve lived in Chicago since 1988. I went to school here, I attended DePaul University.
After my freshman year, I decided that I really love being down on the floors of the Chicago Mercantile Exchange. I stayed there, did a number of different jobs. I was a clerk, I was a broker, just made my way up. Then I became a trader in 1997, and I did that for about nine years and it turned out that I was pretty good at it. I had a very steep learning curve, didn’t take me long to catch on.
Everything I had done on the outside of the pit translated to inside and made me a good trader. I worked for a hedge fund for probably the first year, then went off on my own. After that, I was able to capitalize myself. I bought my own seat and then just trading my own account, and that was a great nine years of my life. When I look back, it was also transformational.
Not just from a wealth creation standpoint, but the year that I started trading, I met my wife. Prior to that, when I made the decision to go start trading, I’m like, “Look, if this doesn’t work out I’m not going to lose anything. I need to bet on myself at this time.” I was about 27 years old at that point and I’m glad I did.
When I fast forward to the end of that career, at the end of the nine years, I worked really hard. Computers came into that system, and then ultimately displaced me but I was tired, I was done. I built up enough wealth, and I was ready to move on for the next thing. The other thing that happened during that period was I got married.
I had two kids, I had another one on the way. It was no longer just about me and I just decided that look, even if I stay down here and I continue to trade and make money it’s not really going to change my life. I made the conscious decision of punching out of that business retiring completely, retooling myself and I ended up going back to DePaul University and getting a Master’s in Real Estate.
That was how I transitioned. I did everything from close my account down to sold my seat, made sure that I couldn’t touch it. I traded for a little bit off the floor, but I always tell people, “Look, I wasn’t a good trader because I could see around corners.” I knew how to get edge, I knew how to take advantage of what was happening in the market. When I was dabbling outside the pit, it was just like donations. I said, “I’ve got better charities to give this money to than whoever is on the other side of these trades.”
That was the beginning. I went back to grad school because number one, I wanted to be educated and I really wanted to sit at the table and have the same amount of knowledge, learn about the markets, figure out where I wanted to be in the market, build a network, and that was one of the best decisions I ever made. At that time, my partner and I were also working on a non-profit together called One Million Degrees.
That’s what it’s called today, so we had gotten to know each other really, really well. We were great friends, we worked on a non-profit together. One that he really started, and then we decided to formalize that in the business of Origin, because we’re both two high net worth individuals who wanted to put our money to work in real estate.
We wanted the tax benefits, we wanted the passive income, we wanted to continue to grow our capital because let’s face it, whatever wealth looks like today or 10 years ago, or 20 years ago, if you’re not continuing to grow that wealth or turn it into passive income, it can disappear really quickly.
That’s one thing that’s always motivated me is that fear of running out of money, that fear of being broke, the motivation of financial independence. So once I had money, it was like okay, how do I keep this? How do I maintain my lifestyle? It’s not just about me, it’s now about my family. David and I got together in 2007. We really didn’t have a vivid vision of where we wanted to be.
We wanted to put our money in real estate, and that was it. This is pre JOBS, everything out there. I had invested with other groups he had and we just said, “Look, we can do better.” We started at a really good time in ’07, because the market was starting to show cracks in a way. We started buying debt, did really well. Then it was really in 2009 when we said, “What do we want to be when we grow up?” We bought some amazing deals in ’09.
Evan Holladay: Michael, real quick, how old were you when you asked yourself that question?
Michael Episcope: [Laughs] Well, when I say what do we want to be when we grow up, we meant that the kind of firm or Origins so I’m still asking myself that same question today.
Evan Holladay: No, I just wanted to bring that up because I think that’s important.
Michael Episcope: I’m 50, but I still feel like I’ve got a pretty good runway ahead of me. That was in the context of Origin. What we did is we started syndicating deals. We knew that we have phenomenal deals that we could capitalize ourselves, but we want to show these people, start building a business around this. That’s how we formed the Origin.
After that, we parlayed that into our first fund. Fund one was a 2011 vintage, it was only $20 million of committed capital, eight of which was ours. We grew that $50 million by syndicating a deal. Did incredibly well, that was a top decile performer. Launched then fund two, which wasn’t that much bigger. We were about 40 million in that fund at that time that grew to about $100 million.
When we found deals that were just too big for the fund, we would syndicate them. If a deal came in and it was $18 million, we’d send that out to investors and that’s what I mean by growing from 40 to $100 million. It was really after fund two, because we were taking the same route that everybody else was.
