Outrunning Failures

Real Estate Investing Lessons from a Lawyer with Clive Davis

• Vish Muni • Episode 23

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Today's guest is Clive Davis.

After graduating from Columbia Law School, Clive’s corporate career took him from a Wall Street law firm where he began as a transactional lawyer, to a variety of in-house legal and compliance roles in the pharmaceutical industry, including nine years serving as a Chief Compliance Officer.

Throughout the entirety of this twenty-year career, he remained actively invested in real estate with a small portfolio of holdings. Take a listen to all of the lesson's learned on today's episode.

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Creator/Main Host: Vish Muni

Show Advisor/Editing: DBT Marketing

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>> Vish:

Welcome to another episode of Outrunning Failures. Today we have a special guest who's Clive Davis. He's a lawyer by profession and a lawyer by profession and he's also a full time real estate investor. Me and Clive have a lot of common friends and I also met him at several meetups with that Clive. welcome and could you please tell the audience a little about your background? What were you doing prior to real estate, what got you started in real estate and what is your favorite asset class? Welcome Clive.

>> Clive Davis:

Thanks Vish. thanks for having me on. happy to join you. so background, professionally as you mentioned, I started out as a corporate transactional lawyer. working for a Wall street firm in New York City. out of law school. I did that for several years working on debt and equity offerings. this is before the bubble burst in, in or around 2000. I then joined the pharmaceutical industry as an in house lawyer for them and did a number of different roles for them. They actually ended up relocated me from New York to Atlanta. And as I mentioned to you earlier, I've now been in Atlanta for about 19 years. about two years into, following the relocation I joined another pharma company as a chief compliance officer. So all in all I had a 20 year corporate career with a mix of legal roles, compliance related roles. And at the end of 2016 after a 20 year run, I decided 20 years was long enough and I decided to make my escape from corporate Life and the W2. And I set out on a path to really focus on real estate investment full time. I had been invested in real estate for all of those 20 years. I was in corporate but it was always more hobby like and smaller in scale. my very first investment was back in 1999. I bought a duplex. I'm working in New York City. I bought a duplex down in southwest Florida. My parents had retired there three years earlier. And basically I set that up, that first investment so that the rents would go into a checking account. I had my parents names added to that account and I basically left those funds available to them to essentially subsidize them in their retirement. So if something happened, if a hot water heater went or a pool pump or something and there was a need, I could just redirect them to go get it from their account. And you do that enough times, and they start believing that it actually is their account that they have access to. So I was able to do that and I held that for, until 2018, so definitely a long term hold. But as I said, those investments were smaller in scale. I wasn't reliant upon the income. I was, I was well compensated in what I was doing. and so I didn't have the discipline that I have now when I approach real estate investing. So even having an exit plan. So when I bought that in 1999, I didn't even think about an exit plan or how, you know, what period of time am I going to hold it and you know, when's going to be the optimal time for me to sell it. None of that, but all of that, you know, ultimately served as a foundation for what I would years later go on to do. at the end of 2016, after leaving corporate life, within three months I went and bought a five unit apartment community in that same location. as you know, Vish, that qualifies as Commercial, 5 units and above. And I basically figured out how small can I go and it still be commercial, but not have to go find partners or raise funds at that point in time. And so the five unit was what I was able to do with my own resources. ended up renovating one unit, renovated, three other units, evicting a hoarder. Lots of trials and tribulations, but ultimately that, that proof of concept purchase turned out to be a very good investment. I sold it, one week after Covid arrived. And at that point I just decided I was no longer going to focus, on smaller multifamily. And I was going to figure out a pathway to get into large scale multifamily. And one of your questions was, what's my asset, class, favorite or focus? And it's clearly multifamily. that's kind of the educational journey that I set out on. How do I figure out the A to Z's of acquiring these larger scale multifamily? And so, I'll pause there and give you a chance to redirect.

>> Vish:

well Clive, that was a pretty interesting journey from being a corporate lawyer, working for big pharma in Atlanta and switching. it's totally two different spectrums. And so while you were a practicing lawyer, you bought a duplex in 1999.

