https://youtu.be/Q7Czl8Z_nUw
Michael Episcope is the Co-CEO of Origin Investments, a private equity real estate firm designed for the needs of high-net-worth individuals, family offices, and wealth management firms. We discuss ways business owners can remove investment bias from their processes, why you need to consider investing in a fund, and how to make better decisions in business.
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Remove Investment Bias with Michael Episcope
Our guest is Michael Episcope, co-CEO of Origin Investments, a private real estate manager that builds, buys, and lends to multifamily real estate projects in fast-growing markets throughout the U.S. Michael, welcome to the show.
Steve, thanks for having me back.
It's great to have you. It's great to have you. And since we last spoke, things have changed. I was wondering if the introduction was even appropriate in a private real estate manager, or now you are a public real estate manager. I don't know what it is. But tell me a little bit about your story. How did you get into starting Origin Investments and what's been your entrepreneurial journey?
Yeah, well, first of all, the introduction still is correct. We're a private real estate manager. We do build, buy, and lend to multifamily real estate in Sunbelt States. And I'll take you back, I guess, I mean, not all the way back, but kind of to where we started origin. And that really happened in kind of 05, 06, 07, it was formalized in 07. But I came out of the commodity trading industry, so I had a very non-traditional route into real estate. I had cut my teeth down at the Chicago Mercantile Exchange, I traded interest rates and that's where I made my wealth down there.
I think as a wealthy person, especially young, you become a little bit paranoid about making sure that you keep your wealth and you never say the five words of, “I used to be rich.” Trust me, I've known a lot of people who have said those words. My partner and I, we're just trading investment ideas back and forth and we wanted to be in alternatives. We didn't want to just be passive investors and put our money in the 60-40 portfolio. We believed in alternatives and especially in real estate and just the power of its ability to protect, to grow wealth, to produce income. And that's when we started, was in 2007. But it wasn't, we didn't have a very, what I'll call coherent vision back then.
The idea was just to invest our own money in real estate and protect it and grow it, produce the income streams, all the reasons why people get into real estate. I think as we were looking out at the market and evaluating the competition and we had both invested, we just realized that there weren't a lot of great opportunities for individual investors like us. We weren't big enough to have a true family office buying deals directly, but we also weren't, you know, kind of on the small end investing $50,000 to $100,000 into deals. And what you find is that either, you know, the institutions really, they are the ones who command the leverage because they're putting out so much money. And if you have $50,000 to $100,000, at least at that time, in ‘06, ‘07, you really didn't have a lot of options out there.
The idea was just to invest our own money in real estate and protect it and grow it, produce the income streams, all the reasons why people get into real estate.Share on X
The options weren't that great. And if you were somewhere in the middle, had a million or two million to invest kind of where we were in a deal. Even the good sponsors out there, what you would find, the ones who were marketing towards the retail investor, the individual investor, their fees were just incredibly high. They had great deals, but you didn't really create any wealth. And it was a buy, fix, sort of sell type model. And we were just like, “Look, we can do something better here as a group.” And what we decided to do is create an institutional real estate firm for the individual investor. In the beginning, in 2007, 2008, it was an amazing time period to learn, to put money out. It was more of a pricing exercise and we were agnostic about the type of real estate that we're buying because back then, everything was trading so far below replacement costs, amazing opportunities.
And we really took our risk management and our entrepreneurial experience from the trading floor and applied it to real estate, right? Getting edge, you know, and generating investment returns by protecting downside. And I think that's something that he and I are really, really good at, is protecting downside and risk management. And so if we fast forward during that time, we were growing the platform and we were obsessed really about two things. One was generating returns, and the other one was customer service. I think you have to, as an investment manager, hit that on both sides. It was in 2015 that was a true inflection point for us. We were, like most companies, we're growing.
We're growing in personnel, we're growing in assets, we're growing and we wanted more growth. And you can grow in two ways. You can keep doing what you're doing, or you can go into the institutional world. And our team really wanted us to go into the institutional world because that's where they write the big checks.
Candidly though, we did not have the pedigrees. We did not have the resume. I wasn't from the real estate industry. My partner wasn't from the real estate industry. We were sort of banging our heads against the wall, going out to these different institutional investors, pitching them, not having a lot of luck. And they kind of did us a favor. And so there was just this moment where we said, “Look, let's just go all in on the individual investor and take advantage of the jobs act, the ability to market.”We saw some firms being successful and we said, “Okay, like, let's do this.” And we did, and we started building infrastructure at the firm and investor relations and marketing. And the idea is if you have a great product and you put it in front of a lot of people, you're going to get more customers. And it started working.
And we went from, at the end of 2015, we had about 90 investors at the firm, Heinet Worth, Alter Heinet Worth, family offices. By the end of 2017, which also coincided with our fundraiser, Fond 3, we had close to 500 investors. So you can, you know, it took us eight years to get to 95 and it took us two years to go from 95 to 500. Then, you know, fast forward and we sort of then started getting our product mix right. And 2019, we came out with our Income Plus Fund, we also came out with our Qualified Opportunities Zone Fund. And so we had open product on the shelf. And today I'll just fast forward. We have four products. We have 3,200 investment partners. Our fastest growing segment is two registered investment advisors. We have 52 team members located in Chicago mainly, but we also have four other offices around the country in sort of Sunbelt markets down there. And we manage close to 10,000 units.
And there are some various stages of development. Some are stabilized and built and producing cash flow and others are in the pre-development phase. Others are going vertical right now. And we do also a tremendous amount on the debt side, but very proud of it. And I think that one of the proof points that we always like to point to is that we have been consistently ranked as a top decile manager. So beaten 90% of the competition over the last six, seven, eight years, really for the consistency. And there's not one fund that hit it out of the park, because we just don't take that much risk. We're not gonna be the manager where you come to and you make the most money, but in times like this, they're very precarious. I'll just call it that. We're gonna be the best relative value around.
And so last year, for example, in a market where capital markets kind of went a little haywire, you had interest rates increased, you had cap rates increased, you had valuations come down. Our flagship fund still made 9.3 percent for the year. And the year before that, it made 21 percent. But I would say the 9 percent is even more impressive because assets everywhere went down. And and that was because of our defensive positioning over the last couple of years. So long story for kind of how we got to where we are. It's never, you know, your entrepreneurial journey is never a straight line. Lots of learnings, lots of failures, lots of successes and a lot of great people. And we certainly can't take credit for everything that's gone on, but very pleased to be where we are today.
Well, it certainly sounds like you had quite a ride. And it's impressive to stay in the top 10 percent of all the fund managers and provide this great return last year, which was really was a tough year for your industry. So so what I'd like to switch now our attention to is is this framework. So this broadcast is all about I could imagine blueprints. It's the framework of what entrepreneurs came up with that helped them to be successful. So what is it that has helped you? What is kind of, is it a mental model or some kind of a business framework that you came up with, you discovered along the way that helped you accelerate?
You know, you said that it took you five years to get to 93 investors, and then a couple of years you went to 500 from there. So what clicked and what, you know, do you have a framework that maybe others can also use to align their thinking on how to become successful?
Steve, I think the one thing, I've heard this in business, you have to stay in business long enough to get lucky, and everybody needs a little luck on their side. And from the beginning, I think every stage of the business has a different thing that you need to be focusing on. And in the beginning, you build a business because you're solving a fundamental problem. And you have to go out there and decide what problem you're trying to solve. And for us,