It’s a very common route for people to start with their own capital if they haven’t. Move to friends and family, move to their network and then go on to institutional. We were going down that route, and it was like the groups we were talking to, didn’t really – we didn’t love the idea like is this really what life is about? Serving an institution, a pension fund, working for them, and adhering to them and waking up every day knowing that you have boss up there.
We said, “Look, not really.” We’re really good at this which is investing on behalf of ourselves and high net worth individuals, and so why don’t we scale this? That’s when we started. We looked at the JOBS Act, what other companies were doing out there. It’s not rocket science to say if you’ve got a great product and you put it in front of millions of people, you’re going to sell it. That was the whole thesis at that time.
We invested in technology, we invested in marketing, and we just started marketing to high net worth investors. Over the years, it has just built on itself. Fund 1 was 35 people, Fund 2 was 70 people, Fun 3 was 450 people. Today we have almost 1,700 investors. We’ve grown exponentially, really I think for three reasons.
One, because of our returns. Two is because this level of alignment. The amount of money David and I are investing, and just the whole philosophy behind what we’re doing. The third is we have surrounded ourselves with a great team. We have 30 people today, most of the people on the real estate side emanate from larger organizations, household names, Deutsche Bank, Equity, places like that, that you would know of.
We really built this in our own vision at that point to say, “Look, if we didn’t work here, would we invest it?” You have to look at the team, you have to look at the structure, you have to look at just everything. All the pages of the PPM, those got you points. We’ve always looked at it from the investor’s side and the manager’s side, and it feels really good.
I’ll never forget one of our team members in the investor relations department, he started very early, about three or four years ago. He said to me, you know what I love about my job? There’s never a got-you moment. Investors pour through the PPM and they’re looking for it, because most people out there approach everything skeptical, as they should.
I would say 90% of the time, you’re going look through the PPM and there it is on page 43, 44, 45 are all the hidden fees and structures, and everything else that show how the managers make money. We’ve just never believed in that. We’re playing this for the long game, so it’s been a really good run. We have two funds that are open today.
An income plus fund that has three strategies in it that we build, we land, and we acquire value added core plus, within that fund. It’s all multifamily. Then we’ve got a qualified opportunities on fund. I like to say that we help high net worth investors make the most out of their money, the wealthy out there.
They need a fair shake as well and they are looking to do the same things we are, which is generate passive income in a tax efficient manner, and continue to grow their wealth. That’s our entire philosophy of what we’re doing, and that’s why we invest so much in our funds as well.
Evan Holladay: I love that, Michael. Thank you for sharing all that. A lot of different directions we could go in, but let’s start toward the beginning of Origin. How did you and your partner figure out the direction you wanted to head in from the very beginning? How did that morph into what it is today?
Michael Episcope: Well, I would say that the number one rule in investing is don’t lose money. That’s how we thought about it. We’re already wealthy individuals and we weren’t coming in here to take a lot of risk, leverage our money up, do all this. In the beginning, we were figuring it out, and in ’07 when the market was falling apart and ’08, we discovered the area of distressed debt.
Somebody came into our office one day and wanted us to refinance a piece of debt that got sold, and the light bulb went off and we said, “What do you mean it got sold?” He came in and he said, “Yeah, I’ve got an $8 million loan and these guys bought it for 3 million, and they want me to pay it off for 4 million in 30 days.”
I’m like, “Well, that’s where we want to be.” Where those guys were, so we immediately shifted gears. In ’08 and ’09, we started buying notes. We had a distinct advantage at that time because we had capital, and we had people who believed in us in ’09 when we can raise and we can close deals because everybody else’s hands were in their pocket and they were just playing defense. That was it.
Then out of that, what happened is the distress debt market started to go away. In 2010 and ’11, and there were deals out there that were being sold as REO. What we really liked during that period was the value added area, and so we started focusing on that. We also knew that we wanted to structure this in a fund. That we wanted the ability to go to the closing table and have the answer for how we’re going to close this deal, and fund does that.
A fund in many ways, there’s a huge advantage to the investor as well in the sense that as a manager, all of our performance fees are cross collateralized under one single structure, and they’re diversified on that end. It wasn’t because the fund benefited us, but it did in the sense that we can go to the table and say, “Look, we have capital here where we can close.”
