Boots Dunlap
CEO & Co-Founder, RRA Capital
Q: Why did you choose to join the private lending industry?
Growing up in a real estate development family amidst the boom-and-bust market of Phoenix, I saw firsthand how real estate cycles brought financial abundance and scarcity to developers and their families. It seemed that whether you died rich or poor just depended on when in the cycle you died. However, regardless of cycles, it appeared as though banks always weathered the storm, though they might get acquired. And, bankers always stayed employed, though they might move to another bank. I saw this up close in 2008 when we built RRA, originally called “Realty Resolution Advisors”, an institutional consultant for commercial real estate lenders. In 2007, my father had to close his 35-year-old development company because he believed we were entering a real estate recession potentially worse than the Savings & Loan Crisis of the late 1980’s and early 1990’s.
At that point, I had returned to my hometown of Phoenix after tours in Iraq and Afghanistan as an infantry officer. Very few real estate firms in Arizona were hiring, and the few available jobs were going to people far more qualified than I. While my father was triaging his business, a banker reached out to him to see if he would consult on a distressed development. This opportunity spawned the idea that banks were going to need a lot more development expertise as the recession deepened, and he could generate some income around distressed asset consulting to hopefully keep the lights on and reposition his firm for great buying opportunities.
When my father approached me about his idea and asked if I wanted to help him build it, I was struggling to make ends meet as a new father. Though I left active duty, I enlisted in the National Guard for medical insurance and a small paycheck, and I took on any odd job available to help cover my expenses while I looked for more permanent work. I swore I would never work in real estate for my father because I was extremely proud and wanted to carve my own path. After months of trying to find a job, though, it was clear that nobody wanted to hire me, and I had lost hope in finding my new civilian career. With few options, I accepted my father’s challenge of joining him to do distressed asset consulting.
For the next 5 years, we rolled up our sleeves and went to work attempting to salvage as much value as possible for our clients, who were most often banks, insurance companies, CMBS lenders, and private credit firms. Consistently, we saw developers experiencing the same financial distress I had seen in my father’s business, which made me very weary of getting into development. We also saw traditional lenders that had made loans on fully-leased assets that were now vacant, which made me very weary of lending on stabilized assets. By 2012, the market felt like it had bottomed, but there were still no green shoots to give hope that we were in recovery.
Despite the uncertainty, interest rates were at historical lows because of the Federal Reserve’s need to stimulate the economy, pushing mortgage and cap rates down to historical lows. From an absolute return perspective, it did not appear that buyers and lenders on real estate were getting paid for the risk on stabilized assets. As a result, the best investment was in the value-add space where you could increase value without the high cost of ground-up construction. At that point, our firm had consulted on billions of dollars of distressed loans, and I had developed an expertise in commercial credit and transitional assets. My experience taught me to always look for the problems, which is a more fitting skill set for a lender who has to manage downside, than a developer who is focused on the upside.
So, in 2012, we approached one of our insurance clients about seeding a bridge lending strategy alongside our consulting and portfolio asset management business. Given our experience and thoughts on the market, we focused our strategy on providing senior mortgages to professional sponsors on commercial real estate with compelling value-add business plans. Today, the lending business has grown dramatically, having lent over a billion dollars in our strategy, and is the core focus of our firm.
Q: What is your current role and what do you do day-to-day?
My current role in the company is Chief Executive Officer and Head of Investment Strategy. This basically means I am responsible for casting a vision for the company, finding new ways of growing the firm, and finding ways to unlock more value for our stakeholders, investors, clients, and borrowers. On the debt side, we do significantly more volume than equity GPs, so it’s important that I focus more on the overall strategy, our team, and our process than the details of every loan request we receive. Though I am involved in a lot of the day-to-day execution, and I am an active member of the investment committee and closely review every deal we fund, most of my time is spent working on the company, not in it.
Q: What excites you about your role today?
We are a small lender and by no means ‘Titans’ of the industry; however, I am 100% confident that RRA is going to be the best private lender in America. It’s a bold statement, but it’s totally feasible and I like doing bold things. We also have an amazing team that is committed to making it happen. Every RRA team member is remarkably smart and fun to be around. I am blessed to be doing cool things with cool people. It makes going to work a blast.
Q: Can you explain a time when you faced adversity or had struggles early on in your career? Where did it all begin? How did these experiences mold and shape you into the leader you are today?
Prior to my career in finance, I served as a platoon leader and executive officer with the 10th Mountain Division in Fallujah, Iraq, and Kunar Provence, Afghanistan. My infantry company was in the toughest places during some of the toughest times of both wars. However, moving back to Phoenix in October of 2007, was like moving to a different kind of war zone. While America experienced the Great Recession, it was much more like a full-blown Depression in Phoenix who’s boom-and-bust economy had made ghost towns out of certain parts of the city, and left most people in my world without jobs or under-
employed and struggling to get by.
