Episode 22: Heather Border – Alliance Global Advisors
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Speaker 1:
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Ryan Swehla:
So we're here with Heather Border from Alliance Global Advisors. And it's been a privilege to work with you, Heather. And I'd love if you'd just take a moment to tell us a little bit about Alliance and what you do.
Heather Fernstrom-Border:
Sure. So Heather Border, co-founder of Alliance Global Advisors. And Alliance Global Advisors is a woman-owned advisory firm. And it's served on the premise of really assisting the investment managers better serve the investors and the consultants. And the reason really being for our existence is, early on in my career, I worked for Townsend Group, which is a consulting firm based out of Cleveland, Ohio. Jennifer Stevens, my partner, also started her career at Townsend Group, and there for the last 16 years. I was at Townsend for about six and a half years, and then moved on to the capital raising side.
Heather Fernstrom-Border:
And when I moved on to the capital raising side, what I noticed is that I was just assuming that every investment manager out there really understood the investor's expectations and understood why the consultants were asking the questions that they were asking, and the risk mitigation mindset of the investors and of the CIOs that those investors are reporting to. And that just wasn't the case. So senior management's hyper-focused on growing their own platforms, bringing in additional capital. And so what I was finding is I was spending a lot of my time educating the senior team members of those investment manage platforms. But what I was also finding is I was really enjoying that work. So that's really the backbone of Alliance.
Ryan Swehla:
So you gave a little bit about your professional journey. But what prompted you, you're technically an entrepreneur, as of the last year or so. Congratulations on your one year anniversary.
Heather Fernstrom-Border:
Thank you.
Ryan Swehla:
And what made you take that big step? Because that's a big step.
Heather Fernstrom-Border:
It is a big step. It doesn't seem as big these days. I can tell you, on April 1st of 2020, it seemed like one giant leap. So Jen and I had just been working on the platform and tweaking the platform, as we continue to do so. But the feedback that we received when we were testing the model and talking to our peer group is that it was a service that is really necessary, and ultimately really appreciated. And we wanted to do the right thing. We want to move of the industry forward. We love working with the investment managers. We really appreciate our clients focus to formulating best practices and moving the needle forward. So when it came down to it, it was a pretty easy decision. And the fact that I got to do it with Jen, a very good friend and somebody that I had known for over 16 years, and clearly very well respected in the industry, there's just no better person that I could think of to do it with.
Ryan Swehla:
Well, that's awesome. So, it sounds like it was all roses.
Heather Fernstrom-Border:
Yeah, well, it was-
Ryan Swehla:
What were some of the dark moments here?
Heather Fernstrom-Border:
So one of the items that Jen and I always joke about is, it's middle of March or call it the beginning of March of 2020, we had our plan, we had our marketing roll out, and we were all ready.
Ryan Swehla:
That year we don't want to remember.
Heather Fernstrom-Border:
That year we don't want to remember. We were completely set for our launch. And so, I decided to take a trip to the BVIs. And I was on a boat and thinking, oh, we'll just have a last few days of relaxation before we go pedal to the metal. And Jen's calling me over and over again. And so I pick up the phone, and she said, "You really need to come home." I said, "I think we'll be fine." And we had engagements lined up. So we had lots of travel scheduled in mid-March all the way through May. We were kind of scheduled back to back, east coast, west coast. We were really excited about it. But obviously things changed overnight. And things changed rather quickly. And I remember coming back from my trip and giving her a call. And I just kept thinking about her tenure at Townsend. And I said, "Why don't you give Terry a call? And maybe you should ask him for your job back." And so she said, "I'm not going to do that. We're doing this." And we did. And it has been a really fun year.
Heather Fernstrom-Border:
And this has been the year where I think everybody has taken this inflection. And this has been a really powerful year to look internal. And I think the senior management team members are just so used to being on the go non stop, in the office, in a plane, train, automobile, whatever it is. And this is a time where they really had to sit down and look in the mirror, and speak to their team and engage with their team like they never have before, and really get some candid, clear feedback, and determine the right path forward. It's been invigorating to be part of that process with our clients.
Ryan Swehla:
Well, and we all had, I would say, existential discussions amongst ourselves, like, what am I doing? Why am I here? Where am I spending my priorities? When you're sitting at home a lot, you have time to think. And I think, collectively, it feels like we've all maybe learned through that process. And I bet there's no one that's going back to business as usual. I suspect everyone has little tweaks that they've learned through this process that said, you know what, that's a part of it that I'm going to keep, or that's a part of it that I want to change.