That was the beginning of the end, but it was also at a time when capital had all the leverage and that was Fund 1, and we were very broad. We were agnostic about asset class. We were just looking for opportunistic deals in the market, and then that evolved into Fund 2 which then we narrowed the world down, we expanded the team. We said, “Look, we’re going to do office industrial and multifamily.”
We narrowed the world down, and that was a better message to the market and that’s how things have been going. The vision for I think the capital raising side happened after Fund 2 when we said, who do we want to be and who do we want to serve? There’s a lot of people out there who work really, really hard for their money to save 500,000, a million, two million, and want something else other than the stock market.
When we got into this business, a lot of people who were investing their money out of the target worth non-traded private reads. You look at those and you’re like, “This is awful.” They’re charging 12, 13, 14% on the front end, they’re hiding behind that transparency. It was just bad, and so when we came into the market, we really wanted to do our best to disrupt that side.
I think the JOBS Act has really accelerated the proliferation of companies like ours out there and opened up the kimono so people say, “Look, we’re no longer going to invest in those. There are more choices out there.” Unfortunately, they still do well today, but that’s really what we were encountering out there were these high fee, just poor real estate investment firms and we wanted to bring something better to the market.
After Fund 2 is when our entire plan began to synthesize or crystallize, but it’s still evolving. We react to the markets. Today, like in our last one, Fund 3, we’re office and multifamily. We’re getting out of office for a lot of reasons, today, we’re only multifamily. From an organizational perspective, it’s great because our team is an expert right down to the nickels, the pennies, the dimes.
As the market evolved from the leverage being with capital, you have to be an operational expert and understand when you’re acquiring because the margins are so much smaller today that if you bought a deal in 2011 and you paid a little bit higher price, and you got some things wrong on the performance side, the market will let you out. Today, that’s not the case. You have to know how to operate efficiently.
I love the fact that we’re only multifamily. The markets we’re in, we have again, three strategies within that so we’ve got plenty to do. Today we’re not buying anything stabilized, because the risk return just isn’t there so we’re focusing on building and lending in today’s market.
Evan Holladay: I find that so interesting how your philosophy and your game plan behind Origin has changed as the opportunities in the market have changed. Going from distress debt to office and value add, and now solely multifamily, but then within that still having three different focuses. That’s really interesting just hearing the opportunistic approach. How do you think you’ve been successful over so many different asset classes?
Michael Episcope: Well, I’ll back up because I think while the investment strategy has changed, the purpose of what we’re doing has not. It’s always been about investing our capital, making money for us and our investors and we’ve always believed in being opportunistic in the environment. Now the environment has changed a lot, and I think where we are today is much more beneficial, but the way that we are successful is our team.
Our team, as I said, our senior team members have been with us 12 years, 10 years, 8 years, 6 years, through the life of these funds and they came to the company with the experience in those asset classes. A lot of what we do too is we join venture, and we’d join venture with best-in-class sponsors out there. Our job in many ways is finding good people to invest with, and put our money with right now.
In no way are we passive, but we come to the table with 90% of the equity, 95% of the equity, because we’re vertically integrated to the point of investment management, but we are not vertically integrated in construction management in those areas, or even property management. That’s really by design, because there’s an inherent conflict of interest between an investment management company and a property management company and a construction company.
When you think about our decision, when our decision to sell a deal, it’s about selling the deal. That’s it. It’s not about what do we do with these seven people at the property once we sell that deal? By the way, that’s feeding our property management arm, so hey, let’s not sell that over here. Or are we developing just for the sake of developing because we’ve got 40 people in our construction department?
When we want to shut off the spigot and when development no longer makes sense, guess what? We’re not going to develop anymore, and there’s nobody at our firm who is really going to be crying about that, because we don’t have these ancillary streams. A lot of what you do and what you don’t do is very important, and what we don’t do, as much thought about that has gone into our strategy as what we do.
It’s important to understand the arc of how we got to here and what we do, but again back to your question, it’s our team that’s allowed us to be entrepreneurial, move across asset classes, and get to where we are today.
Evan Holladay: I love that. I love the line too you said, it’s just as important what you don’t do as what you do during your business. Everybody should be writing that down right now if you’re listening. I 100% agree, I think it’s so powerful. It’s what you say yes to, you’re saying no to 100 other things that you could be working on or could be doing, or could be allocating your time and energy and resources to.
