“I don’t think President Trump reflects any of the values that I learned in the military. I don’t see integrity in him. I don’t see honor. I don’t see courage.”
So says United States Marine, Hunter Henderson. Considering how thin-skinned and vindictive Trump is, it was very courageous for Henderson to “come out of the closet” and speak truth to power.
There is no case that can be made that Donald Trump is honorable, courageous, principled, or good. His proponents might say, “Well, I don’t agree with some of what he says, but I agree with many of his positions.” In the field of ethics that is called the end justifying the means (when the means are dirty or wrong, and the end of those means is predicted to be positive and fruitful).
Evangelicals might try to fit that square peg into their round hole, but it just doesn’t work. In the field of common sense, that is called rank hypocrisy.
No less a theorist than Aristotle wrote centuries ago that “What a great statesman must be most anxious to produce is a certain moral character in his fellow citizens; namely, a disposition to virtue and the performance of virtuous actions.” As of this writing (2020), America does not have a great statesman [as President], and considering that Trump found an America ripe for his machinations and manipulations, rather than created it, we haven’t had a great leader for some time. Obama has many character strengths, but he naively, wishfully, brought a knife to a gunfight with the Republicans who were staunchly opposed to his success, be it personally or policy-wise.
“There is nothing better business leaders can do for this country right now than restore faith in the system that made it great. To do that, we must make character a priority in developing and choosing our leaders.” ~ Paul O’Neill
I like politics, as you probably know. But my business is real estate investing.
I am into a new book called The Hands-Off Investor, by Brian Burke, CEO of Praxis Capital. He is a former law enforcement officer who, when he was in his late-twenties, got the support of friends and colleagues to come in with him on a real estate deal. The rest is history; since those early days in the late 1980s, Brian has bought over 700 properties, including thousands of apartment units worth more than half a billion dollars. He has raised over $100,000,000 from folks like me who want to invest in apartments but just don’t have the experience, reach, systems, team, relationships, and buying power he does through a “syndicated” real estate investment. Brian writes:
“I have the opportunity to see a lot of deals that sponsors [folks like himself who put together a deal, also known as syndicators, or general partners] are peddling to investors. Many of these deals are excellent, but some leave me feeling like I am watching a herd of cattle being led to the slaughter. Many of the deals I’ve seen, as well as stories like my friend who lost all her capital [she was bilked by some shyster masquerading as a competent and principled syndicator], are part of what has motivated me to write this book. If I can prevent just one investor from making a devastating mistake, this project will have been worthwhile.”
“There are no moral shortcuts in the game of business or life. There are, essentially, three kinds of people: the unsuccessful, the temporarily successful, and those who become and remain successful. The difference is character.” ~ Jon Huntsman, Sr.
My hat’s off to Mr. Burke; his heart is in the right place, and he is coming from a place of character.
Whatever you want to say about Trump’s tax cuts, his paying for a wall to keep some immigrants from crossing the U.S./Mexico border, or his signing the recent prison reform bill, you cannot make a case that he has character, morals, or is righteous in any way. Whenever I hear an “evangelical Christian” try it makes my stomach turn.
Allan Nevins helps to define character thusly: Moral courage is allied with the other traits that make up character: honesty, deep seriousness, a firm sense of principle, candor, resolution.
Thus, whereas I tend to think of character as integrity, honor, the concept is probably wider and more multifarious.
I asked Brian Burke to tell me more about how one “vets” a sponsor, because that is the primary goal of a real estate investor who is a limited partner on a $10, $25, or $50 million-dollar apartment complex purchase in which one is going to be inextricably involved for 4, 6, maybe 8 years. You “get in bed” with the leader of your deal and you hope or pray that he or she knows what they are doing and will “bring their A-game” to preserve your money like it were their own. Burke is noting in the book that some people are safe recipients of the trust required to just send someone $100,000 via a wire and sign on the dotted line, and some are not. I can tell you that sending a person you’ve never met in person $100,000 for the next 5 years with no guarantee of success is a gut-check.
“I think that asking the question, “Tell me about your worst deal or your biggest failure and how you handled it; How did you respond? How did you rise to the challenge?” will go a long way to learning about someone’s character. When things are going great [with the economy, and/or with the investment in question], anyone can look brilliant. When everything goes to **** is when you find out what someone is really made of. If they say, “I haven’t had a bad deal” or have some lame example of a bad situation, then you know that even if they have the character, they just don’t have the experience.”
