The Biggest Risk in Real Estate Isn’t the Deal — It’s the People | Matthew McManus

Matthew McManus (00:00)

it one of the good tests for anybody is, when everything goes great, everybody is happy and loves each other. But picture being in the trenches with that person when things go bad, markets turn against us, interest rates go against us, something happens, whether it could be a hurricane, let’s say, for a Florida deal, it could be a flood in New York City deal. when things go bad, who’s gonna be that person that knows how to

work with you in a cooperative basis, brainstorm, communicate, etc. And if you feel good about that answer, that’s the right person to team up with.

Meghan Escobar (02:06)

Welcome back to Real Estate Pros Podcast, hosted by Investor Fuel. I am your host, Meghan Escobar, and today I have the honor of sitting down with a gentleman who’s been in the industry for over three decades.

And he’s here to share a little bit about his wisdom and his story and what he’s doing. So happy to have you on Matthew McManus with one of the partners of M2 Equity Advisors.

Matthew McManus (02:32)

Nice to meet you, Meghan. Thanks for having me here.

Meghan Escobar (02:34)

Absolutely. So glad to have you. And yeah, I’ve been looking forward to this conversation, bringing you in here. having chatted with you prior to this, I’ve learned a little bit about how you’re positioning yourself as a professional. And I definitely think you got some game for the audience today. So I’m excited to bring your insights in and talk a little bit about your journey. So with that being said, Matt, tell us.

for those folks that might not be familiar with who Matthew McManus is or what is M2 Equity, what are you guys doing? Give us a 30,000 foot view of like what your focus is, what markets you’re operating in.

Matthew McManus (03:10)

Sure. So I’m based here in Philadelphia. We focus on providing the preferred equity tier of capital, which is typically fifty to sixty percent of the equity that’s needed for a residential oriented transaction, whether it’s a single family home that’s being built on spec to be sold or an apartment complex that is either going to be built or is being purchased and value added, meaning improved in

theoretically, grow the rents and sell it at a higher number. we focus nationwide, and our probably biggest contribution to the real estate industry, to my knowledge, and that knowledge is based on 34 years of originating business specifically and narrowly in that apartment and or single family residential sector, is that we are the most aggressive

player in this preferred equity tier of capital. So there’s a lot of great folks out there that are providing capital in the preferred equity tier. However, when you need the most amount of money for that tier of capital, for instance, a high leverage lender, they can say, Hey, we’re the highest leverage lender out there. We are the highest leverage player in the preferred equity tier. To my knowledge, I haven’t been beat.

But that is our contribution. So when people need the most amount of equity from a single source that’s reliable, that’s us.

Meghan Escobar (04:25)

Wow. Amazing stuff. one thing that really stuck out to me when we were chatting was a statement that you said and I wanna hone in on this a little bit because I thought it was really powerful. you said the biggest risk in real estate is the people.

Matthew McManus (04:39)

Yeah. the art form in this business is, oftentimes when you do your first deal with somebody, you meet them and you have to make an investment decision in

a very short time frame, right? They might have a property under contract and we’ve got sixty days to get it closed. So during that sixty days, I have to learn and feel good about a sponsor’s, overall just person.

character, professionalism, competency. And, you do that by just the small daily interactions from the day you first meet to the moment you get a term sheet, negotiate that term sheet. These are all data points that you learn with a sponsor. and we make mistakes sometimes and we have some learned behavioral actions that are red flags.

To which we adhere to closely. And if that red flag appears, we will stop proceeding with that person. But the variable, the biggest variable in real estate is always the individual, the people behind a deal. real estate markets, rents, values, sales comps, et cetera. That’s just data that anybody has. But marrying that together with the sponsor, who really is the biggest risk component of a deal versus all the other aspects of a real estate decision.

is the individual. And it just reminds us every single deal, it we’d rather be in a medium so-so deal with a great person than a great deal with a not so great person.

Meghan Escobar (06:01)

I agree. So it gives you the ability to cherry pick like who you’re working with, is that safe to say?

