In this conversation, John Albert Rubino shares his journey from a naval aviator to a successful real estate investor. He discusses the importance of leveraging relationships, particularly with family and friends, in building his investment firm. John emphasizes the significance of constant communication with investors, especially during challenging times like the COVID-19 pandemic. He highlights the need for experienced sponsors and the importance of transparency in investor relations. Looking ahead, John expresses excitement about new opportunities in real estate, particularly with the permanent establishment of the Opportunity Zone program.

Why Cycle-Tested Sponsors Matter More Than Ever with John Rubino

Joe: John, thanks for joining me.

John: Thanks Joe. Appreciate it. Great to be here with you.

Joe: Yeah, I've really been looking forward to this conversation, obviously even seeing you active on the platform, which is exciting stuff.

John: Absolutely great to be here, and I'm excited too.

Joe: Good. Well, before we get too deep into it, I want to give you an opportunity to introduce yourself. Tell us a little bit more about your firm for any of the listeners that might not know you.

John: Yeah, that'd be great. I mean, originally from Brooklyn, New York. Went to college in the Bronx, graduated way back in 1997 when I had a lot more hair. And I was commissioned in the Navy back in '97, did a 20-year career in the Navy as a naval aviator. You could see some of my cool stuff around me here.

And then after I retired back in 2017 here in the Northern Virginia market with my family, I decided to take on my business full-time. That business really started off as a concept where I got involved investing passively somewhere around the [00:02:00] 2010 timeframe—actually I take that back, 2006—and was doing some active stuff, new construction, home building in Southern Maryland.

And I decided to stay in the military, make it a career. So in '06, I got orders overseas to Italy with my family, and I decided to invest with some friends who were starting to build their businesses and buying real estate, doing some renovations, fixing it up. And so I brought in some seed capital for them and I was getting a nice 10% return on about $200,000 over seven years.

And not only was I getting a great return, but I was learning the business about underwriting, analyzing deals, looking at sponsors, making sure that I've done my due diligence, growing my understanding and experience through those seven years. And so when I got back here around 2011, 2012 in Northern Virginia where I live now in Fairfax County, I said to myself, let me take this concept and bring it to some of my very close friends and family.

Some of my buddies in the Navy and, at the time, my accountant—who was doing my taxes for a few years—I wanted [00:03:00] him to come on as my CFO. I pitched a deal to him, the company concept, and he's like, "Yeah, I'm in." So brought him on and he had an accounting firm down in Hilton Head, South Carolina with two offices.

Started putting up the poster boards and renderings and some of his clients and friends were like, "Hey, what's that stuff?" And so he'd kind of tell them a little bit about what we're doing. And so we started small, we started raising maybe 200, 300, 400,000 single family coming in as the mainly the debt, or the higher end money. 80% borrowers were coming in with 15 to 20, we'd set up a joint venture structure.

Pretty simple in and out a couple months. But then we graduated into the equity slice, so now we pretty much raise capital for equity positions, typically limited partners, LPs. We come in together with a network now of about 200 investors that are part of our firm. And so we bring deals through sponsors that we've partnered with, we've done deals with, we have great experiences with—know firsthand the C-level executives.

And we bring those deals, hopefully on a silver platter to our investors. [00:04:00] After we do our due diligence, we do our review and we feel comfortable to go out and raise money from them, as well as with our money to partner in together, typically through a fund-to-fund single purpose vehicle, SPV, on one deal, maybe two inside of one PPM, typically a 506(b) or (c).

And we raise through those deals. Those come in and we set up a structure at the project level with the waterfall coming back into the entity, and then we cut it through our waterfall to pay our investors.

Joe: Nice. Okay. That's super helpful. Actually, there's something you said I want to touch on in a little bit, which is that you invest with folks that you're connected with the executive team already. So I want to touch on how that plays a role in how you communicate with your LPs.

But before that, it sounds like early days, obviously you're leveraging your community. You're in the Navy, you've got good relationships with your colleagues. You bring on your CFO. He's got clients; they're coming in, they're curious. They obviously already [00:05:00] trust him with their money, so there's a lot of trust relationships already being leveraged there for your original LPs. About how many was that when you were getting started?

