It's a pleasure to have you here. And I know we've been trying to organize this conversation for a long time and today's the day and I'd love for you to tell us a little bit—let's start sort of at the broader spectrum and talk about your industry. And then maybe we can kind of drill down to what SFR means. And before we start, though, maybe you can talk a little bit about the utility player comment that is in your bio.

David Piho

Sure. It means a lot of things to a lot of people. But for me, it's really a matter of having the ability and willingness to do what the company needs you to do. And at the time they need you to do it. And I actually like to hire utility players for my team, for the business, because in a small business in particular, (but I think it's applicable to any business), you need that flexibility, because tomorrow you never know what holds and you need to be able to adapt and be flexible and really optimize the opportunities. And so that's kind of what I think of it in terms of business and hiring. And you know, from my career, going from trading, in my first job out of college, I was hired to do systematic trading for a small hedge fund outside of Boston. Then I moved over to a fund to funds role, diligence role, and then moved down to Charlotte for a similar role. And that was in 2004. So I've been with my company for 17 years. And over that time, we've started four distinct businesses. And so having the ability and the willingness to adapt to each one of those strategies, that's really what I think defines utility player.

Maureen Farmer

Excellent and does it refer at all to the baseball game?

David Piho

Absolutely, absolutely. The utility player in baseball is the player that can play multiple positions. And they're kind of the unsung hero of the team where, you know, somebody gets injured, and there are no more second baseman or middle infielders on the bench and so that typical outfielder, he can actually come in and play a pretty good second base. And playing nine positions in a single game, that was the—I don't want to say the peak of my career—but it was definitely one of the best highlights.

Maureen Farmer

And that speaks to, you know, your flexibility in terms of being able to do all of these different functions and having the knowledge too as well, and that sense of curiosity that would be required to be good at all of those different things. It's certainly no different in business. And speaking of business, I'd love to take a moment to help the listener understand, broadly speaking, what industry you're in and what was your path to this private equity world that you are in.

David Piho

Sure. So today, it is single family rental. And it's a new and exciting part of the commercial real estate world. It is really an offshoot of the commercial, real estate, private equity industry, and the path to get here...so it's new and there are a lot of people that are very interested in it right now. So, it's a very hot space. But the path to get here is not, I would say, no one could have guessed (even myself), that I would have been in this business today. So, the path to get here—as I mentioned earlier, starting in a trading role morphing into a fund to funds role and my first company...

Maureen Farmer

—can we stop for just a second, because I would love for you...before we talk about fund to funds, explain a little bit more about what that is.

David Piho

Yeah, sure. So fund of funds, it's really a hedge fund in itself. And a hedge fund is a generic term. And it's really a legal structure more than anything. So fund of funds is literally a hedge fund that invests into other funds, other hedge funds. And so the idea behind it is diversification across strategies and asset classes and capital markets. And it was originally meant to be an all-weather vehicle. And I think it's morphed more into a bond substitute. So lower risk, but kind of outsize return. So high-sharp ratio types of ultimate outcomes. So it's really meant to lessen volatility, but keep returns high. Now, over the years, I think the heyday for that strategy was really in the 2000s. A lot of money came into that strategy then. And since then, with passive investing and with the capital markets, the way they've evolved, fund to funds have really, I think they still fit for certain institutional investors. But generally, family offices and individuals, it's not really hitting their return or even their risk tolerances. So it's kind of gone out of favor. And in our business, we have ceased investing our vehicles and actually have wound those down because of that lack of opportunity.

Maureen Farmer

Right, right. In terms of your current company, I know you're doing the SFR business, what else is your organization involved with?

David Piho

So, we have really two businesses, I would say a third business would be that winding down of the fund of funds business. So, we have structured a few opportunistic funds out of the past crisis. So back in 2009, we had some mortgage and structured credit strategies, very esoteric, but did extremely, extremely well for a long time and some of those investments are actually still going, but we structured it as a closedown fund, so we don't have the ability to redeem for our investors. And so we're just waiting for that money to come back. But so that's really a very, very small piece of what we do. But the majority is single family rental. So we manage multiple funds in the single family rental space. So we currently have about 3100 houses that we own and manage across 14 MSA's, which would be metropolitan statistical areas, you can think of it as cities across the country. And then the other business we have is a property management business that really services those houses and those assets. And that business also has a another client out of Europe. And so in total, that business has about 4400 houses on its platform.