When searching for a good investment, as Brian indicates, one has to vet both the deal (the actual apartment complex, the location, the occupancy, the management, the buildings, the loan, and so on), but one also has to know who the captain of this ship is. He uses a NASCAR analogy to illustrate that the cars that compete in those awesome races have to meet exacting standards: everyone’s engine has the same number of cubic centimeters, for example. The distinction is in the tuning of the engine, the speed of the pit stops, the quality of the parts, but mostly, the skill of the driver.
“Nearly all systems of religious belief stress the building blocks of engaging others with respect, empathy, and honesty. These foundational beliefs, in turn, prepare us for the codes of ethical behavior that serve as ideal guides for business and the professions. Still, we need not subscribe to any religious faith to hold that ethical behavior in business is still necessary. Just by virtue of being human, we all share obligations to one another, and principal among these is the requirement that we treat others with fairness and dignity, including in our commercial transactions.” ~ Stephen M. Byars & Kurt Stanberry
Or a racehorse/jockey comparison; yes you need a strong and agile horse to possibly win a race, but the jockey can make all the difference. That is why Russell Baze, Laffit Pincay, Jr., and Bill Shoemaker are the winningest jockeys of all time, and not three other guys. A glance at this page will show astounding stats: Baze ran almost 55,000 races in his day! Talk about skill, confidence, and fortitude! And his percentage of wins was 24%, an unheard-of number. Baze earned nearly $200,000,000 in pay for doing this level of horse-leadership, if you will.
Carlos Vaz, a syndicator, asked what really makes him shine, replied: “Integrity. You always do the right things, even if it means making hard choices. Integrity is everything. When I shake your hand, and we do business, it’s not a contract that’s gonna keep us together. That contract is merely a formality.”
Peter Voss is a philosopher who has the following enlightening perspective (full article). His point is not that character is good, which is almost an axiom. He is pointing out that character comes from ethics, but ethics is not just “plug-and-play”, which is why humans are the only animal to debate right and wrong, to question themselves, to have religion, to philosophize:
“The most basic need for ethics lies in the fact that we do not automatically know what will benefit our lives, and what will be detrimental. We constantly face choices that effect the length and quality of our lives. We must choose our values: where to live, how to spend our time, whom to associate with, whom to believe. We must choose what to think about, and how to go about achieving our goals. Which character traits to acquire, and which to eliminate. By what criteria to judge others, and on what basis to interact with them. We must pro-actively think about these issues and deliberately direct our lives. To the extent that we default on this, we are at the mercy of social and emotional factors that may be far from optimal—a drifting boat, at the mercy of the currents and winds. Ethics is about the choices that we make—or fail to make.”
“Leaders have integrity. In other words, they express what they believe (reflecting honesty) and what they feel (reflecting authenticity). They don’t hide or misrepresent their thoughts and feelings. They don’t exaggerate. They don’t lie. They follow through on their commitments. They practice what they preach. Leaders with integrity declare and explain their values.” ~ Michael Lee Stallard
My stepfather, Stanley Westreich, has the same vision. He has “been around the business block” a number of times, now in his mid-80s. I asked him once about character and this is his reply: “When you ‘take the high road’ in business, you establish a reputation that will precede you and set the stage for all future business dealings. Indeed, your reputation is your most valuable asset in business.”
Brian Burke writes (pp. 34-35):
“A sponsor can use their depth of knowledge and experience to finagle the best outcome in the face of adverse circumstances. Perhaps they can also leverage other strengths…. However, just as a good sponsor can save the day, a bad sponsor can destroy a perfectly good real estate deal. While it is important to evaluate the deal, it is equally if not more important to evaluate the sponsor.”
He is talking there about the character of the person who is holding your money. I couldn’t agree more.
