Writing Your Story in Real Estate with Ellie Perlman, Founder, Blue Lake Capital Group

Ellie Perlman is the founder of Blue Lake Capital Group, a private investment and management firm focused on multifamily real estate in the United States. Ellie draws from over fifteen years of experience across real estate investment, law, and property management. At current, Blue Lake Capital owns and manages over 3,300 multifamily units across the U.S. Ellie’s professional journey has been featured in Forbes, Yahoo! Finance, and Globe Street, among others. She is a frequent guest contributor to industry publications on the topic of real estate investment. 

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Transcript

A.Y. Strauss: Hello everyone. Welcome to The Dealmaker's Edge. Today we are really excited to have Ellie Perlman, who is the founder of Blue Lake Capital. She has over a decade of experience in real estate investment law and property management, and the company owns and manages over 3,350 multifamily units across the US. With over $750 million since inception in deal flow. And Ellie started her career in Israel as a commercial real estate lawyer. Leading real estate transactions for one of Israel's largest development companies. Later, she was a property manager for prominent oil and gas companies overseeing a large property portfolio. Ellie holds an MBA from M.I.T. Sloan School of Management. And also, a law degree from Bar-Ilan University in Israel. And she is a Forbes author in Real Estate Investing and the host of her own podcast, “Ready to Scale”. So this is our first podcast guest who has her own podcast you've ever had. And we're really excited you're on here, Ellie. And thanks so much for sharing your story with all of our listeners and welcome. 

Ellie Perlman: Thank you, Aaron. I'm, you know, very excited to be here today.

A.Y. Strauss: And hope I didn't botch anything also in the bio that can happen. 

Ellie Perlman: No, that was perfect. 

A.Y. Strauss: So, your story's fantastic. I've read up on you. Besides from meeting you in person in L.A. and hearing your thoughts about the market and so on, your story is fantastic, and I think everyone's looking for people they can aspire to who have followed the pursuit of their passions and their dreams have not given up and who have never settled. And you really epitomize a lot of those wonderful attributes. And maybe you can take us back to the beginning. From where you grew up, how you grew up, and just sort of walking us through the earlier part of your career. 

Ellie Perlman: Yeah. So I grew up in Israel and pretty early on I realized that I was basically the poorest, you know, kid in the block. It was a constant, daily reminder of where we were in the food chain. Kids can be very honest, can be brutally honest. And that was in my case. And I was constantly reminded of the fact that we were poor, we didn't have money. And at a very early age, I don't think it was a very conscious decision, but, basically, I had two choices. One, I can think in self sorrow and pity and say, "You know what? I'm poor and this is the situation. And life is hard, and look at all the other people with money". And the other choice was to say, "Okay, you can't change your position right now, why don't you do whatever you can so you're never going to be poor again, not even a day in your life". And that's the path that I've chosen. And every big decision that I've made was basically very much made to make sure that I was on the path to getting out of that cycle of poverty. It started when I was in high school, get good grades and excel so I can get into a good college. And then in college, I decided to major in law and become an attorney. And so again, I didn't have a really social life. All I did all day was study. Making sure that I get top grades, I can get accepted to a top law firm, et cetera. So, every decision basically was made because I wanted to be successful one day, I wanted to not worry about money. And so that's basically what I've done over the years. It was not easy. I made decisions such as, you know, everyone is going during the summer to have fun and, you know during summer break. And I took another position because I had bills to pay. That's the path that I chose for myself. And after years of working hard, I actually transitioned to real estate because I've seen that everyone around me, all the wealthiest families had one thing in common and that was real estate. And I told myself, you need to be in real estate. So I actually left my position as an attorney in real estate. And I became a property manager, which a lot of people said, you know, we don't understand this move. An attorney makes more money and it's a much more prestigious profession than a property manager. And I said I want to understand how to operate a property. I want to understand how to interact with tenants. I want to understand the business side of things. And that's what I did. And after four years working in a property management role, I decided to move to the U.S. and worked really hard to get into business school, got into MIT, and started Blue Lake, which is a multifamily syndication business shortly after graduating from M.I.T. I would say about a year or so. 

