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Jumping Off a Cliff (with Ty Smith)

May 29th, 2021

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How do you start your private equity real estate business from scratch and build a portfolio worth over $1.2 billion dollars in only six years? How do you build a reputation of integrity in an industry fraught with risks? What inspires someone to ‘jump off a cliff’ and become an entrepreneur in the midst of a financial crisis?

Ty Smith founded Exline Capital, a commercial real estate investment company, after experiencing many facets of the industry as a project manager, an analyst, a dealmaker, and even a ranch manager. Taking that experience and combining it with a desire to build something himself, Ty and Exline work with investors in what he calls the “middle market” in real estate’s four core food groups: office, industrial, multi-family, and retail. Ty initially built the company through one-off investments to build a track record, and in 2018, he pivoted to focus on fund management as the core business. Six years later, Exline has invested in projects exceeding $1.2 billion in multiple states. Listen as Ty shares how and why he started a business under strained circumstances and how finding your niche and staying the course can lead to achieving your ambitions.

Ty Smith, founder and Principal of Exline Capital, has experience in multiple areas of the commercial real estate industry including new construction development, historic redevelopment, public private partnerships, value-add acquisition and stabilized acquisition projects. Ty received his Master’s degree in Real Estate and Construction Management from The University of Denver and earned his Bachelor’s degree from Texas Christian University. Ty, his wife, Natalie, and their children live in Fredericksburg, Texas.

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Although Exline Capital seems like a very specialized business, Ty Smith admits to not having anything even close to a ‘master plan’ when he launched his real-estate investment company. It was more what he calls ‘reverse-risk management’ on his own part.

“During the crash of ’08, I had seen a lot of friends and peers have some struggles on the job front and thought, ‘I don’t want to be a number in a big machine.’ My whole family has a background in small business from my dad to my grandfather, they’ve all been small business people. So, looking back, it was perfectly normal to me to just start a business.”

Like most business owners, Ty took the leap first and then figured things out as he went along. However, in retrospect, he now points to three factors that have fostered his success: finding a good niche, consistently delivering as promised, and turning his business over to God.

With an MBA in real estate and construction management, Ty quickly found a niche not in speculative investments, but with investors seeking stability and reliability.

“Our clients in general are typically in wealth preservation mode. So, the kinds of investments that we make are going to be good for cash flow, good for wealth preservation and could weather an economic storm.”

What that looks like on the ground turns out to be ‘mid-market’ investments:

1. Office
2. Retail
3. Industrial warehousing
4. Multi-family housing

For me, the industrial warehousing segment may be the most unique and interesting. Ty describes this as “Middle-market, last-mile” class of assets.

“In our eyes, mid-market are generally the assets that are too big for individuals or businesses to buy, but too small for the larger institutional investors like the Blackstone or the KKR’s of the world.”

The idea of last-mile industrial is a concept that most of us don’t appreciate in our daily lives, but there’s a huge need for it.

“Many of the services a growing population needs requires mixed-use industrial. For example, an AC repair company needs to locate near the people it serves. They need both an office for employees, but also a storage yard, repair shop, and parking. All around us, as our cities grow, these light industrial spaces are being converted to high rises offices with ground-floor retail for example.”

This manner of ‘recycling’ properties means there’s not much new supply coming on line for this type of real estate, so it’s in high demand.

“The inventory of in-fill industrial spaces are simply not cost-effective to reproduce. There’s a limited inventory out there, and it’s declining as these properties get snapped up and rebuilt.”

The second factor that led to the success of Exline Capital has been communication: setting realistic expectations for their investors and then consistently delivering on it.

“There may be other brighter, shinier opportunities out there for folks, but I think from our investor side is that we’re in our fairway, we’re conservative, we like cash flow, we like existing assets, and if that doesn’t work for an investor or fit in their portfolio, then we might not get to work together. Early on, it was hard to get comfortable with that because you believe in what you’re doing and you think everybody should do your deal. But finding the right fit is more important that pleasing everyone.”

The final component of Ty’s success with Exline, and by no means he least, was finding a business peer group that was faith-based.

“I got involved with a peer-to-peer advisory group called C-12. It gives small business owners a board of advisors that is faith-based in a Christian capacity. There was a period in my business where I had a lot of fear; fear of the unknown, when is the next deal going to happen; where is the next equity check going to come from? And I just really gave that over to God. That’s been a big deal.

When there’s someone else that’s got sovereign authority over this, why am I going to micromanage?”

For Ty Smith, as well as the investors in Exline Capital, this triad of business practices has been a winning combination.