In this conversation, Andrew Cushman shares his journey from chemical engineering to real estate, discussing the evolution of the market, the importance of transparency and consistency in building trust with investors, and how to navigate market changes. He emphasizes the need for thorough vetting of sponsors and deals, and the lessons learned from past mistakes in syndication. Andrew also highlights key questions LPs should ask before investing and addresses the misconceptions surrounding passive investing.

The Dark Side of Passive Investing with Andrew Cushman

Joe Guidi (00:00.766)

Andrew, thanks so much for joining me today.

Andrew Cushman (00:03.05)

Good to be here, Joe. Appreciate the invite.

Joe Guidi (00:06.22)

Yeah, really looking forward to this conversation. You've got a really interesting background and you've been in the game for a long time, so I'm really interested to get your take on trust and transparency today.

Andrew Cushman (00:18.025)

So happy to dive in.

Joe Guidi (00:19.97)

Before we get started, for those who are listening that might not know you or be familiar with Vantage Point, can you just give us a little bit about your background and how you went from chemical engineering to where you are today?

Andrew Cushman (00:32.277)

Yeah. Like you alluded to, I took the standard route into real estate and got an engineering degree. I almost don't meet anyone who grew up and said, "I want to go into real estate." It's like we all just kind of ended up here somehow. So, 2007, I quit the engineering job to flip houses full-time in Southern California. That was great for four years, but then all the equity was gone and all the competition showed up. So my wife and I said, "Well, this flipping thing's great, but it's just another brutal job; you're only as good as your last flip."

We reasoned, "Okay, we just had a huge recession. That probably means we're going to have a long economic expansion, which means job creation and household formation." Everyone and their mother either got foreclosed on and can't buy a house for the next seven years, or they know somebody who got foreclosed on and they're traumatized and don't want to buy a house right now. You combine no home buying with a growing economy, rentals will probably do well. So we went and found a mentor who had already bought about 800 units. We hired him to learn from him, and in 2011, we syndicated our first deal. It was 92 units out in Macon, Georgia. I'm in Southern California, so it's the other side of the country. I've been doing it full-time ever since. We're at—actually, we're just under 3,000 units at this point.

Joe Guidi (02:02.006)

Nice. That's great. So flipping during the real estate crash was the catalyst to get you into multifamily.

Andrew Cushman (02:13.427)

Yeah, I mean, both my wife and I wanted to be entrepreneurs for a long time. It took us seven years to figure out that it was real estate.

Joe Guidi (02:22.158)

Sure, got it, makes sense. Given that you've gone through—what's interesting about your story is I don't actually talk to a lot of sponsors that have been syndicating since 2011. You've seen the rise in the market over the last five or six years. What was different during that time? How did it change from 2011 to 2021?

Andrew Cushman (02:50.435)

A lot. First of all, you couldn't get debt to save your life, so we were buying cash. That sounds easy, except equity was nearly impossible to raise because everyone had lost it in the Great Financial Crisis. Even if they had it, they were terrified of real estate. So it was really difficult to raise equity and to get debt, but deals were—it was like walking into a pumpkin patch on Halloween. You walk around and say, "I want that one." That's what it was like finding deals.

I would line up properties and tell the brokers, "All right, I'll fly out and look at these in three weeks," and I would be the only guy. They'd look at me and go, "We were expecting someone who looked older." I was like, "Well, don't worry about that." Really hard to raise equity, but amazing deals were littered all over the place.

Fast forward to as the market changed: it flipped. People saw that there are some good deals going on over here, these guys are making money, and rents and values are going up. Then the syndication model just exploded. There wasn't a bubble in multifamily; there was a bubble in multifamily syndication. There were some very large groups that were just pumping out hundreds of newbies a month. That's not necessarily bad in and of itself, except that they got a very cursory education. It was all about how do you get a deal, and no one talked about how do you structure the finance right or how do you operate the deal, which is actually where the money's made in multifamily.

You got into the later years of 2020, '21, and '22, and it was the opposite of 2011. Actual true deals were almost nowhere to be found, but equity and debt were just piling in like crazy. It should have been the opposite; equity and debt should have been pulling back at that point going, "Hey, this doesn't feel right. It's a little too nuts." So those are the two extremes of the cycle. Now we're kind of back to almost the Goldilocks stage of the middle where there's deals. You still got to work hard to find them, but they are out there.

Andrew Cushman (05:14.325)

And debt for the right property you can get—you're not going to get crazy debt, which is a good thing. Equity, again, it's a lot harder to raise than it has been the last five years, but for the right deal—household wealth is high, stock market's at all-time highs, there's liquidity out there. It's kind of reverted to the mean. If there's one economic or investing law to live by, it's reversion to the mean. It will happen every time, eventually.

