SPEAKER_00 0:01

So if you're sensing any sort of theme here, you're realizing that uh Nick and I I don't know if we like chaos, but we we certainly thrive in in chaos. We certainly thrive in scale. And I think we both very much enjoy taking chaos and then finding structure and order in it. I think that's one of the greatest ways that someone can add value to anything, whether it's adding value to raising a child, disciplining your own self, starting some habits, creating a business, creating an offering. And you're hearing just story after story after story where there was some layer of chaos and scale in our lives, even when things were very calm and normal in the economy and politics and those sorts of things. We were growing our portfolio like crazy, really changing our own lives. And then certainly with the pandemic, we all felt that. Everyone listening, you know, can tell all sorts of stories about 2020 and how it just rocked the world of us, you know, each of us as individuals, and then certainly collectively as a nation and even a world. And we continued through that growth through 2020 and into 2021. And then we made what is the biggest change of the entirety of our business, which may seem like a bold claim. Um, if you've listened to the prior episodes, there's been a lot of changes and a lot of leaps in the business from our very first rental until 2021. But in 2021, we made the decision to take the biggest, boldest leap forward, really ushered in what is now the era of Black Swan Real Estate, the era that we're still in now in 2026. And I am a big believer that it all goes back to this concept called a keystone habit. And that that general concept is a little bit different than what I'm gonna speak to here. But I think it gives us a framework to work around. And that's the idea that when one thing changes in your life, you have the opportunity to change so much more. And if you're intentional about it, instead of getting sucked into the fear of the change, you can use the change for your own good. So let's say you're moving across the country, you're getting a new house, you're moving across the country, you're probably moving for some sort of reason. Maybe it's a relationship, a job, something like that. But you're moving, so you have to change all of the very simple things. Where do you grocery shop? Where do you take your dog to the vet? What roads are you driving on? What gym are you going to? And while you're changing those things, you have the opportunity because your mind is already attuned to doing something new, to change many, many, many other things. So if you're already, say, going to a new grocery store because you've moved across the country, you can change what you buy at the grocery store. Maybe healthful eating has been a long goal of yours, and you can change the way you walk around that grocery store because you don't have the muscle memory of the old grocery store. So that's the idea of taking something where there's already chaos in life and using it for your greater good. And we're going to share the story of how there was a lot of chaos and scale in 2020 and 2021 as we were buying up as much real estate as we possibly could, where when there was so much fear in the market, interest rates were so low, investors were hungry. So there was a lot of opportunity to acquire as much as possible. And we said, hey, during this period of chaos and scale, let's change everything with our business model and not just change everything with our business model, but do something that was very much not a market norm. And believe in ourselves and believe in our intuition and believe that one of the greatest ways that you can add value to the market is through innovation.