Michael Episcope: I’ll tell you just a comment on that. It’s really important for the team to have direction and a market as well, because if you walk to the market and a broker or somebody asks you, “Hey, what did you buy?” You say everything, they’re going to be like, “Okay, you are an expert.” But if you go to the market and you say. “Look, we’re looking in these 12 markets and we’re looking at multifamily projects to acquire that are 1990 and newer, and with 10-foot ceilings, and this and that.”
You’re giving them specifics, they know that when they have a project that fits that criteria, they’ll bring it to you. You are their buyer. Our team too, we don’t want to waste their time. We don’t want to send them on these goose chases and say, “Hey, just go look for everything, we’ll tell you if it’s good.” That’s not good for them either.
When we talk about things we won’t do, a lot of that comes around risk management. We don’t guarantee loans, and this is a very clear message to our team, because the quickest way to go broke in real estate is start guaranteeing loans. I know plenty of people who are much wealthier than I am, who have gone broke doing that.
My partner and I decided long, long ago that there’s just some lines that we won’t cross and our team knows that, because he coined this but we don’t want to say the words, “I used to be rich.” Nobody wants to say those words, and that’s what this is about.
Evan Holladay: I want to dive into that just because I’m curious, because we’re signing more and more guarantees, and more and more loans so I’d love to get more feedback. For everybody listening, just a little precursor or background of this. Whenever you’re working on larger commercial real estate deals, your lenders typically require you to sign personal guarantees, where you’re personally allocating your assets, everything you own, in case something goes wrong with that deal or that loan.
It can be very risky, especially if you have multiple of these guarantee loans that you’re doing all at the same time and if multiple of them go bad. I’d love to hear more about your strategy of why that’s an absolute no-go, and also how you are getting around that.
Michael Episcope: That’s a great question, and there are always exceptions, Evan. Again, I came to this business with wealth and that’s a huge difference, but I would always tell people, if my kids went into this business, I would say, “Look, bet on yourself.” Yes, you should guarantee loans, you should do everything you need to do.
If you are an operator and you are in on the day-to-day, the nitty-gritty of what you’re doing and you can control your risk, then that’s okay. But as somebody who has a lot of projects, who’s relying on partners, we’re just not going to expose our fund or our fund investors to something like that. That’s the responsibility of our joint venture partners.
Even in deals that are stabilized when we go out, because these are, remember class A, multifamily, 200 unit projects, $50 to $60 million. There is a huge market out there for non-recourse loans. When we think about the advantage of being in real estate especially in the larger size of the apartments, non-recourse lending is one of the holy grails of real estate.
Then you’ve got appreciation, and you’ve got the ability to refinance tax free forever. That’s something that we take advantage of, but that’s who we are. I will say that if you are a passive investor and you’re not involved in the day-to-day, and somebody is asking you to leverage up your balance sheet and they’re going to give you 1% of the project and do this, well then you got to be very, very careful. Because personally, I would never do something like that.
When we’re talking about a fund, to me, it’s not worth it. If I were in your shoes and I were starting out in this business, and I were trying to build wealth and I were creating an operating platform in the day-to-day, I would absolutely do it.
Evans Holladay: That makes complete sense, and especially when you’re taking into account you have to be the protector of the investors and the fund, and taking that into all your decision-making.
Michael Episcope: We’re not looking to get people rich. We’re looking to really keep people rich and wealthy, and have their money work for them. Our job is to make sure that we’re protecting investors on day one, finding the right projects in the right market, structuring them appropriately. Getting them built on time, on budget if it’s a building situation, then realizing the benefits of real estate. That’s what we need to do as the manager acting on behalf of our investment partners.
Evan Holladay: Right. I want to dive into, because you mentioned it quite a bit and I think it’s really important for our listeners if we could peel back the curtain of what is it like, or what has it been like for you to build your team? You’ve talked about how important the team is, and I completely agree. I think any successful group or corporation, it really takes a rock star team as I like to call it to make that happen. How have you been able to find your team, assemble your team, and then make sure it’s running like a well-oiled machine?
Michael Episcope: Yeah, it’s a great question. I would say we adhere to the rule of hire slowly, fire quickly. Unfortunately, we don’t get every hire right. There are some team members who over time they just matriculate on to something else, they have different interests in life, things like that, want to go off on their own. We haven’t really lost anybody to competitors or anything like that.
Building a team is an evolution, you have to have a clear vision of what you want. David and I have always invested in the team ahead of our growth with the anticipation growth, and that has served us well, served our investors well. We have a set of core values that we actually email the team every other week when we send out weekly updates.
