The Veteran Investor with Boots Dunlap, Co-founder and CEO, RRA Capital

Boots Dunlap is the Co-founder and CEO of RRA Capital. With offices in midtown New York City and Phoenix, Arizona, RRA Capital is a real estate investment firm that provides customized debt products at institutional pricing for real estate sponsors across the United States. Notably, RRA is a Veteran-founded, owned, and operated real estate investment firm.

Boots leads the investment strategy and strategic direction of RRA. He leverages over 15 years of experience consulting on and managing credit assets for banks, insurance companies, CMBS servicers, and private equity firms. Since co-founding RRA, Boots has overseen the origination and management of more than $1.5 billion in bridge loans and consulted lenders on over $2.4 billion in distressed commercial real estate.

Prior to co-founding RRA, Boots served in the U.S. military as an Airborne-Ranger-qualified Infantry Officer in the 10th Mountain Division. Over his 10-years of military service, Boots led combat operations in Iraq and Afghanistan, and supported global training missions in Kazakhstan, Korea, and 

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Transcript

A.Y. Strauss: Hello everybody and welcome to “The Dealmakers’ Edge”. Today, we're really honored to be joined by Boots Dunlap, co-founder and CEO of RRA Capital with offices in midtown New York City and Phoenix, Arizona, RRA Capital is a real estate investment firm that provides customized debt products at institutional pricing for real estate sponsors across the U.S. Notably, RRA is a veteran-founded, owned, and operated real estate investment firm. Boots leads the investment strategy and direction of RRA. [He] leverages over 15 years of experience, consulting on and managing credit assets for banks and insurance companies, CMBS servicers, and private equity firms. And since co-founding RRA, Boots has overseen the origination and management of more than $1.5 billion in bridge loans, and consulted lenders on over $2.5 billion in distressed commercial real estate. Prior to co-founding RRA, Boots served in the U.S. military as an Airborne Ranger-qualified infantry officer in the 10th Mountain Division. And over his 10 years of military service, Boots led combat operations in Iraq and Afghanistan and supported global training missions in Kazakhstan, Korea, and at the U.S-Mexico border. He received multiple decorations for service including the Bronze Star. So, first of all, Boots, thank you very, very much for your service. Everyone listening to this is deeply indebted to you and we really appreciate your service. And also, taking the time to be here and sharing your amazing story. So welcome here. 

Boots Dunlap: Yeah, thanks a lot, Aaron. I appreciate it. It's an honor to be here. And it's a privilege. I'm very thankful to be here. Thanks. 

A.Y. Strauss: And your background is interesting. You're the first veteran we've been honored to have on the podcast. And, you know, it's called “The Dealmakers’ Edge”. We get into deal making, and we talk about your career arc, but also we try to touch on that mental edge, and you've certainly seen a lot more things in the world than the average guest. So hopefully we'll touch on that as well. But maybe we can go back to your roots? Now, where you grew up, how you were raised, I know you went to UVA college. But sort of the early years and then maybe we start the beginning part of your career.