A.Y. Strauss: Terrific. And a lot of things in life people aspire to accomplish, but it's extremely rare that somebody will take what's a very good situation, perhaps working at that cushy law firm job that you had and doing solid work and taking a short term potential step back in order to take five going forward. I think that's something that a lot of people conceptualize, but very few actually do. That alone takes a lot of determination to see the longer arc of a career that most people, once they're on a track, it's very hard to change that track. So you should certainly be commended for that. And that's very inspiring to those who also have similar aspirations. And maybe we'll talk a little bit about Blue Lake. When you started, you had just gotten your M.B.A. So you had a lot of probably academic knowledge. You had practical knowledge of how to manage properties, but you had just moved to the U.S. frankly. So your Rolodex wasn't as if you grew up in the country with a lot of investors that knew you, whether it's from high school, college, law practice, or whatnot. So how did you start on those early deals? How'd you get investors to trust you? How'd you find those first assets? Talk about those early origin days. You've clearly had a tremendous conviction. I'm sure that played through to your investors. They see the determination. But it doesn't make it easy. So maybe you could talk about those early years. 

Ellie Perlman: Yeah, absolutely. And you know, I always say that if you have a plan and you're dedicated, you can definitely be successful. Because when I moved here, I didn't know people that could be my investors. I had one investor that I knew that essentially said no to me only later to say yes. But you know, my classmates, many of them who graduated, they had a huge student loan and balance they had to pay. And I didn't really know investors. And so, the first thing that I did, was start writing a blog. And so I started writing about real estate starting to talk about multifamily and the fundamentals of underwriting and everything that I knew I basically shared that knowledge. And at the end of each article, I basically wrote, "Hey, if you want to talk about real estate investing, come talk to me" and had a link to my website. I lived in Santa Monica at the time and I started a local meetup with investors and I was just sharing information about multifamily. And you raised a really good point about having investors trust you before you even have before you're doing your first deal. And it's kind of the chicken and egg, because if investors are not going to trust you and give you the opportunity to raise money and close the deal and manage it, then you're not going to get experience. But everyone wants to invest with someone that has experience. And so, I actually partnered with someone that had more experience than me. So my lack of experience was irrelevant. I could bring the legal side of real estate, and the legal understanding of the legal framework. I could bring to the table the property management side of it. But really by partnering with someone that was more experienced than me at the time, that made my lack of experience irrelevant. And over time I took a bigger and bigger role in the deals that I was making until I was ready to take over. And today Blue Lake has everything. It's a one-stop shop from acquisitions to asset management disposition, investor relations, and capital raises we do it in-house. But it took a while to get there. I get this question a lot that people who want to get into syndication and don't really know how to start. The first thing I say is to educate yourself because you have to know what you're doing. And then, either hire or partner. So hire if you have some funding or if you have somebody that you can invest in yourself. Hire people with experience that can underwrite deals, can manage the assets. But most people are not in that position, as I say. So you know, hire a partner. Partner with someone else that has that experience that you're lacking. And so over time, that's one way of compensating it. And over time, you're going to gain the experience that you're lacking right now. 

A.Y. Strauss: Sure. And those early deals must have paid off. Well, I'm reading up on some of the deals you've done and the markets you've invested in, and you've had a really great run to date. Maybe you could talk a little bit about how you obviously knew you wanted to scale. You didn't move around the world and go to graduate school to buy a very small portfolio. I know you're still scaling now. I know you're actively working on some deals which hopefully we'll talk about too. And I was sitting with one of your investors in New York and was very happy by the way. So that's also very exciting. So your track record is good and it's carefully vetted, if you will. But maybe you could talk about how you can build a team. Right. I mean, there's buying the assets and talking to investors, but a lot of people starting out just don't really know where to find those talented people that can grow the scale and be vertically integrated as you've done. 

