Taking a Path Less Traveled: A CEO’s Origin Story

Taking a Path Less Traveled: A CEO’s Origin Story

I love the story of SMARTCAP and how Joe (co-founder and an amazing business partner) and I ended up in the place we are today.  Everyone has a story and each one is unique and special in its own way. I thought that it would be interesting to share mine with you!  This is not an educational post as much as I hope it might be an inspirational post to someone out there who is following us or considering taking a path less traveled.  There are so many paths to success and I have been blessed in my life to be surrounded by people who have helped shape me into who I am.  I hope that as I continue to grow in my life, I am able to play that role in others’ lives and help them grow into people who are truly greater than they would have otherwise been, and people who will be better than I am!

Where We Are Today

To set the context, I’ll give a brief snapshot in time of where we are today.  SMARTCAP officially launched in 2014 with only Joe and me working in a small 150 sq. ft. office in Redmond, WA.  As of the end of 2019, SMARTCAP has completely nearly $250MM in total transactions and we have raised nearly $100MM in equity.  We recently launched an affiliated construction company and between SMARTCAP and SMARTCAP CONSTRUCTION, we have 10 total employees that work at our company and expect to be between 13-15 employees by the end of 2020.  We have had incredible growth over the last 5 years, and it has been one of the most enjoyable periods of my life.  We also believe we just ‘made it’ and expect our real growth to start now!

 

A Bit About Me

Wow, how far back should I go? I will briefly talk about where I came from. I grew up in very small towns; Drain, Oregon (roughly 1,000 people) until I was 11, Onalaska, Washington (roughly 1,000 people) for a year, then Chehalis, WA (6,500 people) until I was nearly 18.  My family was a construction family and although we were what I would classify as a lower-middle class country family, we were happy.  I worked for my father and planned to enter the construction business without really giving it a lot of thought.  That all changed when I tore my ACL (for the first time) at 16 years old.  At this point, I was unable to do my job and had graduated from high school through the Running Start program, so I decided to take a semester of community college.  As it turns out, this was the only formal education I got post high school.

In college, I took assembly language computer programming classes and ended up volunteering at a local computer shop to learn how to rebuild and fix computers.  I quickly realized how much I liked working on computers and that I was reasonably good at it.  From there, I moved to Las Vegas with my sister right before I turned 18 and found myself working at a local computer shop rebuilding computer as well as working on sites fix hardware issues for local businesses.  As part of this job, I spent 6 months working at McCarran Airport rebuilding computers and learning network administration.  It was a very fun and interesting job, and pre-9/11 having freedom to run all over the airport was a blast.  Eventually, this led to a network administration role which I held until I was 20.  A major turning point happened around this time.  I had a good friend who I worked with tell me that my boss offered him my job (which he declined).  He then told me he was planning to move from Las Vegas.  His comment was, “If you want to move back to Seattle, I’ll move to Seattle, otherwise, I’m heading to San Diego”.  A month or so later, we both lived in Redmond, Washington, the home of Microsoft, where we each landed jobs in Technical Support!

Getting a job at Microsoft was a huge, life-changing event for me.  I remember how thrilled I was to be at such an amazing company.  I got the job by being excited, motivated and having just enough knowledge for them to give me a chance.  It was the time of the ‘Dot Com’ bubble and people were leaving companies like MS for startups, so they needed employees!  I felt lucky to have been accepted into a role and literally threw myself into learning as much as possible.  I knew one thing at that point- I was going to work at Microsoft the rest of my life and I was NOT going to lose that job!

As it turns out, I spent 15 years at Microsoft and loved my time there. Of course, there were ups and downs, but navigating my way successfully through a company like MS, from technical support into the Windows organization, to becoming a principal-level development lead running a team that did low-level debugging and large-scale data analytics was an awesome place to be!

I always say I grew up at Microsoft.  They taught me more in life than I ever expected from a job:  how to be professional, how to scale a team, how to lead, and probably the most important thing I learned is who I was and what I was good at.  I learned that I love being in a leadership position and creating and driving a vision. I learned that I love building a great culture around me and having a team of people bought into collective ideas and wisdom. I learned mentorship is one of the keys to being successful.  I learned that managing great people that are better than you is one of the most enjoyable things you can do!  It was all a great game and so much fun to play.

