Transcript

AY Strauss: Well, I want to welcome everyone to The Dealmaker’s Edge today. We’re really excited to have Swapnil Agarwal on the show. Swapnil’s the CEO of Nitya Capital. It’s a multifamily value-add impact fund that currently oversees a real estate portfolio in excess of $3 billion, over 25,000 apartment units across the U.S. And he’s also CEO of KPM Property Management, a Houston-based, full-service, multifamily management company with operations in Texas, Kansas, Utah, and Nevada.

Swapnil, you have an incredible story which I can’t wait to share—or you to share properly with everyone—from immigrating to the U.S. as a teenager in the late nineties [to] launching two very successful companies. You’ve earned a lot of accolades, Ernst & Young “Young Entrepreneur of the Year” award among many others. And it was great seeing you in person in the summer. So welcome to the show and let’s get started.

Maybe from your own words, you can share your background, how you got started, your upbringing coming to the U.S.?

Swapnil Agarwal: Sure. No, thank you Aaron. It’s a pleasure and honor being on your show. And thank you for such a kind introduction. You know, how I would describe myself is as an entrepreneur who was born in a small town in India. You know, grew up in a family where from the beginning, right, in their own humble means. And, you know, in a little town in India that both my parents just, just worked all their lives, right? So I grew up in that family where, education and their work ethic were really held in high regards. So, even though the means and the environment wasn’t supportive of the adventure that was coming later on. But those values were instilled pretty early on.

At age 15, I was fortunate enough to be able to migrate to the United States, and we moved to Houston at that time. And, first of all, I…felt really blessed that I was able to come to a great country like America. But, the visions of the dream you think of in the East of the West, the reality couldn’t be so different because you think, you know, in the West it’s “everyone is rich, everyone is happy” and you’re coming from the East, you know, coming out of poverty, you realize that the same elements exist in this society as well. You know, so it’s just that, it’s a richer country in different ways but the normal population division is still the similar…how I grew up. And that was a pretty big eye opener for me in a way because, I had different… but regardless, just like any other young immigrant, full of hope and aspirations and, again, I had the tools of work ethic and a little bit of intelligence with me. So, went through high school and, in the first eight, nine years I grew up in the same kind of apartment communities that eventually we end up buying now through our business, which is Nitya Capital. But it’s those communities that the 70’s-80’s apartment complex and Southwest side of Houston. And, and you really realize it’s some of the basic aspects such as cleanliness and safety, I would say, you know, crime. It’s just been a huge part of my life growing up in these communities. It just stuff that we all take for granted was not existential at these kind of communities.

So anyways, I kept that in mind and I hope that somewhere later I could come back and you play a role in kind of enriching these people’s lives to get there. Graduated from college and worked in investment banking for three years, and I took a job in private equity in real estate in Asia, deploying 700 million worth of equity in developing countries like India, China and Japan, [and] Australia. A lot of those great countries. I mean, great experience for me, you know, that I learned just traveling and I mean, that’s one thing I realized that the more you travel, the wider your perspective is. the more intelligent you are, the more intellectual you get. I think it’s just [that] traveling is a big part of my story.

So, [I] did that for seven years and came back in 2013 and I thought that I wanted to do something on my own. And then as destiny would have it, the thesis that I was kind of circulating in my head was related to Hispanic multifamily. And Hispanic multifamily is, you know, the thesis was at that time in my mind, we were in Texas, so then in Texas there’s a huge amount of migration that’s happening, which is, you know, more prevalent in the way now you look at the Sun Belt, the migration that’s happening. At that time, my thesis was the Hispanic population all migrating to Texas and I want to build communities for that tenant base and give them access to legal help or for immigration help, healthcare and really, you know, enrich these people’s lives. And, and that was a thesis…I, and it ended up becoming that. Eventually, those same communities, that Class B value add assets, is the communities that I ended up owning and buying and which is what I, the business that has become now. But that was the original thesis in 2013. And as part of that, we started acquiring a lot of facets and built a company that’s a fully functional company. I still can’t believe [it] sometimes that I have a machine that’s kind of working, at least, you know, I mean there’s a lot of work needed, but at least it works. And sometimes, I’m so grateful. Sometimes I’m angry that “why is it not working better?” And so these are the emotions that I battle with. So that’s the way I would describe myself. It’s hard to put it down in a few lines, but I hope I did justice to it.