Heather Fernstrom-Border:
I agree. I think in our industry, it's been interesting. And being a female in our industry, I'll say that what I've seen is that, 15 years ago, people weren't really like talking about their families at home or their lifestyle or the quality of life that they wanted to achieve or live for. And especially this past year where everybody was at home together, and you would see the kids running in the background, or you would hear the noises of just the household while you're on the conference, the dog's barking, the life, the life that's behind the scenes.
Heather Fernstrom-Border:
And it just became part of the culture where so many people say that culture is important or culture is embedded. And you can write down anything you want, but on a day to day basis, there are many firms where the culture isn't embedded as much as they'd like to say that it is. So this has been a fun year because I do think it's allowed people to really shine their true colors, be themselves, be transparent if they're having hangups or need more time or just need some extra help here and there because of some family requirements. I think that will absolutely be one of the things that stays, just that flexibility and allow you to have all the things that you've ever wanted.
Ryan Swehla:
Well, and the travel. What's interesting is, we've recognized that face to face, there's nothing that can replace face to face, certainly. But we've also started to recognize a relationship goes through a process.
Heather Fernstrom-Border:
Absolutely.
Ryan Swehla:
You get to know each other, you develop that rapport. And it requires that face to face interaction at certain points. But also, we've recognized that it's a lot more efficient to spend a little time on the computer first, make sure we have a connection, and that there's a right fit, rather than hop on a plane and meet face to face, and then find out that there's really not a good fit. So I feel like maybe things will operate a little bit more efficiently than they did with the level of travel that we needed before.
Heather Fernstrom-Border:
I think so. I don't think you're going to be flying to Dallas or New York for one meeting any longer, or for three hours of meetings. I think that model changes drastically. The face to face interaction, of course, there's nothing like it, to be able to measure the energy in the room. Especially if you're reporting, we've had several reports to board members these days. And to not be able to look around the room and kind of figure out where everybody stands from a facial expression and body language has been difficult. But I think as an industry we've really overcome it.
Heather Fernstrom-Border:
And I think in general, it's only going to make our industry more productive. And we're seeing that already on the due diligence front. The investors are getting more comfortable getting to know their managers and new managers. They're focusing more on the data rooms. They're focusing more on the operational efficiencies of the platform. And previously, the first or second meetings were always in person. And I think that model switched a little bit. And you're going to see that more of the face to face interaction and in person interaction on the back end of the relationship.
Ryan Swehla:
Yeah, once you already know that there's a strong connection or fit.
Heather Fernstrom-Border:
Exactly. Exactly.
Ryan Swehla:
So we started our business in 2008. You started in 2020. So we both have that common bond. And I was just thinking about this a little bit. When we started, we were a third party brokerage and property management company initially. And so we were providing a service to our clients. And what was interesting about that is, it did give us a little bit of a different perspective than being in the trenches, figuring out how to navigate this craziness. And if anything, it allowed us to kind of understand, oh, that worked, that didn't work. Oh, I'll remember that lesson as I get in the trenches as we are now.
Ryan Swehla:
And I'm curious, you have a very similar position right now in seeing through 2020. I'd love to hear some observations that you can make about what did work through 2020, what didn't work. What are the lessons learned, I guess, maybe from your perspective of being able to oversee different investment managers, without naming names, of course?
Heather Fernstrom-Border:
Of course not.
Ryan Swehla:
Well, that'll be us I'm sure.
Heather Fernstrom-Border:
Not one bit. Not one bit. So, I'll back up for a minute because I started my capital markets career back in 2007. So I was very humbled by the GFC in the sense that my clients at the at time were the large state and city pension funds. And so, to have that appreciation so early in my career, I'm forever grateful. I sat at the other side of the table and I recorded those numbers, and I saw the faces and the looks that were coming from the board members as they sat there and thought about their pension fund benefits, and whether or not they're going to be as fruitful as they have been in the past. And clearly, the answer was no.
Heather Fernstrom-Border:
I also worked with several investment managers during that time that were really hands on and trying to do the right thing at that point in time, and providing extremely transparent feedback so that as consultants we could do our job and recommend to our clients, whether they need to cut ties or whether they need to hold tight, or sometimes invest more into the fund so the managers could get out of those situations. And sometimes that did require some extra capital. And those decisions were very hard to make. And those recommendations, we took those very seriously, obviously. And coming out of that was when I went on the capital raising side, there was so much look back to those days in the sense of, who were the managers that were right there with you and holding your hand and holding their client's hands? And who were the managers that turned their head away? Or some would just not even pick up the phone when you called.