Joe Guidi (05:46.136)

Sure. Do you see parallels—specifically thinking about your communication with potential LPs or prospective LPs—between those early days where everyone was a little bit scared and now where people are sitting on their heels a little bit more in terms of deploying capital?

Andrew Cushman (06:10.133)

Yeah, I'd say we've gotten back to a healthy amount of skepticism and caution on the part of LPs. A couple of years ago, I'd get phone calls like, "Hey, is your next deal coming?" And I'm like, "You know, we're not seeing anything interesting." And they're like, "Well, I've got this other one. Let me know if you get something in the next three weeks, but otherwise I'm going to put my money in this."

That's not happening anymore. Now I occasionally get an email just being like, "Hey, I have some liquidity; I'd like to place it by the end of the year. Let me know if you get anything good." That's more how it should be. So it feels like we've gotten back to that balance. We were in 2011—that's not good either, because people missed out on some amazing deals. We bought properties that we eventually sold for four and five times what we paid for them because everybody was terrified of it.

Joe Guidi (07:11.02)

Yeah, right. Well, when you think about that—because what it looks like to me when I'm looking at the market—I work with a lot of sponsors, so I can see what's happening in their capital pipelines. Obviously, things have slowed down over the past couple of years. The deals are starting to come online. Some of them are distressed, but that's going to create its own problem, right? Those headlines are going to create fear.

How do you, as a GP with a good track record and strong fundamentals, communicate to your prospective LPs who might be a little bit concerned about where we are in the cycle? Especially—I didn't even bring this up—but you invest primarily in the Southeast, and there's tons of noise right now about the Southeast. How do you communicate to LPs in such a way that you can build trust and give them confidence for the future?

Andrew Cushman (08:16.692)

I mean, if I boiled it down to two words, it'd be transparency and consistency. If you were to look at our list of potential investors, everything we've done so far is 506(b), which means it's private. There's no marketing; we don't advertise or solicit. Basically, the only way you hear about what we're doing is if you've requested to be added to our list and gone through the interview process. We don't do any kind of marketing or anything like that.

The people who are on our email list have asked to be there. Within that, you have two groups: the groups that have invested and the groups that have asked to be on the list but haven't. The ones who have invested, especially the ones who've been there for ten years or a long period of time, they've seen the clear, consistent quarterly reports that we send out.

I should go back and add up how many quarterly reports we've done in 14 years over 20-something syndications, but we have not been a day late on a single one. They know that on the 26th of the month, that report is going to show up. It's not just a couple of sentences and then the financials that we know you're probably not going to read anyway. It's usually six to sometimes eight pages. Here are the financials, then here's a paragraph explaining why we ended up at these financials, and then another paragraph of what they think they're going to look like next quarter and beyond that.

We try to be very educational and transparent about what is really happening with your investment. In terms of raising money or communicating with the LPs who have not yet invested, when we bring them on board, we send them some of those reports so that they can say, "Hey, this is what you should expect for communication from us."

Then once a month, I do send out a short video and a transcript of it where I just talk about what you said—the noise we're seeing in the market. What's happening in real-time? We don't sugarcoat it. We'll talk about like, "Hey, at our stuff, occupancy and collections are actually fine, but we're really struggling to find good maintenance people." That's been a thorn in our side for a couple of years. Or,

Andrew Cushman (10:42.741)

"Yeah, you know what, this market that we're in has been great for the last six years, but we have a new building opening up down the street. So expect in six months it's going to get a little bit challenging for a while, and then it'll be back after that." That very transparent, detailed, and thorough communication works both for your existing LPs and for helping the new ones to see when is a good time to invest.

The last thing I would add on to that—and this is something I see a lot when I see pitch decks—it's like, "This is great. This is why we should all pile on this deal. It's going to be awesome." We actually do the opposite. Yes, we explain why we think it's a great deal, but we do try to think of what is every piece of noise that someone's hearing and then address that.

For example, on our last property, it was a value-add deal stabilized. The first-year cash flow was only like 3 or 4%. We literally had a section in the investment summary titled like a Q&A style. I say, "As an investor say: Wait, the first year, I'm only going to make three and a half percent? I'm getting 4% in my money market. Why should I invest in this deal?"

We just basically walk through and say, "Well, if that's the only thing you're looking for, you're right. You shouldn't." We don't say it that snarky, but we just say, "Look, there is depreciation," and we walk through and say, "If that's your main goal, then you shouldn't invest in this. But if you're looking for cash flow, appreciation, depreciation, and a much higher five-year return, then this is why this is good." You've got to try to think like: "What's the noise people are hearing? And let's just address it." Like transparency—"Yeah, you're right. That's a risk. That's a concern."