Ellie Perlman: Yeah. And it really depends on what you know, kind of what is the area that you want to focus on. So when you're thinking about multifamily or any real estate syndication, there are about I would say three main buckets. One of them is acquisitions and dispositions, though going out there to see the asset and underwriting, and negotiating with the seller, and going through due diligence to close the deal. The other bucket is asset management. So once the deal is closed, you manage the asset until you exit. And the third one is investor relations, where you actually raise the capital needed to buy those deals. Now to your question, how do you start? It really depends on which one of those three buckets you want to sit in. Many times people would partner up and they'll say, "I know some family offices, I know investors. I'm going to be the partner that is raising money." And the other partner would say, "I'll do acquisitions in asset management". That could be one way of doing it. They can start a company or work on a JV agreement and essentially depends on where you sit. So if your focus is capital raising, then you can start by hiring people. And that's one of my first hires was actually a personal assistant, someone who can help me schedule meetings from all the leads that came through social media, and everything that I put out there to educate investors. And so that was one of the first hires. So you can hire people to help you schedule meetings, to help you write content. And you can find them today if you go to Upwork, for instance. And I'm sure there are other platforms, that's a platform that I used. I would say it probably works when you're just starting out, because over time you would want to bring someone that's going to be fully dedicated. So I don't know to what extent Upwork can work. But when you're starting out, it's a great resource to use to actually hire people. You can always hire them full-time or hire other people to complement the skillset that you're lacking in the team. And then, there are other platforms out there where you can hire people to help you with underwriting. And there's some of them are also on Upwork. But a word of caution, always know who you need to hire and know a little bit about what they need to do. So if I didn't underwrite deals myself for many, many months, I would not have known if the person that I'm hiring is actually smart enough and, knowledgeable enough not to make mistakes. Especially when it comes to underwriting. You can make a mistake in one sale and the whole investment goes from 12% IRR down to 5%, which is maybe an extreme example but you really got to understand when you hire someone, whether they have the capabilities and the skills to actually do it. So how to find people? I would go to Upwork. Sometimes when you go to conferences and you're just starting out, you meet people that can say, "I've been underwriting deals for, I don't know, let's say, Blackstone. And I'm looking to partner with someone or someone that can say, you know, I have some investors, I can raise some money, but I don't have the deal flow". So when you go to conferences, then you can actually meet people that can help complement your skillset. So, I would say between that, that's how I would start building the team. 

A.Y. Strauss: Terrific. And also one of the things we talked about when we were in California is the mark right now is kind of strange, right? The institutions are out of it entirely. 

Ellie Perlman: Yeah. 

A.Y. Strauss: Multi-family is certainly an asset class, long term is definitely not going away. Although there are challenges with it, like every other asset class in its own way. But one of the points you made, which really struck me was, if you can be active now and find transactions that make sense and pencil for you and your investors when institutions come back into the market, whether it's in one year, two years, three years, these same assets that you're buying now at unique prices, we'll talk about how you're underwriting today cause that's interesting. You'll be in a position to sell them if you'd like to those institutions that sat on the sidelines because their mandates do not permit them to invest during these tumultuous periods. So I know you're doing a deal in Arizona now. I'm getting that correct. If I'm not, I apologize. I may be confusing deals at this point, but maybe you could talk about you're doing deals in today's market, so raising capital is harder than ever for everybody. Maybe you could talk about investor sentiment. Maybe you could talk about how you're making their pencil, you know, vis-a-vis other alternative investments investors can make and how you're attracting deal flow in these strange times. It'd be great to hear. 