We believe in communication, our core values are important, treat people with respect. We don’t allow people to be rude at the office, we don’t tolerate that. Everybody at the team is hard working and pulls their own weight. It takes a lot of time, and it’s unfortunate when it doesn’t work out because there’s a training element that goes into bringing a team member up and when they leave, it’s very disruptive.
So bench strength is equally as important. Making sure that every division has people who have bench strength. I think it’s incumbent upon Dave and I as leaders of the company to continue to grow it, and offer these people, our entire team, more opportunities and advancements for growth. That’s why people come to Origin. That’s a lot of time what motivates me.
I don’t want to grow for the sake of growing, but when I see these young people who are so hungry and bright, and brilliant, we can grow with our team and continue to give them the opportunities here and continue to maintain the same value proposition that we’ve been delivering for the last 10, 12 years.
Evan Holladay: To that point, what was it like when you’re first building out your team toward the start of Origin? What was that like and how did you go about? You also mentioned, a lot of your hires are typically from bigger firms so I’d love to hear more about how you’re attracting that talent.
Michael Episcope: You’re looking at the team right here. It was me and my partner, David. I’ve done every job. I’ve done underwriting, I’ve done asset management, I’ve done capital raising, I’ve done reporting, I’ve done accounting. Our team was very small in the beginning, and you do the job because you have to as an entrepreneur and it’s required.
You know what you want, the vision of the company to look like. My philosophy has always been, look, I want to hire people who are better than me, who are dedicated to this particular area. I also have a need to understand, because if you don’t understand it at a very granular level, then you can’t fix it and you don’t really know how to build it in your vision.
That was a very important part, but I’ll never forget when my partner and I early on, we bought a portfolio of 100 homes in Florida in Cape Coral, and it was ground zero. These were actually distressed notes back in 2008, and we’re on the phone with these borrowers trying to get deed and lose. My partner is over there, he’s speaking Spanish. I’m talking to borrowers. We’re on the phone with attorneys.
We’re going down there, everything short of mowing lawns. I’m not going to say that I did that, but I did hire a lawn mowing company to do this and winnowed them down to about 12 bucks a cut. That was the team in the beginning, and then we had some key hires. Priya, who’s our controller right now.
She’s been with us 12 years, we just celebrated her anniversary. Tom Briney has been with us for 10 years. He came over from Equity Residential. Dave Welk, who’s our managing director of acquisitions, he came over from Reef right about then. We joke when we talk to them now, because they’re still at the company. We’re like, “Man, how did we sell you guys on this?”
It was just the vision, but they’re fantastic. Actually Dave I met in grad school doing my masters and we had done some projects together. That was the best two-year interview I’ve ever had, and he’s been an absolute rock star. So is Tom, so is Priya, and I could name a lot of other people, but it happened organically and you just continue to add people on.
Somebody said to David and I, “Hey, here’s $50 million, go grow the firm.” I don’t know if I can do that. I don’t know if we can do that, because it’s just not in my nature to hire that quickly and just do the shotgun approach. We want people to be at Origin for the next 10, 15, 20 years and really call this place home. You do that by treating them with respect, you value their opinion, you give them opportunities for growth.
Evan Holladay: I love that and that does speak volumes to hear a lot of the really top talent now, your main leadership of your company and being able to be with you for 10, 12 years. That speaks a lot to what you and David are doing. Speaking of which, you mentioned vision, a lot of being part of how you’re attracting that talent, and also how you’re helping lead the talent into the direction and being crystal clear with that direction helps them be able to take more action. What were the steps for you and David to create that vision?
Michael Episcope: Well, we’ve done a lot of offsite retreats with our team to give them a voice, and our tagline which is our mission statement is transforming the way individuals invest in real estate. It was very collaborative, but I think Dave Welk was the one who finally crystallized that. He’s actually a pretty good writer. We’ve done many, many events like that.
I’m not going to say a family, because a family denotes unconditional love. The way we operate is more of a sense that everybody is accountable for their own department, but really good people you don’t have to manage. They’re accountable at their DNA level. When you have to push somebody to be accountable, that generally isn’t going to work out.
Our job is to provide people clarity and direction, give them the tools they need. For a long time, the team didn’t have the tools they needed. We didn’t have a mountain of capital, we didn’t have huge investors backing us like other firms did. So over time, we’ve evolved into the market, given them everything that they need to be successful. It’s something that we’re continually just working on, and making sure that the team evolves and that we make a great place for them to come to work to every day.