Boots Dunlap: Yeah, I don't know how informative it is to everyone else, but I grew up as only boy out of five kids. I had four sisters, which means my dad had to toughen me up, and so, at a young age, I was interested in the military. So it was no surprise that I went into the Army. But grew up in Arizona, went to the University of Virginia, and ended up joining ROTC my senior year of college which was September 11th. [I] [h]ad two sisters living in New York City and just felt like it was the Pearl Harbor moment for our generation. Ended up going into the Army as an infantry officer, as mentioned. Went through Ranger school, Airborne school, and then was assigned to the 10th Mountain Division where I led combat operations in the Fallujah area in 2004. And that was right at the very beginning of the first Battle of Fallujah, and then, during the first battle of Fallujah, and at the beginning of the major Battle of Fallujah. And we were attached to the Marines in Iraq, and then went to Afghanistan, in the Korangal in the Pech River Valley area, where I was a Combat Ranger. But, [it was] a phenomenal experience. I learned a tremendous amount. But I came back after spending five years on active duty in the military, wanting to start a new life, be with my family. And I had previously, prior to joining the military, had four things that I would never do. One, is to move back to Arizona. Two, is work in real estate. Three, is work with my father. And four, is to marry my high school girlfriend. Well, [] at that point I had already married my high school girlfriend. And this was 2007. And it was a tough time to get a job with [] real estate. I had moved back to Phoenix to work with my father in real estate. So there were really other ones that I never thought I was going to do. And ultimately [I] ended up helping him wind down a development company that he had started and ran for about 30 years in the Southwest. And [we] repositioned the company to be a consulting company for lenders that we're taking, [] starting to experience the stress within there. At that time, it was their home building portfolios. If you remember the Great Financial Crisis really started with single-family housing, unlike the current real estate recession that we're in, single-family housing is doing very well. But then it ended up creeping into commercial real estate. So, we built a consulting practice to turn around distressed assets and manage those assets. And it was originally building out single-family homes, going and taking land through the entitlement process, but it quickly became a lot more than that. It sort of quickly became apartments and shopping centers and office buildings. And so as we went through that transition and the contagion ended up affecting more and more of the commercial real estate markets and then ultimately the U.S. financial system, we ended up hiring people that had more experience than our team had in some of those areas. So we formed a company. It was called Realty Resolution Advisors. That's where “RRA” comes from. And during that time, there wasn't really—this was early 2008—there weren't really any deals that you should be doing. There wasn't a lot of work for people in commercial real estate. And so, as a result, there was phenomenal talent that was available. And I remember from my time in the military that if you want to be successful, you need to surround yourself with great people. And so, at that time, you know, I thought, [] we may not be able to find great deals or [] maybe that's not what we should be focused on. Maybe we should be focused on finding great people. So we ended up outlining a list of [] almost 50 or so advisors that were part of Realty Resolution Advisors—and these were guys that ran some of the biggest real estate development companies. They ran large hotel franchises, and they had phenomenal experience. And we hired them through 10-99 so we didn't have to actually pay them salary, but we had sort of a marketing agreement with them where we said “hey we're going to go out and meet with banks and insurance companies and CMBS lenders, and the bankruptcy attorneys, and we're gonna market your services, and if we end up landing the deal, we can hire you.” And they were thrilled at the prospect of being able to leverage their skill sets and make some additional money. You know, most of these people had—going into the Great Financial Crisis—really ratcheted up [] their cost of living to what they were making and people in real estate in 2005 and [200]6 were making more money than I think they ever had seen in the previous … even people that have been working for, in commercial real estate for multiple decades. It was really, really a lucrative time. So when it went away, it was a very painful time. So, all that's to say, we built this consulting practice, and it grew and grew. And the consulting became more of an asset management—consulting and asset management practice where we were asked by a number of lenders to help them take back assets. One lender was an insurance company that asked us to take over their mortgage portfolio—the servicing and special servicing of it. So we ended up building a servicing company. And from 2007 to probably about 2014 or 2013, we were very, very focused on special servicing of [] all different types of commercial real estate products across the U.S. And so as we were doing that, we were continuing to look for an entry point of when it would be a good time to get back in the market to invest. And one of the reasons we built this consulting company is we thought looking back into the previous real estate crises that we had in the U.S, that the banks would ultimately be selling assets. And if we could get in early with the banks, we might be able to have a lead on being able to buy some great assets. And so it didn't work that way. It turns out the banks did have a lot of stress, but they weren't willing to sell any of the assets that they had, or at least not for a long time. They were holding onto them. And so, we sat patiently and patiently until 2012, when we felt as though the market was at a point where it was starting to bottom—2012 or 13. And so we approached one of our clients who is an insurance company about building a separate management account around bridge lending. And at that point, bridge lending was still a little bit new. There had been a couple bridge lenders prior to the Great Financial Crisis, but they were very, very, very small and it was a completely new product type. Mostly because prior to the Great Financial Crisis, banks have been doing a lot of speculative lending on value-add commercial real estate. And so CMBS had been a little bit loose in the underwriting and just generally speaking, the underwriting wasn't as tight. Well, after the Great Financial Crisis, banks tightened up dramatically, as well as insurance companies. CMBS was reformed, so the limitations of what it could do were much more narrow. And generally speaking, it created this opportunity or this gap in the market for private lenders. And so it ended up being extremely well-timed. And so we built this investment strategy with an insurance company and we ended up picking up a second separately-managed account with a global asset manager in the private credit space. That went pretty well until they decided to compete with us. And when they started building our strategy in-house, we realized that we needed to change our business model and not have such large investors that would more or less control us and if one went away, we'd have to let half our people go but to have more diversified based on investors through funds. So today we're on our third fund. Our first one is fully harvested. And we are currently investing out of our funds. 