John: Yeah, when we first started, it was maybe about a handful. I'd say about 10 to 12. And again, it was really close friends in the military that I flew with, that I knew for several years, and that liked the idea to want to invest and do what I was doing. And then my family members started getting interested.

You know, I come from a pretty big family on my mom's side. She had 13 siblings, so a couple hundred cousins. And so, start to put the word out to some of my family members who said, "Yeah, this looks great." So who better to work with than close friends and family who will be very honest with you?

Be very forthright and, of course, you've got a pretty high standard and bar with family to make sure that you're doing what you need to do. So that really set the learning curve very high for us. And you are right, we leverage relationships. Because in any relationship there's always going to be something there that you can help folks [00:06:00] with and that they can help you with.

And if you come in with that "How to Win Friends and Influence People" by Dale Carnegie mindset, I think that you can really leverage those networks and relationships into some great things. True wealth, I think.

Joe: Definitely. I mean, talk about a capital raising success story that's hard to mimic. We've got a couple hundred cousins; that's a hard one to mimic. But I do, to your point though, I think raising money in those early days, raising money from friends and family, the bar is higher.

We don't want to lose anyone's money. But your cousin, you have to see at Thanksgiving every year. Do you think that's affected the way you approach deals?

John: You know, again, your family's going to give you the honest truth. They're going to support you a hundred percent, but blood is thicker than water. So those are some of the tougher calls because you're seeing family at weddings and you're seeing family at gatherings and stuff. My godfather invests with us.

I've got some uncles and, older generation where the [00:07:00] mindset is, "Oh, this is going to win a hundred percent no matter what happens, even a global pandemic." And so you've got to be able to explain to them. In the good times that, "Hey, this is great. Things are going well, we're hitting a home run," but these are the risks. So you always want to pay attention to those.

And so when we first started, we were doing the typical loan documents and everything on the smaller deals. But as we started to raise the larger sum of capital for the equity slices, the 500, the million—typically our sweet spot's a million to 6 million—that's when we knew, "All right, we've got to protect ourselves, we've got to protect our investors." So that's when we went out and we outsourced a fantastic private placement attorney that we use up in New York. We've been with him for probably 11, 12 years and he's done probably about 20 or 30 PPMs for us.

So that was definitely a move we made that was smart and has made things a lot better for us as far as our experience and bringing quality documents. And then the other thing we brought on about five years ago is the Juniper Square Portal, which has been just a [00:08:00] godsend because it's made my life easier, it's made my investors' lives easier, and it's just an amazing resource.

So those were really two big things we brought on and milestones for us. But when I was doing this, I'd say part-time, Joe, from 2012 to 2017 for five years, I really wanted to build a business before I got out of the military. When I was doing it part-time, it was go to the Navy job for nine or ten hours, come home, hang out with the family, have dinner, and then go in my office at 10 o'clock and come out whenever I came out.

And just made sure the business was running well, building those relationships so that when I stepped out of the military life in '17, I just took over the business full-time and it has just been a godsend.

Joe: Yeah, I can imagine. That's a lot of work though. I mean, I think we can all relate to building during those times. How old was your family, what was going on while you were building the business?

John: Yeah, I mean, so I've got four kids. My oldest is 21. She's [00:09:00] going to be a third or fourth year in undergrad. And I've got a son who's a freshman in college and two boys in high school. And so, yeah, it was the balancing act—taking the kids, coaching the baseball teams, making sure I'm around and hanging with the family.

So it was definitely a work-life balance that you have to keep. A little easier when you're in the military because you have a set schedule. But yeah, make sure front-loading a lot of the business stuff, hopefully earlier in the week so that the last end of the week wasn't as crazy.

But then when I got out of the military, now I'm on my own. There's no more full-time Navy jobs. So now it's like, "Okay, I've been doing this for 20 years now. Now what do I do as a business owner?" I'm cleaning the bathroom one day and I'm raising 6 million the next day. So it's like you're just trying to juggle those apples and oranges and then just really trying to find that sweet spot.