Evan Holladay: I love that. Do you have either groups or individuals that you look up to, or groups that you are modeling some of your own decision making on?
Michael Episcope: Yeah, in a way we look at all of our competitors out there. Do I aspire to be a certain group? I think there are parts and pieces from a lot of organizations out there that we aspire to be. One of our core values is we are a continuous learning organization, and that is at the very highest to the lowest. You have to have people who are coachable, who want to learn, who believe that they have a lot to learn.
I think at Origin, we are really good, but we’re better today than we were a year ago. We’ll be better in a year than we were today, and we’re always looking for ways to gain a competitive advantage. One of the best examples, this is our acquisitions team. In the last year, they have built a machine learning tool to really forecast growth rates across cities and all the way down to the submarket, because we use a service called [Axio? [00:34:21]
There’s some challenges with Axio, and we can’t back test their and they don’t give you all this and so you don’t understand how important forecasting is, your growth rates are in a model. They can make or break a model. If you put in 1% and the deal doesn’t work. If you put a 4% and the deal screams off the charts, so it’s really, really important.
Obviously, you’re not going to be able to forecast things like COVID, but understanding to go to Phoenix three years ago and stay away from other cities is part of the way that you invest, and getting those macro bets right. What the machine learning does is it evaluates hundreds and hundreds of variables, and distills them down into growth rates.
Right now we’re in the early stages of that, but the back testing looks really, really promising and much more than Axio. That’s been on them, but it’s a heartache and it’s a problem that we’ve been trying to solve for years. Forecasting and predicting the future, nobody can do it exactly, but you can do it better.
That’s what we set out to do there, and we have a history of innovation whether we’re building our own technology or adopting technology. I just had Moderne Ventures, who is in Chicago and they’re property technology venture investor. David and I have actually invested with Constance Freedman for strategic reasons, because we get to now preview all of her technology that she’s investing in.
It works both ways, because we’re giving her feedback on the technology if it’s something we’d use in our day-to-day activities. Innovation is something that is just part of our DNA, but it’s that part of continuous learning and making sure that everybody at the firm is growing as an individual and a person, and that the firm is also growing and we’re evolving our strategy.
I think the worst thing that people can do is hey, I’m doing business the same way I was 20 years ago. If you are doing that, then you are really close to going out of business because if it’s not us looking over your shoulder trying to put you out of business, it’s somebody. The market’s going to evolve, real estate has probably been slower, but people who have not gotten up with the times and still have a business model from 1990, you’re going to go out of business.
Evan Holladay: I’m really glad you brought that up, and I love that machine learning. That is really fascinating to me. One quick question on that, do you have people on staff, or do you outsource the software engineering side of that, or how did you do that?
Michael Episcope: We have hired two data scientists to actually build this on the side, so they are working with our acquisitions and our investment team on that side and helping them just configure this model. The reality is what you have to do to build a system, you have to have the information in your head and know where you want to go.
Our team is great at that, and they understand all variables, but there’s no way that the human mind can distill and scrape all this data from all these public sources and put it into one. The data scientists, they start out like what do you want it to do and how do we get it there? Then you start in the architecture, and now let’s get all that knowledge out of your head, and put it on paper and see how we can bring it together.
In this market, you would be surprised. It really comes down to a few variables that really move the needle, but you have to know where the growth is going to happen. And again, know what to stay away from. We we’re talking about Nashville. The prospects in Nashville are still very good from an affordability standpoint, and affordability is one of the number one indicators of future investment performance.
If you’re building properties where people can afford the rents and there’s room for upside, then you’re going to be able to raise rents on those, and you hope that over time their salaries grow and their compensation grows in line with that. But if you are renting right now a place like Denver, Denver has run up so quickly, the rents and everything there that it’s not as affordable as somewhere like Nashville.
There’s an upper limit, so the growth rates on deals that we’re looking at in Denver are so much lower. The only thing that you haven’t fixed on that is price, so prices have to come down for us to jump back into Denver, or we have to develop something more affordable on that side.
Evan Holladay: Yeah, that is really interesting. Just a quick aside, the relationship between where rents are in relation to the local income levels, because that ultimately determines your upside on that type of investing. Since you brought up machine learning, I did want to ask, I’m reading just a mind blowing book right now. It’s called Blockchain Revolution.