Maureen Farmer

And that's separate from the single family?

David Piho

Yes, separate but necessary. I'm sure we'll get into this, but we have an opinion that you need incentive alignment, and really control of the operations in order to maximize the returns on your investment. And so we actually, it's funny, we actually started this business back in 2012—the single family rental business by outsourcing our property management, and actually most functions of the business except for acquisitions. And it turned out to be a disaster. And it's really because of that incentive alignment and typically, vendors in this business, don't think like owners and that causes a lot of problems.

Maureen Farmer

17 years with the same company—let's talk about how that happened. Because over that period of time, products change, services change, the market changed. And I know you're now involved with this new exciting entrepreneurial venture—talk a little bit about how you built that up.

David Piho

17 years is a long time and I have friends and people say 'wow, one company, that's a long time'. And the way I think about it is I've been very fortunate to work with people that are very entrepreneurial, and very flexible and creative. And over those 17 years, I feel like we've started four distinct businesses. And so the first one is a fund of funds. So kind of multi strategy, very generic, all-weather vehicle, really, for friends and family. And that grew to a point where we were able to take outside capital. And then we started shorting subprime just like the movie and the book, The Big Short.

We knew all those players, we talked to them frequently, we had investments with some of them. And frankly, we did pretty well. And we had the idea in 07, 08, that we should start thinking about buying some of these assets or similar assets that were beaten up. And we said, well look, they're probably not going to zero because there's actual collateral behind the securities. And so we decided to start an opportunistic fund, investing in mortgage securities and in loans. And it turned out to be a little early that year in 2008, we put a little bit of money to work in the spring of 08'. And in the summer, Hank Paulson came out and said, Oh, hey, you know, don't worry, Danny and Freddie are going to be fine. We said, 'Nope, that's our sign to stop'. And so we stopped for about 9 or 10 months. And we just watched, everything kind of fell apart. And then we actually raised outside capital, a decent amount and put that to work in the spring of 2009. And that happened to be as we all know, that the bottom and a great time to invest. But we were also contrarian, because we had a really good understanding of what the markets were doing. Because of this fund to funds investment kind of platform, we had insight into many different capital markets. And we were able to piece together what was happening in the equity markets and what was happening specifically in the homebuilders and the bank stocks, and the mortgage lender stocks and, you know, put that together with what was happening in the corporate credit markets, and putting that together with the structured credit markets and the mortgage markets and so we were able to put all those things together and figure out okay, well, one, this is going to be a good opportunity that is probably the largest of our lifetimes. And when you think about how large the mortgage market was back then it was trillions of dollars. And it was all distressed. And you know, when things get distressed, there's typically a lot of opportunity, obviously, a lot of pain on the way down, but a lot of opportunity for those that can actually see it and execute. And so we did that. And we were able to raise outside capital, and we were able to then add on a another fund, and really built our reputations as the mortgage guys from Charlotte. And so we really had a good reputation out in the hedge fund industry, in the investor community. And we were able to raise a little bit of outside money and put it to work and we did fantastically well on those investments for those investors. In 2011, and 2012, really, kind of early 2012, late 2011, we threw our investments in these funds, and these strategies, we were paying attention to their models, and what they were valuing, or how they valued, I guess maybe I should step back. So, how they value these securities is really to assume that all the loans and all the borrowers default, and then after that default, they have to liquidate the assets or the houses. And so the collateral value, so the house value is very, very important to valuing these securities. And so what we started to notice through their models, and through their assumptions is that they were saying, 'Well, you know, we're not going to go down any more in home prices, we're actually going to flatten out', and some of the models started to say, 'oh, we're gonna, you know, there's gonna be appreciation again'. And we we took note of that. Okay, now, it's the time to get closer to that collateral, closer to those houses. And how do we do that? And so, going back to what I mentioned, about having the flexibility and the creativity, you know, one of the things that I really appreciate that we had the ability to do was, you know, we could go anywhere, we thought about it as our capital, and frankly, it was the partners capital at that time that we were able to kind of free ourselves from any type of structural constraints, and just go where the opportunity was. And so we were able to say, 'Okay, well, you know what, we have this thesis, it's very simple, that there are a lot of foreclosures, so a lot of distressed assets or houses out there. And there are also a lot of people that have been displaced, that originally chose a single family house, but they didn't have the right financial structure', you know, they weren't really intended to be owners, they should have been renters to begin with. And so we really put those two ideas together, and, you know, formed single family rental. And so having that business then really...we were able to raise some outside capital, and as really a pilot fund to say, 'Okay, well, we have no idea how to, you know, if we're going to be able to finance these things, we have no idea how we're going to sell them'. And I put all the models together for us and did the research. And in my original models, it basically said, well, we're going to buy them one by one. And we're going to sell them one house at a time. And, and now fast forward to today, portfolios of thousands of houses trade each year. And so it's become a very institutional market, which I think we'll talk about a little bit later. So that was kind of the third business. And then, as I alluded to, before, we started out, and we used vendors, we use third parties for providing services to our houses into our funds. And that was a disaster. And so we essentially, in 2016, made the decision to start our own property management business, and really take control of the operations. And so over that timeframe, it was almost like clockwork, every four years, we started a new business and and now we're caught five years into our current business. And I'm just wondering what the next business is that we're going to start.