Trying to get a job was humbling, and building RRA seemed like an impossible feat. For the first several years, I made less than I did in the Army and worked harder each day than I did during the most difficult finals week in college. I slept in my office many nights as I grinded away developing thousand-page reports before deadlines. Our consulting clients, (predominantly lenders), were running exceptionally lean and could afford to be stingy because real estate professionals were lined up outside their doors like street vendors in a Moroccan bazaar. Growing the company wasn’t just a strong want; it was a necessity for my mental and physical health, and critical to being able to support my family emotionally and financially. Still today, I am exceptionally sensitive to those looking for jobs, getting started in my industry, or starting a small business.
Q: Is there anything that you wish you could go back and tell yourself at the beginning of your career?
Invest in multifamily! Hindsight is always 20/20. LOL!
Besides investment advice, I always wanted to go to a top-10 business school. Because of my time in the service, starting my family and RRA when I was relatively young, life got away from me. I don’t think business school is necessary, or even worthwhile when compared to getting great work experience; however, if you can get into an HBS, GSB, or Wharton type-business school I think it can dramatically alter your professional trajectory.
Most employers don’t pay any more for MBA unless you have a top-10 for “general business”, not in a niche like international business, real estate, or supply chain management. Additionally, if you can work for a globally recognized real estate fund, that can also dramatically set you apart. I always tell young people to offer to work for free to get your foot in the door. If you are any good, and they have a conscience, they’ll start paying you after a month of good work.
Q: Who is someone that has had a significant effect on your career and why?
My two business partners, Marc Grayson, and my father, Charlie Dunlap. I can’t say enough about how important these men are to me and the success of our company. Marc is my fellow co-founder, the President of the company, and the Head of Operations. His strengths are very different than mine which makes our talents complementary. While I am more focused on building strategy and new initiatives, he is responsible for maintaining operations and making sure all the parts of the company are properly integrated to achieve our mission. He brings confidence to our team through his steady leadership style and is a real lifesaver. On that note, he also saved my son’s life in a pool, so I owe him my life, but that is for another time.
However, my father has impacted my career and life more than anyone. This whole company is a result of his initial vision to create a consulting company with me. When we started the company, I had no credibility and was extremely green. He not only taught me the business, but more importantly, taught me how to treat people with love…almost awkward love and kindness. I have never met another person that puts his team and clients before himself more than my father. He would make sure everyone else on the team got paid before himself. If he felt the work that he provided clients wasn’t excellent, he often would not charge them, or if his investors lost money, he would often take money out of his own pocket to make them whole. Some might say that’s poor business, but it demonstrates the type of man he is. In the long run, it proved to be invaluable in building the business.
Both of these men are the real “titans of industry”. Real estate is a greater part of their DNA than anyone I have met. Any success I have is directly attributed to them.
Q: What has been your favorite aspect of being in private lending over the years?
I love the creative aspect of bridge lending, particularly where we get to understand the sensitivities of a business plan and then offer several solutions that can generate a win-win for our borrowers and our investors. CMBS, bank lending, and Fannie/Freddie are more of a commodity that don’t require as much creativity; however, capital structuring is more valued in commercial bridge lending where deals tend to be more complex. It’s also fun to see our borrowers adding value to real estate and communities. We try not to do distressed lending because we like knowing that the borrowers’ investors will do well, not just our investors.
Q: What would you consider to be the highlight of your career thus far?
The highlight of my career goes back to working alongside such talented and wonderful people, most notably the RRA team, but also our investors and borrowers. We have been fortunate to have some of the best LPs in the business that continue to believe in our team and appreciate the work that has gone into Making our strategy the best possible investment in their portfolio. Each time an investor or borrower emails or calls us to recognize one of our team members for the exceptional job they did, I get a high. I know our team is the best and it’s awesome when others can see what I see in them all the time.
Q: What do you enjoy most about your job? Least?
MOST: I am starting to sound like a broken record, but it’s working with our amazing team. They are some of the smartest, most dependable, and enjoyable people I know and they are amazing at their jobs.
LEAST: Working remotely. I need to be around my team, investors, and borrowers. They charge me and
challenge me.
Q: Is time or money more valuable and why?
I’d love to say money doesn’t matter, but I think it’s incorrect to discount the good that can be accomplished with money in the right hands. In the immortal words of George Bailey to Clarence the Angel in It’s a Wonderful Life, “It may not be too important where you come from, but it’s pretty handy down here.” But money shouldn’t be compared to time. That’s like asking ‘is risk or return more valuable?’ I think they are better considered as an x- and y-axis on one framework. Then that framework needs to be weighed against other frameworks to make life decisions. I think a lot can be gained from applying thoughtful algorithmic systems to philosophy.