It’s all about blockchain, and how that is going to literally disrupt every single aspect of our lives and our business. Have you dug into blockchain at all, or do you have any thoughts on blockchain?
Michael Episcope: On a personal level I have, as a company we have not. That’s something that we will wait on to see where it evolves, but that’s not where we want to invest our capital today. I am a huge believer in the blockchain industry in the market. I love it. I can spend 20 minutes talking about it here.
But I’ll just tell you from a real estate perspective, I know there are some people looking at ideas. We haven’t seen anything that’s compelling that would make us jump in and really help us do our jobs better.
Evan Holladay: I would love to maybe at some other future date, but I’d love to hear more, because I’m trying to think about as I’m reading this book, what are the applications for real estate that I would be interested in being a part of? I haven’t come up with anything yet either, but I’m trying to think of something. I think it is just amazing, like the internet of the future.
Michael Episcope: Absolutely, it’ll come. I’m sure it’s coming down the pipeline. Somebody is going to do it. We just haven’t had it, when it comes we’ll probably adopt it. We will build it in house, that’s just not our expertise.
Evan Holladay: I love it. As far as one last piece of advice that you would have for our Monumental listeners on making sure that they can really have success both in their business and within impact, what would that advice be?
Michael Episcope: Good question. I guess I’ll just say in my own life, I try to find balance. I have three children, I really prioritize them, especially at this stage in life. Try to go to the baseball games, and coach and do all those things. When I think about what is success and what do I want, you want to have success in business. That it’s part of your identity.
You want to have success with your wife, and your family and your kids and have those relationships. Then you want to leave some legacy and help others, especially if you’re blessed with having made money and wealth, and you can spread some of that around help. I think even more important than that is giving your time and mentoring people.
There’s a lot of young adults out there who really can benefit from the expertise that I have, you have, other listeners have on this as well. Some people are probably, “I don’t know if they can.” Well, I’ll tell you they can. I remember I was 35 when I left trading. I was about 37 when I graduated from my master’s in real estate, but I used to love taking the professors out to lunch and just hearing their stories and listening and soaking it up.
They probably didn’t know it, but I had some mentors in those days and just hearing the stories were great, and helped me avoid a lot of different things. That’s how I view success in life, and it’s just about balance. Making sure that if you have the opportunity, it’s not only about work.
Evan Holladay: Yeah, I love that. Thank you for sharing that. All right. Well, I feel like we could keep going and going but for the sake of time, let’s dive into our Monumental questions. What does success mean to you?
Michael Episcope: Well, I think I answered it just now. When I look back in life, what did I do that was important? How is my relationship with my children, my wife? Am I living a life of purpose and a meaningful life? Am I treating people well? I don’t like arrogance, I don’t like bullies because people have money and they walk around with their chest puffed out, that doesn’t impress me at all.
What impresses me is when people really give back their time, their effort and energy. That’s what it is about, it’s balance and really being nice to other people and leaving an impact. When we’re building a firm like this, when we say we’ve got 30 team members, 4that’s 30 mouths we have to feed. I’d say half of them have families.
When David and I look at this, that’s really important. When I think about a firm that we’re building, there’s purpose behind it, and we really believe in what we’re doing and believe that high net worth investors, people who have saved and done well, they deserve really good quality investments. They deserve to keep the majority of the profits that the real estate produces.
Again, you saw some good developers out there, but they would keep 70%. You’d never be able to get ahead and it’s taking all the risk, and two steps forward and maybe two steps back and so it’s meaningful on that side as well that someday Origin exists beyond us. That it’s still fulfilling its mission of really treating investors right where people can invest and get a good shake. Just having the name spoken with reverence as well is important to both my partner and me.
Evan Holladay: What about your daily habits, or morning rituals that you have?
Michael Episcope: Starts with coffee every day. Morning ritual, I don’t have a lot of morning rituals. I think I’m up pretty early. I love to wake up at the sun. I do yoga, that’s what I’d call my active meditation. I love that the older I get, the more I realize it’s about stretching, it’s about staying limber, it’s about eating right and healthy.
What I don’t do anymore and I just started this, is I started intermittent fasting because I hired a nutrition guru. This is something I just added on, and I don’t eat breakfast anymore. I do eat from noon till about eight o’clock. I might shrink that down, from one to seven or six hours. There’s all kinds of benefits to intermittent fasting about having a clear mind, about reducing the risk of Alzheimer’s, heart disease. There’s weight loss, but all kinds of benefits.
