Driving Disruption: Matthew Gorelik Of Township Capital On The Innovative Approaches They Are Taking To Disrupt Their Industries

Thank you so much for joining us in this interview series. Before we dive into our discussion about disruption, our readers would love to “get to know you” a bit better. Can you share with us the backstory about what brought you to your specific career path?

Township Capital emerged from a realization I had while working as a financial advisor across various business lines in prominent institutions like JP Morgan. I noticed a significant gap in the real estate financing markets, particularly from my interactions with several large real estate developers in Southern California.

In my role, our firm’s real estate equity groups often sought to collaborate with these developers, and I would facilitate these introductions. Typically, our firm would aim to invest tens or even hundreds of millions of dollars alongside these developers in a traditional joint venture structure. This arrangement required the developer to contribute 10% of the equity as the general partner (GP), while our real estate group would provide the remaining 90% as the limited partner (LP). The LP would then incentivize the developers with promotes tied to the project’s success.

However, I noticed that some developers were consistently turning down these offers, and I was curious to understand why. After a developer stopped communication with our real estate group despite a substantial financial commitment offer, I decided to investigate further. I discovered that the developer lacked the 10% equity required to match our firm’s investment.

This realization led me to propose a solution: I offered to secure the 10% equity on behalf of the developer in exchange for a share in the promote. The developer agreed, as this resolved their cash constraint, and our real estate groups were amenable to this arrangement due to their mandated equity limitations.

This experience highlighted a broader issue faced by many strong developers, leading me to develop a business plan to address this gap in the market. Thus, Township Capital was born. Since then, Township has successfully capitalized on nearly 100 investments across the United States in multifamily, industrial, and student housing, partnering with prestigious development firms and investment funds.

In other words, rather than working for JP Morgan, Township and our investors invest alongside JPM, securing an outsized return.

What do you think makes your company stand out? Can you share a story?

Our company serves as a crucial link between high-net-worth individuals and institutional commercial real estate. What sets us apart is our unique offering: an investment opportunity in the General Partner (GP) position as a co-investor. This position is highly sought-after in the capital stack because it provides an opportunity to earn a disproportionate share of the profits, known as the promote.

Most investors typically access real estate investments through their financial advisors, who often steer them towards institutional funds or Real Estate Investment Trusts (REITs). These investments usually place investors in the Limited Partner (LP) position, which entails taking on the same risk as the GP but typically results in a lower return. Additionally, by the time the investor receives their capital after accounting for performance fees, the net return is substantially reduced.

Township, on the other hand, invests alongside these funds. By placing investors in the GP position, we expose them to the same common equity risk but allow them to enjoy a larger return on their investment.

As an illustration of the significant returns possible, consider our investment alongside a repeat operating partner and a prestigious real estate investment firm based in Dallas, Texas. Together, we invested in a student housing asset in Tallahassee during the height of the COVID-19 pandemic. Just 18 months later, we successfully sold the asset, realizing a triple-digit return. Importantly, our return exceeded that of the Dallas Investment Firm by over 70% due to our promoted interest in the General Partner position. Despite taking on the same level of risk, our strategic position allowed us to achieve a substantially higher return.

You are a successful business leader. Which three character traits do you think were most instrumental to your success? Can you please share a story or example for each?

Patience, trust, and transparency are foundational to successful real estate investments, which often span multiple years and economic cycles, requiring flexibility and adjustment. In such illiquid markets, patient investors are essential, as strategies may need to be adjusted and timelines extended unexpectedly.

Trust is equally crucial, especially in our partnerships with top-quartile developers and operators who have successfully navigated numerous market cycles. We meticulously vet these partners to ensure they can steer investments through challenging environments, relying on their expertise even in the toughest conditions.

Transparency is paramount in our relationships, both with real estate partners and investors. Investors must be kept informed of changes in their investments, whether positive or negative. It is essential to me that investors are aware of developments and that we proactively communicate to steward their capital responsibly, treating it as our own. We aim to provide the type of communication we would desire throughout the investment cycle, from initial investment to exit.

Leadership often entails making difficult decisions or hard choices between two apparently good paths. Can you share a story with us about a hard decision or choice you had to make as a leader? I’m curious to understand how these challenges have shaped your leadership.

As the chairman of our investment committee, I bear the ultimate responsibility for our investment decisions, ensuring that our clients’ money is positioned to capitalize on evolving environments. One of the toughest aspects of this role is adhering to a proven method and formula, even when the immediate results may not seem as attractive as newer, trendier options.

During the pandemic, we maintained our focus on student housing investments near large universities, despite the prevailing belief that online learning would become predominant. Our rationale was rooted in the fact that students value living among their peers in high-quality housing, which provides a sense of community and social connection integral to their undergraduate experience. We were confident that even with temporary disruptions to in-person learning, students would return to these communities, as their university years are formative and living near campus holds significant appeal.

Anecdotally, my son was an undergraduate at the time, and witnessing how unfulfilled the college experience felt for him without being around his classmates and friends in the remote learning environment reinforced my aforementioned rationale. He could not have been the only one, and thousands of other students must have been feeling a similar way.

While it might have been tempting to stay on the sidelines and wait out the pandemic, we saw an opportunity that aligned with our strategy and had the potential to yield strong returns. This decision was challenging at the time but ultimately proved to be a successful strategy.

How do you perceive the role of ‘disruption’ within your industry, and how have you personally embraced it? Is it a necessity, a strategy, or something else entirely in your view?

While real estate is often considered a slow-moving asset class, recent migration patterns highlight how quickly disruption can occur. Families and workers are relocating across the country, particularly to tax-friendly states like Florida and Texas, driven by the unaffordability of coastal cities and homeownership for many.

I personally moved to Florida for several reasons, one of which is the significant disruption and innovation I see in the real estate sector here. With robust economic development in South Florida, this region is poised to become the epicenter of real estate investment in the United States. Additionally, many national development firms are establishing a presence here, and being physically close to these groups will help expand our national footprint. Being on the ground and actively involved is crucial, as I am confident that this location will provide ample opportunities for our company to grow and generate substantial returns for our investors.

What lessons have you learned from challenging conventional wisdom, and how have those lessons shaped your leadership style?

The ethos of this business revolves around challenging conventional wisdom. We identified a market dislocation that many overlooked, as there was a common assumption that developers and operators had abundant capital readily available for their investments. However, the reality is that most are cash-strapped.

My approach has always been to push the envelope and identify risks and dislocations in collaboration with elite developers and institutional managers. This involves venturing into emerging asset classes and markets where macroeconomic tailwinds and strong fundamentals support the investment thesis.