Deidre Woollard: Hello, real estate investors. Today, I'm excited to talk to Adam Demuyakor. He is someone who's as fascinated by real estate as I'm, which I always love. He started his career at Morgan Stanley in real estate, private equity, and banking groups. When he was there, he covered a lot of large REITs, real estate companies in the industry, all the kind of things that we follow. He then worked as an investor focusing on credit and market strategies at The Carlyle Group, and then at a long and short hedge fund emerging sovereign group before he started Wilshire Lane Capital, which is a venture capital group that focuses on my favorite subject, real estate technology. Hi, Adam. How are you today?
Adam Demuyakor: Hey, Deidre. I'm doing well. How about yourself? It's great to be here.
Deidre Woollard: You got started covering REITs so I've got to know. Was there any REIT that really caught your eye in the beginning and led you into a greater interest in real estate?
Adam Demuyakor: Yeah, two REITs that I've liked for a while. One is Prologis, which I used to cover back in my time in Morgan Stanley and just continues to do well. Obviously, e-commerce is an explosive category. You can see it in the stock over the course of the year. Then another REIT that I like is also Air Communities, which is formerly from Aimco. Following the pandemic, every people thought that cities like New York and LA, that people are going to leave and move into the countryside, but I think you're seeing that that's not necessarily the case and that stock is also doing very well. So those are two new names that I'm actually partial to.
Deidre Woollard: I love that. I feel like one of the things that I talked to with beginning investors is that studying REITs is a great way to start learning the fundamentals of real estate whether or not you want to be an active investor or passive investor. It's a great way to be able to look at something that is publicly available and see how things play out. What did studying REITs teach you about real estate in general?
Adam Demuyakor: Yeah, I think learning REITs during my time at Morgan Stanley really taught me the fundamentals of real estate valuation and really what's important when it comes to running a real estate firm. So you're breaking it down at a very simple level, it all comes down to net operating income, which obviously is multiplied via its cap rate, and that gives you the asset-level valuation. When you did it over and over, you get a portfolio-level evaluation. Really just focusing like the components of real estate valuations come down to two things. Just like all companies, which is maximizing revenues and the minimizing costs. But I think in real estate, it's unique and that it's at the asset-level. At Wilshire Lane Capital, that's simply what we're focused on when it comes to our real estate partners that we're fortunate enough to work with. We're simply looking for technology solutions that can help either augment revenue for these real estate firms or help them reduce their costs vis-a-vis technology.
Deidre Woollard: Interesting. You went back to school to get an MBA from Harvard after you worked at Morgan Stanley, why did you feel like you needed that additional training, or what did it bring you?
Adam Demuyakor: Yes. Working on Wall Street, both at Morgan Stanley and at the Carlyle Group, I got to learn the fundamentals of finance as well as investment and valuation, but I wasn't necessarily trained on a lot of the soft skills on how to run an organization, how to hire people, how to motivate people, how to set incentive structures, and that's a lot of what I learned at Morgan Stanley, which is really hard to lead a group and run an organization and also be able to identify the things that you do like and don't like when it comes to other organizations. I think that's fundamentally important today because I'm in the business and venture capital, investing in early-stage startups and so I need to be able to identify if there are any structural organizational flaws, be able to identify those and also trying to inject our DNA into those companies and try and give them best practices as well.
Deidre Woollard: Fascinating. You've worked at Fifth Wall, which is becoming this monster in real estate venture capital. The growth of that has been fascinating to watch. What did you take from that experience?
Adam Demuyakor: Yeah, so it has been exciting to watch. I think for me, just being able to be at the epicenter of what was real estate tech when it started, I think real estate tech or prop-tech is the thing that really, Deidre, like 10 years ago wasn't really a thing. I think you had Airbnb and you had WeWork, but there wasn't necessarily a category for those companies. Being at Fifth Wall, since you were there at the epicenter of this new category. Being there, I just got to learn what it takes to be able to invest in a lot of these high-profile companies and be able to manufacture wins, great businesses like Opendoor, in VTS, in Hippo home insurance, and then be able to just be able to take that access in Dealflo more or less turn it into my own vehicle, and try to also do similar types of successes and outcomes.
Deidre Woollard: Well, let's get into that. Why was it important for you personally to make that leap and founding more so in capital?