Heather Fernstrom-Border:
And so I would say, for 2020 and 2021, it was inspiring to see the change of pace of communication. So right off the bat, in April and May of 2020, we started seeing messages to the investors. And they were very transparent messaging, as in, "We don't know what's going to happen, but we're here. And this is the rent role. And this is our monthly collection. This is our weekly collection." And the investment managers communicated like they never have before. And they took it upon themselves to use the lessons learned during the GFC to really flip the switch. So I would say that's one that just, to me, it shined as far as improvement goes for our industry.
Heather Fernstrom-Border:
The other piece is kind of what's changed in the last year. We've talked about this work from home, and how that's going to change and continue to change. And then we've talked about the underwriting process that the investors are taking now, more so in the virtual way. And I believe that's going to be very efficient. I think most of it's going to stay virtual until that last or final meeting where you're meeting in person. But then I would say the managers that have previously invested in PropTech, any type of technology innovation that has already been introduced to the platform. And it's been a very proactive approach versus a reactive approach, those are the managers that are going to shine.
Heather Fernstrom-Border:
ESG, DE&I is a huge topic these days. So for any listeners that maybe don't know those, it's environmental and social governance, is ESG. And DE&I, diversity, equity and inclusion. So those topics are hot topics these days. And it's the same tone of, the investment managers have really embedded that from day one, they're going to outshine rather than the investment managers, excuse me, that are going to try to bolt this on as an add-in or a very reactive in nature. And you'll be able to tell the difference. The investors will clearly know the difference right out of the gate.
Ryan Swehla:
Yeah. And it's interesting because on the environmental aspect, who would've thought that there's a whole 'nother layer to environmental that we didn't, I don't think anyone was thinking about sanitization strategies when 2020 started. And that aspect of thinking about real estate, the business that we're in, it's changed things dramatically. We have one property where we were originally going to do an indoor gym, it's a multifamily property. And then we thought about it. And this property actually backs up to a manmade lake, it's got some nice shoreline. And instead, we did outdoor workout equipment because you try and recognize that just as we are looking at our work environment or our life environment, our residents or our tenants are doing the same thing. So it is interesting. Things you would've not expected in 2019.
Heather Fernstrom-Border:
ESG was a true, or COVID was a true test take case to ESG and the efforts there. So of course, you had to be a little reactive in that nature, there's not much we could have foreseen. But yes, very much a test case.
Ryan Swehla:
So what do you think are some of the permanent shifts that we're seeing? And you could kind of take this a couple different directions either in the investment manager community or in the real assets that we're talking about. What do you see as some permanent shifts post COVID?
Heather Fernstrom-Border:
I think the technology is not going away. So any manager that has spent substantial capital in the tech space will ultimately be rewarded. Also, I think the boots on the ground nature of the platform and the investment managers that have a track record and that are ingrained in the day to day local communities, and that have their relationships and those that strategy has played out and has been successful over multiple property cycles. Those managers will continue to shine.
Heather Fernstrom-Border:
And the question was, what's not going to go away? And I think the answer is really, there's always going to be interest in those types of managers. They know the market's best, they're able to execute. I mean, you know that strategy extremely well. Graceada is an incredible example of that specific strategy. But the relationships developed in communities, I think that's utmost importance. And then if you bolt on and add technology as an underlying addition to that strategy, I think you'll ultimately be very successful.
Ryan Swehla:
Yeah, it's interesting because it's during times of disruption or distress that if you're nimble, if you have your ear to the ground, you know the market, you can react a lot quicker. It's almost like, this may be a really bad analogy, but when you turn the lights on and the insects run away. It's kind of like when distress happens, that's kind of when you see the cracks in the armor. And I would agree that it's those investment managers that really understand their market that are able to navigate through that.
Heather Fernstrom-Border:
Yeah, absolutely.
Ryan Swehla:
None of us could have expected that our local gym would be closed for business for nine months or a year. I mean, these are pretty surprising changes in our space.
Heather Fernstrom-Border:
Yeah. And I think that the need for innovation is always going to continue. Those that just want to continue to get better and change and evolve, no matter what it is. You talked about gym, think how that changed overnight. And it was those that had innovated or those that had already had the technology in place that excelled through that model. And I think the same for the real assets in capital markets.
Ryan Swehla:
So what would you say Alliance is helping clients with most right now, now that, I guess, we could call ourselves officially, maybe in the post COVID era? Where do you see you guys helping clients most right now?