I just started that this year, and I’ve gotten on a health kick of eating nothing but healthy foods. It’s really helped my mood, my mindset, everything, the way I feel about myself. That is again back to what we don’t do and what we do, and I can cut out any meal. I just chose breakfast, and you’d be surprised. I thought I was going to be hangry, I thought I was going to be awful.
Once you cut sugars out of your life and you skip a meal, it’s not a big deal at all. So it’s been new to me and it’s only been for about three weeks, but I really think it’s something that I can continue to do for a long time. I just feel better about myself, so I’m probably a nicer person around other people as well.
Evan Holladay: Many, many benefits. It’s funny you say that. I recently cut out sugar and same thing, it makes a world of a difference. I have been thinking about intermittent fasting as being the next step, because I’ve heard so many good things about that too.
Michael Episcope: It’s so simple, and not to get on the subject too much but I was out on a golf trip on two weeks ago. I was in Bandon Dunes and that person I got roomed with, I was like, “I’m not going to do this. There’s no way I’m walking seven miles and I’m not going eat breakfast.” He says, “I’ve been doing it for seven months. I’m going to.”
I’m like, “Okay, well, I’ll do it then.” I did it and I couldn’t believe it. I golfed the whole day, I never felt hungry, and this guy actually went two rounds without eating. I was just like, that was insane but he’s taking it to a whole other level. Because when I heard about this, I’m like, “There’s no way I can’t eat for a day.” Then when he described it, he was talking about an 18 or 16 hour period, I’m done.
Evan Holladay: Wow. That’s amazing. Also, side note, Bandon Dunes is a beautiful place.
Michael Episcope: It was like no place I’ve ever seen, and we had the most incredible weather. 15 degree winds and sunny the whole time, and I’ve heard it can be blowing sideways and 30 degrees there.
Evan Holladay: Last question, what about favorite book or book you’re currently reading?
Michael Episcope: Favorite book I’ve read? This one really touched my heart. It’s called The Color of Water. The Color of Water is a story, really about the power of education and parenting. It was about a woman who grew up in the 1950s. A Jewish woman, she grew up in the south. She fell in love with a black man, they got married. She was ostracized from her family.
They moved to, I believe it was New York. Ultimately, they had eight kids together. He died. She’s in the projects now raising these kids herself. She gets married, has five more kids. He doesn’t live with her, and she has 13 kids. This book was written by the youngest of these 13 kids, and I just get chills thinking about it now.
The power of the book is just she was a force to be reckoned with, and she was five foot none and skinny as a rail and just the way she ruled this family. She knew how to get them the best education, and how important that was. Every single one of these kids, growing up in a project, growing up in poverty, they all graduated from college. I think 10 of them had post-graduate degrees. They were all very productive citizens.
When I read that book, it was just unbelievably riveting and I couldn’t put it down. That’s just a fun book. It’s a quick read. I think anybody who picks that up will find it exhilarating. Again, I believe in the power of education for social mobility. My wife and I, when we think about our charitable giving, it’s generally around educational organizations on that side.
Then, I can’t remember I’m actually listening to an audiobook right now by Ben Horowitz. I wish I could remember the name of it. It’s good, but unfortunately, I’m not picking up the book every day. I’m just hitting play and-
Evan Holladay: Is it The Hard Thing About Hard Things?
Michael Episcope: Yes. That is it. You know it.
Evan Holladay: Yeah, that’s a good one.
Michael Episcope: Great book. Yeah, so that’s the one I’m listening to now. I love the audiobooks these days, where I just pop in the headphones, walk to work and listen and space out.
Evan Holladay: I love it. Michael, thank you so much for everything that you’ve brought today to Monumental, to our audience. I know this is going to be a value-packed episode for our audience. Thank you again for that. Where can our Monumental audience reach out to you or connect with you?
Michael Episcope: Well, they can always go to our website, origininvestments.com or they can just email me, michael@origininvestments.com. Happy to answer any questions about the firm, or just connect and chat about anything.
Evan Holladay: Guys, take Michael up on that. He is a wealth of knowledge and doing some amazing work with Origin. Guys, if you enjoyed today’s episode, please make sure to share it on social media, share it with a friend. Also please make sure to subscribe, rate and review today’s episode or wherever you’re listening today. With that, have a monumental day.