Q: How do you make sure your company stays ahead in this industry?
I think it’s continuing to focus on people and processes. Our first Core Value is “Passionate About Improvement”. This means corporate improvement, process improvement, and self-improvement. I learned in combat that complacency kills, and I have no doubt that it applies to firms as well. I detest hearing, “because that’s the way everyone does it”, or “because that’s the way it’s always been done”, or “it’s good enough”. Those phrases reek of complacency. Process improvement includes technology. We are struggling to learn how to embrace technology in real estate finance, and I think we must if we care about process improvement. Self-improvement is also critical because it reveals the improvement mindset of a person. If they are not focused on self-improvement, I don’t know if they can be passionate about corporate and process improvement. If they look like they are into self-improvement but have an ego that gets defensive over critical feedback, I don’t think they are committed to self-improvement.
Q: What tools do you use to aid you in your role to be most efficient, organized, and focused?
I am more of a creative mind and was diagnosed with ADD amongst several other learning disabilities when I was young. Organizing, focus, and efficiency are traits that I desire but none come naturally. As a result, after 40 years of trying to be someone that I am not, I owned up to this fact and started creating systems to help me. For organization, I try to delegate out tasks that I know require someone skilled at organization. When I have a task that requires a high degree of organization, I admit that I am weak in that area and ask our firm President, Marc, to take it on. As far as focus, we have a weekly meeting where I, as the CEO, tell the leadership team what I am working on each week, and then they hold me accountable to report on how I did on those items the following week. My fear of letting down my team is greater than my natural inclination to get distracted. I also use an urgent and important matrix to determine where I spend my time and I try to pass off the smaller jobs so I can dedicate myself to larger jobs that will have a greater impact. I reach focus nirvana at night, so it’s not uncommon for me to do a couple all-nighters when I need to really focus. All that to say, I lean very heavily on my wonderful team because I am a long work in process on this topic and should likely not be giving advice.
Q: Has your role changed significantly to address the current environment?
As far as COVID, not too much. I am still looking for ways to improve our investment strategy and firm. Those pursuits have moved me into other areas, but not necessarily because of the current environment. However, ‘what’ our firm does changed. For example, we aren’t financing as many office or CBD locations as we used to, and we’ve had to roll up our sleeves to learn more about niche product types in real
estate so we can keep generating attractive risk-adjusted returns. And how our firm operates has been forever changed, such as the large reliance on Microsoft Teams, the cloud, virtual meetings, etc. During the height of the pandemic, I even did a virtual site visit using a surrogate! Clearly, technology is the beneficiary of COVID. As for other aspects of the “current environment” – greater competition on deals, rate movements, risk of entering a downturn, etc.; planning for these and managing them has always been a part of my role.
Q: What do you believe to be the best type of real estate investment opportunity available today and why? Do you feel that there will be any changes to the marketplace in 2022 in terms of investment opportunities?
Steeling my secret sauce, eh! LOL.
I think the best risk-adjusted returns are often in new concepts and strategies that have been proven out a couple of times, but not a hundred times. This means that you are on the front end of the trend, but not the bleeding edge when the business plan is still largely theoretical. If the popularity of a new concept/strategy could be compared to PE fundraising rounds, I would say I like investing in the venture or series A stage of a new real estate concept/strategy. After it’s done 100 times, or it’s roughly 20% through its TAM, I would say the strategy is in its series B phase and the word quickly gets out with lots of investors. By the series C stage there is too much liquidity chasing the concept/strategy thus diluting the risk-adjusted returns. By the series D stage, the product is likely in oversupply.
A great example of this is Top Golf. As a new real estate concept, I would not want to invest in the first Top Golf, or even the second. By the third one, I could tell if the business plan was feasible, and the sponsors are the right team to execute. By the 20th one, the sponsor doesn’t need our money because they have too many people trying to give them money. By the 100th, the concept is likely overplayed and starting to decline. These newer concepts take longer to understand, but if you take the time to understand them, you can get paid well.
All product types were originally a new concept. Recent examples include e-commerce logistic centers, data centers, creative industrial, creative office, co-working, SFR communities, toy storage, fitness mega clubs, memory care, group housing, micro hospitals, vet hospitals, ghost kitchens, and luxury movie theaters.
2022 will certainly bring changes as we understand how office and retail adapt to survive a world with endemic COVID and fear of the next ‘Big One’. Be sure to put yourself in industry groups and get exposure to real estate brokers that are in the flow of deals and can tell you what’s working and what is not. Good brokers are the best source for market intelligence and great deals in 2022.