Adam Demuyakor: Yeah. So it's never the right time to start your own firm. But I think for me, I've had the pleasure of being able to work at many best-in-class firms in organizations over the span of my career. First, at Morgan Stanley, then at the Carlyle Group. I also spend time at Andreessen Horowitz. They're the ones that first taught me venture capital. Then after that, being able to work at Fifth Wall. I think the perfect timing is ultimately when you feeling confident in your ability to take a lot of the best things out of those great firms that you worked at. Then also simultaneously have your own true north. There were other thesis and other categories I felt very strongly about that I wanted to pursue. The case in point is a category that at Wilshire Lane Capital, we invested heavily into. That was something that I got to do with my own firm. That's one of the first thesis that we had coming out of the gate as we invested in ghost kitchens. This was prior to the pandemic. Back in 2019, I didn't know that there'd be a pandemic that accelerate food delivery by about like five years. We were looking at long-term secular trends and I felt very strongly about this and being able to run my own firm, I was able to invest heavily in this category. We've invested in three companies in the space. Already in less than two years, we're already up more than 2.5x on these investments. When you feel ready, you being able to take the best things that you've learned from these great organizations, but also you have high conviction on PCs in areas that you want to pursue, that's the right time, I think, to be able to start your own vehicle.
Deidre Woollard: Ghost kitchens is a fascinating topic, especially, I think, from a real estate perspective because it takes this idea that you can essentially have a restaurant anywhere because you don't need a front of house. Really big trend. I know Travis Kalanick has been working on this for a while. It's going to be his next big thing after Uber. I think he's still quite secretive about it. You've got a relationship with Nile Capital Group. What does that mean for Wilshire Lane Capital?
Adam Demuyakor: The partnership with Nile Capital Group is phenomenal. Obviously, they're back by Jose Feliciano, and he is the Managing Partner and Co-founder of Clearlake Capital, which is a massive private equity firm that's out here in Los Angeles. It comes on with being able to be aligned with him, and then also is run by Mel Lindsay. Mel Lindsay is someone who used to work at Giulia Spare, was involved with helping stand up many different vehicles across different categories, public markets, private markets. Working with Nile, I basically get infrastructure and support to really help out with a lot of the things that are outside of investing. Running a large fund, there's a lot of things that come with it that are outside of investing from an infrastructure standpoint, from an IT standpoint. Having Nile really allows me to focus on what I do best and what I enjoyed the most, which is the investment part and all the things outside of investing. They're just been a fantastic support system for us.
Deidre Woollard: Interesting. When you're just thinking about companies right now, are you factoring in impact investing, is that one of the things that's part of your criteria?
Adam Demuyakor: Yeah, I think it's a huge part of what we do and I think people like to think about it, "There's two types of investing. One type of investing is actually for returns and for profit, and then there's another type which is impact investing where I don't care about returns and profit and I just care about the positivity to society." I don't think that those two things have to be mutually exclusive. In fact, on the contrary, I think that one hand can actually help the other here. Also Wilshire Lane Capital, I think that is something that's unique about us as a venture firm that we track our metrics when it comes to diversity and inclusion in our portfolio. Around 40 percent of our companies are led by women outright. Around 30 percent of our companies have black founders. We track these things. Recent view, investing in diversity, we don't do it in lieu of profits. We actually think that having diverse teams, and it's been proven in data, research reports from Harvard Business Review all the way to Mackenzie that having diversity in organizations actually leads to greater business outcomes. When you are deciding to lean in there and invest in more female founders or invest in more teams that are diverse, I think that leads to better outcomes and ultimately leads to better returns. For us, it's not one or the other, I think we're focused on maximizing returns, I think you can see that in our results. But obviously, we do have an impact because we're investing in a lot of founders and a lot of groups that I think have been typically ignored or typically overlooked by the technology in venture capital communities.
Deidre Woollard: Yeah, I think that's very true. I love what you said there about that because I think it's important to look at diversity as just part of it and diversities is an asset, not something that we have to think of as impacting returns in a negative way. Like you said, the data shows it's exactly the opposite.
Adam Demuyakor: Absolutely. It's not charity, right? We are in the investment business, it's all about maximizing returns. At Wilshire Lane Capital, we feel strongly that actually having diverse teams will lead to greater returns and we've seen that born out so far in our results and we want to continue on that path.
Deidre Woollard: Totally. Well, let's talk about some of your investments because I took a look at, I think, some of the really interesting in terms of some of the trends that we're seeing. One of them is Stuf which is spelled S-T-U with one F. Self-storage startup, I think we've seen self-storage REITs, for example, are up like 49 percent this year. It's funny how the pandemic accelerated the need for storage. I keep hearing about the need for storage going up. We just love our stuff too much.