Ellie Perlman: Yeah, absolutely. I'll start with the last question, which is how we attract, how we keep a pretty solid deal flow. At this point, we flipped, and right now it's a definite buyer's market, and so we actually get calls from brokers with off-market deals, with deals that were marketed and then fell through, and the seller doesn't want anyone to know that the deal fell through. So they're going to select companies and say, "Hey, are you interested in taking a stab at it and looking at the numbers and see if it makes sense for you to buy?". Your second question was about how we make deals work in today's market. It's actually easier to underwrite now than it was a year ago because you know what to look for, you know about inflation, and you know that rental rates are still growing throughout the country. But they're growing at a slower pace. So you know to be careful there, you know to actually underwrite very conservatively when it comes to the debt structure. And make sure that you have fixed straight debt. So all these things, a couple of years ago you could only, you knew that there would be a recession, but you didn't know where it would come from and what should you pay attention to. And now it's very, very clear that between the rents and the debt, you know structure. These are the two things that we are mainly focused on. And of course, the third item is delinquencies and bad debt. And so delinquencies are basically all the late rents and bad debt is once you basically record it as a loss on the books because you don't think you can ever recover it. We are staying away from assets that we perceive as too risky from a bad debt standpoint. Because we think that things are going to get worse, not better. And so if three years ago, I would say yeah, 3% bad debt. I have a team in place. I have a plan to crush the bad debt. And we were successful knowing you can lower it over time. In today's market, I don't want to take that chance and I don't want to buy 3%, 4%, 5% bad debt. I'm going to look at the minimal bad debt because right now the focus is not only on location, you know, the same location, location, location. I would say right now it's tenants, tenants, tenants. You wanna buy an asset that has such a solid and strong tenant base that any fluctuation in the economy, any shift in where we are right now, any new cycle that, this is not going to impact them as much. There's always going to be an impact, but you want to minimize that. So knowing that we are in a recession right now, or coming through a recession, that the asset that you're buying has a strong tenant base that is still going to be able to pay the rents and your cash flow is not going to be impacted by the changing economic, environment. And so these are the things that we pay attention to, the bad debt, the debt structure, and the rates. So if we need to increase rates by 500 bucks, $600 to make it worth. It never made sense to us and that's definitely not going to make sense to us now. And so these are the three things that we really focus on right now. And we find a lot of deals that have fixed straight debt. And so I want to talk a little bit about the deal that we have now. And I'll share what I can share. What I can say is that the debt is very, very attractive. Right now, you really don't want to buy anything that has any fluctuating bridge debt on it because it's just too much exposure. And so the deal that we have in Phoenix right now has a fixed-rate loan on it. And that means that we already know what's the maximum amount of debt payments every month. And that's a single property tax right after, you know, it comes second. That's the number one line item in the financials that can really have a tremendous impact on cash flow and you're neutralizing significantly reducing that risk. So from a risk standpoint, I would say that this is one of the things that make this still very attractive. And it's in a very, very strong location. And we always look at the household income, and the homes in the area are over a million dollars. And so it's a growing area. And I don't know if you heard, but Phoenix right now is limiting the number of new permits that they're allowing, which means these are good news for current owners because they just created barriers to entry that you+ know, were not there yesterday. And, we love the asset because the tenant base is strong. There's very, very minimal bad debt as I mentioned before. So the debt structure is very good. There's very minimal bad debt and delinquencies, and the rents are under the market. And our plan is to essentially renovate the units and push rents. And that's what makes the deal a solid deal. And I'm investing my money in this deal. So, if the deal is good enough for me and for my family to invest in, these are the only deals that I present to investors. I don't show them anything that is not good enough and solid enough for me to invest in as a partner.

A.Y. Strauss: Sure. And debt and rent growth are obviously the key terms that are super important today or any market for that matter. Are you doing any deals where you're not going to assume existing debt? Those may be harder to pencil. And also, you know, rent growth has been fantastic over the last several years, and you alluded to the fact that the rate of rank growth may be decelerating. Are you underwriting deals today where you don't even have any rent growth penciled in or in different markets perhaps? Is it possible to have deceleration, I mean, inflation you'd consider it goes up and up and up. But I'm wondering if you're thinking about sort of countercyclical themes as you're underwriting these deals.