Definition-wise, accountability is certainly an inextricable aspect, as well. My friend Arthur Charchian has worked in businesses and as an attorney and a real estate investor, and he believes it is critical. He tells this story:
“I recently spent four days in a training workshop focused on developing strong management skills in handling ‘problem employees’. For the last eight years I have worked for one of America’s top companies, and every year it seems the company spends tens of millions of dollars on training programs that try to get managers, and ultimately employees, to do the right thing. These millions are spent with the intention of holding people accountable for their actions, for their work products, in customer relations, and to the company. Unfortunately, just like pork-barrel spending, these millions achieve very little in results. The reason: accountability is a value, and values are learned, not imitated.”
Indeed, virtues such as integrity and honor are inculcated in the young, but Arthur is indicating that one does not learn character by rote, or because a teacher wishes it to be absorbed; it is probably more along the lines of the trenchant line Anne Frank left future generations with:
“Parents can give good advice or put them on the right track, but the final forming of a person’s character lies in their own hands.”
Psychologist and philosopher Daniel N. Robinson might be able to shed light on this issue with the following:
“Virtue or excellence is one of two distinguishable forms—the intellectual and the moral. The end of the intellectual virtues is knowledge of one sort or another, whereas the and of the moral virtues is the formation of character, or self-perfection. The intellectual virtues are the result of teaching and learning. The moral virtues arise from habit.”
Educator Thomas Lickona advises that “All of us who are parents naturally want our children to be successful. But we know in our bones that it’s their character—their honesty, sense of responsibility, kindness, perseverance in the face of difficulty, courage in the face of danger or social pressure—that makes them human. If they lack these, brains and success don’t count for much.”
Indeed, in real estate investing, a sponsor who is educated, experienced, and knowledgeable is indispensable, but probably insufficient; the person must be trustworthy, honest, integrated, and principled as well, lest they turn out to be like a Bernie Madoff: a clever hustler more than a fiduciary. In fact, Brian indicates in the book that he has been asked repeatedly something akin to, “How do I know you’re not just a Bernie Madoff kind of guy, who will take my money and run?” He also points out that he has had interested investors who would fly in from half-way across the world in order to get a few hours of face-time; to kick the tires, as it were. These investors were not spending that kind of money to ascertain whether Burke was merely knowledgeable; they were interested in determining his level of trustworthiness and virtue.
Burke tells a story of how he came to be known as one of the most “stand-up” guys in this business:
“One of the key things about being a syndication sponsor is: we’re responsible for other people’s money. And that’s a tremendous responsibility. When I was first getting started in this business, after my first grocery store job, I went into law enforcement. And in that industry, character is everything. You have to pass background checks and all kinds of stuff. And when I left, I set up an investment syndicate with a bunch of guys I worked with at the department. So I used that money to go out and buy real estate. …I knew if I lose these guys’ money, I am a dead man—and they’ll get away with it too.”
I think that was not meant to be commentary on the power of the police as agents of the State, but a tongue-in-cheek way of noting that he had to earn his stripes by behaving in a manner that would not make these limited partners feel they were cheated, wronged, or losers. I think he still has that reputation.
One of the reasons he does is this story:
“This business is not made up of a series of grand slams. This business is made up by going out and trying your best and making some base hits and, one day, you’ll hit a grand slam. And I’ve had my share of strikeouts; I’ve lost money. In 2008, when the economy cataclysmically collapsed, I took a really bad haircut and I lost a few million dollars of my own money, so I know exactly what it feels like to really get hurt in real estate by making mistakes.”
The story doesn’t quite flesh out the example of character I want to convey. So let me share from memory. Brian was the sponsor on a deal that went south due mostly to the economy, but potentially due to some error. Either way, he was finding himself with a building that wasn’t occupied to the point it needed to be to pay the mortgage. So then he had to offer “concessions” to get folks in the door. That is simply what the competition was doing, and you can’t be undercut by your competition in this industry or you will be eating their dust soon. By making rent concessions to attract tenants, Brian was making a little less money per person, and so on; it was a vicious cycle. He eventually wasn’t bringing in enough capital to pay the mortgage (to the bank, which lent probably 80% of the cost of the apartment complex). I think we’re talking about a note requiring $25,000 per month. That is one gnarly mortgage.
Yet, Brian had investors he was supposed to be looking out for. He could have approached them and said (paraphrased): “The occupancy level is too low to pay the mortgage, let alone your dividends, so this deal is dead; I’m very sorry.” Instead, he told his anxious investors the following (paraphrased): “We are in a real pickle. Here is what I’m going to do: You guys don’t deserve to lose your capital, but the bank must be paid. If you will accept me not paying you your monthly payments for a while, I will pay the bank note using my own money.”