A.Y. Strauss: Terrific. Terrific overview, and I love the fact that pre-GFC, you went from a literal war zone right into like the biggest financial crisis. It was just like it was sort of in your DNA to deal with problems. and you jumped into the fray. 

Boots Dunlap: I'm going to expand on it. So when I was in the army, I ended up being in arguably, Fallujah, in the time when Fallujah got its bad name in Iraq and then in Afghanistan and in the Pech and Korangal area arguably when it got its bad rep as well. And so, I've always had bad luck with going into undesirable conflict zones—not intentionally, but just pure luck. And I do believe Phoenix in 2007, 8, 9, 10, 11, and 12 was ground zero for the Great Financial Crisis. I mean, those that call it the “Great Recession” have no idea what it was like in Phoenix. It was a downright depression when the majority of your economy is based on home building and real estate. It was a very, very hard time. So yes, I've learned a lot and those lessons have been extremely valuable and I'm hoping that I can get some better luck in terms of where I’m revving. And on that note, too, I ended up moving to the New York City area in summer of 2020 during COVID. So just as everyone was leaving, I was kind of moving into that area as well. So I don't know what it is, you probably don't want to follow, my, where I move. From location to location, I tend to be someone…

A.Y. Strauss: You know, if you're there, you're working on important things, let's put it that way. But it is just the irony is … it's pretty high over there. That's funny about the timing with COVID as well in New York City.  I'm sure they appreciated your tax payments to New York, when everybody was leaving for Florida. But all kidding aside, you've seen a lot, and that consulting, those early years and the sort of … the background mindset you get from the military training and seeing what real life stress is versus just, you know, financial stress, both of which were stressful. It's sort of built you into the person to be able to manage what you're doing today. And maybe we can fast forward a little bit today. You're in the bridge lending space. It seems like it's a wonderful sort of period of time for people like yourself who are optimized now because the banks have moved back—moved, retreated out of doing loans. And you have such a pipeline over, well over a decade doing this business that you have a given reputation now. People are coming to you. So are you seeing today versus a year ago, it's a much better time for your business? Are you still forward looking, very optimistic?

Boots Dunlap: It is a better time for raising money for our business than it's ever been. But currently, it is a very challenging time to invest. There's just not a lot of deals and the deals have a lot of problems. So generally, this is the problem of any asset manager fund. And also in commercial real estate, when it's easy to raise money, it's hard to invest it and when it's hard to raise money, it's easy to invest it. So that's where you are right now. Happy talking more about that. 

A.Y. Strauss: Yeah, maybe you talk about how the sentiment is. I mean, you've raised a lot of capital. You've managed a lot of capital. You've dealt with investors of every size and scope. You'd think now people would want to sort of jump more to the credit side because it's been, you know, a hotter space. But from where you sit, what do you think the most exciting opportunities are? Just to double down on the bridge? Maybe create other products that could be ancillary? Or do you think that anything else [could be] created to do it differently than maybe you did even a year ago?