Joe Guidi (12:37.614)

Well, I think it goes beyond noise. What you just said to me is something I talked to a lot of sponsors about, which is creating alignment. At the end of the day, it's okay to qualify people out of a deal based on their preferences and values and what they're looking for. So, if you've got a deal that has no cash flow or low cash flow in the first year, two years, or three years, and they're looking for cash flow, it's actually trust-building to say, "Hey, you probably don't want to be in this deal." You know, and we'll get them next time if you find something that aligns or their priorities change. I think that's something that gets missed during that education process: figuring out what does the LP want? What are they looking for?

Andrew Cushman (13:22.505)

Well, and actually, I'm glad you framed it that way because a successful deal should—that's a mistake I see some sponsors make: just run out and take any money they can get. I understand the urge, but it's better to make sure that for anyone investing in your deal, it truly is a good fit for them. You hear sponsors complaining, "I got this guy, calls me every year." Well, that means he wasn't a good fit for that deal. I'm assuming the deal is going well. If it's not, that's a different story. But yeah, you're absolutely right.

Joe Guidi (13:58.028)

Right. So let's circle back to how you communicate when things aren't going the way you expected them. First off, I like the idea of the quarterly with the monthly videos. A lot of people are trying to report monthly; I think it's fairly cumbersome. But doing detailed reports quarterly, never being late, not filling them with fluff but real stuff, and then giving them something more consumable monthly is a really great idea.

Let's talk about right now. I'm sure you're getting questions from your LPs. As I mentioned earlier, there is noise about the Southeast—whether it's slowing rent growth or values dropping. I don't know if any of the assumptions in your models have been tested from what's going on, but I'm certain you've gotten questions. Walk me through how you deal with it when the market changes or something shifts that challenges your assumptions.

Andrew Cushman (15:01.333)

I guess it would depend on what that shifter factor is. I can give you a big example—I'll tell you about the worst syndication we ever did. It's older, but yeah. This was only two years in, so we had a lot of things to learn. We bought an almost 350-unit, early 1970s construction, deferred maintenance property in a very rough part of Dallas—South Dallas. This is when we were still investing in Texas.

It was the typical value-add thing. We'd do the renovations, we'd get the rent bumps, and then six months later, the people would stop paying, it'd take three months to move them out, and then they'd destroy the unit on their way out. We couldn't just turn it; we actually would have to renovate it again. It disappeared like a year ago, but I used to keep a little chunk of metal on my computer tray as a reminder. It was a spent bullet that I pried out of the drywall from one of those units. I kept it as a reminder—we are never going to deal with that stuff again.

Basically, the gist of it was we bought a rough property in a rough area. The expenses of running that thing were way higher than we anticipated. The headache factor was incredible. Literally one time at five o'clock in the afternoon, someone who was getting evicted because they didn't pay rent crawled up on top of the leasing office, busted out the skylights, and threw Molotov cocktails into the leasing office to try to burn it down. They did $26,000 of damage. That was the kind of neighborhood this was, but we didn't have the screening process to figure that out in advance. We do now.

Andrew Cushman (17:10.365)

So, two years in—I don't know if you remember, but in 2015, everyone was convinced a recession was coming in 2016. Robert Kiyosaki even put out a book about the 2016 crash, which never happened by the way, but everyone was convinced of it. So we were too, and we said, "Well, wait a second. This property is a struggle. We probably can get it turned around and get out of it and still make a decent profit. But if we get a recession, we could be in big trouble because these are the kind of properties that get hit the hardest and the fastest in a recession. And we're already on the struggle bus."

We just told investors, "This is supposed to be a five-year hold. Warren Buffett's number one rule: never lose money." We just said, "You know what? We bit off more than we can chew on this." We sold it early. Overall return to investors was like 5% for two years. We just shifted and said, "Look, we can possibly make this turn out well, but there's some huge risks here. We're not going to risk your capital. We're going to get out early, give you your money back. You can either go do something else or we're going to go find another investment."

We did that. Again, from that, we created a whole screening process to make sure we never got in that situation again. Thankfully, that has worked. Did we lose some investors? We probably did. Nobody was upset, but there's a handful of people that I never saw again. But you know what? We did—"Hey, we screwed that one up. It didn't get to the 15% we thought it would." But at the same time, we didn't lose money. I think for the bulk of people in that, it probably built trust because they saw that we were able to quickly pivot. Number one rule is protect capital.

