He knows INVESTMENTS! Stacy Chitty Managing Partner of Blue Vault Partners LLC

In this video

He knows INVESTMENTS! Stacy Chitty Managing Partner of Blue Vault Partners LLC

 I've always said that you know, take any corporation in America, they didn't start out the way that they are today. It took a long period of time to develop into what they are today. Blue Vault is no different. We started out with one idea, a simple idea. We gonna cover non-trading REITs and we gonna tell a little bit about their performance metrics and we gonna keep advisors and broker-dealers and asset managers and others in the industry better informed. That was the one singularly focused idea that we had but we've obviously grown from that point in time and we had to. If we did not adapt, then we wouldn't be here today.

- So Stacy, thank you so much for coming up. I'm so super exited about this episode and the reason why is because, when we talk about investing, we talk about REITs and a lot of things like that so, I wanted to kinda get to know you a little bit. So, give me your background, how did you get started on this?

- Now okay well, thank you for being here Chris, I appreciate it. I've been in the industry about 23 years. I started in January of 1997. So, I joined a firm based out of Norcross called Wells Real Estate Funds and really didn't know what I was getting into when I joined the firm. I knew it had something to do with real estate and something to do with investing and I liked the aspect of both.

- [Chris] Yeah.

- So, the German by the name of Leo Wales that I had known for a few years and that's how I originally got into the industry and I learned or found out that I enjoyed it.

- Did you like study finance or how did you before that?

- No, I did not study finance. I was a, it's really not what we do financiers is technically not yet but I was, I had just recently worked for someone at the time who was a former Congressman well, who was a Congressman, Saxby Chambliss was a former US Congressman. He later became senator of Georgia. But I was his finance director. That's just a fancy word for helping him raise capital, helping him raise money sorry, not capital, helping him raise money for his re-election and so, that's one of the ways that I had gotten to know Leo and I had an interest in politics but didn't wanna work in it any longer. So, I left and Leo was one of the first individuals that I called. So I remember, the Executive Director of Wells, he like told me one day, " You know Stacy, this is really not, "you know this is "really not real estate, "this is more about investors, "this is more of the "securities industry." So, I had a big learning curve but that was interesting to me, it was a pivot from politics into the securities industry and that's how I got started.

- Hmm, so specifically, so let's talk about that like, what does that look like as opposed to just like buying a house or like those types of like, buying just properties and renting them out? Like what is that, when you are investing in securities and doing that type of stuff?

- Well basically, you go from something that you're managing yourself to professionally managed investing and so, if you want to, if you wanna put your money in the hands of those who do it on a professional basis then, that's the leap you're making especially when it comes to real estate. So, a lot of people yes, they wanna buy a house or they wanna flip a house or they wanna invest in a little self-storage or whatever, that's them doing that but if you want to put your trust into those that professionally do this for a living, now you're gonna pay some fees for doing that

- [Chris] Hmm. but you're typically gonna invest in higher and quality types of assets and it's gonna be professionally managed. So, you're trusting others to do that for you. They are better at doing that than you are.

- Yeah, and it's funny 'cause I used to invest in real estate and tenants and toilets are the biggest ethics.

- [Stacy] Yeah.

- That you can possibly have when you're trying to manage it.

- [Stacy] Yeah, I'm not interested in that.

- Yeah so it,

- [Stacy] Didn't hear that.

- Yeah, and let's say a lot of people don't think there's like, "oh, I need to get in "the real estate game, "let me go buy a few houses." but there is a lot of things, a lot of headaches that come along with that if you're trying to do it yourself.

- You have to know you know, you have to have preferably, you need to be able to fix things. So, you have to be the top person that wants to get in the three am phone call.

- [Chris] Right.

- My brother yesterday morning, six am received a phone call from a tenant of his and they had a leak in their entire house. So, he received the call at six am and then for the next six to seven hours, he was working on that trying to help things. I don't wanna, I think most investors don't wanna deal with that, I certainly don't wanna deal with that.

- Right so, let's talk about that and you know, obviously with REITs, let's talk about exactly what a REIT is and how that kinda differs from you know, trying to buy property and manage it yourself.

- Yeah so, REIT is a real estate investment trust. It is basically where you pull an investor's money together and you are professionally managing commercial, typically commercial real estate on behalf of a group of investors. What distinguishes our industry from what most people know about the REIT industry is that, the industry we're in is a non-traded. It's an illiquid, not a 100% illiquid but mostly illiquid investment and there is a reason for that but we call it the non-traded, non-traded illiquid investment market.