Adam Demuyakor: Yeah. I mentioned ghost kitchens as being one of our first thesis coming out the gate. Self-storage was probably the second one. We have had the pleasure of being able to invest in both neighbor, which is basically a peer-to-peer marketplace for self-storage. Very similar to Airbnb, but instead of people sleeping over or staying over, they get to store their stuff. Then Stuf Storage, which is a company that we were involved in incubating. Really a fantastic business and I think is a very key example for how we like to generate value vis-a-vis our real estate partners. We basically identified, especially in the pandemic, that there was a lot of underutilized space in the commercial real estate sector. You'd have basement spaces or vacancies in the retail sector above ground and below ground, and in the office sector, below ground, a lot of parking lots, in garages and basements that we're not used. Self-storage is basically a business that will go to a landlord and more or less monetize their dead space or their underutilized space and turn it into these high-powered self-sourced facilities, and then using technology, making an enjoyable experience, right? I think we all have someone who's had been in self-storage or you sell storage. No one really is prideful or excited about thinking about their self-storage vendor. Typically, it's an experience that you lament. You're like, "I have a self-storage space and I'm not really excited about it." It's sketchy, sometimes we feel unsafe, it's pretty sterile. There's no brand identity. So Stuf is different. Especially with almost half of self-sourced customers today being millennials and then Gen Z is right behind that, we felt that having a company where there was a brand and it was tech-enabled that you can have an app, and you basically go open up your facility and open up your locker electronically and remotely and you can know that your stuff is safe and secure, and also that's a great brand that I think millennials can identify with. The perfect example of this impact investing. On those sides, Stuf is run by a dynamic female founder, Katherine Lau. She was previously the vice president of real estate at Industrious, which is a very successful company in the pro-tech space. With Kat at the helm, we feel very strongly about Stuf's profile and going forward. We think it's going to end up being one of the larger self-sourced players 5-10 years from now.
Deidre Woollard: Awesome. So you mentioned Industrious, that's co-working. Your investing in another company, I find it's interesting work too which takes that co-working idea, puts it into restaurants. This one, I know got kind of buzzy before the pandemic. What's it doing now and what's your take on the future of co-working?
Adam Demuyakor: Yes, this is one of those water cooler conversations that I think everybody has got an opinion on following the pandemic. It's like, is the office dead or is the office coming back? Like, I'm never going back to the office or I really need the office. I think where we're landing, at least on our perspective, is that its going to be somewhere in the middle, right? I think, particularly when it comes to the places where there's a dearth of talent or a high competition for talent, getting folks into the office five days of the week will potentially be difficult or if you have to give them some level of flexibility where people can manage their families and manage their personal lives. I think WorkChew chooses at the center of that thesis. Basically, WorkChew tries to bring workspaces or co-working spaces closer to the end-user, right? I think even if people don't necessarily want to be in the office, many times, they don't want to be at home. Sometimes being at home is not the most productive place. With WorkChew, they basically are taking, once again, similar to Stuf, taking underutilized spaces, but this time, restaurants and hotel lobbies and converting them into spaces that, again, through an app, you can basically book a space, right? So like when you go to Starbucks to go work, you're basically rolling the dice, like you hope that you get there and that there's an extra space for you. You're hoping that it's quiet. You're hoping that it's controlled. You're hoping that there is an outlet that's available for you. WorkChew really takes that guesswork out of it and you essentially could book a space for yourself at a restaurant that's just as nicer and nicer than Starbucks or hotel lobby, and have a place that you can work at, that's not necessarily the office, but it's a controlled and quiet space, just like what you get at home and much cheaper than paying what you would pay for at co-working space. Only around like $50 a month and you have basic and unlimited access to all these spaces. WorkChew, once again, is run by two black female founders, Maisha Burt and Allyson MacDougal. Just fantastic female founders that we're so excited to back.
Deidre Woollard: Awesome. Fantastic. So you mentioned Prologis earlier. We're watching that boom. How are you feeling about Industrial? We're just seeing prices go up, there's so much demand. Are there any companies in that space that you're looking at?
Adam Demuyakor: Yes. So one of our portfolio companies is Saltbox, that we are very excited about. Basically, Saltbox turns 50,000 square foot warehouses into last-mile fulfillment centers for direct and consumer businesses. I'd say like, you and I started a handbag company or we started a sock business. Ordinarily, in the first phase of that company, you're shipping stuff out of your own home or you're getting a self-storage locker and you're stuffing all the stuff in there and you're just going to UPS or FedEx and just shipping it out a little by little. So Saltbox allows you to skip that step rather than having to do it at home or doing it at a self-sourced facility that's not optimized for that. You actually can book a smaller space, 5,000 square feet, 10,000 square feet, 50,000 square feet, and be able to run a direct consumer business for much cheaper and then much more efficient way. They also provide all these ancillary services to help you do that. We feel like that's very on-trend for our thesis in e-commerce, last-mile fulfillment. To your point, I think we're not even halfway there. I think we're only just getting started in e-commerce. There's so many things that we're now buying online that we used to buy in the store: electronics, books, sometimes furniture. There's so many things that we're still buying in person. When you think about where people will typically buy toothpaste or toilet paper or perishable goods, they're still going into Walgreens or CVS or their local grocery store. We believe that a lot more of that process is still going to be taken online. There are a lot of companies, Saltbox is one of them, but we're also tracking many others that are going to continue to enable that proliferation of e-commerce consumption where basically the majority of things that we're going to buy are going to be online. We think we're not even at the halfway point yet, and so that's why real estate companies like Prologis will stand to benefit from this long-term trend.