Heather Fernstrom-Border:
Yeah. We're spending a lot of time in the virtual due diligence cycle, and what that's going to look like going forward. There's quite a bit of the property tours that are being done virtually, or sometimes even the messaging, the digital messaging that's going out right now, that really wasn't a focus point over the last couple of years. As I mentioned, the investment managers really took the last year to look inwards. And so, we're doing a lot of strategic planning for our clients. So those managers that have been around for 10, 20 years, maybe some have hit a plateau and they're trying to figure out the next step. Maybe some of those that just need an extra push out in the market, as far as tweaking their investment strategy, tweaking their messaging.
Heather Fernstrom-Border:
We've spent a lot of time engaging with the LPs over the last year, and really trying to figure out what services, and where can the investment managers do better when it comes to the investors? A lot of that conversation is around ESG and DEI and finding opportunities and dislocation in the marketplace today. So I would say just keeping one step ahead of those investors' requests, and providing that feedback back to our clients. But a lot of it is that strategic planning and reporting back as what the investors are looking for. At times, we'll actually survey the investment managers' current clients, or some of those prospects that didn't quite get to the finish line. And as an independent third party, we're able to go in and just have those very transparent conversations with the investors and provide that third party feedback. So it's been really enjoyable.
Ryan Swehla:
And during the pandemic, everyone kind of turned inward, like you mentioned. And a lot of that also meant that they kind of turned off their outward communication, to the extent that they had to. Or they were communicating to their existing investors, these are the problems we're seeing, this is how we're navigating, that sort of thing. But I suspect that for many managers, 2020 was not the year that you were thinking, how do I foster new relationships?
Heather Fernstrom-Border:
No, it wasn't. It was much internal. And then also clearly trying to find if there were some opportunities that were going to come out of this and investment opportunities, and the managers that have done so. And then clearly focused on their current portfolio, and made sure that there were no additional problems arising there. That was clearly a strong focus of 2020.
Ryan Swehla:
Yeah. And we see, probably in your area as well, you go to restaurants now and they're almost bustling or bursting at their seams because people are wanting to get back to some semblance of normal. I wonder, in the investment industry, obviously conferences that'd be something to maybe prognosticate about a little bit. But I suspect that there is this pent up desire to reconnect both on a social level, certainly, but then on a transactional level as well. Maybe I wonder if 2021 will be almost a reaction to the dearth of activity in 2020?
Heather Fernstrom-Border:
I think 2022 will absolutely, for sure. So I won't name any names, but I was speaking to an investor the other day and he said, "Heather, I wouldn't tell anybody this, except for you. But the one thing that I miss the most, that I always least enjoyed, is the conferences." He said, "I cannot wait to get back in front of everybody." And he said, "I know the minute that I get back and I get all the emails asking for meetings, I'll feel very differently." And he said, "But I miss our industry as a community all being together." And I feel the same way. I think just to be able to walk down the halls and just see one another and be reminded of each other, and just have short, fruitful, conversations. I think we're all excited to get back to that lifestyle in some capacity.
Ryan Swehla:
Yeah. And what's interesting is the investment opportunities, or the need to find investments, didn't go away during 2020. Everyone still had to make returns and figure out the best way to allocate capital, but it necessarily hit a pause. So it'll be interesting to see. And I agree, as we get into 2022, that's really when we'll start to see, hopefully, kind of a full volume industry again.
Heather Fernstrom-Border:
Yeah. I hope so. I really do. So I know that our industry in general is a lot of type A hustle and bustle type of individuals. So I'm not sure how much longer you'll be able to hold everybody back.
Ryan Swehla:
Exactly. Exactly. Well, I know you touched on it a little bit, but I'd love to know, with the investment managers you're working with, what are you seeing that's working? Or what are you seeing that's, even if it's a specific niche, interesting observation? I'd love to understand what you're seeing that's working right now.
Heather Fernstrom-Border:
Yeah. As I mentioned, the investment strategies that seem to be playing out are those that have the local operator mentality, and that were on the ground responding quickly when it came over to the past year, and then responding from an opportunity standpoint, too. We have a select service hospitality manager who was able to take advantage of some of the opportunities in the marketplace and oversubscribe their funds in just a few months.
Ryan Swehla:
That's surprising. In the hospitality space.
Heather Fernstrom-Border:
You know, select service, not class A, high density by any means. So that was really fun to be involved, and continue to be involved with that manager. But once again, it goes back to, the recipe was already made and baked, and they had the track record. Similar to Graceada, the track record was there, the people were in place, the mindset was there, the culture was there. So when the opportunity arose, they were able to take advantage of it. And so that's really where we've seen our clients be successful.