Matthew McManus (06:08)

it one of the good tests for anybody is, when everything goes great, everybody is happy and loves each other. But picture being in the trenches with that person when things go bad, markets turn against us, interest rates go against us, something happens, whether it could be a hurricane, let’s say, for a Florida deal, it could be a flood in New York City deal. when things go bad, who’s gonna be that person that knows how to

work with you in a cooperative basis, brainstorm, communicate, etc. And if you feel good about that answer, that’s the right person to team up with.

Meghan Escobar (06:43)

Yeah.

Matthew McManus (06:43)

know, we we’ve learned that so many people, when things go bad, human nature unfortunately can be to kind of hide, to not embrace the reality that we’re dealing with, to gloss over some of the

core issues that we have to tackle to get to a safe place. It’s just human nature, it’s really what separates the winners from loser in business.

Meghan Escobar (07:05)

Yeah. I agree. And I think that’s actually something I I wanna kinda jump into next is like every operator I know has a moment and you you’ve got years as an entrepreneur and in the industry. So I’m sure there’s lots of stories you could share of where a deal went sideways or you had to pivot really fast, right? And I think that is some of the stuff that people don’t talk about enough and does a hundred percent separate

the folks who are, here for transaction versus staying in the game long term. So with that being said, Matt, I mean, is there any moments that kind of stick with you that

Something that you’ve gone through in the journey.

Matthew McManus (08:33)

just maybe staying on that evaluation of the sponsorship team. when things go bad, the need to communicate grows exponentially with that sponsor, almost on a daily basis, maybe every other day basis. And it needs to be blunt, it needs to be transparent. we have seen situations where people have been post-closing impacted by addiction, right?

Where did they go? They disappeared on us. Yeah. no heads up, very hard to decipher on that 90, 60, 90 day window on the going-in basis. But the number one metric that anybody can apply to assessing who they should partner with is the communication style. If can communications in the beginning of a deal are erratic, they’re gonna be worse once you close, even if things are going well. So

Almost as a flat line, straight line correlation between communication and reliability of that sponsor is almost a direct correlation. When they go dark or a couple of days go by and you’re not getting a response and you’re trying to make adjudgment decision, is this a person I want to, deploy capital to? And recommend others to join me, right? in deploying capital.

That is the single most important thing, communication.

Meghan Escobar (09:42)

Yeah, Absolutely.

Matthew McManus (09:43)

I’ll take a lot of deficiencies other than that.

Meghan Escobar (09:46)

Yeah. I think that’s definitely something that a lot of people can resonate with, right? It’s like if you don’t have the proper communication, especially in this space, like the real estate world is a relationship based business. And so

Matthew McManus (10:00)

and even to like take it a little more nuanced, not only communication, but let’s just say a demeanor disposition of the sponsorship to kind of, be open. none of us have, a competency on all aspects of real estate. So partners that can share their competency with other partners and be open to that kind of input, that’s a big thing too. the know-it-all out there.

Who might be riding high on success, short term success, might not have that openness, and that’s a danger too.

Meghan Escobar (10:28)

Yeah, for sure. I can’t agree more. And what do you

Matthew McManus (10:32)

Shows up in a lot of ways. Yeah.

Meghan Escobar (10:35)

and different areas of your life too, right? Not just a business. Yeah. Right. For sure. thank you for sharing that. it’s very, important for people to understand how communication is key, right? Especially if you have

Matthew McManus (10:47)

The

boring part of real estate, but it’s really is

Meghan Escobar (10:49)

Yeah.

Matthew McManus (10:49)

it’s just keeps proving itself time and time again back to us. So it’s on the forefront of, our kind of sensitivity on every new transaction, every new relationship.

Meghan Escobar (10:58)

Yep. Absolutely. And what do you feel is the next big focus for you guys at M2 equity? What are you looking to scale?