Boots Dunlap: I think whenever you do whatever the [] opposite [of] the market's doing is an exciting place to go. So right now, you know the market's not doing a lot of equity. At least it's really hard if you're trying to raise an equity fund. But we're seeing some incredible deals come across where there's the very beginning for sellers. So I actually think this is a great time to be an equity, everyone kind of parrots, private credit. And I get it. I'm a private credit guy. We're in the debt space. But, it’s still a little early there and, there is a lot of competition for very few deals, at least within debt managers. There's other product types within commercial real estate that I like. You know, a lot of people fled to these growing markets in Florida, in Georgia, Texas, even Phoenix. Those markets are experiencing a lot of stress right now. I think, you know, this is a time to enjoy stable markets and maybe focus on markets that didn't grow as much, but have long-term stability, good fundamentals. And then product type-wise, you know, I think this is a good time to be in retail. I think, [] industrial is priced very, very high. I expect there to be some great opportunities in multi-family, but multi-family has been priced to perfection as well. So there's still a lot of room for values that come down in that space. And I think some of the build-to-rent product could do pretty well if we do end up entering a recession, which we have not, but the consumer ends up being impacted and … it's getting tougher and tougher to qualify for mortgages in the mortgage space let alone [] if credit scores start suffering or people lose jobs. The build-to-rent product, I think, does relatively well in that space so long as you're in on a good basis and that basis necessarily, may not be today's construction value basis, but if you can buy some of that product and maybe reduce basis, that should be great investments.

A.Y. Strauss:  Well said, and I really appreciate that overview, and I know our listeners did too. You know the podcast is called “The Dealmaker's Edge”. We also like to try to talk about the mental aspects that go into [] the pressures and the stress of managing an organization through tumultuous times. Like we've touched on, you've really seen tumultuous times. What sort of … you mentioned, you wanted to go into the military from a young age, and obviously the training you've been through is hyper-specialized and world-class. What are some of the lessons you think you've picked up along the way? Maybe you sort of knew some of them in your gut, but you've been able to build on some principles to help translate to success. And who knows where the market is in a year or two or three or what people are doing, but chances are you'll be rising to whatever that occasion may be. But maybe talk about the mindset you think it takes just to be successful, generally. And if you have an added twist to real estate, that'd be fantastic.

Boots Dunlap: Yeah. So my role in the Army was as an infantry officer. And the infantry officer's role on the battlefield is never to be pulling a trigger or shooting a gun. It's to always be in a place where they can have the best fields of vision to see what's going on in the battle, be able to have a clear head to have situational awareness, and then to understand the people that are around you and the weapon systems that you have. What are their strengths and where can they be placed so they can be most effective? At the same time, I'd be thinking about the landscape of the battlefield and where the enemy is and where your vulnerabilities are. And so that style of thinking, I believe, has helped me in commercial real estate. Most importantly, it's helped me surround myself with great people. You can't build a great organization and beat the competitor—I don't know whatever it is in business that you're trying to win, particularly in real estate—with just one good guy or with great technology. You really need to have an incredible team. And so, I believe that one thing the Army taught me was to be humble and to recognize that I am not going to be the best at any one specific job. In fact, it's more likely than not that I am actually worse than the average person in a lot of these jobs—the average person that does that job, I should say. And so be very quick to, as I'm doing things, to find someone that can do them better and recruit them and recognize the value of … in other people what they have. And so as a result when building the company, the only reason why we are successful is because I knew my weaknesses, and I saw strengths in other people, and I quickly found great partners, great colleagues, great employees to join our team. I think also being part of … being humble is, you know, not … sometimes when people aren't humble, they really have a tight grip on their sphere of influence or what they're trying to do. And I think that when you're humble, you can let go of it and [] be able to hand it off. I've seen organizations in other companies where the guy that ran the company was the smartest and best person. And so as a result, he couldn't delegate or hand anything off. And so the company never really grew that much. It was just basically everything built around this one guy. I also think that [] humility forces you to become a better investor, because you ask questions. You seek to understand. You tend not to act rashly because you're leaning too much on your own experience or understanding. And so, the same thing goes on the battlefield; really being humble and being able to get as much intelligence as you can and always assume [] the areas where situations could go wrong, things could go wrong. Be willing to spend time on those areas and not be a little bit too bold in how you do mission planning or how you're looking at investment. So our chief investment officer, he always says—his name is Ted Van Brunt, he epitomizes humility, he's a phenomenal person. But he always says, [] “we just try to stay really humble when we underwrite deals.” And just, even though we've underwritten the same market and the same product types several times, just continually leaning on that experience, but not too much. [G]oing back out and trying to seek to understand the things that we don't and challenge the preconceived notions that we have about certain strategies or locations or things of that nature. I also think [] the people you surround yourself [with], you have to treat others with graciousness, be transparent, not be rude in business. I don't know how much of this was in the military, but it fits the same lesson that I think you learned in the military, is you never know when you're going to need to count on other people and sometimes those other people will be your peers, your competitors. Sometimes there are people that you rely on for things [such as] service providers. I know in the military like the last thing you want to do is piss off your supply sergeant or cook or someone that fixes your vehicles or maybe another platoon leader or a company commander because there will be a time one day when you need something from them or when you rely on them. And the same goes in commercial real estate. There were times when I was younger, and I had a little bit of ego and said some things to other people. And then [] a year or two down the road, I needed to go back to that person to get something or to do something. You just have to have a very short memory on when people wrong you or cross you and just let it slide because it's a small business and you're likely going to run into them again.