>> Clive Davis:

Yeah.

>> Vish:

And was real estate always in you or you just one day you thought, okay, I think I need to buy something to make sure my parents have enough money. You just went and bought or did any of your friends tell you about that?

>> Clive Davis:

Yeah, I think, I've, I'VE discussed this enough that I've kind of narrowed it down or identified kind of what the initial influence was. And so I'm the child of immigrants, Jamaican immigrants, and my mother had, come to the US Actually from the uk, which is where I was born. I was actually born in London. and so my mother had always held on to the American dream. She had a sister living in New York. And so she came to the U.S. to really get things set up for us and then to reach back and bring the rest of the family. And so by the time that we got to the U.S. she had, she had acquired a home in Queens, New York, and a home in, Bradley Beach, New Jersey. And I would spend, when we finally arrived, I would spend many weekends with my father driving from New Jersey to the home in Queens, New York, which we were holding as a rental. And anything that needed to be done that qualif, you know, a handyman would typically, be engaged to do, we did it. So whether it was wallpapering, painting, carpentry, whether we were qualified or not, you know, I come from a background where it's kind of a do it yourself, kind of culture. So, you know, my father would, you know, we would go up on a Friday evening, we'd drive up, we'd have sleeping bags. And this was typically during, in between tenants. So maybe a tenant had moved out and we needed to do some stuff before the new tenant could come in. And I did that, like I said, many weekends. And that was my first exposure to, oh, you can own real estate that you don't live in and people pay you money. And so seeing that as a 14, 15 and 16 year old, now that I look back on it, I can see that that very clearly, influenced my thoughts about real estate. The benefits and the values, without even understanding, you know, tax benefits, without understanding some of the nuance, but recognizing that this was a way of making some supplemental money, by owning real estate that you don't necessarily live in.

>> Vish:

Well, that's, that's pretty interesting why, what you had and why you went and bought that duplex. And I'm, I'm very much with you on, on the background because me and my wife started a company in 2009 called Duplexaholics.

>> Clive Davis:

Okay.

>> Vish:

And, and we. My wife was born and raised in Texas, so she's more of a Texan than me. But, my. I'm a third generation real estate, investor.

>> Clive Davis:

Okay.

>> Vish:

Because my grandfather back In India, he had, probably a lot of rental. A lot of rental properties. More than. I would say more than 30 rental properties. But, you know, different cultures work differently and different. The property management work differently. After having seen what he had to go through in terms of managing properties, where it was all in house, we didn't know anything like property managers. We had to do everything. Like you. We had to roll up the sleeves, make ready. You want to paint the wall, do it. You want to change something and say, go do it. I mean, if you do it. All right. And that was. That is how I got started in real estate. But I took a pause, big break. When I came to us, I was in technology. But, after the challenges, what they had and what I've been through, what I could remember about property management and dealing with tenants and fixing houses, I, first thing I told my wife, I'm never going to manage a property. I don't want to be a landlord. I want to be an investor.

>> Clive Davis:

Yeah. Yeah.

>> Vish:

So that is when we bought this. We started this company called the duplexaholics, with the objective that, we'll buy one duplex a year for as long as we can do. I mean, it sounds pretty simple. One duplex a year, and I'm not yet managing it. I have a property manager doing it. Yeah, it's a fairly straightforward. But, we did 1, 2, 3, 4, 5 years. And then I. And then I'm learning from the school of hard knocks. There's no coach, there's no mentor, nothing. Right. And you go through the challenges of being fired by your own property manager, and you're maxing out your credit cards and your whatnot. So. But that was, that was how I started. But your journey is a lot more interesting because, you had your basis covered. You put that money aside for your parents to make sure that they get it. But that is an interesting way to start. But, in the meanwhile, this podcast is all about failures, in investing. I wouldn't call it failures. I would call it feedback. Because we all have feedbacks. because, being an entrepreneur, the pain comes first and the results later. Yeah, it's like. It's like you go to a gym, you're going to hurt first before you get stronger. Right. And I figured that one out. In entrepreneurship, you. You get hurt before you're given the lessons. You're given the pain. So, that being said, you told me a little bit about, the five units, what you bought, you had to evict Fuel, few tenants, and you, you had some challenges. So apart from that, can you name one challenging situation you had with your investments which had made you a better investor? And, and you still use that to mitigate the risk?