So that's kind of the progression of how we got into it. But I think it goes back to that idea of creativity and flexibility and even in the hedge fund and private equity worlds, they're are very few groups that have that kind of flexibility. And so I do really, really appreciate what we've been able to do over the 17 year period.

Maureen Farmer

So, the difference between your organization and others that don't have the flexibility, is it because their funds are tied up in other investments, and they don't have the ability to leverage that cash? Or it's something else?

David Piho

I would say, they are structured to market and they're known for certain things. So there are asset managers that are very good at equities. And that's kind of what they're known for. So, if they got into housing, or real estate in a direct way, that wouldn't quite fit. And there would be a lot of questions.

Maureen Farmer

So, it's a legal structural thing versus...

David Piho

It's more perception. I think it's more perception than anything...they could go out and buy a business like ours and get into this business. And actually, that's happening now. In a decent way. I think one of the big transactions recently, Blackstone, which is the largest private equity manager in the world, they just bought Home Partners of America for I think, $6 or $7 billion. So, you can go out and buy these kinds of businesses. But for you know...Blackstone has that reputation. They're a private equity shop, they've started Invitation Homes, which is the largest single family rental operator in the world, currently, and also a public company. So they have some experience there. But I would say, in general, you have your niche, and you can stick to it.

Maureen Farmer

Right. Got it. Got it. That's interesting. In terms of the current business, tell us a little bit about, you know, how you scaled up and the institutional difference?

David Piho

Yeah. So, I'll start with the institutional difference, the scaling of it, I think, ultimately, you need a combination of resources and in the form of people and technology. But the institutional difference, so mom and pop owners, so let's take me and if I had a small portfolio of rental houses, my motivations, my incentives, my thought process is typically very, very different from an institution. So, we're actually seeing that today kind of play out in real time. And so let's say I have one house, right. And it was my starter house. And I've graduated to, you know, something more expensive, bigger, but I didn't want to sell it, or I could afford to not sell my first house. And I rented it out, that's a very common situation, I only have one house, and that rental stream, that income stream is very dependent on having a tenant in place. And so occupancy is very, very important to me. Because if that tenant moves out, now I need to do some work to repair it to get back into rent ready shape, I also need to market it, and then I need to lease it. And so there's some downtime in there. And it could be very painful for me from a cash flow standpoint, because I still need to pay taxes on that property, insurance, upkeep, if there's maintenance do on the outside, all that stuff. And mortgage typically, so there's debt service. So there's a high fixed cost. And so I'm very, very sensitive to occupancy. And so my general mind says optimizing and maximizing occupancy, whereas an institution, and especially today, what's happening is we are optimizing revenue. And we have thousands of houses. So we're able to take a more statistical approach. And so one house or even 100 houses, going vacant, matters a lot less to us. And so I think that's kind of...at the core of it, that's the big difference between institutions and kind of retail, as I would call it. I think some of the other differences are things like brand. And so we now have a property management business that...we care about our brand, we have people dedicated to looking at online reviews from Google or Yelp, or whatever, right? And so we really care about as a business, what people think about us...whereas, you know, as a landlord, you should do the right thing. But you're your brand, you really have no brand, right? Because you only have one house. And so it's really just a matter of making one tenant, you know, pay the rent and have a good relationship with one tenant at a time, whereas we have good relationships with 1000s of tenants at one time. So I think it's that graduation to scale. And that has a whole bunch of positives and negatives to it.

