#373 - Fernando De Leon - Founder & CEO @ Leon Capital Group

Chris Powers: Fernando, thanks for joining me today. 

Fernando De Leon: Thanks for having me, brother. 

Chris Powers: It's been a fun lunch, and I'm sure it'll be a fun conversation. All right, let's start in the early days. You have an incredible story, and I think it would be important to talk about zero to 18, how you kind of came into the world. 

Fernando De Leon: Zero to 18. Well, you're a border kid like me, so you know the story a little bit. The geography of the border is a very unique place. So I grew up in, I was born in Brownsville, Texas, but I lived on the Matamoros side. So I lived on the Mexican side and I commuted every day to school in the morning in Brownsville. And then in the evening, I went to school in Matamoros, actually. So, I went to a little agrarian school where kids worked on a farm in the morning, in the evenings they went to school, and I went to one of those schools. So, that was pretty formative going back and forth every day along the border. That was a big deal. The border at the time was pretty complicated as you probably recall, 80s and 90s. The neighborhood where I grew up in was pretty rough. There was a lot of movement of organized crime being re-engineered and responding to demand forces in the United States. So, the organized crime in my city was just sort of overwrought, much like it was in a lot of border towns, in Juarez and other border towns around Mexico. So that was pretty formative. It was really impactful. And I think, I was an ESL student, so I didn't learn how to speak English until a little bit later. And there were probably two big things that happened in my life. One was my dad got sick and I started studying for the spelling bee with him before he passed away. So ESL students weren't allowed to be in the spelling bee, and I really wanted to do it primarily because there was a prize, there was a $10,000 prize that you could win and things were pretty bleak. My dad was not doing well, and so I wanted to take the spelling bee, win that prize, and so I started studying. And I was a little boy, fifth, sixth grade, and I sought out to learn every word in the English language in the dictionary. So, I won in my school, then in my city, then in the region, in South Texas, and I represented Cameron County, which was the poorest county in the United States at that time. I represented them in the National Spelling Bee in Washington, D.C. Between the time I won in South Texas and I competed in the National Spelling Bee, my father passed away, and I went to the Nationals. I came back with about $10,000 of prize money, and I took care of my family. It was a lot of money back then. And my mother was pretty distraught, but I took that capital, and it was very formative. I wouldn't realize how formative it was until many years later where for college, for essays, for writing, for the SATs, the way words and patterns in words helped me discern concepts. So it was very formative. That was the first thing in that zero to 18-year period that you've mentioned. The second thing that happened was once I was good at speaking English, I used that skill to become a translator along the border. And as a translator, what I was doing was there were real estate developers that were going to Matamoros and Juarez and Tijuana from San Diego, and along the border, the NAFTA had just been signed, the North American Free Trade Agreement in the early 90s. So companies were coming from the United States to Mexico to set up manufacturing capacity. So, I was early teens, 14, 15 years old, and I had my first client, a company that was building a textile plant and I was the developer's translator. And the deal was, you could get it entitled and you could get it developed, but then you actually needed the union to approve the employment permits, the labor permits, and I was able to help do that for him, help him get those labor permits. I took what I was entitled to in terms of fees, and essentially, I converted it into an equity stake in the building. So, I was 14 years old. I took a 5% stake in a building that was probably 2 million bucks at the time. There was financing on the building. And I was 14 and I had real money. And then I did that about half a dozen times from 0 to 8- from 14 to 18, I did that another five times, and I owned stakes in buildings, and I realized I could, without capital, invent value or create value. And then the most significant part of all that was that when that first happened, after that, we just never were poor again. After my dad passed away, things were pretty bad, but then once I had equity and once I had dividends and cash, and eventually I sold those stakes back to the developers at a market value. And then we just never kind of struggled after that. I took this knowledge, this opportunity, and turned it into prosperity for my family, and everybody around me just kind of realized this was a path. And so, I was able to eventually just not have that poverty guide every decision in my life. 

Chris Powers: Did you feel unsafe as a kid? As a kid, do you know you're in an unsafe environment, or is it looking back now living in America that you realize it was unsafe? 