SPEAKER_01 4:03

So as we're at the peak of the pandemic, buying all these buildings, I love how Elaine mentions, you know, th Thriving in Chaos is a great book, Buy Back Your Time. And the author observes that most entrepreneurs enjoy a lot of variety, enjoy a lot of chaos, and then they struggle to bring order to that chaos because success is often, you know, it requires you to dive into uncertainty and to tolerate chaos, to have an extraordinarily high tolerance for chaos, but then to also have a tolerance for the boring, for bringing processes and procedures and people and scale to what was originally this uh kind of artisanal, very exciting thing, and you need to make that exciting thing boring. That's fundamentally all that we do with apartment buildings is we typically buy apartment buildings that are kind of chaotic, are kind of not being managed very well, and we bring we bring order uh to those things. And that's exactly what we did when we launched our first private equity fund. So at this time, we were you know, before then we were doing individual deals, raising capital for individual uh apartment buildings. And at one point, I think we had you know five, five or six different apartment buildings in in flight, so different, different phase of contract to close, raising capital, you know, in different buckets. And then when we you know started owning a large number of apartment buildings, it was pretty shocking because we had individual books and records and stuff for each apartment building. And let's say we are upgrading, you know, doing a programmatic upgrade of all the appliances in this building, and there's literally another building we own across the street that could use the like the hand-me-down appliances from that upgrade program, but they're owned by two different investor groups, and so they have to have two different sets of books. And like, okay, does one apartment building buy the appliance from the other apartment building? What happens if that appliance, you know, is in uh medium condition versus excellent condition? What happens if it you know doesn't work when we plug it in in the uh in the new apartment building? And you know, does the one entity have to reimburse the other and who pays for it? It's so shockingly complicated. And the the solution was to launch a fund, a private equity fund, and to put everything into one big bucket so that we could we could pool those resources, we could drastically reduce the amount of administrative overhead. Uh, we also had this this great problem to have that we had really more investors than we had opportunity for them, and that that sort of continues to this day. And so it was a very uncivilized process getting people into those individual deals. We're often having to tell people no, we'd have to tell way way more people no than we could we could tell yes. And then uh we saw this interesting shift you know in the marketplace where a lot of people would talk about real estate private equity, and a typical private equity firm would be, say, this like Wall Street-based firm, and they would collect fees and splits, and then they would, you know, they'd round up investor capital and then reach out to an operator like Elaine and I in the Midwest, where you can you can get yield and you know, squeeze that operator for fees and splits, and there'd be all these disalignments of incentives and administrative overheads, and we said there is there's gotta be a better way. There's gotta be a way that we can get better economies of scale, reduce our administrative overheads, simplify things, and also bend the moral arc of capitalism towards justice. That's one of our you know our very explicit missions that we state because we saw all these fees and splits and kind of opaque ways people were being compensated, and we we thought, man, there's there's no way that this is the most efficient way, the most righteous way to do things. And so we worked with you know some some of the best attorneys in the country on you know syndications and funds and said we want to do things differently. And we want to have no fees, and we want to put our investor interest first, and we're not deploying this capital into other people's deals. We want to you know raise our own capital and then put that capital into our own deals. We just have a you know a pool of properties, and you know, there's a lot of things doing that onboarding paperwork where our attorney said, Well, no, no, you have to collect fees. That's the only way you can make money at this. We're like, no, no, we can make money at the equity at actually, you know, make delivering returns to our investors. And it took many rounds of innovation of uh, you know, they would send us the paperwork, you know, three, four times and and uh say we were naive for not charging fees, and one day we'd come back and be upset with them that that they allowed us to get into the situation where we weren't charging fees, and eventually they had us sign this letter that that you know they had advised us we definitely had to collect fees no matter what, and we weren't allowed to ever say that they had not they had not warned us otherwise. Um but ultimately you know we we put together a very different uh private equity fund structure, and it has worked out uh extraordinarily well. Uh we we courageously innovated and kind of leapt into you know, I would say a little bit of the the chaos of that that world. And it took us, I don't know, m many months, probably a good six months of talking to coaches and mentors and other people in the industry and finding out what we liked and didn't like about how it usually worked, and then and then kind of forging our own path, making our own way. And then ultimately launching that fund and raising the capital. And uh one of our coaches said, ultimately, y'all are you're not better, you're just different. And if you come up with something that's different and the market likes it, they will buy, and that's how you will know if you made a good decision or not. And that's what our that's what our launch ultimately looked like is figuring out what the market was going to say, and we were on the edge of our seat.

SPEAKER_00 9:12

I love that you spoke to the you know pragmatic nature of it. I I think I'm probably just you know much more the emotional one. And I remember 2021 as this year of a lot of emotion, a lot of identity exploration. At that point, we were financially free from our own real estate holdings, but we knew we wanted to scale. We love to create value, we love to do new and interesting things, we love to grow as humans, we love to share prosperity with others. And I know certainly when I looked at the traditional private equity model, for me, it was just like a non-starter. Like I am not going down this road of all these different fees and opacity and super complex capital stacks and those sorts of things. It just simply was not worth it to me. I I wanted our next level of growth to really be relationship driven. And I believed so deeply that the model that worked for us to create wealth for our own family, which is buying properties, fixing them up, taking great care of them, having an indefinite hold, and then benefiting from the actual profits of that, of those properties. And I'm chuckling here and I'll kind of clarify that in a second, that that's what was good for investors as well. And yet it was so, it was such a scary transformational period because we were meeting new mentors and we were in bigger and bigger peer groups and in masterminds and those sorts of things. And we would explain to people what we were thinking about doing. And it was as though we were speaking two entirely different languages. And it's one thing to speak two entirely different languages when you're confident in the ability to speak your language. We had never done a private equity fund before. So we were like, no, no, no, no, no. We want to do it like this way. And then kind of everyone around us was like, well, no, no, no, this is how it's done. And we're like, well, like you can do it this way. You just have to have that, you know, in the legal documents and you know, kind of everything that that Nick shared. And we just believed so much that private equity should be based on the value that's created in the thing that is owned, whether it's apartment buildings, lemonade stands, whatever it is, and not this separation of alignment between general partners and limited partners, where general partners, you know, have this whole menu of fees, an acquisition fee, a capital event fee, a loan recourse fee, all of these fees. And then there's splits after that, because that's a fundamental disalignment of incentives. And maybe I came at that because I'm a psychiatrist and I think so much about human behavior and human incentives and alignment. And I genuinely believe that, you know, humans aren't bad people. I don't think people wake up in the morning thinking, like, oh, how can I, you know, kind of pull a fast one on someone else? But I do believe that humans model their behavior or shape their behavior based on incentives. And so it was very intuitive to me that, okay, well, if a general partner, you know, if the main source of their income is, say, the acquisition fee and the disposition fee, well, they might be incentivized to churn properties and then just get that capital reinvested by their investors when it might have made the most sense just to hold the original property and just, you know, continue to benefit from the cash flow and the debt pay down and the market appreciation of that property. And it was just such an emotional year. So while to the outside world, it looked like it was such a business-driven year as we were acquiring things and building our property management company and hiring people internally, it was such an emotional year. And I will say that's a thing for me that's just so pleasurable getting to work with my husband is I was able to do all of that discussion and brainstorming and thinking and stewing on things and all that identity change together, you know, inside of our marriage. Um, and so we would essentially kind of pragmatically run the business during the day. And then at night, after the kids are in bed, we would talk about, you know, what do we want the next phase to look like? What is really aligned with our values? How can we bring new and novel value to the marketplace? And then, yeah, exactly where Nick ended off there of let's just give it a try. Let's give it a try. Worst case scenario, we've spent, you know, 15,000, 20,000 on legal fees and getting this thing set up and we take it to market and we show it to investors and they laugh at us. Okay, well, we're out$15,$20,000, but we've taken our idea to market. And it's like birthing a baby. Like you believe in this thing so much and you want to see, you know, can this thing get traction? And best case scenario, we could create something that not just served our investors and the small little corner of the world that we can have a direct impact on, but could start to create bigger conversations in the private equity space. And it was more the latter. And that launch of Black Swan Real Estate Fund won certainly one of the most joyful days of my life. Let's share that story.