>> Clive Davis:

Yeah, absolutely. And so, there are a few. But what I would point to are investments that I made. So when I, going back to 2016 after leaving corporate, over the next 12 to 18 months, I invested passively in about 10 or 11 deals. And so, these deals were what I would call institutional quality deals by sophisticated sponsors. Many of these investments I made via a crowdfunded platform. and the idea when I went into it was I want to invest in the types of investments that I ultimately want to and aspire to be the sponsor of these types of deals. So in addition to my expectations for, you know, this deal is going to do a, ah, certain ROI return on my investment. I was also looking for opportunities to get education as to how do these big boys, these sophisticated players, you know, how do they do investor relations, what does their capital stack look like? you know, what does their, how do they execute their business plan? So all of these things was a byproduct of making an investment that I hope to gain. the one thing that I look back now and say in hindsight that I've learned the lesson is, is just because an investment looks good, looks great on paper, doesn't mean that it is necessarily going to end well. And the thing that I did then a number of times and ultimately got burnt, at least twice I blindly invested with someone with whom I had no connection, no relationship, didn't have the ability to pick up the phone and say, hey, what's going on? Or let's meet for coffee, or any of those things. So along the way, during those 10 to 11 investments that I made, I invested in two, particular transactions. One of those transactions ultimately turned out to be sponsored by someone who, albeit, although they were well known, this is an individual who made appearances on cnbc, was a thought leader in the real estate space, especially New York commercial real estate. This individual ultimately turned out to be a fraud and is currently, serving time in a federal penitentiary, as a result of, the fraud, not only for the deal that I happened to be involved with, but, several other deals where he was the sponsor. And so, the lesson for me, and the thing that I take away from that, beyond kind of the money that was lost and it was a substantial amount of money that was lost is when I'm doing private investments today. I will only do private investments today with sponsors with whom I've established a relationship and I have a pre existing relationship that pre exists whatever the investment is at the time. and so that is a very clear filter for me today. I get a lot of people, probably like you, Vish, who come to you and they say, we got this deal and here's why. It's going to double or triple in value over this amount of time. And unless I have a pre existing relationship with them. and that's not a. When I say pre existing relationship, I don't mean I met them at a conference or we exchanged cards or we jumped on a Zoom for 20 minutes one day. I'm talking about someone, I know them, I know of their family. I can pick up the phone and speak to them. I've kind of seen them. and reputationally I know people within their network who know them and can speak to their integrity, their credibility, accountability, all of those things that are important for a deal sponsor. So that's my takeaway.

>> Vish:

Well, I'm very much, very much with you on that client because you the real estate. After getting into real estate like you, I've been through several syndications where, where you find the most wanted person in real estate just in plain sight, right, right in front of you sharing a coffee. You wouldn't even realize. I mean these guys are so impressive and so good at what they do, you wouldn't even want to look up their names on the Internet. A simple search, we could have probably saved a lot of money, which we have not done. Okay, now that is something which I've realized after being an investor. Like you don't trust, anybody. In other words, don't trust anybody. And you do your own due diligence. And like you, I also invest only with people whom I trust and whom I know. And not just by the looks and the presentation, not how fancy they look or how good they are. Yeah, and I stopped getting carried away by all that. No more. But that is a, that's a big lessons learned with most of us, as a syndicators and sponsors, we've been through that. Like what I figured out is like you, you have the pain first, you get the, you're given the pain first. If we can tolerate the pain, then we'll give you more. More sweetness. to you.

>> Clive Davis:

Yeah, right. and my take on it is, is that people have to earn Your trust.

>> Vish:

Right.