Maureen Farmer

Right.

So in terms of...I know that you've built this business, and you're a bit of a visionary here, I know that due diligence is a big part of what you do. And you've been able to actually systematize and scale that process. Are you able to talk a little bit about that process? That tool a little bit?

David Piho

I don't know how in depth we should go.

Maureen Farmer

Just in terms of...I just want to give people a sense of, you know, you're very analytical, you're very strategic, very entrepreneurial. So you're kind of like the whole package (is how I like to say it), so kind of like the triple threat. So even if you don't...if you're not able to talk about...I mean, I don't want you to disclose your intellectual property, but just to give us a sense of what the tool has been able to deliver for you and your investment team in terms of making decisions.

David Piho

Sure. So one, I'll tie it into the institutional approach. And so the institutions have a lot of resources at their disposal, and we being a small company, we've had to develop a lot of things, really, you know, on shoestring and bubblegum budgets. 

Maureen Farmer

And let's be clear, let's be clear too—that "we" really means "me". Right?

David Piho

Yes, right. And it takes a lot longer. Yes, I started...so our analytics team, and our platform really started six years ago, with me and some spreadsheets, and our accounting team. And so it has grown into something that is very well regarded, especially for our size. And so just to give you some perspective, 3000 or so houses in this business is I would say a midsize player, whereas the largest couple are 80 to 90,000 houses, the next largest, probably about 60, and then 50. And then you have kind of a big gap down to about 20. And then you have kind of the rest of us below 10,000. And even really below 5000. So there are a few that are public that...they have lots of resources, but the smaller guys like us privately held we, we have to figure out ways to do things with a lot less. And frankly, we're able to do that. And I was able to do that, going back to that flexibility, and that creativity and the willingness to do what we need to do. And so some of the analytics, so we use...there are multiple systems and platforms out there, like Tableau and Power BI and, there are a few others, but we've built insight into how our properties perform and how our tenants perform. And you can think of it as we're looking into the box from a lot of different angles. And we're able to and this is, again, this is a big difference between institutions and and retail is that one, we value data very, very much. And it's everything from Okay, what's the percentage of rent that we're collecting on the fifth of the month versus the end of the month kind of thing. Or how many evictions do we have to file? What's our average rent increase for tenants that have been there for two years, on average? How many HVAC units are 10 years old? And so we care very deeply about data. We're collecting data from just about every source, you can imagine. And then we're analyzing it.

Maureen Farmer

Right. That's fantastic. That's wonderful. I mean, we could do a whole podcast just on that...I find that very, very fascinating. And I'm sensitive to our time and I do want to ask you about COVID and how that's changed your business model, if at all.

David Piho

For single family rental, it's actually been a huge positive. The reason for that is really, I think that the core of it is that people generally value shelter a lot more today, right? And they're actually paying attention to where they live, how they live, and so I think what it's done is really force people to evaluate how much space they want, or need. And so single family rental has really taken off because of that...there's also been a shift from urban, you know, this urban flight has really accelerated, or actually maybe reversed. I think there was a little bit of transition back to urban prior to COVID. Now, it's kind of reversed out. And so you can see some of this in the filings, the the public filings. I think there's a confluence of factors that are coming together, basically, you know, means that there's a lot of demand for single family rental. Going back to that institutional versus retail, I think the institutions are a little better positions to capture that. Because they're going to have, you know, they're building that brand, they're also building quality into their houses. Not just on existing houses. So there are three types of purchases that single family rental buyers, institutions, how they acquire properties. One is just buying houses, empty houses, or let's say owner occupant houses and converting them to rentals, we call that one by one. Second is buying tenanted properties, really portfolios. So, let's say I had 5 or 10 houses that I've owned for a long time, they're all tenanted,  performing, but you know what, I want to retire and I'm going to sell this to somebody else so they can manage it. We would buy those types of portfolios as well. And then the third is actually building your own. And so American Homes for Rent is the second or third largest operator in this space. They started building I think two years ago, they're now the 39th largest home builder in the country.