AY Strauss: You sure did. And, and you went to U of T, you majored in finance and then you were, you were at Simmons Company, I think you were focused on the energy sector and then foreign partners, which is a private equity fund, and you helped open their Asia Pacific office. And then, I guess it was about eight years in sort of investment banking-type roles. And you took a big risk. I mean, you were in cushy jobs, you were getting paid well…traveling all around the world on the company dime. Maybe you could talk about the first deal and, and what gave you that courage, if you will, to say, you know, I’m leaving this track because getting to where you were initially wasn’t so easy either, I imagine. So that journey starting…coming back?

Swapnil Agarwal: I thought about that question to myself too on numerous occasions, right? So I think the best explanation I can give you is that I am kind of lucky because I came from nothing, right? So in my mind, you know, in some sort of way like, I am ready to be, go back to nothing and start again. Right? Like, there’s some cautious way where I’m going to keep. So risk taking and, dollars and money. Money never really held that much significance in my life, except that it’s a measure that society uses for measuring success. So I think of money, but never am attached to money and that’s, I think, is the biggest quality because that’s what allows me to, risk a lot, risk big, take educated risk. Because again, I’m somebody who has a lot of self-conviction too, that I know myself and I have, I’m self-aware too of my limitations. I think step one is being self-aware and step two is having self-conviction. So, I know that the risk I’m taking, I think the odds of them in my mind at least, you know, I can make it work. And, that’s a sign of an entrepreneur. A lot of things don’t work either. Right. But I, I hope that, you know, it’s like in baseball, right? Three out of 10, you hit 300, you’re Hall of Fame, right? So I think I can have a better average than that hopefully. And, when I was working, right? Yeah. The job was nice, you know, flying business class across Asia Pacific and you know, unbelievable experience too. But I think eventually, you know, as the destiny in my mind I believe in karma and destiny, and I believe in, you know those aspects.

So I think it was always written in and it was always part of God’s plan that I’m going to eventually come do it. And I think, you know, me being raised in these kinds of communities and stuff, everything had a role to play…to bring me here to do this. So it’s hard to go back but I’m always the one that… I’ve always had an entrepreneurial itch, that’s for sure, right? I wanted to create something and create and improve, you know, enrich people’s lives somehow. And so I’ve always had a bigger purpose, I just didn’t know how. And I guess this path shows me how I would summarize it.

AY Strauss: Sure. Maybe you could walk our listeners through that first deal. I know it was very difficult. You really put a lot of energy and effort into it and it was a really great way to get started. Maybe you can just walk people through that first deal because you know if you could do one deal, theoretically you could do a hundred. Right? So it’s about getting over that hump and maybe you can describe how difficult it was for you and what you went through and the risk you took.

Swapnil Agarwal: Yeah. First deal was this small 37-unit apartment complex. It was in Dallas, in Louisville, Texas. It was 1.342, I even remember the exact number, $1.342 total million for purchase price. And I was already in private equity real estate, so I kind of had an idea. But when you’re working for financial institutions, that experience is just so different then when you’re doing something on your own right, you literally have to, you know, look to raise equity, raise debt, create a presentation, you know, create a company agreement for investors to sign then be the manager, collect rent, then, you know, do the monthly financial statements. So literally, like, you gotta be ready to do it all. And I was right, and I, I said, I’m going to try and figure this out. If I can do it all myself, then I know each and every aspect of this business. So, somehow, you know, $300,000 was the equity raise. And I was never worried about the raise because I had worked 10 years in corporate, in banking and private equity and had that much [in] savings. So I said, you know, look, I, I’ll just do it myself and, and if nobody, so I, I never…that’s another aspect of my character. Right? You know, a lot of people are focused on capital raising and equity raising for their deals. I’ve just never had a big, you know, like I’ve never been desperate to raise money. I just have always believed in the business and the idea and my strategy. So and I was always been in a position of, I guess, luxury to think that way, that I don’t, you know, if somebody wants to invest, they should on their own merit and make their own decision. I never want to push anyone. It’s the same thing, but somehow few friends of mine that I had created a presentation deck just for my own records. And I emailed it out and I showed it to them, and they wanted to invest in that deal, $50,000 each. So, I said, Okay let me scale my investment down so my dollar can last longer. Maybe I’ll buy another one or two more.