- [Chris] Hmm.

- And of course it's not just REITs, there are other alternative investments like BDCs and interval funds and even private equity or private investments.

- So, let's talk about that. What are the differences between those that you just mentioned?

- Yeah so, this all falls upon alternative investments.

- [Chris] Hmm.

- Of course there's a lot of other alternative investments, but the ones that we're focused on are the REITS, BDCs, Business Development Companies, Interval Funds and the private offerings. Private offerings are very different. Private means that they are not public offerings they're restricted to the public. You have to be an accredited investor to invest in those because they are riskier well, they can be riskier. A non-traded REIT basically is, you're pulling investors money together or investors money together to go buy assets that you could not personally buy on your own, you don't have that much money. Even you and your country club buddies or church buddies or whomever that may be, can't do that kinda a thing. So, this are high-end. Business Development Companies is really act as a bank. They loan money instead of taking their money to buy assets, they loan money to others to do those types of things. An Interval Fund is unique in that it is similar but has a lot more flexibility than a non-traded REIT does and a BDC. And then, private equity or private placements again, the market is different than a BDC, there's no typically as much capital raised by a private offering but they have become more in favor and the recent years because of some changes in the market.

- [Chris] Hmm.

- So, those are four categories primarily that we cover at Blue Vault.

- Hmm so, how does and who does choose the sectors, right? There's different sectors I guess you can invest in like, different like hospitals or you know, whatever, any type of like specific type of buildings or something that recovers, who selects those and what are they?

- Yeah well, what they are is office,

- [Chris] Hmm.

- Industrial, hospitality which is hotel.

- That's right man, hospitality and a hospital .

- Yeah, yeah, hospitality, self-storage is another asset class, retail of course and then multi-family which are apartments.

- [Chris] Hmm.

- Those are the different asset classes.

- How do you guys choose like?

- Well of course, we don't choose, the asset managers themselves select that and it's typically our fund that is based on what their qualifications are. So, they might have a history working in the hospitality asset class or they might have a history there. In other words, they know more about hospitality than they do the other asset classes. They know more about office than they do the other. So, they feel more comfortable investing someone's money in those. They know how it works, they know the intricacies about how to maximize profit levels.

- [Chris] Hmm.

- So, that's the reason they do. Now there are some, who do what we call diversified investing and so, they are going to double in various and there's something to be said for that. One industry maybe down while the other is doing better. So, you don't have all your eggs in one basket.

- Like a mutual fund type.

- Yeah.

- Something like that.

- Yeah, but there is also something to be said for doing what you know and being good at that and driving value there.

- Hmm, that's funny 'cause I always say, "Stay in your lane you know, "find the people that understand "like the experts in the "field and go with them." So, if somebody has a lot of experience in this particular sector and trust them you know, they're gonna be able to manage that piece of the business a lot better than you know, somebody that just kinda knows a little bit about everything .

- That's been tried in the past by asset managers raising a lot of capital,

- [Chris] Hmm.

- They couldn't find assets to purchase with all that capital in just their asset class and so, they went outside of that structure and sometimes that works and sometimes it doesn't.

- Hmm so, let's talk a little bit about your company now. So, what do you guys do and what do you provide your clients and how do people work with you generally?

- So, we started a little over 10 years ago, 2009. We saw that there was a gap in the market. That gap primarily was just a lack of transparency. So, investors would enlist the short hand version. Investors would invest their money in a REIT for example or a limited partnership or a private placement and they really wouldn't know how that investment is doing over time. Now, when you invest in this market, you're investing for the long haul, you are not investing one day and then in 10 days later, you wanna get your money out because that can't happen.

- Right, not like day trading or anything like that.

- Not like day trading, not even like what happens within the stock market.

- [Chris] Right.

- Not even what happens with publicly traded REITs where you can you know, buy a REIT one day and sell it a month later or so, or the year later. You can't do that with this.

- How long is usually the term?

- Well, it's interesting that you asked that because at one point it was three to five years and then it became five to seven years and it's even been known to be seven to 10 years but typically, it's gone to somewhere, average somewhere between five and seven years. So, in this particular market, an investor and the advisor who also put them in that investment, they just weren't able to really keep up with how the investment was doing. Now, if it was doing very very poorly, there might not have been anything they could do about it anyway because they care it's not liquid, but at least they would know and they would have comfort level with knowing how. The other thing too is to hold asset managers who invest your money, hold them accountable. So, if you don't know a whole lot about it from the time you invest or seven years later, there is not a whole lot of ways you can hold them accountable, you end up getting angry at the end when it doesn't work out but if you know how that investment is doing at least on a quarterly basis then, you can have the comfort of knowing how your investment is doing but also hold that asset manager accountable because that asset manager is constantly looking to raise capital and other investments. So, the financial advisor really is their job and there was no way for them to do that.