SPEAKER_01 14:12

So this was uh December of 2021. I remember it very clearly there's a property we were, you know, pursuing forever the Nicholas. And you know, for for years we were pursuing this property, and the you know, the sellers you know kind of came to us like I think it was the day after Thanksgiving, and and said, you know, can you close by the end of the year? And we're like, yeah, I think we could. Why? Like, okay, well, if you can close by the end of the year, we'll sell. And and this is a common thing we see where you'll work on a deal for for years. There's countless deals we we've got you know 20 different deals that we're working on that we see as as long-term you know projects that we're working on like this. And sometimes when the seller is motivated, they're motivated. You know, you got to strike while the iron is hot, you have to be ready to move. But we had to do quite a bit. Like we'd already you know done all of our due diligence and everything on this particular property, and we'd already fired up all the paperwork with our real estate syndication firm, and we're you know, we felt like we were as prepared as we were going to be to launch this fund, and we still had we still had a lot of ducks to get in a row very quickly. We had to um you know get the property under contract. So, you know, I drafted up a contract just myself uh as a licensed real estate agent, you know, sent it that day. We started you know kind of going public that we were going to be launching this firm, reaching out to our existing investor list and saying, here's this exciting new thing. You know, we'd we kind of hinted at it, but we had never really announced it or told people you know exactly what it was going to look like. You know, I think everyone knew that something was kind of brewing and it was gonna be different than anything they'd seen before. And you know, trying trying to wind up some of the existing loose ends, getting getting ready for this. It was a furious month of long days and long nights. And uh and the longest night was of course uh launch night when uh we we did what we call a telethon. So most you know, private equity firms, again, are kind of a Wall Street group that's kind of coat and tie, boardroom presentation. You know, our coaches said, Oh yeah, you need to keep it as short as possible, people have short attention spans, you need to look the part and you know be dressed professional, put up a boardroom virtual background in your Zoom call. And we're just like, no, that's not really that's not really our style. And we think we can we think we can raise$10 million in one night. We think that that's possible.