And then got a friend to co-sign on the loan. Because obviously, my net worth wasn’t enough to cover a $1 million loan. So I was lucky that I had, you know, relationships and friendships that I can go and tap on. And be able to execute and, and get…because the financing is a major part of the puzzle, right? I mean, 70-80% of the puzzle. So being able to do that and then just it goes from there, right? I had, you know, one asset. Then the next one was a 76-unit that was a $2.3 million, so that was a $600,000 raise. And again, I said, “okay, I got a couple hundred thousand left of my own. I mean, I, I think I can raise.” But then, you know, I did, I only ended up putting $50,000 and get oversubscribed. So I said, “okay, then my dollar’s going to last longer”. So I was just thinking in the first, five, six deals about how long my dollar can last without really thinking that I can do this as a big scale but that’s how thing goes. And then pretty quickly after a year, you know, we had acquired about, 11-1,200 units. I said, okay, let’s just set up a property management company. It was hard, you know, because then you don’t have scale, it’s difficult. You need a lot of economies of scale. And that’s one of the messages I had because a lot of new folks and syndicators are trying to, you know, because multi-family is in flavor now and a lot of interest from a lot of people. I mean, I just…I’d say that it’s, it’s not an easy business to manage. It’s really tedious operationally. The margins are, you know, really thin and really you have to do a good job, especially in the workforce housing, in these value-add products, right? So working capital management, a lot of these things, you know, unless you have a big scale, it’s hard to sustain these assets. And fortunately for us, we learned by mistake and fortunately, none of our mistakes cost us that big. And then, you know, luck also matters a lot. We started buying in 2013 and [the] market was the probably the best bull cycle we’ve ever seen—or in our lifetimes—in my opinion. And, and we were part of that, right? So, but, you know, we made some good decisions. We decided to exit a lot of assets last year. And when you, again, we bought a lot more too, but, you know, we have decent, I think the one aspect that I feel the most proud of is, our exit track record. We’ve exited over $2.5 billion of assets, you know, more than 65-70 assets we’ve sold and generated 27% IRR. So that’s something I feel very proud of. And also we’ve never lost money on over 110 acquisitions. So this is, you know we really care about the investments we make. We are the biggest investors in our own deals across [the] board, so our interests are aligned. So, we truly care about generating the value for not only investors, but also enriching the lives of the tenants. And then you have so many employees that are associated with us and really training them and uplifting their, you know, the level that… We’re seeing the realities on the ground level, you know, how much given all that’s going on with inflation and macroeconomically, we’re seeing the impact that’s been happening and we’re seeing the caliber and the talent of people also. It’s just, it is hard to recruit these days. We’re setting up our own training system to train some of these ground level staff. So, you know, a lot of great aspects to this business that really fulfills me from every level. And I would say that’s been the best part of my journey.

AY Strauss: Yeah. And let’s talk about that. Cause I know we’ve talked a little bit when we saw each other in person a few weeks ago about the way you treat these assets. It’s not just the buildings, it’s the communities. I mean, you’re really, really giving to these communities in a way that’s honestly highly unusual in my opinion. I’ve never really seen it. I mean, you’re giving free swim lessons on site to kids because drowning is a major issue in these community pools, especially in these neighborhoods; free immigration clinics; meals for kids in the summer. And if I had to guess that must be informed by your upbringing and some of the issues you ran into as a kid and love to hear about that.