Fernando De Leon: I hear- I've heard like Dr Dre talk about South Central; I've heard people like that talk about the environment they grew up in. Where I was, where I grew up, it was worse than that. It was much worse than that. In my neighborhood, I mean, a lot of people in my age group were ultimately recruited by the cartels, and they went to work, they became leaders of those organizations. So, everything around us was disruptive and it was complex. But here's what I'll tell you, that if you're in that system,  and you lived this along the border, when you've got to have a mentality in the morning in Texas as a person, as a cultural person, as a sociological person, and then you move to another country and another city the same day, and you have to go back and forth between those two operating systems in your brain, you develop really deep understandings of human behavior. And that's very empowering. So I sort of fashioned myself a social systems engineer today because I was able to contrast these things on a split second. And so it's not all bad. And I think frankly the people that deal with that kind of adversity or those troubled childhoods, I think they end up doing well. I think Churchill has this amazing quote. I won't get it perfectly right, but he talks about, he says great people are born in bad childhoods because the adversity that twinges, that makes people feel the need to improve their lot in life is is the most important driving factor in a person's life. So, I think all of that that was happening at the border where I was growing up was complicated, but it was achievable. You could deal with it if you found the right opportunity sets, and you had to be smart enough to find them.

Chris Powers: You might not remember it; do you remember the word that won you the spelling bee? 

Fernando De Leon: Well, I remember the word I lost with in the national spelling, I lost the word ptomaine. 

Chris Powers: Okay. Never heard of it. 

Fernando De Leon: Come on, so try to spell it. 

Chris Powers: T-O- 

Fernando De Leon: No. 

Chris Powers: Already wrong? No T? T-O-M-A-I-N-E, tomain. 

Fernando De Leon: No, it starts with a P. 

Chris Powers: I like to eat chicken and ptomaine. 

Fernando De Leon: It starts with a P. 

Chris Powers: Okay. So, ptomaine starts with a P. 

Fernando De Leon: It’s PTOMAINE. And it's a word. I wasn't expecting it to start with a P, just like you, and I was kind of nervous. And I was in seventh grade, six or seventh grade when I lost with that word. But yeah, that was really cool. The other thing that I saw when I was a little kid and I was there, it was a national spelling bee, so you saw people, I mean, you see this right now. You're competing in the industrial business and you see the range of adversaries and competitors across the board, from the big asset managers to everybody in that bookend of competition. And when I got to see these people at a national level, I kind of said, I can hang. Like I got this. I can be- I can compete at a national level. So even those initial motions were pretty formative. 

Chris Powers: All right, so you go to Harvard, and really my question on Harvard, one, like how impactful was it? And looking now, I guess it's been almost 27 years since you went, is it as valuable today as it was back then? 

Fernando De Leon: So, all right, so here's a border kid and you get to Boston, to Cambridge. And I was a street kid. Like I had some, I had sort of fashioned my street smarts, but it was a place where I was thinking about sort of the philosophical underpinnings of my ideas. Like I had seen people, you saw Jose Gonzalez in Brownsville and you saw Jose Gonzalez in Matamoros, and you said, okay, what governance system works? What doesn't work? Why do these ideas result in prosperity? And why do they result in bad ideas? And so, you start to do that. But you don't know, I didn't know this stuff formally, philosophically. So, I went to study the classics. I studied Kant and Nietzsche, which is hard when you're an 18 year old kid from where I was from. These philosophers that were sort of angry and resentful and dark, as I started reading these guys, it just kind of blew my mind. And I wanted to create like where do my ideas come from, and I started to put some meat on the bone. And then I got really into, I spent a lot of time studying evolutionary biology, so like where do we come from and why do we act the way we act. I kind of had seen some people back home and I was trying to like understand it scientifically. So that's what that place was like. It was a little overwhelming, but I wanted to understand the things I had instincts about and then to formalize them into a philosophy of life that came from people that had written before or professors that were talking about current events and politics and especially the evolution of our species. That's what I spent three-quarters of my time thinking about and learning about. And ultimately, I couldn't do my job as an investor today if I didn't have that training. So, I think it was important. I'll tell you this though, sort of semi-controversially or maybe not so much, places like Harvard are brands. They exist on a brand, they exist on a name, just like Blackstone and other companies that have big names exist. Brands are information shortcuts. They tell you something that you're supposed to believe. So, it's kind of BS. And I don't necessarily subscribe to brands that tell me how I should think about something. I don't really fall for that. I think that's sort of a sucker's game. And so I think I learned a lot and it was a big contrast to where I came from. But I wouldn't say that just because- it could have happened at TCU or it could have happened at Ohio State, it doesn't matter. Like you were exploring ideas, it didn't sort of matter where it happened as long as you were open to it. 

