I just had a fantastic interview with a genuine real estate icon.
That’s not an exaggeration. Ethan Penner, now Managing Partner at Mosaic Real Estate Investors, helped pioneer what we know today as real estate mortgage-backed securities and once served as President of Nomura Asset Capital Corp.
Now, those are some credentials, and Penner brought them to the show for an extended conversation about Mosaic and what he sees happening in real estate finance.
The idea for Mosaic, he said, was born at a Tony Robbins seminar where he was challenged to think differently about his career.
Meaning, Robbins said, is derived from how the work that you do helps other people – not just yourself.
Looking over the economic and investing landscape, Penner determined he could best help people by guiding them into opportunities that – at the very least – don’t lose money.
“We live in a time, because of a variety of macroeconomic factors, that I think is the most challenging time – in modern times – for investing,” he said.
Penner said he feels bad for most “investors” these days because they’re not investing. They’re gambling.
I’m inclined to agree. I think many people in the last economic cycle were forced to invest in vehicles that were, shall we say, opaque.
It seems to me that family offices and other investors would be seeking a fiduciary that is focused on transparency as well as performance.
“When you talk about opaque structures, most of us think about crazy stuff – oil and gas drilling, limited partnerships with people who are not in the public domain. But we don’t necessarily think about public company stocks,” Penner said.
“I would challenge you and your listeners to re-think that. In my mind, public companies are as opaque – if not more opaque – than most of the things in the private sector.”
Penner said he wanted the company to stand for two things – preservation of principal and an absence of management fees.
Preservation of principal is key to the success of compounding, he said, and sharing in the investment income – rather than charging management fees – keeps the company’s interests aligned with those of investors.
Penner said two principles govern how he finds new opportunities:
1. Government regulation forces certain investors like banks and pension funds into a herd-like mentality. You don’t want to be in that herd. Look for things that the herd is not doing.
2. The real opportunity lies in the creation of cash flow. Find entrepreneurs who are creating yield and invest in them.
“Success starts with identifying niches where there’s an unmet need,” he said.
Of course, many government regulations prohibit major traditional lenders from investing in those opportunities, so it creates an opportunity for firms like Mosaic Real Estate Investors.
Rarely do I have this much time with a guest, and we talked about a lot more, including:
– Technology will continue to be a displacement story in the real estate business, but the displacement will come during times of weakness, not strength.
– Crowdfunding of real estate is an idea whose time will come, but it hasn’t come yet.
– Some real estate investment types are pure gold in any economic climate – and some aren’t. Some you should own, and some you should trade.
Ethan Penner is one of the most personable people I’ve ever met, and you can reach him online at http://www.mosaicrei.com or by emailing ep@mosaicrei.com.
Click here to listen to the full interview with Ethan Penner of Mosaic Real Estate Investors.