>> Clive Davis:

And earning trust isn't something that happens because you watch their webinar and they came across. Well, earning trust, you need to observe and interact with someone over a period of time, right? so that you have, you know, reasonable exposure to them to be able to make an informed decision. And so, you know, what I did in 2017 and 2018, that's not the way I approach passive investments today. And, you know, I kind of outlined, you know, how I do things differently when I'm investing my money passively. So, you know, definitely a lesson learned. and it informs how I approach or even, receive incoming opportunities today.

>> Vish:

Right. So, so tell me now, you, you. You're a deal sponsor also now, right? Deal sponsor indicator. And, with that being said, so what, so your primary focus is only apartment complexes. Now, do you belong to any mastermind group or, do you have a team or do you just work by yourself? How do you operate?

>> Clive Davis:

Yeah. So the three deals I've done thus far have, been the same. Four core partners have come together. in one case at least, there were additional partners beyond that core group of four. I am a part of an apartment invest in mentoring program, which is where I met each of those partners at different points in time. and I joined that back in 2018. I'm not as actively engaged, but I'm still active within that mentoring community today. I've been lucky and I would say blessed, that each of the deals that I've done, at least each of the multifamily deals that I've done, it's been the same core group of partners, which I've come to find isn't necessarily common. and I know people who have not. As a matter of fact, one of our partners, I think when we did our second deal together, said at that time he had probably done six or seven deals, but never with a repeat partner. And so, the fact that we've now done three, technically more than three, because I've also invested passively in one of those partners deals where I wasn't an active deal sponsor. so we've done three or four deals together now, and, we will likely do more deals in the future together. we each have our independent entities and operation, and, then we come together as necessary to, get deals done.

>> Vish:

Well, that's interesting, Clive. I think, over a period of time, I think we all start building our own network. And because this business, even though real estate. But the more and more I'm beginning to realize it's more about relationships. The deal. I mean if, it's, it's like you could have the best of the driver, but if they don't know how to drive, I mean if they, if they don't, if they don't have experience driving, then no matter what, they're going to crash the deal. So, because I've seen it time and again, it's a brand new apartment complex and how could you mismanage that they've crashed those deals?

>> Clive Davis:

Also what I, what I say about that is a excellent asset manager and deal sponsor can make a, average deal good or even great. inversely, a mediocre asset manager can make a great deal mediocre or bad. So, so you really gotta pay attention to the sponsorship team. And usually these deals are done with a team. It's not just one individual. And so I never just, you know, let's say that the sponsorship team is three or four individuals. I never just look at one and say, oh, she's phenomenal. So therefore I'm investing, I want to understand the roles and responsibilities. Who's going to be the boots on the ground, who's going to be handling this aspect of the deal. And so you really need to think holistically about the team. And is the team a good fit? And so I think one of the advantages that we have now is that we have a track record individually, but we also have a collective track record of working together on deals. And I think that goes a long way in getting people comfortable that they don't have to worry about. Are these guys going to get along? that's not even a question because there's no way that we would be on our third or fourth or fifth deal if we didn't work well together, if we didn't get along. But a lot of times I've seen good deals go bad because of the dynamic between the sponsors and it's not a good working relationship. And that becomes evident from day one. And these deals are three, four, five plus years long. And it's like being in a bad marriage and knowing you cross the threshold and then you realize, I should never have married this person. but I tell people, these deals that we do are harder to get yourself out of than a romantic relationship that's gone bad. And so you better do your due diligence up front because once you get into these 3, 4, 5 plus year deals just because you're not getting along doesn't mean that you, doesn't mean that you don't have to work together, that you don't have to work it out. Because now you have a responsibility to your investors and it's not about you at that point. Because people have put good, hard earned money into your deal. And you've got to figure out, how do we get through this and make sure that we're doing what's in the best interest of our investors as well as us.