Deidre Woollard: Absolutely. When you're looking at companies, what stage of companies are you're looking at? Are you trying to find them before they go to seed or as they grow?
Adam Demuyakor: Yes. So in Wilshire Lane Capital, we really want to focus on being an early-stage venture firm. I think a lot of folks talk about early stage, but for us, we really define that the sweet spot being around the series A. When a company has had a product/market fit, they've had some success in real estate at the local level, and they are now looking to expand to multiple buildings or looking to expand to multiple customers or multiple markets. That's where we're very effective in helping them out in that inflection point. We also will look to do a lot of seed-stage investments. WorkChew reinvested at the seed stage, Stuf reinvested at the seed stage, so we're also happy to help our companies there. Then from time to time, we also will look to invest in later-stage businesses as well when we see the breakout performance so we still see upside. We also invested in Common co-living, and we also invested in VTS. Those were companies that were later than the series A stage. But we felt that these are just fantastic founders and great businesses and just really safe places to invest our capital. Our bread and butter is really at the early stage so you'll be seeing us at the series A going forward more frequently.
Deidre Woollard: Interesting. So you started learning about venture capital at Andreessen Horowitz, which is like the mother ship for learning about that thing. What did you learn about how you deal with on startup entrepreneurs? How you mentor them, how you guide them?
Adam Demuyakor: I was so lucky there's such an opportunity to be able to start my venture capital career at Andreessen Horowitz. I'm pretty biased, I think that they are quite likely the best venture capital firm in the world. I think it certainly was the best place for me to learn. Imagine for someone coming from Wall Street, where they are so focused on the numbers and so focused on the financials. Working at Andreessen Horowitz really taught me that it's important to focus on the founders and focus on the people. Particularly when it comes to the earlier stage of investment, seed stage, series A stage, the most important thing in underwriting a company is the founder. This is the CEO or the co-founders. That is the most important thing. Because it's going to be the beginning of a long-term relationship, sometimes 5-10 years. It is like, is this type of person who is going to be dedicated to the task at hand? Because it's very hard, it's very difficult, and will they stick with it? When things change, are they the type of person who will be able to roll with the punches and be able to pivot? Are they effective communicators? Are they going to be able to recruit talent? Are they going to be able to keep their investors on board? That's really what I learned from Andreessen Horowitz. I was very fortunate, and that's what we bring on to Wilshire Lane Capital today. As well as understanding that, look, if you can find a great founder, you can build a lot of the other great things around them, and so you can help them out with, "Let's get you to product-market fit. Perfect. Okay, now let's help you scale the business. Perfect. Okay, now let's help you get some key customers and let us help you bring on some real institutional talent." These are all things that you can bolt on. Once again, it starts with the founder, and I really think that's the Andreessen Horowitz's mantra.
Deidre Woollard: That's fantastic. So as we wrap up, what are you most excited about in real estate for the future and how do you see Wilshire Lane Capital playing the role.
Adam Demuyakor: Well, Deidre, this is great being on with you and there's just so much. I think with the pandemic occurring, there is so much that's changed in real estate in the past three years. People talking about, are people coming back to the office are they not coming back to the office? Are malls dead? Are malls going to survive? What about the rest of the retail, multi-family, or where do people want to live? Do people want to live in the countryside or they want to live in the suburbs, are they still want to live in the city? There's just so much movement. I think that that's exciting for us as technology investors because typically, when there's movement, when there's change, technology, that's a lot of opportunities there for technology to be able to create value and be able to help our whole new processes. What previously was like a vacant mall or an empty basement can now be a self-storage facility. What previously was an empty retail center can now be a last-mile e-commerce fulfillment center. What was previously an an office for one company can now be a flex office space for multiple companies. This is what we're looking for at Wilshire Lane Capital, is basically the next generation of companies that are well-positioned to take advantage of many of these evolutions that are occurring and particularly helping out millennials and Gen Z as they are also evolving in how they work and how they live and how they consume. It's a super exciting time, we think it's the best time to be invested in this space, and stay tuned. We're excited for the next chapter.
Deidre Wollard: Fantastic. Well, thank you so much for taking the time, Adam. Listeners, you can learn more at wilshirelanecapital.com. Stay well and stay invested.
Adam Demuyakor: Thanks so much, Deidre. Appreciate it.