Leaving a Successful Technology Career to Start a Commercial Real Estate Company

Why make that move and take that risk?  Joe and I get asked this question often. For me, it came down to a long history and passion for real estate; that is true for both of us. I have always been high energy and investment minded.  Throughout my life I saved, maxed out 401k’s, Employee Stock Purchase Programs, etc.  One thing I never really loved was the stock market.  I invested in it heavily, and still do, however, I never had a passion around analyzing stocks, timing trades, etc. It just wasn’t exciting to me. To this day, I still use a wealth manager to manage my stock portfolio.  On the other hand, I have always loved real estate.  I say I am a ‘Rich Dad Poor Dad’ kid (for those unfamiliar, this is a book by author Robert Kiyosaki). I wanted to build income streams and loved the idea of RE being that income stream.  Around 2005, I started looking at fix and flip foreclosures and tried to enter that business.  I realized pretty quickly that it was not for me.  Even though there are cases where you are helping homeowners get out from a bad situation, it felt slimy and not something that sat well with my morals.  Shortly after that, in 2007, my wife started a retail pet store called Pet Place Market located in North Bend, Washington.  The store struggled for several years and at the end of 2009, our lease was up.  I wanted to close the business down, however, my wife wanted to make it work.  We agreed to keep the business open but needed a new location and new business model.  This led to my first purchase of a CRE (‘Commercial Real Estate’) building.  A few blocks away in N.B. was a little building that had two other tenants and a decent sized vacancy.  I asked about leasing the building and more importantly, if I could buy it.  To my surprise, I was told yes, and that the seller would finance the building.  We ended up buying that building for $965,000 and put $65,000 down.  I knew absolutely nothing about CRE or retail.  The building did very well with her business and two other tenants and introduced me to triple net leases.  My mind was open, and I wanted more!  As a note, Pet Place Market did very well in the new location, and we sold that business years later for a great profit.

After owning my own building for a period and realizing the wealth potential in CRE, I wanted to figure out how to replicate what I had just done.  After going on Amazon and buying several books, I decided I would try to syndicate a deal.  It took me awhile to get past the ‘OPM’ term (other people’s money) and start to realize that there are smart, sophisticated investors who want to invest into a passive income stream outside of the stock market.  Once I turned that mental corner and felt good about the model, I really dove into the syndication process.  I called my attorney and negotiated a flat fee for the syndication work (private placement memorandums, etc.), built a business model based on the building I owned, then went into Microsoft and asked my friends and co-workers if I was able to replicate this, would they invest with me? To my moderate surprise, I was able to get a group of people to say yes.  I bought my first building through a syndication in Olympia, WA in 2011 for $950,000.  I remember taking $5,000 investors to raise enough money.  For the second time in two years, I put every dime I had into an investment.  In January of 2010 after buying my first building, completing the tenant improvements needed to move our business in and getting going, I had a maxed-out 401K loan and $2K in my checking account (yikes!).  During my first syndication, I remember calculating out how many paychecks I had before my closing date to see if I could get the last $10K I needed to close the deal.  It was stressful, but stress is such a great driver that it was also motivating beyond my wildest dreams.

The first several deals were like this for me.  I would put my all into each deal I completed.  I look back at the amount of risk I was willing to take and am still shocked. I had the mindset that if I lost everything, I would be smarter and could rebuild faster.  That is a dangerous attitude to have in life and I offset that by having a conservative approach to how I analyzed deals.  With that said, I knew that needed to change, and over time it did.  With one particular deal I tried to buy in Houston, TX, I was having difficulty getting lending and finally settled on a lender that was not a traditional hard money lender, but higher priced (8% interest).  When it came time to close on that deal, the lender had collected a bunch of fees from me and would not close.  It turns out that he did not have the funds available and was fraudulent.  The sellers of the asset were quite gracious and tried to give me time to extend, however, eventually I wrote a $100,000 EM check.  I retuned my investors’ money and not only wrote that $100K out of pocket, but also covered 100% of the company cost for diligence, creating the private placement memorandum, etc.  All in all, I would estimate that deal cost me $130K – $150K.   Needless to say, my wife was less than happy.  I told her it did not change my outlook and that I was going to make this successful.  My investors were thrilled with my integrity and 100% of them invested in my next deal.  I ended up suing the lender as they truly were fraudulent. My goal was more to keep them from doing this to anyone else than it was to recover damages.  We ended up settling at $52K, $50k of which I paid to my legal team.  My attorney, who was a close friend, told me it was a cheap degree at the end of the day!  I learned some important lessons but also took it as part of the cost of doing business.  Sometimes, deals go wrong and when they do, it costs real money.

By the time I met Joe in 2013, I had acquired 5 buildings, 4 of which were syndications totaling $7,000,000, and I thought that was a pretty big deal.  I had even sold one asset at that point (Sequim Retail Center) for a 64% IRR after 9 months.  In my mind, I was on fire and specifically started looking for a new business partner.