>> Vish:

Well, Clive, you said it right. There's so much parallels between being in a relationship and managing these deals. a basic, basic thing, a simple thing, it's the most easiest thing in the world is communication. And just because people are really good at something, they're not the best communicators. I mean, I agree everybody is not good at everything. But what I meant to say is communicate at least what is essential for the deal. They would, they refuse to do that. And, I've seen so many deals which are brought down because of lack of communication. You can never, ever reach them. You can never get to know what they're doing. A simple thing. And people get frustrated. The same with the relationship. If you're not communicating, if you're not expressing what you want or how you feel, or what you're doing or what is your plan, things could go bad really, really, really fast. And three months into the deal, like in a marriage, three months into the marriage, you think, man, what did I do? Why did I do this? I could have waited for six more months. There is no big deal, right? And, I've had that feeling a few times in the deals. But I don't want to say, that the things did not, things worked out, but things did not work out. And because of so many deals failed. And that was my biggest motivation to start this group. And, because we are all passionate about real estate, we love what we do. Now with you, I mean, if left up to us, we would continue working all day long. We won't take a break. But, what do you do outside of real estate? If you were not doing real estate and practicing lawyers, what is your life like? What do you do outside of these two?

>> Clive Davis:

Yeah, so since, since moving to Atlanta, I, I resisted, I resistantly embrace being a runner. so it took me a long time before I would classify myself as a runner. Although I was doing many of the things that people would point to and say, oh, you're a runner. and the reason I resisted it is because I don't Consider myself a natural runner who has my running shoes at the foot of my bed and I roll out of bed and I step into my shoes and I'm off. I tend to be someone who needs to really be motivated and I need to kind of pull myself out of bed and, and once I'm running and once I've completed my run, it's great. But I'm not what I consider the natural runner who. That's, the first thing they think of when their eyes open. You know, let me put my feet in the shoes and let me start running. So I've, I've. Over the last 19 years, especially when I was in the pharmaceutical space, I started running 5Ks and 10Ks and half marathons. So each year I probably run, two or three 5Ks, one 10K and at least one half marathon. And I sign myself and I sign my wife up for these primarily because unless I have it on the calendar to look ahead to, I'm not motivated to run again just on my own, accord. So that's something I do. and two weeks ago I started playing soccer. I call it football or I started playing soccer again, in an over 50 league. it's actually a mixed gender league, men, over 50 and women over 40. And I played for the first time in almost 10 years. And despite a little strained hamstring, I survived to tell the story.

>> Vish:

Well, that's interesting, Clive. I should have asked you first thing. You're from Jamaica and you must be a runner and you must be a 100 meter sprint. All the world champions are from that place.

>> Clive Davis:

Yeah. Although I've not done 100 meter sprint since I was probably 13 or 14 years old. but yes. So my family's from Jamaica, so we love track and field. I've been to the World Athletics Championships and I go to track and field meets. And that's outside of soccer. Track and field is my next most favorite.

>> Vish:

No, I love both. I used to be. I played soccer all my life. And that's a contact sport, which I. Contact sport and at a team sport. And I had to stop playing soccer because of the knee injuries and I took up running. And, Running is boring. If you like playing soccer. Running is just you versus you. Just one step in front of another.

>> Clive Davis:

It's a very mental, very mental.

>> Vish:

It took me I could play soccer three, four games a day, but I couldn't run for 10 minutes. Man, this is too boring. What am I running after? Nothing. So finally, once I figured out it Was more mental and it took me more mindset. And then I start running half marathons, full marathons and 5k, 10k. And the best races have been my trail runs. I don't like running on the streets, I like running on the trails. but that is again, something to do with real estate. It doesn't happen overnight. You can't run a marathon by just going to the gym or going for a one mile run on a weekend. But it's consistency, consistency, discipline. And then it takes a long, long, long time, A lot of planning.

>> Clive Davis:

Yeah.

>> Vish:

And you need to have the right shoes, right, mindset and right gear and a lot of things has to come together. Right.

>> Clive Davis:

So it's funny that you mentioned that because I use the marathon analogy quite a bit, in the real estate space. And the one thing I say about a marathon is you've got to run your own race.

>> Vish:

Yeah.

>> Clive Davis:

Run your race exactly your pace, so.

>> Vish:

Your pace.