Because when you're in the military, when you work for an organization for that long, you're just [00:10:00] so set in ways and schedules. But when you're owning your own business, it's like, "All right, I've got to find my groove now. I've got to find ways to gel and do it in my world now." So that was definitely a huge learning curve, but one I learned quickly.

Joe: Yeah, that was a total aside. I just got curious. I mean, obviously your business—I think we can all relate—there are these moments you go through in life where you're doing a lot of things to try to plan for the future. And I think that does impact how we communicate and care for the people that our business has touched.

So that's why I asked. But I want to go back to something you said about communicating with your family and you're like, "This one could survive even in a global pandemic." Talk to me a little bit about how you think about communicating risk to investors.

John: Yeah, I mean from 2012, '13 when we started to 2019, it was just an unbelievable time. Growth was amazing. We were doing really well. We were underwriting triples and [00:11:00] doubles and hitting home runs and grand slams. And so when COVID hit, we were very communicative. We do quarterly updates on all of our projects.

We're always emailing folks, but this was pre-Juniper Square, pre-COVID, so it was not a lot of pull; it was a lot of push from us. But when the pandemic hit, it definitely got challenging with trying to help folks see what would happen, because we still didn't know what was going to happen.

And so we were doing our best to just navigate the initial, then the stable period, then the crazy period with the inflation and the interest rates, and then kind of a steady-out. So constant communication, making sure people got the answers to the best of our ability, going to subject matter experts outside the company if we couldn't answer the questions just to get insight from market specifics or experts that were in those areas. But the constant communication

and just giving folks a sense of realism as well as being truthful, obviously transparent and walking them through every [00:12:00] situation and scenario based on what we were looking at as a business and how we were handling our deals. We had deals that started out pre-COVID as condominium new construction ground-up that had to basically put pencils down for 12 months because everybody walked away.

And then 12 months later they're saying, "Hey, if you can underwrite that as an apartment building, we will go ahead and finance that." Well, that changes the entire scope of the project, the return structure. So that's a challenge and you've got to walk people through that. So yeah, just constant communication, making sure people get what they need answered and, yeah, that's our job. That's my job, 24/7.

Joe: Yeah, obviously the pandemic created some waves. We've got waves right now. I'm not sure what's in your portfolio exactly, but I think everybody's getting questions from their LPs. They want to know, depending on where they're investing, [00:13:00] are the deals okay? Especially as headlines hit the paper. How are you getting any of that and how are you dealing with it?

John: Yeah, so I observe a lot from what I see outside the company and I kind of use it as a litmus test of how I'm doing with my investors and people in my network. So, like you said, communication has been a struggle with a lot of businesses because they're afraid to share the bad news because they've been knocking it out of the park pre-'19, and then they got on in '20 and '21 and they got into some trouble. And it's like they're afraid to talk to their investors.

I mean, the worst thing in the world you could do is either not communicate or not be truthful. But if you do both of those regardless of the situation, and you walk through things logically and explain to folks with factual information, what are they going to—I mean, they can yell and scream at you, especially family—but at the same time, I would say the percentage of that is single digit compared to the folks that are going to appreciate the fact that you're spending time walking through every little element with them.

Joe: Yeah, I think that, and anybody who's [00:14:00] listened to the episodes that have been rolling out here with me, they're going to sound like a broken record, but I think that we see that in the reviews. Even the folks that feel like they're being communicated with, even when the deals might be underperforming, from the LP's perspective, it's not like the house is on fire. They feel cared for, they feel respected.

They feel like the GP is doing what they can do to resolve the problem. All LPs know they're taking some risk, or they better know—they better know that they're taking some risk when they're getting into a deal. So from there on out—

John: There's an education part to there too, right? Because a lot of people just aren't aware of the fact that, hey, when JID Investments talked about capital calls and that we don't have mandatory capital calls, now people are requiring capital calls. So now it's like, "Oh wait, I've got to go back to the PPM and find out what else do we have?"