Chris Powers: It's a loaded question, but if you had to dumb it down, what you learned about people or like when you left, could you dumb it down to like, here's what I thought about everything I had studied? Did you have like an aha moment? 

Fernando De Leon: You’ve got a way with synthesizing questions, Chris. Yes, I think, I've never been asked that question nor have I thought about it, but I know what it is. And that is, I spent some time in a chimp lab studying primates. And I learned a little bit about how they trade amongst each other, how they trade food and other forms of currency. Sometimes they trade hierarchy and prestige and food, and those systems that they have are exactly the way we act as human beings to trade property or services or currency or money or hierarchical prestige and disruption. And so everything that animals do in the natural order is pretty consistent with the way we act as human beings. And I learned that that wasn't necessarily that difficult to parse out when you were doing a deal or when you were investing. If you could figure that out, you could figure out the system that was overlaid on that person's agenda. And then you can figure out exactly how everything can, how everybody can win around a transaction or investment, and then to create value for others. And I think I saw that and I learned about that at Harvard, and I'd say that was pretty consistent with my upbringing and then consistent with my career afterwards. 

Chris Powers: Okay, but you hire a lot of people. The world's changed a lot. Kids are learning things at really early ages. Do you think- it's not even a Harvard thing, let's just take Ivy League or just prestigious colleges, do you think the brand value holds the same weight in today's world that it did 27 years ago? Or do you think it's becoming more of a gray area? 

Fernando De Leon: Look, I don't think colleges necessarily dictate people's grit and toughness. And if we're learning new ideas all the time based on innovations or new systems of governance or economic systems, I don't think that a place with prestige that was generated 300 years ago can do anything for you. So, when I'm recruiting, I'm looking for people that want- that are tough, that are gritty, that are scrappy. I don't care if they're any race, I don't care if they're any gender, I don't care if they're from Mars, if they have those things, I think they can join our organization and create value for us and for themselves. I don't even ask people what school they went to. I think it's a pretty irrelevant characteristic or variable in a person's life. 

Chris Powers: I agree. You went to Goldman. We don't have to talk about the whole thing at Goldman, but there is something... 

Fernando De Leon: Oh, just how I got fired? Is that what you want to-? 

Chris Powers: Well, you said it, not me. Most entrepreneurs get fired from their jobs pretty quickly. But you did say you learned one thing there that I hadn't heard before, and it was called, you said, I learned the supply chain of money. What does the supply chain of money mean? And then we're going to move into like business and how you've built Leon. 