- [Chris] Hmm.

- So, Blue Vault began and we started reporting on these investments not what the prospectus says that they hope to do or what they anticipate doing but what they're actually doing. So, we call it fact-based performance research is what we were providing. So, the advisor now for the first time, other than having to depend solely on the wholesaler who would stop in once every three or four, five months to tell them how these funds are doing. They could actually get a Blue Vault report or they could get some sort of the information of research from Blue Vault that gave them an indication based on all the variety of metrics, performance metrics that would keep them better informed about how that investment is doing and it would give them talking points and questions to ask to help hold that asset manager accountable.

- Hmm, and obviously that makes a lot of sense so, transparency is special I mean when you're dealing with finance and stuff, it's key. And the fact that they can actually see what it is doing right now, not what is happening you know,

- [Stacy] Yeah.

- What people are saying it's gonna happen.

- Yeah, they would say the industry is known as being a higher risk industry.

- [Chris] Hmm.

- Well, really the reason that it's higher risk is 'cause you don't know.

- [Chris] Yeah.

- And so, you invest your money here, you don't get it back for seven years and there is a lot of unknowns during that time where else as of today, you bought Coca Cola stock. If you don't like something, you can sit at the mall, you find out all you want to about how they are operating, how they are performing today.

- [Chris] Right.

- You can't do that with a non-traded investment. Nothing wrong with a non-traded it's just a different animal. So, you have to be aware of the pros and cons.

- [Chris] Hmm.

- And that has tripped a lot of people up because they weren't aware of what could go wrong and so, in some quarters or in some cases, the industry has and in some cases rightly so but they, we've received our fair share of criticism in the industry and it, but it's just mainly because it's illiquid, is it illiquid investment? And when someone invests here and they don't know anything about it and for seven years from now, they get well, I was just gonna use a word though I've forgot but, they're surprised. They are surprised that at the end of the day, "Wait a minute, I bought "this for 10 dollars "and I'm only getting nine "dollars and 50 cents back, "what happened?"

- [Chris] Hmm.

- And it just surprising them. So, it will cause some anger,

- [Chris] Hmm.

- And of course that could be some law suits along the way and so, the asset manager, it's important that the asset manager knows what they are doing and it's important that the asset manager as well as a financial advisor communicates regularly with their investor and Blue Vault helps them be able to do that.

- So, these asset managers, are they working for Blue Vault or how does that work, are they employed with you or you're connecting the investors with these asset managers?

- Well really, we don't even do that and they don't work for us and we're not affiliated with them in any way. They are simply a third party that manages peoples money.

- [Chris] Okay.

- And they all have different strategies, they have different investing strategies and we are aware of what those strategies are. We also keep advisors, primarily advisors informed about what those investments are. Of course, whenever there is a change, if there is significant change, the advisor looks to us to make sure that they are aware of that, not only us, the advisor a lot of times has a broker-dealer they are affiliated with, it's the broker-dealer job also. Broker-dealers have affiliations with third party due diligence firms. So, it's not sorely our job. What distinguished Blue Vault was that, when Blue Vault came out, we were focused on performance. That's all we cared about, it's the bottom line, how are you performing? We don't care about, necessarily care about what the prospector says that you're gonna do 'cause it almost never works out that way.

- [Chris] Alright.

- And so, we're gonna tell you what you're actually doing. Now, because it's illiquid and you don't really know until seven years later, its, you don't know everything.

- [Chris] Hmm.

- But you can track something things along the way performances, no different than you're driving down the road in your vehicle, you think that vehicle is gonna get you from point A to point B, you don't know until you get there.

- [Chris] Hmm.

- But along the way if you hear a suspicious sound, that might give you an idea that something could be wrong.

- [Chris] Hmm.

- It's very, very similar to that.

- Hmm, interesting. So, you're building this company. Let's talk a little bit that, let's talk about building your company and then the journey along the way. What were some of the ups, what were some of the downs, what were some of things that you've learned in building this organization?

- One of the main things I've learned is, it's not very easy, it's not easy to do.

- [Chris] Yeah.

- Another thing I've learned is that you gonna have ups and downs and you better be willing and able to withstand those downs. But it is a long term, any small business, building small businesses. I've always said that you know, take any corporation in America, they didn't start out the way that they are today,

- [Chris] Right.