Heather Fernstrom-Border:
In addition, I would say that when I measure success, it's not always just capital raising. I think there's lots of ways that we can measure success in our industry. And success for Alliance is if we're able to move the needle and best practices. We want to move this industry forward. We're determined to help do so. And I think that the check the box mentality is really leaving our industry. 10 years ago, 5 years ago, 3 years ago, you talk about ESG or you talk about even just filling out a due diligence questionnaire, and the mindset is, let's just get through this. Let's get as many points as we can. Let's check as many boxes as we can and move on.
Heather Fernstrom-Border:
And I think not only when it comes to ESG or DEI, whatever the questions are that are coming through on these due diligence questionnaires or coming out during meetings is that we're finding that investment managers, or at least the ones that working with, are asking, "Okay, why are they asking the question? How can I do better? What are the investors trying to accomplish by asking these questions? And where can I help solve their problem?" And the investment managers are really resonating with that risk mitigation mindset that's typically ultimately driven from the CIO of the investors. And although we did it well previously, I would say that's one of the items where we're really winning as an industry these days.
Ryan Swehla:
Yeah. And you mentioned that on the capital raising, being the only measure, or historically it being the only measure, it's interesting as we're raising with our fund, more and more, we're focused on the right capital versus any capital. So even as you're talking about checking the box on the due diligence questionnaire versus really digging deep into the why of the questions, I'd say, even on the capital side, that's something that we find ourselves asking more and more, is not how much capital are we getting? But is it the right capital and why? And do their objectives align with our objectives? Because at the end of the day, it can be a great short relationship if we recognize that the alignment isn't there.
Heather Fernstrom-Border:
It's so true. I mean, these are long term relationships. At times, it takes two to three years to even develop the relationships to earn the capital, if you will. And so, what we're also seeing these days, and I know that you share this as well, is the focus on references. So we can't spend as much time in person as we'd like, but you pick up the phone or you talk on Zoom, and it's one investor to another, and the investor is clarifying their experience with the manager. That holds an immense amount of weight. And I would say that's something the investors were leaning on previously, but now more than ever. So reputation is just huge, and that'll continue.
Ryan Swehla:
And that used to be a phone call. And now you can actually have a reference call where you can read a little bit of body language and things like that. So it's great. They're great.
Heather Fernstrom-Border:
Exactly.
Ryan Swehla:
I guess, just kind of in closing, I'd love to know where do you see Alliance five years from now? You guys have started a great trajectory. How do you see the vision unfolding over the next five years?
Heather Fernstrom-Border:
Well, just as you mentioned, we're spending a lot of time selecting the right partners. We will continue to grow this platform. And we're really excited to do so. But it's going to be based with focus and intention. And when it comes to intention, it's finding those partners that, once again, as I mentioned earlier, want to move the needle. It's no fun to make recommendations or be a part of it if nobody's getting excited about it. We love working.
Ryan Swehla:
Or there's no energy there.
Heather Fernstrom-Border:
Exactly. That's not why we're here. So we'll continue to intentionally build our team. We're going to continue to intentionally bring on the right partnerships. But at the end of the day, we hope to continue to bring success to the industry. And hopefully that is capital raising in some format. But for us, the motivation is really to move forward best practices and for conferences to resume. And five years down the pipeline and 10 years down the pipeline, we're walking down the halls of these PREA, III, you name it. That our clients are looking back and saying, "Look, this team did an exceptional and a phenomenal job for us." And that's really what this is all about for us.
Ryan Swehla:
Well, I really appreciate you taking the time today.
Heather Fernstrom-Border:
Yeah. This was fun.
Ryan Swehla:
It's been really insightful. And hopefully we can do it again.
Heather Fernstrom-Border:
Absolutely. Well, thank you, Ryan. I hope you have a wonderful afternoon.
Ryan Swehla:
You too.
Heather Fernstrom-Border:
All right.
Ryan Swehla:
Right.
Speaker 1:
Thank you for listening to Durable Value, an investor's podcast where we demystify commercial real estate with safe, sound investment strategies to help you balance your portfolio. If you enjoyed this podcast, be sure to rate it on iTunes or wherever you get your podcasts. To learn more, visit Graceadapartners.com, where you'll find more information, investors tools, case studies and more. This podcast is hosted by Joe Muratore and Ryan Swehla. It's produced, edited and mixed by Melodiq, with intro music by Ian Post. Thanks again for listening. And we'll see you next time.