Ellie Perlman: So the first part of your question about the debt. Yeah, we're looking into deals that we are not assuming the loan, but we're assuming, the assumption is that we are bringing new debt that is with a fixed-rate. So either way there's going to be, we know how much we're going to pay for debt and that's not going to change when it comes to increasing rental rates or essentially we are running a sensitivity analysis to say, okay, at what level are we breaking even at what level the asset is not worth purchasing. I think it's very unlikely. For us to use 0% rent growth and say, "Okay, these are the returns. Because we do believe that we can raise ransom". Actually, what we're doing, we're looking at the other properties that we're managing and we say, "Okay, we can raise, I would say the minimum right now is 3% on the assets based on just what I remember, I can go all the way to, you know, 20 plus percent, which I'm, we're not going to use 20%. At the peak, we had a 59.6 or .9% rent growth, rent increases. And so we're obviously not using those numbers. But we are looking into AI-backed technology. We're using that to essentially predict what that number should be. So how do you know, should we use 2%, or 5%, what number should you use? So we're looking at the hard data, and essentially this technology is they're analyzing the asset, they're analyzing what's happening in the market and the submarket, and they come up with a three-year projection of what the rent growth would be at that property level. And then they provide some more projections for the next, you know, couple of years. So we use it just to see, to make sure that the deal makes sense from an analysis standpoint. But I don't think it makes sense to just have a 0% rent growth and say, yeah, we're going to take the deal even without, you know. Of course, you can run that and say, okay, in this case, it's, for example, 10% IRR, but if you add back the 3%, 4% growth, that goes back to 13%. So worst case scenario, we know that we are at 10%, which is still making money, maybe not as much as we thought, but it's still making money rather if it's 0%, then the deal has a negative IR in that case, we're probably not gonna move forward.

A.Y. Strauss: Sure. And we talked about deal flow in general. There are obviously less purchases going on, which just has 

Ellie Perlman: Yeah

A.Y. Strauss: potentially a really great opportunity for someone like you who's going to buy. How about investor sentiment? I mean, I remember a year ago investor sentiment, you talked to a lot of sponsors. It was in a weird place six months ago. It got weirder. Is it getting better in real-time? Is it the same as it was six months ago? What's the real field temperature out there of the investors you're speaking with? How are they feeling? Even the deal is great, people just get nervous. So what's the vibe you're feeling out there in investor meetings?

Ellie Perlman: Investors are definitely, they're still active, they're still investing. I would say it's a bit raise. The raise is a bit slower than usual. But investors are still interested. And I definitely see a movement from where we were three months ago when it was, you know, investors were, you know, very hesitant and didn't really want to invest. So now there's an acceptance of the situation with the feds currently, they keep praising interest rates, and so as long as that's going to happen, investors are going to be a bit more cautious. And this is okay. And I always tell investors, if you're unsure, do not invest. You have to feel comfortable because there is risk in any investment. Nobody can guarantee you anything and do not invest if someone tells you that their guarantee returns. Guaranteed returns, there is no such thing. And so investors are still investing. Family offices are more bullish than ever. And these guys, these are the smartest families in the United States. They've made some very, very smart decisions. And they are hungry and they're waiting for opportunities and they are deploying money. And then we have on the other side like you mentioned earlier, institutions, and it kind of feels like March of 2020 all over again when nobody was buying. Nobody was buying, nobody wanted to invest. We've made some of our smartest and most profitable investments at that point because we were buying when no one else was buying, and I was not competing with Starwood and Blackstone. And so like you've mentioned and we talked about it, right now I think that some people want to make sure that they make the right investment decisions when they bring the investment opportunities to the investment committee. And that's why they're more hesitant and those institutions are not buying. But they will be buying very soon. They can't avoid real estate and they're not going to avoid; you know, they're not going to stay away from multifamily. So we're buying those assets. There's institutional quality assets and we're going to be happy to sell to them when they're ready to buy them again. 