>> Clive Davis:

Yeah. The one thing that I say is if you train at a 7 minute, 45 second pace, right, and you try and keep pace with someone who shoots after the gun fires, they shoot out at a six minute pace and you try and stay with them, that is a recipe for disaster because you didn't train with them, you haven't gone through what they've done to maintain that six minute pace. So you're setting yourself up for failure. So the one thing I tell people is, yeah, you can, you can look and see what other people are doing, but always focus on your race. and don't be influenced because someone's going faster, slower. You run the pace that you train that and recognize that look, if I sprint now, what's that going to mean for me at the middle of the race and at the end of the race? And so you've got to be consistent and disciplined.

>> Vish:

Well, that is so true, Clive. It all comes down to you versus you. Nobody knows you better than yourself. So I tell people, you know, your limitations, you know, what you trained for, you know, what is your potential. So it's your race. At the end of the day, how you run is up to you. You don't need to impress anyone. It's your race, right?

>> Clive Davis:

Absolutely.

>> Vish:

Yeah. Then thank you Clive for sharing that. So what, I want to ask you is, what are you working on right now? I know you've been in real estate, you spend a lot of your time in real estate, all day long investing. And I also realized that given your background, you also have a debt and equity fund or you have a fund or something.

>> Clive Davis:

I don't have a fund. when I was practicing law, early days out of law school, I was doing debt and equity offerings as a transactional lawyer. so we would represent the investment banks, the Morgan Stanleys, the Goldmans of the world, but ah, that's very far in my rear view. I don't have a fund. we do obviously raise funds for the deals that we do, but we do that on a deal by deal basis. We haven't gotten to know point or I haven't gotten to the point of establishing a fund through which we do investments. But today I'm focused on in addition to kind of the multifamily deals that I mentioned, I'm also focused on development. And so development is something that is new to me. In the last couple years I've gotten involved with two principal developments. One is a 137 unit multifamily new development and another is a very different development. It's a mixed use development. 90 acre, mixed use development comprised of single family homes, apartments, or condos above about 50,000 of commercial retail space. And that development also will include a 60 key boutique inn. However we will likely JV with someone or outright sell it to a hotel partner who will develop it and then ultimately own and operate it.

>> Vish:

So this, which location is this?

>> Clive Davis:

Yeah, so it's here in Atlanta, it's about 30 minutes southwest of Hartsville Jackson, the world's busiest airport, which is our, our primary hub and it's in a rural setting, like I said southwest of the airport, we have about 90 acres and we're developing a community there. We're now shovel ready and looking to break ground likely in late Q1 and that is occupying a good bit of my time these days and rightfully so. And yeah so that's, that's an opportunity that you know looks very interesting. Like I said it's new terrain for me. I'm learning a ton. development is very different than going out and just buying an existing asset from ah, someone who's already operating it. so the risk profile is different, the challenges, the nuances are different. so it's still under the commercial real estate umbrella but is its own animal to itself.

>> Vish:

So that's, that's interesting Clive. You're doing a ground up development and it's not just multifamily. You're venturing into hospitality and also commercial.

>> Clive Davis:

Yeah.

>> Vish:

And, so if, any of my audience want to know a little more about your development and how they can participate. So what is the best way to reach you?

>> Clive Davis:

Yeah, I'm on social media, but the best way to get a hold of me is just to go directly to my website, which is parkroyalcapital.com that's the best way to connect with me. You can set up a call if that's something of interest to you. you can shoot me a note. and I'd be happy to discuss and share with you more information about that particular opportunity. and just, talk to real estate. I can talk real estate all day. Yeah.

>> Vish:

Yeah. That's interesting. Thank you, Clive, once again for taking time from your busy schedule to come and talk to us and share your journey on outrunning failures. So I tell every one of my audience, remember, let's not forget, in the journey of investing and life, failures are just stepping stones. We just need to use them as opportunities to learn more and grow together.

>> Clive Davis:

Yeah.

>> Vish:

Thank you, Clive, once again, for joining us.

>> Clive Davis:

Thanks again for having me. Appreciate it.