If you look to lead, invest at least 40% of your time managing yourself—your ethics, character, principles, purpose, motivation, and conduct.
And Brian did just that. He was sucking down $15,000 of that $25,000 mortgage every month for almost three years, just so he wouldn’t lose the deal. His wife was not terribly jazzed about this, as you can imagine. His investors, needless to say, were okay with not seeing a return on their investment for months at a time, since the leader of the syndicate was “putting his money where his mouth was”, so to speak. I assume some of them became major fans of Brian Burke that day, and have remained loyal to him since. Many of their fellow investors have real sob stories about significant losses of capital, and some, foreclosure of the property. Some, like Brian’s friend, actually saw sponsors abscond away with huge amounts of money.
I personally know someone whose son had a company, and a business partner. The partner—and I’m not sure how he did this without earlier discovery—wrote himself checks totaling a million or two! The son appealed to his father for help, lest creditors seize the business and send him packing. The father traveled to New York to speak with the bankers personally, and assured them that the business would be made whole, and the creditors could relax. The story speaks both to the character of the father, and perhaps the ignorance of the son (and of course, the chicanery of the business partner who flew the coop with the cash). I guess it pays to have a good relationship with your father if he is capable and willing to write a $1.5 million check to bail you out of serious financial trouble (and no, this person is not Mitt Romney).
On page 52, Brian indicates the following:
“The moral character and principles of the sponsor are perhaps the most important elements in the success of any venture, especially if the going gets tough. Unfortunately, determining their character in advance is difficult. It’s not as if you can ask them if they ahve good character! Of course they’ll say yes, and the ones with the worst character would make every effort to be the most convincing. Still, figuring it out is worth every bit of effort you put into it.”
Interestingly, Brian suggests that the best way to make this all-important determination is to “ask about a deal gone bad: their worst deal, the one that failed to meet projections, or proposed an unusual challenge.” He advises, though, that “Nope! Nothing to report! All good!” is not what you want to hear. I believe he is saying that just like a juggler and a marksman, you can’t expect to become good at their primary function without missing the target, making mistakes, and needing to learn on the job. Indeed, he writes: “Any investor that hasn’t had a deal go sideways just hasn’t been in the business long enough or done enough deals yet.” Brian is indicating that it’s not flawlessness you’re looking for, it’s an ability to solve problems well, conduct oneself with dignity and honor, and already having “paid their dues”. In sum:
“A person’s real character isn’t on display when everything is going according to plan; it’s revealed when the going gets tough.”
One minor nuance: Brian may believe that it is because of his character that he decided he must cope with the problems presented by the Great Recession with honor and dignity; one could argue, however, that first the obstacle appeared, and then an unprepared Brian set out to circumvent it. That is, as psychologist Carl Rogers wrote, “Growth occurs when individuals confront problems and struggle to master them, and through that struggle develop new aspects of their skills, capacities, and views about life.”
That’s an academic matter, though, since where the rubber met the road, Brian performed admirably and nobly. He might be a heroic individual; he may have been scared to fail; he may have feared a lawsuit. However, likeliest is that he knew that if he didn’t put his money on the line to protect his investors, he was not an excellent sponsor. Brian might have believed that difficult though it was to spend ten or fifteen thousand dollars a month while his occupancy slowly—agonizingly slowly—grew to the point that he could cease handicapping the apartment complex, it was the less difficult path than to capitulate to fate, to quit “when the going got tough”. In that way, he would be placing a higher value on his sense of self-esteem than one hundred grand. Perhaps his integrity is, in fact, priceless.
Just as there is a difference between cleverness and wisdom, there is a difference between shrewdness and integrity.
However character is built, and whatever his inner dialogue was during dark times, Brian reportedly has never lost a dollar of investors’ money. In the instance in question, he stood up tall, considered carefully his reputation, and acted in ways that served those who entrusted him with precious capital. Perhaps he was scared, and felt like the Bible’s Job month after month, but he persevered and exemplified courage and integrity. Just the kind of person you can trust with $100,000, I say. Ω
“You cannot dream yourself into a character; you must hammer and forge yourself one.”