Maureen Farmer

And who is this again? Sorry!

David Piho

Yep, it's American Homes for Rent. Yeah, they're a public company. And so we're doing it as well. So we're building our own houses. And it's essentially creating our own supply. But what we're finding is that just like somebody that really likes a new car, right? New car smell. And they're willing to pay up for that...there's a similar factor going into build-to-rent and so to be that first renter in a new house, we're building these things to be very durable, and which, you know, if we're trying to maximize our investment or optimize our investment return, that's absolutely what we want to do.

Maureen Farmer

Are you purchasing any distressed assets at all? Or are they all of a certain quality before you consider?

David Piho

I think the definition of distress has changed over the years. And so previously, it was very easy, it was foreclosures, you can buy stuff at auction, you can buy short sales, and it may or may not have been beaten up to the point where it needed a lot of work. I think today, my definition of a distressed house would be something that is really beaten up that needs a lot of work, even just to become habitable. And so there are some of those out there...fix and flippers, there are a ton of those types of investors out there. They're typically going after those types of houses. Those are harder for single family rental operators. Because, you know, a 50-plus thousand renovation takes a while. It takes a while, and we're deploying our capital, or we're trying to deploy our capital very quickly. And so we tend to shy away from those large rehabs, but I think there's some opportunity there. And so if there is a part of the market that's distressed today, I think it would be the you know, that large renovation type of purchase.

Maureen Farmer

And so what's next for you and Gorelick Brothers? What are you able to tell us, what are you looking at next, or what trends are you seeing?

David Piho

As a business, we're on the precipice of growth capital, and really taking our business to the next level in terms of size, so that mid size, we'd like to be one of the larger players in the market. So we are in those discussions currently. And so as a business I think it's very exciting. From a strategy perspective, one thing that we have...we have always been value oriented. And I think the definition of value is changing a little bit. Because I think you need scale in order to maintain or enhance the value that you have today. And so I think it's a little bit less...the value is less in the assets and more in the operations. And in making those operations perform, or really having the operations make the assets perform better. And we think that scale allows you to do that. And so that's really what our focus is, as we get new assets. It's really optimizing, maximizing, really making more efficient and effective processes and operations.

Maureen Farmer

That's fantastic. I would love to know, what has surprised you the most in your career so far Dave?

David Piho

That's a great question. I think...it's a little bit of a criticism on us. But the idea that you can have great investment ideas, but you may not capitalize on them completely. And so looking back on our investments, we've done fantastically well. Our distressed mortgage funds were recognized, as you mentioned, kind of on the intro...recognized by industry, you know, we did really, really well. And our investors did really, really well. And we were early and contrarian to the single family rental business. Now that has, like I mentioned, it's the highest thing, you know, ever in commercial real estate. And so I think, but even with that, we haven't been able, one of our struggles has always been to raise capital. And I still haven't really figured out why that is. But that's really the biggest surprise...that we've made multiple, very good calls and investments. And it's over a long time frame. But, you know, it's taken a very, very long time to get recognized for that and actually kind of reap the rewards of those many good decisions. And so a mentor of mine a long time ago, said that there are three pillars to the asset management business, and there's track record, there's pedigree and process, and then there's marketing and relationships. And, you know, I think we have had two of those three, especially today. We never really had the marketing. So now, hopefully that's changing with the growth capital we're talking to. That's kind of a cliche answer.