Joe Guidi (19:06.988)

Right. In terms of transparency, how early do you communicate when there are issues coming up? I think there's a balance between over-communicating—you want to let them know you don't sugarcoat things—but these are also LPs. The deals are at arm's length. You don't necessarily want them worried. How are you balancing what to communicate?

Andrew Cushman (19:36.156)

And that is the trick and the question that we're constantly asking ourselves. When we're writing the reports, it's like, "Should we include this? Should we not? Does this matter?" It works on the flip side, too. We don't want to say some great positive thing and then people are like, "Wait, what happened?" I would say probably the biggest thing is to not surprise people.

I can't tell you how many LPs I've talked to these days where everything was great, they're in other sponsors' deals and it seemed like everything was fine. Then all of a sudden distributions stopped and the next quarter we're in foreclosure. We try to just give an accurate snapshot of where the investment is today and then where you think it's going, and then how any details fit into that.

For example, we got a couple of bad reviews at a property on Google Reviews because we had a maintenance guy that just wasn't doing his job and we fired him. We'll address that in that quarterly report and say, "Hey, we had to terminate the maintenance guy because he wasn't doing his job. We got a couple of bad reviews. We hired a professional recruiter to go out and try to make sure we really get a good guy. This is how we're going to address these things." Just be real, because what we don't want is an investor going on Google and being like, "Hey, wait, you guys have crappy reviews. What's going on?" We're going to bring that up.

If the leasing agent gets a write-up because she was late to work for two days in a row, are we going to put that in there? No, because that's not meaningful. We want to put anything that's meaningful. Like, we have a property near Atlanta that had a bunch of new deliveries come online nearby. It's still positive cash flow. It's still making distributions, but it's not hitting pro forma because with all those new deliveries, rents have come down. We're very clear about: "This is how much longer we think this is going to last. This is what we're doing to counteract it. We think by second quarter of 2026, things are going to really strengthen and after that, we're going to be back on track again."

Andrew Cushman (21:54.709)

Even really good properties that are way above performance, we say, "Hey, we're doing great. Everything looks great. These are the risks we're looking at in the next few years, and here's how, if that happens, what we think we're going to do. But so far, everything's good. Just want to put that on your radar."

Also, if a hurricane—we have lots of stuff in Florida, right? So every time a hurricane comes through, the next day we're sending out a quick communication that hopefully is like, "Hey, don't worry. Everything's fine." We did have to send out one that said, "Yeah, there's nothing left." And we rebuilt that property and everything. Actually, it's one of the best investments we've ever made—god bless the insurance. Just try to think, if you were an LP investing in your deal, what would you want to know?

Joe Guidi (22:44.172)

Right. Well, it sounds like kind of measured and balanced—not hiding anything, not oversharing. It's just a hard line to strike. I've heard people say, "Well, we give them access to all the financials." Without context, that can be a little bit confusing. You don't necessarily know what to look at.

Andrew Cushman (23:01.961)

That is exactly it. Actually, I think some sponsors do the opposite; they give so much information knowing it's going to be confusing and it obfuscates what's really going on. That's what we've tried to do in the middle—"Here are the financials and here's what they mean." You're 100% right. Just a pile of financials without the story.

Joe Guidi (23:18.986)

The data and the story. Right. You need both. Looking kind of forward: if you were talking to or if you were advising an LP—obviously you talk to your own LPs—and they were looking to invest with a sponsor, what are the top two or three questions you tell them to ask before committing?

Andrew Cushman (23:42.74)

The one is obviously, in a general sense, track record. But the nuance to that now is everyone puts out their track record of, "Here's the deals we sold," and for some reason, it stops in like 2021 or 2022. You got to ask sponsors, "Hey, your current portfolio: if you sold every one of those properties today, what would that look like? Would any of your deals be losing money? What would the results be?"

We all looked like geniuses if we were buying in 2015 and selling in 2019. You listened to the YouTube video and went out and took massive action, you did well. That's not the case anymore. Ask about not just the old track record, but what if you sold everything today?

Then also ask about the worst deal. What happened? What were the results? What did they learn from it? What did they do? Any sponsor who's been around for a while and has the experience you want is going to have had some deals that didn't go to plan like that. If you're an investor, you do know that's just how it works. Nobody bats a thousand. Even the best baseball player in the world is hopefully what—a .300 or .325 batting average? Although I'm a surfer, not a baseball guy; I could be off on that. Those are two.

Then if you're looking at a specific deal, really dive into the assumptions that are being made and understand how that affects the deal. We talked about like cap rates, for example—well, if a sponsor wants to financially engineer a deal to make it look great, all they gotta do is just take that exit cap rate and keep pushing it down a little bit, and all of a sudden the sales price and the deal looks fantastic.