Matthew McManus (11:06)

So yeah. we’ve been, customarily known as playing in the preferred equity space for apartments. And the next big focus for us is taking our expertise and capital availability for the preferred equity space into that kind of opportunistic single family spec built, either, renovation and sell, ground up and sell business, which we have seen,

Really robustly resilient. folks that can buy a home in South Florida that will still pay millions of dollars for a house, even if their, insurance goes up, their taxes go up, can endure, they just are immune to that type of a variable that is impacting heavily kind of that first-time home buyer or entry-level product where.

they it just gets too expensive. interest rates go up, insurance taxes all go up, HOA fees in some cases go up, and the home becomes unaffordable. So we try to avoid that sector because as much as I personally, know it’s needed, recognizing those variables at play across the country kind of supports both sides of our business. Because home ownership has gotten so expensive, the demand for apartments

particularly workforce housing is robust, in every market. The renter of need is way deeper than the renter of choice, which, the luxury apartment complex caters to. So our focus on workforce housing takes advantage of that kind of

low or unaffordable nature of entry-level homes. And then we focus on the other end of the spectrum where, luxury housing, consumers of that product type are less, impacted by it. They’re not immune to it. But if they want a home in a specific neighborhood, they know the price point they’re gonna have to pay to be there, whether it’s schools, proximity to amenities, waterfront, et cetera, and they pay for it.

How resilient and growing in depth that luxury consumer is becoming, particularly in markets that are, mostly in demand. So that South Florida market, Cape Cod in the Islands, Nantucket, North Martha’s Vineyard, pockets of New England, mainline Philadelphia, shifting over to Colorado. So the Aspens and Vales and Telluride,

Just kind of pockets of high demand luxury locations. We’re really focusing on that. We have a ton of capital to go into that sector. We want to team up with disciplined builders that know their, niche markets really well and have struggled to raise capital for that sector because it is kind of mom and pop ish. So we want to bring an institutional source of capital to that builder.

So they can leverage their capital and do two or three more additional projects per year.

Meghan Escobar (13:40)

Good stuff. I love it. So big things coming for the future for you guys. Expanding, scaling, stepping outside of what you’re used to for that, all right? Getting out of just the luxury apartment space, but getting into the single family home. And hey, it sounds like that’s either gonna help you guys compound things to the next level and or create a little chaos in between, right?

Matthew McManus (14:04)

Well it’s a each deal is less money, right? So to scale, it it’s all about from our standpoint having the most amount of dollars working for you. so with those dollars come fees and returns, theoretically. Fees for sure, returns is secondarily less certain.

Meghan Escobar (14:20)

Yeah.

Matthew McManus (14:20)

So we want to get more money out the door, and to do that, we know that whether you’re working on a five hundred thousand dollar deal or

A $30 million piece of preferred equity, literally almost the same amount of time and effort goes into both deployments.

Meghan Escobar (14:34)

Projects. Yeah.

Matthew McManus (14:35)

So how do we do the smaller amounts of money efficiently? That is a looming challenge out there that I’m gonna have to figure out. doing the first one, doing the first five, ten, no problem. When we might have dozens on the street, I gotta figure something out because I don’t have enough.

Meghan Escobar (14:53)

That’s where you’re looking to get to, right?

Matthew McManus (14:55)

Correct, absolutely. Yeah. I mean, from a capital availability standpoint, we would like it to be,

Fifty million dollars in that space? Love that.

Meghan Escobar (15:03)

Okay. Well the great thing is that you

Matthew McManus (15:05)

You’re averaging a million bucks per deal, that’s fifty deals. so and we can rotate that money every eighteen months. That’s a lot of business.

Meghan Escobar (15:12)

Yeah.

Well and the first most important thing is that you see the vision. So if you can see the vision now we just need to create an action plan to make it happen. There you go.

Matthew McManus (15:21)

Yes. So

we’re all here is to learn how to do that. Yeah. I know others have done it in their respective fields. we want to do it with the smallest team possible because I think that keeping ourselves small, is preferred by our partners. when they can pick up the phone and always speak with me or my partner or somebody they know here.

it’s essential to kind of that relationship thread, I think, is what helps really grow, your business.