Joe and I first met at Microsoft in 2012.  There was an email alias to discuss real estate and I was always fishing for investors at that time.  Joe scheduled a lunch with me and the first thing he said was ‘I’m not an investor, but I wanted to chat’.  What a waste of time, or at least that was the first thought that popped into my head.  We had lunch at Jersey Mike’s and went our separate ways.  In 2013, we ended up crossing path at an Angel Investing Conference (investing in early stage start-ups), that was hosted in Redmond.  During introductions, we both mentioned being in tech but having a passion for real estate.  Eventually we started meeting after our Angel Investing Conferences and would often spend an hour or two talking about real estate.  That led to coffee shop meetings and a trial business plan. There were three of us at that time and being that I was already operating, we struck a deal in which I was the largest owner and Joe and the other partner were smaller equity holders in that first deal we did together.  We agreed that if we moved forward, future deals would be equally split between the partners.  We acquired two retail centers, Smokey Point Retail Center and Vintage Place Retail Center.  We acquired those assets for around $7MM and agreed it was a big success.  Joe and I decided to part ways with the third partner even though he was a pleasure to work with; it just felt like too many people running a single company. That was the start of our new business adventure together

We formed SMARTCAP in April of 2014 and were both full time into CRE by the end of 2014.  I think our families and wives were more shocked and nervous than anyone.  We just quit high paying tech jobs where I was a principal lead at Microsoft and Joe was an VP at Globys.  Who does that?  What I will say is meeting Joe and becoming business partners was the best thing I ever could have done.  We are opposites in a lot of ways and that leads to some struggles, but those struggles have been nothing but good.  We balance one another out and are far more successful together. Oddly (some would say) we don’t really do much outside of work together, but we are incredibly close.  I would not want to be in this business without him by my side, and that is a powerful partnership to be in!

 

2014 Until Now (2019)

The last 5 years have been a blur, and hyper-successful.  We went from $7MM in deals to nearly $250MM in transactions.  We went from 2 people in a 150 sq. ft. office to 10 with the plans to hire 3-5 over the next 12 months.  We have property management, asset management and a construction company all in-house or through affiliated companies.  We are developing industrial and buying high quality office properties in core suburban markets.  We were recently pitched the idea of buying a tower in Bellevue, which we are currently exploring and are confident that with the right deal, we have the capital partners to take these larger deals down.  It is really fun to look back at the journey and the success and realize this is something two guys kicked off and grew from nothing!

2019, The Year We Made It!

In 2019, we acquired three office buildings for $50MM and launched our second industrial development that would total $22MM in new development.  The office acquisitions were in excellent locations and really solidified SMARTCAP’s reputation in the region. We were no longer a couple of ex-tech guys buying real estate!  Suddenly, we were one of the larger local operators in the region and well-respected.  This was an exciting transformation.  We went from seeing an off-market deal every now and then, which was heavily marketed in most cases, to seeing 7-10 deals in a three to four-month span.  It was an incredible change and what I believe is the start to our real growth.   We have spent the last several years building a reputation and building a company that not only our employees believe in, but the market believes in as well.  We realized how critical our reputation is and even though we are far from perfect and make lots of mistakes, we try to stay humble and ensure that we are looked at as great partners and as people that do what we say we are going to do.  After all, that is what matters most!

What’s Next?

It has been a crazy journey from being a small-town kid, making it at Microsoft, then jumping ship to CRE, all with no college degree or formal training.  Everything I have done in life I have worked for.  I’m not the smartest guy in town, that is for sure, but I am a hard worker, I am consistent, and I am highly motivated.  I learned that I love to lead and inspire people and that passion has helped me, along with Joe, build an amazing company.   I want to grow my wealth hand in hand with our investors as well as our employees.  One of my dreams in life is making my employees into millionaires and we are on a path to make that happen!

We are at the bottom of our hockey stick from a growth perspective and I’m excited to see where the next 10 years will take us.  We are starting to really develop the right relationships in our local communities as well as with institutional partners to take our company to the next level.  Seattle has just recently become a true global market and I strongly believe we will be one of the top two local operators in this region within the next 3-5 years.  Will we become the top operator in 10?  Who knows and that is not even necessarily a goal, though it would be fun!  We will stay humble, but motivated!  We will keep our reputation clean and we will honor our core values as a company!  We will continue to succeed by keeping risk reasonable, doing the right thing for our investors and having an impeccable reputation.

If you got to the end, thank you for reading and I hope that my story was motivational and inspires you to do something amazing in your life!  Every story and journey is unique and I never imagined I would be where I am today!  Work Hard, Stay Motivated, and Take Chances!  

Tim Shoultz

SMARTCAP CEO

Tim Shoultz
laura@smartcapgroup.com


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