- It took a long period of time.

- [Chris] Yep.

- To develop into what they are today. Blue Vault is no different. We started out with one idea, a simple idea. We're gonna cover non-traded REITs and we're gonna tell a little bit about their performance metrics and we're gonna keep advisors and broker-dealers and asset managers and others in the industry better informed. That was the one singularly focused idea that we had but we've obviously grown from that point in time and we had to. If we did not adapt then, we wouldn't be here today.

- I love that, the whole adapting thing.

- We've had to adapt, you have to be flexible, you have to initially and you don't always know, you have to figure it out as you go. It's a trial by fire to some degree.

- [Chris] Right.

- And there have been a couple of times where I've thought, I don't know if we're gonna make it.

- [Chris] Yeah.

- But somehow we do, we would stand. So, we serve a lot of investors, a lot of financial advisors, broker-dealers in the market today. I think we provide to them, it's an expanded version of what we've originary began 10 years ago but I think we provide tremendous value to them. Blue Vault is not the only source that they have to be able to track those things but we're a source.

- [Chris] Hmm.

- So, one of the things, that one of the ways that we've expanded is, we've gone from covering just non-traded REITs to non-traded BDCs or Business Development Companies. In 2016, we added Interval Funds and which is just another alternative investment with a little bit more liquidity and then most recently, we began tracking and doing a better job of tracking private placements. The reason for that is, there is more money going into private placements today. So, the market has broadened and it makes sense for us to go in that direction. Another thing that we did is, we in 2015, we began a, we saw an opportunity to create an annual conference that we call the today, the Alts Conference or the Alts Summit.

- [Chris] Hmm.

- And that summit, back in 2015, it was just simply where we brought broker-dealer and asset manager or product sponsor together for dialogue what we called it back then Robust Dialogue and we tried to create that robustness about the dialogue to serve the industry better. We felt like, if there was better transparency, more transparency if people were talking about the right things. If people were being honest about what we were talking about, that's the robust dialogue we're talking about. I thought like that it would raise the level of the industry in general but most importantly, I don't wanna ever leave this part out, most importantly, it's about the investor.

- [Chris] Hmm.

- So, we help product sponsors, asset managers reach the marketplace. The marketplace being financial advisors but we're not very enthused at all about helping an asset manager unless they have two criteria at heart which is, they really really know what they are doing.

- [Chris] Hmm.

- They're credible. And number two, they care about the investor. They have to care about the investor.

- That's key point right there.

- [Stacy] That's key.

- You have to care about your customer whoever that person is and that's what's gonna take your company to the next level.

- I think so. If it weren't about that, we don't need to be doing this.

- [Chris] Yeah.

- And that's a genuine sincere thing, everybody in the industry says that.

- [Chris] Hmm.

- But not everybody means it. And I've long said that if a company, if an asset manager doesn't care about the investor, I hope Blue Vault helps to put them out of business.

- [Chris] Hmm.

- And there maybe a couple of examples of that along the way. So, you have to care about it if you think about it in these terms. A couple, a man and a woman have invested their hard-earned money for 50 years. They are now 80 years old. They entrust someone to manage that money for them.

- [Chris] Hmm.

- That's a big deal.

- [Chris] Hmm.

- It's very serious. So, you have to care about enough about that investor. That doesn't mean you're not gonna ever invest in something that's not gonna loose money. That happens everyday, that's called risk.

- [Chris] Right.

- We're okay with that.

- [Chris] Yep.

- Okay but, it's okay to loose those, it's not okay, it's okay to loose someone's money if you did everything you could do and it just didn't work out. That is a whole different ball game if you don't really care or you care more about the commission you earn.

- [Chris] Right.

- The fees that you earn.

- [Chris] Right.

- So, you got compensated.

- [Chris] Yep.

- But that 80 year old couple lost their money.

- [Chris] And that yeah.

- Or lost 20% of their money.

- [Chris] Right.

- That's so, by the way, that's gonna happen,

- [Chris] Hmm.

- By good honest decent people.

- You hit the nail on the head like you know, and I say this you know, when I'm training sales reps and stuff like that too, you don't focus on your pocket, you don't focus on your commission or what you're making. Focus on how you're going to help that person because that's gonna make a better customer. It's gonna make a long lasting relationship when you're focused on their best interests, not your own and I think that's key and most companies that are structured that way and most people in their sales capacity that are structured that way are gonna have a lot better relation, client relationship when they structure that way.