Swapnil Agarwal: Yeah absolutely. I think your childhood and then your education growing up really matters a lot. You know, because I’ve heard people talk about, “how much of your education do you really use in today’s world?” But I think it’s not really the education, it’s like the discipline that you learn when you go to school, right? It’s just that competitiveness that comes. And even though I grew up in a smaller town, but, it’s a country of a billion people it’s like 10 times more competitive than in America. So for me, I grew up in an environment which is not only just modest and more humbler, but it also…gave me that competitive advantage that when I came to America, I thought I had an advantage. So really, you know, people talk about, “well, are you…were you the underdog?” You know the classic story of David versus Goliath? Who is the David and who’s Goliath? I said, I think I was the one that I shouldn’t, you know, traditionally, if you look at it, I was, I’m an underdog story, but really I think that the environment I grew up in really gave me that extra edge that, that if I could work, had, could have the same work ethic that I had growing up early and early childhood days. And if I have the education background, have the discipline, then it’s much easier for me to succeed here. And obviously, it’s a much bigger platform that, you know, it’s the greatest invention of mankind, right? The capitalism that’s been invented in America. I would say that education is, is really close to me. And you know, we have free healthcare clinics because again, healthcare is another sector that, again, I, I have no position to talk about it, but it just never seems to get fixed in America. Right? There’s always someone complaining and whether it’s insurance company or corporates, you know, our insurance bills have gone up, you know, like ridiculously in the last, I would say, two years or so. So it’s just, it’s a constant battle. But contributing back and enriching this kid’s life and we have free meals to all the senior citizens. You know, again, that’s something that my dad, he worked 22 years. We all came in 1996: me, my parents to Houston. And my dad owned a liquor store for 22 years, from 1996, 2018. Worked six days a week from 9:00 AM to 10:00 PM, 13 hours a day; never took a single break, right? So those are the work ethic that you know, really inspire at least from my generation. And, I hope we can replicate that in the next generation going forward as well.

AY Strauss: Well said. And, by the way, I want to really thank you for really organically bringing out the edge, because it’s The Dealmaker’s Edge podcast, so I didn’t even have to pull that out of you. You just gave it to us. So I love that. That was awesome.

Tied to that, maybe you could talk about the mental aspects. We talked about your appetite for risk vis-a-vis your upbringing and so on. But like we talked about initially, it is stressful. I mean, you have a big operation, you have a lot of investors, you have a lot of pressure day-to-day. Now it’s here. So it’s not a dream. You, you’re doing it. What advice would you give to somebody who’s making that journey, that climb? And, you know, that famous quote of, “you pray for the rain, you have to deal with the mud”. I think it’s attributed to Denzel Washington. But how do you deal with the day-to-day stress, basically? How do you manage that, that voice in your head that says, “Hey, you know, maybe this is too much for me. This is too much pressure.” You know, how do you talk to yourself day-to-day when you’ve got all this responsibility?

Swapnil Agarwal: Because I just think in my head that this is just not even scratching the surface. I’m just, it’s like in the first inning, so I’m just never satisfied. I, you know, people tell me you achieved a lot of things and, but I genuinely, in my heart, I feel like this isn’t anything, like I haven’t done anything. So every day I wake up, I’m super excited. Because I just don’t know that something great will happen. Then of course, that as day goes on, you deal with a lot of things, but I always try to keep a positive mind frame, right? I’m always, you know, even in the bad time, I’m trying to, you know, be sarcastic and make the joke, right? You’ve got to be able to laugh at your own situation, and again, it goes back to the same mindset. Where else would you be, if not here today? Right. What else would I be doing? Nothing. I love what I do, right? It’s like an athlete. I think of myself as an athlete. You know how athletes say that? They get paid to do what they love. It’s like the same thing. I create deals. I create value. I love finance. I love real estate. So, I love what I’m doing. I’m creating value. Not only in terms of monetary profits for investors, but so many aspects to it. So yes, there’s a lot of, you know, issues that come along with it, but I try to focus on all the great things. And yes, there are moments of weakness where, you know, I, I get down and, but it’s part of the journey, right? It’s how fast you can quickly bounce back from these moments and try to stay in that, that zone and that trans zone, and where you can be creative. So, for me, the way I deal with adversities, I just think of how much more I have left to do, how much more I gotta do. And that excitement just overcomes I guess small, minor setbacks.