SPEAKER_00 16:23

The launch ended up being uh maybe a little more casual than than we than we had hoped. Pandemic casual. Yeah. So um in the week leading up to our launch, um, which was in the middle of December, because we needed to raise this capital in order to be able to close on December 28th on this first acquisition that would go into the fund. We were working with attorneys, getting our paperwork, doing everything, and really pushing, pushing, pushing um and saying, you know, we need everything. We need to have our portal open, we need to have the bank account open, we need to be able to receive funds. And our advisors were, you know, kind of a little confused. They were always very polite. Our advisors have always treated us very well. I think maybe they thought we were a little naive, maybe a little arrogant. And we're like, oh, no, no, no, no. Like we are receiving capital the day we go live. We are getting signed paperwork in the portal. We needed the ACH connected, the wiring instructions, all the things. So we're working on that. And this is December of 2021. So not December of 2020 when the pandemic was still just like brand new, but very much surge. Very, yep, very much in the thick of, you know, cases were still being reported daily in the New York Times, hospital overwhelm, all of those things. And I don't remember which child it was, but one of our children came down positive with COVID. So we had no child care. We had three young children. Our children were six, four, and two at the time. I'm about 30-something weeks pregnant with our fourth child, and we have no child care, and we've been promoting the webinar for the launch of this private equity fund. So there was no way we were gonna reschedule it or that sort of thing. So I had the kids home from school that day myself, and it was a snowy day in Minnesota, and I just thought, how can I wear these kids out like crazy? They weren't that sick. It was like an asymptomatic case of COVID. And we played in the snow. We went outside, we baked cookies. I mean, we did everything I could possibly think of to just have the most stimulating day possible for these kids so that I could put them to bed and hopefully they would sleep soundly and then we would be able to do our launch. We had envisioned that we would do our launch, you know, in our office with a babysitter at home with the kids so that we could focus. And that plan was not what was going to happen. So we put the kids to bed and I did a lot of praying that night of God, please just give me a few hours. Like after midnight, I'll be up with them all night. I'll do whatever needs to happen, but just give me a few hours with these kids, you know, sleeping soundly. And we set up our three monitors and everything right in our kitchen, which overlooks our living room, and our Christmas tree was in the background. And we went into that day or into that evening with some mix of joy. We'd already been hearing from investors that they were all in, that they wanted to be the first ones to sign the paperwork. People were reaching out to me saying, hey, hold me a spot. I want to make sure I get in. So we were going into it with joy, a little bit of fear, a little bit of excitement. And then the kind of the behind the scenes, right? That's what we're just so excited to share here in this podcast is what's happening behind the scenes. Behind the scenes, I am just thinking, please let those kids sleep. Please let those kids sleep. Please let those kids sleep. And, you know, kind of long story short, we we went live and we had our slide deck and the things that we wanted to cover, and sharing about our journey and our belief in the relationships between general partners and limited partners and our no-fee structure and our indefinite hold structure, all of the things that were so different, sharing about the Nicholas apartments and why that made such great sense as a strategic asset, kind of in the center of all of these smaller apartment buildings that we had acquired through the pandemic. And exactly like Nick said, it was a bit of a telethon where we were watching our investor portal and doing our slides. And I would refresh that investor portal. I'm like, okay, we're at 4 million, okay, we're at 5 million, okay, we're at six, we're at seven. We ended up going for, I think about four hours, just kind of continuing to talk, do the slides, give updates on how much capital had been raised. We did live QA for several hours, and we ended that night with a, I can't remember if it was either 10 or 11 million in commitments, but it was a$10 million fund based on the number of commitments. You know, we knew we were full. And we just, I think when we hit that, you know, end call for everyone button. Um, there was just this sense of euphoria, not just that we had done it, but that the market had done it, that our investors had done it, right? We could have had the best slides and the best presentation and the best microphones and all the things. It was the belief from our investors that private equity could be done differently, that you could take out all these fees and obfuscation and all the division between general partners and limited partners and actually go out and create real value. Actually go out and buy a thing and improve the thing and create real value from it. And boy, oh boy, oh boy, was that exciting. And we woke up the next day, checked on the portal again, more millions had come in in soft commits. And that was the launch of fund one. And that's the phase of the business that we're in today, here in 2026. And as Things shifted in the market as the pandemic cooled down, inflation heated up, interest rates went up. The basis of our model, which is the alignment of general partners and limited partners, became even more important. I believe that the basis of that model is always important. It's a little easier in times of plenty when there's just, you know, so much profit to go around, kind of everyone can have profit and it's great. But when there's headwinds in the market, it that really shows the division between general partners and limited partners. And we were able to see that as headwinds, you know, started in the market in 2022 onward. And our investors love our model and they see that we've never had a capital call. We're able to make distributions, we've never had capital loss, we've never come anywhere close to a lot of the problems that, you know, have plagued our industry in the last couple of years. And it really all goes back to all of that soul searching that was happening in 2021.

SPEAKER_01 23:00

So we hope this is uh an inspirational story to you. You you're probably not launching a private equity fund, but maybe you're thinking about doing something that uh flies in the face of what you've learned from your your family background, from your cultural background. The the thing that will get you there is is probably very different than the thing that got you here. And you should be bold in doing what feels right to you. Seek counsel from you know people who have who have traveled that road before, find mentors, find a peer group, but but ultimately just have the the courage to uh creatively innovate and then give the market the opportunity to to tell you if you've been successful, if you've created something that the market values. I I love that uh you know the the free market, it's the ultimate kind of uh democratic system. If you want to know how someone really feels, ask them to put money on it. And so when you know$16 million shows up in a day uh voting for this idea, this this bold, new, different creative idea, it's uh it's it's it's such a it's such a blissful feeling, such an incredible euphoric feeling, exactly as you said. So hopefully you've found this inspirational, you found helpful. If so, please uh like and subscribe this podcast or share it with someone who might also find it valuable, and we look forward to joining you in the next episode.