Meghan Escobar (15:46)

For

sure, for sure. Agreed. And actually, kind of going into that relationship building concept, we talked a little bit about that and how your network is your net worth and making sure you’re getting into the right rooms, shaking the right hands, creating the right relationships. What has made the biggest difference for you guys over at M2 Equity when it comes to, growing and building your network?

Matthew McManus (16:47)

i’ll give you an example so we’re heading down to Florida this week we’re going down there to meet with a couple partners who we know well and have done business with and while we’re down there we have been we have met other builders that are were introduced to us by our existing partners or we just simply met

via cold, somebody reached out to us and we, got to know them. So it’s been a very kind of organic oriented growth of just concentric circles of people that you know that grow to people that are introduced by people you know. And that’s how we’ve been growing so far. we haven’t had to get to a critical mass of marketing

And harvesting the leads that come in from a big marketing program. We’ve really been, happy with the amount of opportunities we’re getting via the existing relationships and then those that they introduce us to. but we also know too that we don’t want to get complacent, having a, a little bit more of a pipeline or stream of new folks, new relationships.

That might be really great that we just didn’t know and we’d like to get to know. And how do we reach them? putting yourself in the right rooms, maybe on the right podcasts, just kind of more of a mass or broader marketed type message, I think is important. anything you do is better than nothing. everything I can always draw a line back to where that relationship started cold. And if I had not made an effort.

to put myself out there, I would have never gotten to know the people. That’s right. So, whether the people are referred to us by lenders, by existing partners, by brokers that we have relationships with, that’s how it happens. But every one of those relationships and contacts started cold, experienced some performance that made them remember us, and then we go from there.

Meghan Escobar (18:26)

Yeah. Absolutely. And that’s just something like I said, can’t fake. you have relationships are truly everything in this space. And so before we do wrap things up here, Matt, like if somebody wanted to reach out to you, connect with you, potentially collab with you, what is the best way for them to do that? Is there a website, an email, phone number?

Matthew McManus (18:45)

We have

a website, m2equity.com. I have an email, mm@m2equity.com. And on my LinkedIn page is my number and my email, my website.

Meghan Escobar (18:57)

And that your LinkedIn is just your name.

Matthew McManus (18:59)

Is Matthew McManus, M C M A N U S, and M2 Equity is, our company page as well. so we’re out there on LinkedIn. That’s been very prolific for us. and one of the promises I’ve made to myself as a professional is to be hyper responsive to people that reach out to us by being so exposed, let’s say, on the internet.

A lot of people reach out for things that might not be, seeking preferred equity. So we’re gonna always respond. I really do. I’ve always noticed that the leaders of any industry are the most communicative people that exist. they’re CEOs because they communicate. Not because they’re smart, but because they can they’re smart too, but they communicate. insular folks who

might not need to be good communicators. God bless them. I don’t know how to do that, but I have always noticed whether it’s, Jeff Bezos or leaders of our, respective industry players out there, CEOs of companies that have 50,000 units, 100,000 units, they are so accessible that it’s a lesson to really try to repeat for yourself.

Meghan Escobar (19:57)

There you go. So when you reach out to Matt, folks, you are going to get Matt. So we’ll be sure to drop his links below so you can connect directly with him. And outside of that, I want to thank you again for joining us, sharing your wisdom, sharing, your expertise and laying it out here for us. I think it’s really important for people to understand the communication and also what it is that you’re doing, right? Getting the visibility.

Matthew McManus (20:22)

Really appreciate

the opportunity to speak with you, Meghan. Thank you.

Meghan Escobar (20:25)

And for those of you that are listening in, if you got any value from this, please be sure to hit like and subscribe. We’ve got more shows coming in just like this. we have operators and entrepreneurs like Matt sharing their journey about how they’re building their business with real people in real time. We’ll see you on the next episode.