Recourses, LPs—these are questions that people [00:15:00] weren't asking 2012 to 2019, but these are the questions. So there's a little bit of an education process to explain to folks, "Oh, I didn't know I had to extend my taxes because we don't have all of the returns from this."

Joe: Yeah, right.

John: Definitely an education piece in a way that is—you're never denouncing to people, but you just want to walk them through that process so they understand.

Joe: Yeah. Without a doubt. I would love to... can you walk me through a couple real-life examples? I'd love to know—it'd be awesome to know—you've been in this journey for a while, like a time where you feel like you communicated with an investor where you learned something, right? About maybe it didn't go as well as you wanted to, and what you changed and how you do it differently based on that.

John: Yeah, so I mean, my business partner's been a business owner and been in business for 30 years. So just learning from him alone and understanding his mindset and how he looks at things is always a learning experience for me. So, again, taking [00:16:00] things into a project that we've had a plan for, and then all of a sudden COVID hits and we're going in a totally different direction.

So now I have to become more in tune with what those changes look like. Thinking like the sponsor, understanding what the sponsor's conveying to me, and then being able to turn that around and bringing that to my investors in a way that I get it. So that was definitely a huge learning curve to say, "Okay, these sponsors, I'm glad I'm with them."

And then this is purposeful. I'm glad I've been with sponsors that have been up through a few cycles. So they see this, they know this. Of course, COVID, nobody could see that coming or how quickly it hit. But the guys that were in the Great Recession and these other cycles, they at least knew how to rebound from it pretty quickly.

So that was definitely something I learned: All right, change the scope, part of the game. This is a part of the phase, the cycle of real estate. And let's prepare for that. Understand that so that, God forbid, this happens again, or we can at least prepare folks that, [00:17:00] God forbid it happens, here's what we're going to do.

Joe: Is that a line in the sand for you—anybody you're partnering with has to have been through a couple cycles?

John: You know, given the volatility of the market right now, I definitely want to have someone that's been pre-COVID—ideally '08, '09—but at least through the good and the bad to still be a good company. So I'd say at least 10 to 12 years of experience to go through how they came out of the good into the bad, and now how are they stabilizing through the process?

Because I've learned a ton from my sponsors—sponsors that had relationships with banking connections and with presidents of financial firms. That carried them through on these loans that they had—20, 30, $50 million loans. Without those relationships and the connection that the sponsor has with these people, those deals are done. We're losing money, and it's a terrible, terrible [00:18:00] situation.

So, again, that is very important. So somebody that's coming to me, and again, I'm always going to look at the deal, but the sponsor's number one on my list. And if the sponsor started out in '22 or '23, I've got to think some of their deals were having trouble. So I spend a little more time with them. But yeah, I really start at the top tier, which is that 10 to 12 year experience level.

Joe: Yeah, that makes sense. I mean, I think one of the things I've heard on this podcast a lot is: "Hey, look at the track record over the last three years," because we had a long run. And now the question is: what about the deals that got purchased in the last three, four years? How are those doing? Is one of the questions I hear other sponsors saying to ask,

John: Mm-hmm.

Joe: telling LPs to ask. So every deal has hurdles. We've talked a lot about this one that had to be transitioned from the condo to apartments. [00:19:00] How do you communicate that with your investors? How do you communicate these hurdles and setbacks or, let's say, something's not going to proforma? How are you specifically communicating those things?

John: First and foremost, it's all on the offering documents, right? So we try to take the 40 pages of the PPM and the risk section and we try to carve that down and show folks like where are the big risks on this and what are some of the things that can happen? And "Hey, here's the ideal path, but if we have to do return or turn, we can still end up doing well on the deals."

So it's just being forthcoming with folks. But the biggest challenges I've had with deals—and we do a lot of ground-up development, so very opportunistic heavy where it's just dirt and we've got to go through entitlements and zoning and then development—[00:20:00] so all that. A lot of our deals are very risky, but they have very high rewards.

Most of the stuff we've seen over the years has been just delays due to weather or due to labor challenges or just permitting and approval. So a lot of it is exterior-based and unfortunately out of our control. But we still have the mindset from the sponsor that we're going to try to keep those returns intact. And that's been challenging the last couple of years with supply chain inflation as you know. But it's just part of the process, and the way we structure our waterfall, it's very investor-friendly.