A.Y. Strauss:  Really well articulated. 

Boots Dunlap: So I mean, yeah, the humility. If you don't act humble in this business, the market will humble you.[] But that's one, I have some others that I'm happy to go into. 

A.Y. Strauss: If you want to share one more, that would be wonderful. Maybe we'll wrap after that. But I think that lesson of humility [is that] the irony is the more successful people you are around, those people are from the more humble. And sometimes the inverse is true as well, but that's a great lesson. And it's wonderful it's being articulated by someone at your level, too. It's important for people to hear that. 

Boots Dunlap: Yeah. I'd say the other one that the Army teaches you is never to be comfortable. When you become comfortable, you become lazy, you become soft. In some way, you start to die. You should seek discomfort because it will force you to rely on others. It will force you to rely on a higher power. It will invigorate you to learn and grow because you have to [in order] to survive. And so I think that we need to be willing to walk away from security. Sometimes it's the security of not doing the hard things at work. Sometimes it’s the security of a job that’s really not going anywhere that you want to go, and maybe that job's holding you back. But I think that [] being a risk taker is exceptionally important in business, in real estate, in the military. The number one decision that they say, well, one of the first rules of infantry school is “the only wrong decision is indecision”. So, you know, sometimes there's a lot of risks, but you just have to be willing to take a risk. And in commercial real estate, or just in general in life, generally speaking, well, staying with commercial real estate, the worst thing that can happen is that you lose money. But hopefully you acquire wisdom and that's something really special. There's people that have done deals and everything's gone right and they've made money. But in some ways, they've acquired less wisdom because they develop, maybe, they become overly confident in their own skills or they're not as knowledgeable to the pitfalls of things that can happen in that product type or asset or location, whatever it is. And down the road, they might end up paying a painful price. But it's not about [] failures, it’s about paying and striving to fail fast and push yourself and be uncomfortable.

A.Y. Strauss: Boots, I think you absolutely nailed some fantastic points. I've learned a lot. I've taken away a lot. I'm sure people listening to this will take away a lot as well. So I want to thank you for joining. I want to thank you for your service. And I want to thank you for the inspiration today. And these words of wisdom that you share and hopefully we'll learn a lot more from you over time and watch your continued success. And on that, we'll conclude. Thanks again for being on with us today. 

Boots Dunlap: Yeah, Aaron, really humbled. Thanks so much for reaching out. And always available if you need anything or if anyone wants to get in touch with me, they can contact me on LinkedIn and I'd be happy to connect with them.