The DI Wire Q&A with Sandlapper Founder and CEO Trevor Gordon
The DI Wire sat down with Trevor Gordon, founder and chief executive officer of Sandlapper Securities LLC, to discuss the company, the future of the 1031 exchange industry, and his new book, The Power of Pivot.
How did you get your start in the direct investment industry?
I came up in the financial services business in a more traditional model; wire house, public programs, retail stockbroker and mutual fund wholesaler. Everything I did leaned on the public aspect of business. It wasn’t until I was tasked to develop the research capabilities of direct investment programs in the early 2000s that I really discovered the possibilities, advantages and inherent value of the direct investment space.
What inspired you to found Sandlapper in 2005?
I was a traditional securities guy in a real estate world. Having joined the tenant-in-common industry in 2002, I was principally leveraged for my securities background and my research and marketing expertise. When I became a principal in a real estate investment company in 2004, I did so with the provision that we bring the compliance capabilities and responsibilities in house. Better control, and ultimately better margins for the overall enterprise.
Has anything in your distribution business model changed since your founding in 2005?
In 2011, we took the firm from simply operating as a placement agent to a full-service broker-dealer. We have since added the investment advisory business as well as insurance services. We never set out to be both a retail and wholesale distributor of direct investment programs. It really just occurred originally as an accommodation and response to the fallout of the Great Recession. My partner Jack [Bixler] and I were hearing from a lot of former clients in the IBD community who needed homes as their firms had not survived the fallout.
Since we had not been a retail operation during that period, we were lucky to not have the legacy issues created. Given the heightened regulatory reaction and predatory law practices seeking to capitalize and line their pockets off the backs of the IBD community, and with independent advisors/small business owners/job creators having fewer IBD options today than in any period in the last 20 years, we felt we had to stand up and support these businesses. We also wanted to support the ability of main street investors to access broadly diversified portfolios that encompass the public and private markets.
What trends have you seen in the securitized 1031 space? Do you believe that the market for these products will continue to trend upwards?
Absent comprehensive tax reform eliminating the 1031 (which is once again at risk but I don’t personally believe will happen), I think there will continue to be a continued need for quality qualified replacement property solutions for real estate investors seeking the continued deferral of gains. And as more real property owners seek to eliminate management headaches, it will bode well for the securitized business. That said, as an industry we are beginning to exhibit many of the same behaviors exhibited in the run up to the Great Recession.
We would be well served to remember the sins of the past. Don’t manufacture cash-flow. Use leverage wisely not wildly, etc. With current limitations in the Delaware statutory trust model, properties need to be stabilized and perhaps a little boring. Advisors need to stop seeking the current income number first, and question more when that current distribution rate or master lease payment is in excess of the syndicated cap rate. I said it in 2004 at an early industry symposium and it still holds true today, master leases as a means of management is a great tool, but a master lease as a credit enhancement is a recipe for disaster.
How is the market right now for acquisitions? Is it difficult to acquire assets that satisfy the 1031 exchange requirements?
It is becoming more difficult. Significant cap rate compression coupled with the inherent costs of our distribution model is making it more difficult to put seriously attractive offerings on the street. While there is a continued need for replacement property we should not seek to put product out for the sake of having product out at the detriment to our overall industry. I am not convinced the securitized replacement property industry could survive another decimation such as it took in the fallout of the Great Recession.
What guidance would you give to someone just starting out in the industry?
Don’t take short-cuts. Never “make a deal work.” Operate with integrity, stand behind your word and communicate even when times are tough. You will inevitably end up on the wrong side of a trade, but how you handle the fallout will make all the difference between being an advisor/sponsor/wholesaler/broker-dealer tomorrow or not.
What is something our readers would be surprised to learn about you?
That I have recently authored my first book, The Power of Pivot, which highlights those moments in my life and career that have shaped the man I am and how I got here today. Great advice, if I do say so myself, for the entrepreneurial-minded individual looking to build and grow a business.
Sandlapper is a sponsor of The DI Wire, and the Q&A was conducted as part of their standard directory sponsorship package.