We offer a very high preferred return, 10 to 12% with their money back, and then either a catch-up or split in a favorable way so that at night, even though they're in a third position in the stack or fourth position in the stack, they can sleep well knowing that that 12% is theirs before our company takes any money.

Joe: Yeah. That's super helpful. [00:21:00] So is there ever been a moment—obviously you guys are one step removed in the sense that you're vetting your partners and you're choosing people who are experienced—but ultimately you're depending on them for communication. If I look at the other side, not how you communicate with the LPs, but how you communicate with the other GPs, have you ever had an instance where you weren't getting the information from them that you needed to communicate to LPs?

John: Yeah. There have been some times when I felt like my questions weren't being answered in a way that I could understand it. And even after processing it a few times, still feel like, "Hey guys, I still need this," or, "Hey, it's been an extra week or two or three and I'm still not hearing back from you."

So that's a little uncomfortable, especially after the fact that things have gone so well to that point and we vetted them and we were very comfortable with them before we looked at any of their deals. So that's been a little bit uncomfortable and I think it's more so because of the heat they're feeling in the markets with the capitalization and stuff. And so what I try to make my sponsors and my GP partners understand is like, "Look, I represent 200 investors and I'm going to be their mouth or their ears, their nose, whatever you want to say."

I've got to get the information from you in order to convey it to them in a way that we're going to share that and be very transparent and communicative. So if I don't get what I need from you, it's going to cause a problem [00:23:00] because the relationship you and I have, sponsor, is going to be injured or a challenge. And then that taste in the mouth of the investor at the LP level is going to be not very good.

So if we want to have this long-lasting relationship and we want to do multiple deals, not just one or two-offs, I've got to get this information from you. So I try to do it in a way that I just laid it out for you. I've never had to get to a point where I'm just really feeling bad about it, where I've got to go to the sponsor's location in a suit and tie and say, "I need you, your CFO, and your COO now at this table because I'm not getting what I need." It's never been that, but I've had those situations where I had to play them out in my head.

Joe: Yeah. Where you felt like, "Okay, I might have to do—"

John: I may have to get on an airplane and fly down, and I tell the sponsor to get his ass on—pardon my French—sit at the table with his CFO and his COO and say, "What the heck is going on? Walk me through this project." Again, I'm representing these people. It's my reputation and it's your [00:24:00] reputation because you're going to suffer too. Believe me.

Joe: That's your role, right? To stand up for your LPs. They are putting their trust in you for their money. So that sponsor-sponsor accountability, kind of like mutual sponsor accountability when you're the fundraiser is—

John: The fundraiser and the GP—you've got to know what's in their world and you've got to know what's in this world and put it together so it makes sense. And there's been times when the GP will come out and have a ribbon cutting and we'll invite some investors and it'll be a nice opportunity for them to meet the sponsors.

Or the sponsor will come out when we're doing a live deal presentation or a pitch deck presentation. The sponsor will come on and answer questions. That's the type of relationship we love and the fact that the sponsors are willing to do that because they see the importance. We make things a lot easier for them when it comes to the raise. That one to $6 million level, Joe, I think is very hard to get. [00:25:00] I really feel like the institutional money's easy to get, for the most part, and the debt. But it's really that icing on the cake, that five to 7% of the stack that still needs to be closed. That's the hardest.

Joe: Well, yeah. You either have to build that retail apparatus on your own or go to other people that have built it. And that's non-trivial. Okay. Well, I want to ask you as we look forward kind of to the next couple years. Obviously we're talking a little bit about some of the challenges in this moment and how you deal with vetting GPs and communicating with investors. But as you look forward, what are you excited about?

John: Yeah, I'm really excited about the bill that just passed because there's a lot of amazing things in there for real estate investors and real estate professionals that is almost once in a generation or once in a lifetime, if you will. I mean, if you pull that bill apart and you just do a little studying on it, you'll see things on there that'll blow your mind with high-end [00:26:00] tax credits that are offered now—high-income tax credits.