A.Y. Strauss: That sounds terrific. Now I want to ask you a question that's not so as technical as we've been covering with respect to the mental edge you need to be successful in this business. This podcast is sort of geared towards somebody just starting out or maybe trying to get to the second tier of their investment career. It's called "The Deal Maker's Edge" because a lot of the success just stops and starts in your mind. And you've had to talk to yourself in a lot of challenging situations from when you were younger and then you start out in school and you took side roads and backward and forwards, but you made it to where you are. So clearly you have a tremendous tenacity and ability to think in a certain way. So maybe you can describe to somebody who's out there syndicating their early deals now. You know, what you tell yourself if you were starting out in this market. People probably ping you all the time to meet up for coffee or lunch and they're looking for advice. So maybe you can start to just describe your mental edge. You developed a lot of mental toughness, which you should be proud of. How are those thoughts, you know, projecting into action? 

Ellie Perlman: I would say, the first thing that I would tell myself is, that's advice that I actually took early on from myself. Only listen to those who are successful in the area of which you're seeking advice. So you're not going to go to a friend of yours who got divorced five times and asked for marital advice. Right? And so, I got a lot of unsolicited advice from people who have never done a syndication on their own when I started. And some advice I was seeking, thinking it was the right person. And I heard many things from ‘you're never going to make it in America’, from someone who never lived here.’ Don't open your business, not the right time’ for someone who never opened his own syndication business and worked for another very successful syndicate for over a decade. And I realized very quickly they were not in the right position to give me advice. And people don't always give you the wrong advice because they want to harm you, but because they want to protect you. And many, many people are motivated by fear. And that's what they're telling themselves. It's not the right time. You know, this is not the right opportunity, not the right country. There's never a better time or worse time to start a business in any business, let alone syndication. So 10 years ago, it was the worst time because of the market, or five years ago, because everyone kept saying that the market is peaking. And right now we're at a downturn and some investors getting into, or sponsors getting into trouble. So when is the right time? When the market is hot and then it's hard to find deals or where the market is, you know, there's a downturn and deals you hear about, it's deals that are falling through. The answer is both. It's every day is the best and the worst time to start. And if you're starting now, you're going to learn a lot more. You're going to be smarter because you know how to be careful. And with many investors, it's a very important thing to make sure that you went through a cycle, at least one cycle. And that's a good time to join because you're going to actually go through the cycle. But, and it's a big but, you got to know what you're doing. So educate yourself, and partner with someone with experience. Someone who can guide you through this, who's been there, who's done what you want to do. And you can learn from it. Don't just try and do it on your own without any help, because you're risking investors' money. If it's your money and you're buying a full multifamily, more power to you, you know? Sure, you can definitely try and see how it goes and you might be successful, and if you're not, it's your money that you're risking. So just do it. Just like Nike says, ‘just do it.’ Don't overthink it. I could have sat here for, you know as a former attorney, all the pros and cons and how to do it and what to do first, just, just do it. Just start with the first step, even if it's not going to be the most perfect step. Don't give vein into analysis paralysis, because you're going to remain. I know many people who are still thinking about how to do it or haven't really started, and we weren't at the same kind of level years and years ago.

A.Y. Strauss: I got to tell you a story's terrific and very inspiring. Very practical and I learned a lot. I'm sure our listeners will learn a lot. And I guess here we'll wrap unless there's anything else you wanted to add that you don't think we covered. But again, I just really want to thank you for the time and the education you just gave out for free, essentially. Hopefully there's an investor listening here that will want to ping you for your latest Offering Memo. But in general, I just want to thank you again, Ellie. It was great to see you out in person and great to have this conversation. And hopefully we'll continue to hear about a ton of success for you in this next cycle, whatever this cycle may be. So I guess we'll wrap here. 

Ellie Perlman: Thank you, Aaron. It was great being here. I appreciate it.