Moses Kagan - On the Shoulders of Giants


17 October 2021

1 hr 3 mins 52 secs

Season 2

Your Host
Special Guest

About this Episode

Moses Kagan has been buying, renovating and managing apartment buildings in Los Angeles since 2008. His company, Adaptive Realty, along with its investor-partners, owns approximately $200MM worth of high-quality buildings in interesting neighborhoods. Unusually for a real estate private equity firm, Adaptive and its partners do not fix and flip; instead, they act as permanent holders and stewards of the assets under their control.

Standout Quotes:

  • "Rich families that own good assets generally don't look to sell them to maximize Pre-tax IRR" - [Moses]
  • "If you do not lose the building, the rents will recover" - [Moses]
  • "When you start to think about things indefinitely, and you're not in a rush, it kind of opens up other possibilities in terms of structure and strategy" - [Moses]
  • "It's very hard to go from zero to something… and it takes an entirely different set of skills to go from something to something much larger" - [Moses]
  • "I do not believe that we as individuals live our lives for ourselves" - [Moses]

Key Takeaways:

  • Moses has been buying, renovating, and managing apartment buildings in Los Angeles since 2008, through his company, Adaptive Realty, alongside investor partners. He focuses on sub-institutional deals.
  • The most important part of the strategy is that rather than buy, fix and sell buildings to maximize pretax IRR, they buy properties, make them high-quality assets, manage and refinance them to get higher returns. The strategy was born from his family values as they had always been involved in Real Estate but never engaged particularly in sales of property.
  • There are two reasons why people sell; firstly investors have a mindset too focused on Pretax IRR, and secondly, the sponsor gets their money after selling. If you just hold on and keep the building, the rents will recover.
  • The initial funds for the business came from friends and family of Moses, and later from another family office who partnered with them. This partnership helped them build a track record that encouraged other investors to feel comfortable with them.
  • The structure for the business model is not to buy, renovate and sell like the typical model with PEs, but rather they partner with wealthy families with the explicit assumption to hold on to the property not sell, however, liquidation rights goes to the family that put up all the capital. The primary strategy has been to refinance the property to pull the capital out and give it back to the investors who still retain ownership and cash flow from rents. Adaptive Realty only gets fees for their work but not cash flow from rents, sales or refinance until the investors have got their capital.
  • Describing his family history, Moses shares how his first building was bought with capital from the family money dating back 4 generations. The wealth he enjoyed from his family was mostly in form of basic needs being met and, particularly education.
  • When starting a business with a partner, it is critical to have a decision-maker or tie-breaker irrespective of how profits are split. The relationship between Moses and his partner in terms of how earnings are split is quite stable even for the coming generation but open to discussions if need be.
  • There is currently no long-term family structure for his family, however, Moses spends a lot of time with his kids, to instill the values of passing on to the next generation what was done for them.
  • Discussing Storytelling, Moses emphasizes that your forebearers are a living part of your life, and tries to make those people present for his children even though they will never meet them.
  • Gaining exposure and immense assistance from his friends to succeed, Moses was also motivated to start finding ways to help people who didn't have the kind of opportunities he had.
  • Advice from Moses to those aspiring for multigenerational success: Don't put yourself in a position where one investor can wake up one day and force you to restart your career. This involves having different capital providers rather than being completely dependent on one.
  • From Moses to his kids: We owe everything to those who came before us, however, we can't repay them. We can only try to do for those coming after us what has been done for us, if not more.

Episode Timeline:

  • [00:48] Meet today's guest, Moses Kagan.
  • [01:53] About the business, Adaptive Realty.
  • [13:50] How do you get investors to join you with your strategy of holding properties permanently?
  • [16:45] How have you structured Adaptive Realty to be different from the typical P.E model?
  • [21:55] Moses shares his family background.
  • [32:36] What's your perspective on multigenerational wealth?
  • [38:28] What does the future look like in terms of the next generation?
  • [41:07] Do you expect your children to get involved in the business?
  • [46:15] Is there any form of family governance structure?
  • [48:18] Moses shares his approach to storytelling as a method to pass on values.
  • [52:55] How Moses works to help others who haven't had the same privileges he enjoyed.
  • [57:06] Advice from Moses to listeners aspiring to build generational legacies.
  • [01:00:33] From Moses to his kids.

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