You've got QBI has been changed, SALT's been changed in good ways, depreciation. But for me, the most exciting is the Opportunity Zone program because we invest in Opportunity Zone investments. And so starting January 1st, 2027, the Opportunity Zone program becomes permanent. So now you can take full advantage of that program and take the benefits of not only the tax deferment, the bonus depreciation, and the tax exclusion on the back end with investing long-term capital gains.

I mean, it's really exciting because you're not only going to have good impact on the communities and you're going to also offer this affordable housing, which we need so badly in our country, but you're going to be able to do it in a way to have real impact and then also protect your wealth to be able to transfer to your next generation or your legacy. That's amazing.

So I'm really excited about that. We have two Opportunity Zone investments right now, [00:27:00] and I hope to do some more of those because I think that's where a lot of the money that's on the sidelines is going to come in now. I think you're going to see a lot more money coming into that program. And, look, politics aside, I'm a big fan of capitalism and I think you're seeing that on full display.

So I think as we get more manufacturing jobs in big cities and we start seeing money staying home, that's just going to increase the need for housing, which is already at historical lows. So I'm really excited about those opportunities. But it's not like the pre-COVID era. You have to still be a sharp-shooter, not a shotgun-shooter to look at markets. I'm always sponsor, location, asset class, returns and risk. And so that's going to be my secret sauce always. If you tell me, "Hey, how about Detroit?" I'm going to say, "Hey, how about Charlotte, North Carolina instead?" That's just because I like Charlotte, so definitely knowing your markets is big.

Joe: It's a little closer to you as well.

John: Yeah, it's closer to me too. Exactly. No offense to Detroit. [00:28:00]

Joe: Right, of course. All right, so we ask everybody this question: What part of passive investing needs to die? What element of the passive investing ecosystem is like no longer useful or was never useful?

John: Hmm, that's a great question. What's not useful? I think that what I'm seeing right now is you're getting a lot of sponsors who are starting to become like gurus, right? They're trying to take a lot of their subject-matter-expert information—which is great—but they're trying to turn it into this new program for everybody to be rich and get successful and everything.

And they're not focusing more on their true role, which is going out and finding good deals and underwriting good deals to bring to the market. I think there's a lot of groups out there right now that, [00:29:00] unfortunately, it's just a lot of hot air, and I think that needs to die or at least needs to trim down a bit to have those folks that do that are great. But if your full-time job is to be a sponsor, then focus on that. Maybe hire a guru, but you don't need to be a guru yourself.

Joe: Yeah, so like quick cash plays by sponsors. Is that maybe too blunt? That actually also is coming through in some of the reviews, just in terms of lead sponsor absence. That is something we are seeing in reviews. So I think that's a good word—stay focused on your core business and stewarding the hard-won earnings of your LPs.

John: Mm-hmm.

Joe: Okay, cool. So I think we're basically up on time, but I want to make sure for the listeners—first off, great conversation. Thanks for joining me.

John: Thank you Joe. This was great. I do appreciate it. [00:30:00]

Joe: Definitely. And just so if listeners want to find you, learn more about JID, where can they go?

John: Yeah, it's really easy. Our website is jidinvestments.com—Julia India Delta Investments all one word dot com. I'm on LinkedIn, John Rubino. We've got a LinkedIn page for the company as well. If you want to reach out to me, you can share my email and the show notes and my phone number if people have questions.

I'm starting to get into more of helping folks understand how to take care of their house and the basics so that then they can be in a great position to invest in real estate or in alternatives. Got a couple of great communities I'm part of that I help train and educate and coach as an ancillary. I still run the business full-time, but at the same time, I love doing that because it's so important, Joe, to give back. And the relationships—like you said, that's my top word. Relationships are so important [00:31:00] from a faith standpoint and from just a value standpoint—that you take care of people and you see them enjoy what they do and they want to learn. That's so important and we need to do that, especially in our young people. That's a key.

Joe: Awesome. Well, thanks again. Appreciate it and I'm sure we'll talk soon.

John: Thanks, Joe. Thanks guys.

Joe: All right.