AY Strauss: I love it. Just power through.

Swapnil Agarwal: Yeah.

AY Strauss: Your worst day is just an opportunity to push ahead and to smile and laugh and be thankful for what you have. And I think a lot of people listening, you might be stressed day-to-day, but the reality is, is that it’s a long term game and everybody has setbacks and it’s, it’s mostly about attitude.

Swapnil Agarwal: One thing I would say is, you know, like usually, you know, we have, we fear a lot of things. We fear, like we might have a certain fear in our mind, whether it’s related to a job or personal life or business, whatever. But one thing to keep in mind is only on the other side of fear is success, right? You have to, if you don’t go through it, you know, everyone makes excuses like, “Oh forget it, I’ll do it tomorrow.” But once you do it, remember that feeling, that feeling is irreplaceable, and you only get that feeling when you solve a difficult problem. When you saw the easy problem, you don’t get that feeling. You get that feeling when you solve a really difficult problem. You know, a lot of people say these things, but if you really think about it, it is on the other side of the fears when you really feel alive. Right? So don’t wait, don’t wait for it. Don’t wait for it. Go tackle it.

AY Strauss: Yeah, go attack it full force. Yeah. It’s not a dress rehearsal. You just have to go attack it. And if you’re not a little as if you’re not a little scared every day, I don’t think you, you’re really achieving it to some degree. You do need to have a little bit of fear. A little fear is healthy. Yeah, too much can make you crazy. And I think you’re blessed with the skills and the mindset coming together and that hyper ambition. You can’t teach that. You know, that, that desire to create more and more value every day and be excited as if it’s your first day doing it. It’s a wonderful story. I know you mentioned sports a couple times. I know you’re big Rockets fan in Houston and Astros fan, I mean what do you think? Any, any chance these teams will do okay? As long as I have you…

Swapnil Agarwal: I mean, yeah. I mean, look, sports is such an amazing thing, right? Because it’s almost like meditation, right? You’re not even playing the sport. You’re watching somebody else. And at a given point, you know, at a certain time you’re one with that player or the team, right? It’s such a universal way. So yeah, growing up sports made a huge role. Again, it’s, it’s about distractions, right? There’s a lot of things in my life that weren’t pleasant at that time, and that was my biggest distraction. Just watching and playing sports.

Playing sports. Just go outside and play, right? So, I played a lot of cricket growing up. Played a lot of soccer. And then we came to America. Then you know, in America I’ve always had that sports mind where, you know, I want to follow the local teams. And you know, again, obviously being in Houston, I would say Astros are my favorite team and I think they’re going to win the World Series. And people who hate on the Astros for 2017 are just losers. They don’t deserve mention.

AY Strauss: (laughs) So, you know, there’s a lot of listeners here off on the East coast and…

Swapnil Agarwal: Exactly. (laughs)

AY Strauss: take umbrage to that. We won’t share your personal phone number.

Swapnil Agarwal: Altuve is a Hall of Famer. You guys should accept it.

AY Strauss: That’s good stuff. Last question I have for you: Is there anything you wish I would’ve asked you think you could’ve shared with who are listening who want to have some inspiration? Anything you think we didn’t cover?

Swapnil Agarwal: No, Aaron. I think nothing specific. I think you asked some great questions. I hope I was able to justify your question and I hope your listeners will enjoy.

AY Strauss: You sure did. Your energy came through, your ambition, came through. Your story’s fantastic. And I think people will learn a lot and I’m really, really thankful. So if you’re making the time today. Thank you again for joining us.

Swapnil Agarwal: Share the link with me when you’re done.

AY Strauss: We definitely will. We’ll promote it to you and thank you to your team and their support on the back end. And have a wonderful rest of your day. We’ll talk to you soon.

Swapnil Agarwal: Thank you. Thank you. Bye-bye, everyone.