Tiho Brkan – The Most Interesting Man in the World? Second Passports, Territorial Tax, Mezzanine Finance + MFO Investing

00:00:00
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01:08:51

22 February 2021

1 hr 8 mins 51 secs

Season 1

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About this Episode

Tiho Brkan is back for a second conversation about family office investing, including a deep dive into real estate mezzanine finance investing, uncorrelated assets for downside protection, citizenship by investment, second passports, territorial tax systems and his global view of markets today.

Tiho is a Global Citizen & Investor, and today runs the multifamily office, The Atlas Investor on behalf of his family and other ultra high net worth families and individuals.

I've been fortunate to build a friendship with Tiho since connecting last year and always enjoy our multi-hour conversations about the state of the world, investment opportunities and challenging eachother to see things from different perspectives. Tiho has a mind like no other person I've met and it's a privelege to listen and learn to him whenever I'm given the opportunity.

To hear Tiho's first appears on the podcast, please visit: Tiho Brkan – Global Deal Flow for Family Office Investors.

Standout Quotes:

  • "Is Cash going to be King or is cash going to be trash?" - [Tiho]
  • "While it's easy to make money today and everything seems to be working, the question for very smart investors is to anticipate what's around the corner" - [Tiho]
  • "If you think about a Real Estate cycle, you have 4 stages; Early-stage, mid-cycle, late-stage, and downturn... in Early-stage, you want to be in equity as much as possible" - [Tiho]
  • "We don't do deals with any developer that doesn't have more than one exit strategy" - [Tiho]
  • "If a senior lender is doing 37 million, talk to them, ask them about the due diligence because they're putting far more money than you are and they've done it all" - [Tiho]
  • "The way that you diversify your portfolio, you can also diversify your life" - [Tiho]
  • "Stick around very experienced people who have been around for a long time, who have survived the cycles... Stick with a talented group of people who have a low personnel turnover" - [Tiho]
  • "Negotiate... Negotiate... Negotiate" - [Tiho]

Key Takeaways:

  • Mike's previous episode with Tiho Brkan is one of the most downloaded episodes, and by popular demand, he had to bring him for a 2nd episode.
  • Tiho shares that a lot of investors in this period want to make a lot of money as quickly as possible, as this time is not very suitable for long-term investment.
  • He explains the reasons why this recession has been the worst in a long time, but this does not reflect in some assets and certain locations.
  • In normal valuation, reprisals happen where you hold cash which gives you optionality and the ability to be selective, but where money supply around the world is increasing at a rapid speed, is cash going to be King or is cash going to be trash?
  • Tiho explains that as a contrarian investor, you ride a certain wave until valuations become extreme for you, understanding that high valuations today entail future disappointing returns and so rather, you go and look for relative value elsewhere.
  • Family offices don't have to be restricted to one type of asset, they have an 'Open Mandate' and Tiho describes the various opportunities available for family offices. Most investors are asking, 'how much money can I make by next Monday?' while he is asking 'How do we only lose 20% rather than 50% in the upcoming downturn?'
  • The capital stack' and 'Mezzanine debt': There are 3 Real Estate strategies which are Core Real Estate, Value add Real Estate or Opportunistic Real Estate. Mezzanine debt is most commonly a strategy seen in opportunistic Real Estate investment. Mezzanine debt exposure is the most versatile in all 4 stages of the Real-estate cycle(early, mid, late, and downturn). With Mezzanine debt, you can get up to 15% returns per annum.
  • Tiho's due diligence process before investing: First, the deal must be 'shovel ready' meaning construction starts immediately. Next, note the purpose or theme and planning of the project, location of the project, the track record of the borrower, feasibility studies, the general contractor or quantity surveyor, Securities, and the Exit Strategy.
  • What is the Monitoring process? This involves Weekly and fortnightly communication to get updates on the project. it may also involve site visits by you or a Real Estate expert, and construction status updates.
  • Discussing Residence Planning perspective: What is the purpose that we're trying to accomplish here?
  • The OECD tax model: This is divided into 4 segments of how income is taxed. First is the "No Income Tax", second is "Territorial Tax". "Residence-based Taxation" is third. Last is "Citizenship Based Taxation".
  • An important investing lesson: Stick around very experienced people who have been around for a long time, who have survived the cycles. Stick with a talented group of people who have a low personnel turnover.
  • Everything is negotiable in the world of finance.

Episode Timeline:

  • [00:50] Introducing 2nd-time guest "Tiho Brkan", by popular demand.
  • [02:30] From your perspective, what have you seen evolve over the last few months from this pandemic?
  • [09:03] Are Contrarian investors nowadays taking advantage of the increased supply of money or sitting on their hands?
  • [13:52] Discussing the impact of the increase in money supply on preferences regarding the duration of family investments.
  • [22:38] 'The Capital Stack' and 'Mezzanine debt' in Real Estate projects.
  • [35:03] Tiho describes in critical detail, his due diligence process before investing in a deal.
  • [46:00] The 'Monitoring Process'
  • [52:50] Are there advantages to the double taxation agreement in a cross-border environment that investors should be thinking about?
  • [57:26] The OECD tax model
  • [01:05:10] An investing lesson to his kids

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