Maureen Farmer

No, I don't think it is. I think that organizations, business owners underestimate the power of strategic marketing. And even more so today, because we're not getting out there face to face and building relationships like we did before. And so now that marketing strategy needs to be crystal clear in the marketplace, and you need to know who your target market is and how you're going to get their attention. I mean, obviously, Gorelick Brothers has been very successful, despite some of these challenges that you've mentioned. But there's a lot of research out there that, you know, so many good business ideas and good products and good services that never got off the ground and the finding is that they just didn't have the marketing engine to get it out there. And so I mean, even the poorest product marketed well, will do quite well. And I think in my research and even in my own experience, I think that we underestimate the ROI of early marketing and investment in marketing strategy. There's an opportunity for you, Dave!

Dave Piho

Well, it's hard because when you have such a small team, and when we started this, the single family rental business, there was a lot to figure out. There's only so many people and we literally had four of us when we started that business. So it's very difficult to build a business and market, do all the things that you just mentioned, as well as figuring out I mean, it's a little bit like putting the bicycle together while you're riding it. And it still feels a little bit like that some days. But yeah, I guess my kind of insider view is there's a lot of other stuff to do too. And some people are successful at doing that. Don't get me wrong. And I've seen it in the hedge fund world where they are tremendous marketers. 

And, actually, so just to circle back about those three pillars, I actually think that is the most important piece, because I've seen hedge funds and private equity funds and investments gather a lot of capital. And they're terrible. They're terrible investors but they have these relationships, and they have their great sales people. They're able to lean on those relationships to get started. And they're actually able to get the benefit of doubt. Right? Maybe that's ultimately what we haven't been able to get. Is that benefit of the doubt.

Maureen Farmer

Yeah, because you've got a great product, you've got a great team, you've got like I said, the pedigree, you've got the track record. And this will be a conversation perhaps for another time, but I often wonder if organizations were to invest in...I'm not suggesting that you don't do this or that you should, but I'm just reflecting on, you talked about outsourcing before the property management function, which did not bode well. Although I do wonder not so much in property management, but I'm thinking in terms of marketing, you know, those types of investments, you know, organizations and experts that can help you do that...the return on investment for that if you're able to get into those markets, like the bigger hedge funds, you know, what the ROI would be there. But that's a conversation for another time. We're running out of time here. And look, it's just been such a fascinating conversation. And the last question I have for you, well, two questions actually, how is the home brewing business going? And how can people reach you?

David Piho

Haha, well it is not a business.

Maureen Farmer

No, but it's a hobby—I know you mentioned this. 

David Piho

It is definitely a hobby. I actually think that craft beer is a little saturated, but people love it. And my friends and people who stop by my house, they love what I make for them. And I actually really like the social aspect of it. You know, the ability to make something and then talk about it. And they're super interested. And by the way, it tastes good, too!

Maureen Farmer

For sure. Good things all around! Absolutely. And it puts your chemical engineering degree to work too.

David Piho

Hey, absolutely. Well, I I told my dad...my dad's an engineer, and I graduated with my engineering degree and he didn't really understand the business world. And he's like hedge funds? I don't know what that is. And he didn't really understand my career path until probably more recently, but I did make the joke one time, and I don't know if he appreciated it or not, but that I was actually using my chemical engineering degree in home brewing.

Maureen Farmer

That's excellent. Well, so many new industries have opened up since our parents were starting their career and, you know, completely new everything. I mean, you know, the advent of the Internet, and all of those things, you know, are new...as hedge funds are fairly new too.

So, how can people reach you, Dave?

David Piho

I think the easiest way is probably through LinkedIn. I'm on LinkedIn, you know, feel free to reach out via message. Pretty good about responding to people on that. And yeah, I think that's probably the easiest way.

Maureen Farmer

Okay, that's great. I'm going to say your name and then I'm going to spell it for the benefit of the listener here. So David D. A. V. I. D., Piho is spelt P. I. H. O., short and sweet. So, reach David Piho on LinkedIn. And David, look, it's been such a pleasure. I appreciate your time. And I look forward to having another conversation another time.

David Piho

Sounds great, Maureen. Thank you for having me.

Maureen Farmer

You're welcome. My pleasure.