Andrew Cushman (26:00.309)

That's great if cap rates go down, but if they don't, that's not going to work. Just look into all the assumptions of a deal—the rent growth, exit cap rates, expenses, all the things that go into a pro forma—and then go pull your own data and say, "Are these assumptions reasonable? Is somebody assuming 3% rent growth or five, six, or seven?" I've seen deals where even nowadays sponsors have baked in five or six percent rent growth every year for the next five years. Could it happen in some markets? Yes. Would I bet my money on it? No.

Joe Guidi (26:42.808)

Got it. So dig a little deeper into the assumptions, ask the deeper questions about their track record, and not just what has happened in the past but what is happening right now. That makes sense. One question we ask everybody is—and you've been in this game a while, so I'm interested in your thoughts here—what part of passive investing needs to die?

Andrew Cushman (27:14.901)

Well, I'm going to cheat and give you two answers. The long-term one that applies no matter where you are in the cycle is that passive investing is not passive in the beginning. You have to do a lot of work to vet your sponsor and the deal. Once you've invested with the same sponsor for eight years and you know you've done a bunch of deals with them and you're okay, maybe you can be like, "Hey, I trust you. Here's the money. Good. I'm going back to the beach."

But especially when you're looking at new sponsors or you've only invested with them once or twice, you need to do the digging that we kind of just talked about—take that deal and dive into the assumptions. Look at that—talk to that sponsor—but not only the stuff they sold in 2021, but: what's going on currently with your portfolio? Have you ever lost money? What's your worst deal? That takes time to do.

Go verify properties actually exist and what condition they're in. If you're in Seattle and you're investing in Austin, you can hire a guy on TaskRabbit or Fiverr and say, "Hey, here's an address. Can you go drive around this thing and take pictures?" If you don't know anybody and you don't want to fly down there. It can be passive eventually, but it's not in the beginning. You need to read those reports you're getting and take the time to read them. If something seems off, ask some questions.

Shorter term: debt funds and income funds are not safe investments. Those are popping up like dandelions in the last few years. Being on the sponsor side, I can tell you the nefarious reason that most of them are popping up: it's because what sponsors are doing is they don't want to do a capital call. So they create a debt or income fund.

Unfortunately, I know three of these guys that are in lawsuits now and being investigated by the FBI and the SEC where,

Andrew Cushman (29:23.381)

in the last two or three years, all of a sudden they went from doing multifamily or actual assets to these funds. It turns out the fund was their slush fund to put money here to plug a hole, put money here to plug a hole. Now it's all gone. Most of them didn't disclose what they're actually doing with it. A few that I know did, and at least they were being transparent. They're saying, "Hey, we're raising this money to try to save our own deals because we have debt maturity and all that."

A lot of that money is just gone because those deals shouldn't have been saved in the first place. I'm not saying every guy with a debt fund or income fund is fraudulent or even that they're all bad. I do know sponsors that have those funds that I would give money to, but if you have a sponsor that just suddenly out of nowhere is doing debt or income funds, dig very, very deep as to where that money is going and what it is being used for, because that has been one of the biggest sources of fraud for the last two years.

Joe Guidi (30:30.12)

Yeah, we've seen a lot of those pop up. That's a good note to end on, actually.

Andrew Cushman (30:38.005)

Again, not everyone is bad. Please don't take it that way, but just dig deep on those. Dig very deep.

Joe Guidi (30:47.276)

I think that goes in line with your first comment: passivity. It's amazing how many sponsors have said when I asked them that question that the word "passive" was kind of the problem here. It's not actually passive. You've work to do if you're the LP. It's not like going and buying an S&P 500 index; you actually have to do the work.

What you said after that is just punctuating that point on these debt and income funds. You gotta ask yourself: where are these things coming from? What's the purpose? Dig deep. Don't be passive on your due diligence on those. This has been great. If people want to find you and learn more about Vantage Point, where should they go?

Andrew Cushman (31:38.941)

I'm not a social media guy, but I do post on LinkedIn. So if you want to connect with me there, that actually is me writing the post and that is me commenting. It's not an assistant or AI chatbot or anything like that. Then our website—if you just Google Vantage Point Acquisitions, somehow we have really good SEO and it pops up, but the website is vpacq.com. There's a couple of different ways to connect with us on there.

Joe Guidi (32:06.188)

Awesome. Thanks so much, Andrew.

Andrew Cushman (32:08.147)

I appreciate it, Joe. Good talking to you.

Joe Guidi (32:10.03)

Bye-bye.