- Yeah absolutely. It's crucial and again, the industry and look, we're just human okay? And we do the best we can do.

- [Chris] Mistakes happen.

- Mistakes are gonna happen and you know, people are gonna be thinking about their own pocket but what you can do is, you can't make a decision.

- [Chris] Yes.

- For you, that's going to negatively impact the investor a lot because the investor entrusted you, you're a steward of their money.

- [Chris] Hmm.

- And I think that our industry is loaded, it's full of asset managers who do care.

- [Chris] Hmm.

- Now, they wanna make money too, I get it.

- [Chris] Sure.

- I got a lot of employees to pay.

- [Chris] Yep.

- And they have an expertise, they can do things that others can't .

- [Chris] Hmm.

- So great, put it to work.

- [Chris] Hmm.

- But don't forget that investor, it's very very important.

- [Chris] Yeah.

- In fact that's one of the reasons I didn't go back to the history. One of the reasons that Blue Vault, we started Blue Vault and I started that with, I had a partner that I bought out in 2015 but she and I started the company together with that singular mission in mind to protect the investor and the reason and I know that sounds a little weird but the reason is, we worked for an asset manager that, they had good intentions but and we raised a lot of money and it didn't work out, not it didn't work out the, it was a disastrous but it didn't work out like we said it was gonna work out or what we wanted. So, we communicated to the advisor that it was gonna work out this way and it didn't work out that way. And so, we looked around, my partner and I, we looked around and we noticed that, that's not an anomaly, that this happens too often, so what can we do about that? So, we felt like there was an opportunity to do something about that and that's the reason we started Blue Vault. We felt like there was a gap.

- [Chris] Hmm.

- And we worked to fill that void.

- And then it's so important. What you just said is essentially your company's why, like why you do what you do and it was that event that you and your partner realized, "Hey, there is gotta a "better way and we can, "let's build on this reason why,

- [Stacy] Yeah.

- To build a strong foundation for building a company.

- Yeah that you know, it's interesting the irony of that story I just told you. Is that this portfolio was filled with the absolute best office properties a company could purchase all over the country. It was well-diversified, these were buildings that were four stories all the way up to 19 stories in size. The best Class A office buildings assets you could purchase.

- [Chris] Hmm.

- And the irony here is that, even though that happened it still didn't work out. I'm not trying to be too critical of that company because we did the best we could but there is something that was missing.

- [Chris] Hmm.

- And I don't know that we know exactly what that is I mean, there are things you can point to but the point is, there is a lot that goes into creating a good solid portfolio that's gonna perform for an investor.

- [Chris] Hmm.

- So obviously, it's not just about going and buying great assets.

- [Chris] Yeah.

- There is more to it.

- That's awesome. So, we get a lot of business owners, entrepreneurs, people that watch the show. If you're to give one piece of advice to those entrepreneurs, those business people maybe those investors, what would that be?

- Well, I can only talk based on personal experience. For the entrepreneur, I'd say you know, yes, follow your dreams. You have a story to tell, you have an expertise in something, I would say that it's not easy, it's gonna be difficult. I'd say, surround yourself with people. It's crucial that you hire the right people, that you surround yourself with people really who know more than you do.

- [Chris] Hmm.

- That is key. Well also, the attributes of loyalty, heart character, dependability, I think that's crucial. What you're doing is you are increasing the possibility that your company is gonna be a success if you surround yourself with good people. We've done that, we've been very fortunate to be able to attract and hire and today we have a team that is phenomenon, exceptional but the character of the team.

- [Chris] Yeah.

- So, I can't do and as an entrepreneur, you're not gonna be able to do everything by yourself. So, it's just not possible.

- [Chris] Right, yeah.

- So, that's why you need a good team. I would say persistence is key. There is gonna be days where you don't feel like it, you're not gonna feel like continuing, staying focused, staying, moving forward but you have to have that commitment somewhere deep down that says, "No, even though I don't feel like it, "I've got to keep pushing forward." that's one of the things I would say, as an advice for to an entrepreneur.

- [Chris] Yeah.

- And maybe I'd say something different to an investor.

- No, but that's great. So, having a great team around you builds a good solid company. Companies are made of people, it's not one person and consistency. That hit nail on the head. Keep consistence and you will be able to build something great. We build something great here and I really appreciate you Stacy that you're sharing with us so well. So, thanks for coming up, we appreciate that.

- Thank you Chris, I appreciate you coming up.

- [Chris] Hey guys, thanks for tuning into the episode. If you guys enjoyed it, show some love, give me a thumbs up
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