Fernando De Leon: Sure. Look. the thing that I saw when I was there, and yeah, I was a pretty bad employee and I wasn't particularly adept at whatever I was supposed to be doing there. It was 2001 when I got recruited and it was right after the Dot Com, so I think I passed a few filters for them to give me a job. I loved living in New York for a few years, but I wasn't particularly competent at that job. I wanted to just kind of go build my own thing. But what I did see there was a flow, a flow of money. I saw the securitization markets. I saw asset management. I saw the fund business. I saw the way Goldman was constituted across many different lines of business and how they created synergies amongst it that may or may not have created value for humanity, but it created value for the owners of that firm. The movement of capital is very complex, and I call it the supply chain of capital. Let me take you on a little bit of a story. When we think about, I think for your listeners, like, why does it matter to me how money flows? Well, if you're a broker, if you're a developer, if you're an owner, if you're in any business, you need to understand who is in that game. Business is a sport. And so, if you're sizing up an adversary in basketball, you'd want to know, how tall is he? How fast does he run? How good is he off the dribble? Can he pass the ball? What are his strengths and weaknesses? And so, I think about the supply chain as the people that participate in private equity, in asset management, in the banking sector, in the securitization markets, in the consumer lending markets. Every one of these parts of it, they all have a- they're all part of a sport, and they all have a contribution that impacts you. So, I tend to spend a lot of time thinking about how big companies are set up internally and what drives them, what motivates them, so that I can compete with them. So, for instance, let's say that you had a young person that said to you, you're in the industrial business. And so, somebody says, hey, Blackstone bought this building. So, I would say, what does that mean? Well, somebody, to the naked eye, Blackstone bought a building, what's the big deal? Well, I would say, Blackstone, which fund? Okay, so the Blackstone fund 7 has bought that building. And then that fund 7, well, what does it have? It has 200 investors. So really those 200 investors put up 99.7% of the capital in that fund, and there's a GP co-invest and that was bought by that fund. That fund pays a fee, that fee pays a fee to the general partner, and the general partner receives that income stream, the fee. The general partner is now- well, and by the way, who are the limited partners? The limited partners are Texas Teachers Retirement System, the Ohio Pension Fund, the North Carolina University System, TCU, et cetera, et cetera. So, these are all organizations that have teachers and state employees that have their savings there, that they work for their whole life, and they're being custodied by leaders that then put that money into a fund. That fund pays a fee to a general partner, but the general partner is now publicly traded. So what does that mean? Who owns a publicly traded investment manager? A publicly traded investment manager is owned by mutual funds, institutional investors, private shareholders, just retail investors, but the majority of the shareholders are mutual funds and index funds. Well, those mutual funds are also owned by Texas Teachers and by the California Pension Fund and endowments. And so, if they are the LPs in the fund and they pay fees to a general partner that is also owned by those very same people, what do the people in the middle own? They don't own anything. So who bought it? Well, it's complicated. And that is a supply chain of how money moves in that one particular instance. But it's complicated. So, one person could say Blackstone bought it, but maybe it was Link, and Link is owned by Fund 9, and the building's owned by a fund, and then that fund is managed by a GP, which is also owned by shareholders that have a huge overlap with the people that put the money into the fund in the first place. And so, these are complicated systems, and I think for your listeners, like what's in it for us is if you understand them better, you will do better. The more you understand these, break down these systems, the more you're going to be able to find where value is not only created, but value is extractable by an individual to create wealth for themselves. 

Chris Powers: Does that also, in that case, maybe help you understand why they- you're like, I can't believe they were able to pay that much. It's because they have a whole different set of incentives than maybe you do if you're just a single investor? 

Fernando De Leon: Well, let's break it down. I mean, let's say you have a- how many managing directors run the real estate portfolios at any one of these asset managers? You got 300 people. None of them own- they probably own a few million bucks of stock if they've worked there for 20 years, and it's a $100 billion company, publicly traded, 99% of those shares are owned by mutual funds and index funds and frankly algorithms that underweight Wells Fargo and traded for some Apollo stock. So, then you have these people that are making decisions about how to deploy capital that have a certain set of incentives, like you said, that may be different than your incentives as if you're investing your own money into a deal. And so, understanding that positions you in the best place to be able to extract value and to play that sport. 

Chris Powers: Okay. So, Goldman, you did a great two years there, and then you left the building for the final time. Then what happened? 

Fernando De Leon: So, I came back to- I didn't want to go back home because there was too- South Texas was sort of too small, New York was too big. And so, Dallas was sort of a happy medium, a big city, and I also thought that Dallas and Houston would grow disproportionately fast relative to the coastal markets. I think I was right about that and DFW, I think when I got here in 2003, it maybe had four, four and a half million people, and today it has eight or eight and a quarter, depending on how you define the metroplex. But so, Dallas was a great place to land. I didn't have a lot of money. I remember putting a few pieces of land under contract early, and what I would do was I'd option it with a long feasibility and then change the zoning. So, I changed the zoning from ag or something else and turn it into pay per lots, essentially single family lots. And then I would sell the contract or assign it at a spread to the home builders. And so I did a lot of business with the public home builders. And they had a place for me in their supply chain. It was like, hey, we can go do the work of rezoning it, and you can capture some of that value. And so, I was 24, 25, and I was doing deals like that where I could create significant value. And I did that a lot, a lot of times before 2008. So, I had a little bit of money when 2008 hit. 

Chris Powers: So real quick, just for listeners. So, you leave Goldman, you come up to Dallas. I'm assuming you... 

Fernando De Leon: Goldman left me, just to be... 

Chris Powers: Goldman left you. But you're 25, maybe you knew a few people in Dallas, but probably not a ton. You show up and you start putting land under contract. So, the question is kind of like, were people like, who's this guy? Like, how did you build credibility quickly to even be able to do this where you're doing deals with the big publics? 

Fernando De Leon: Well, so, one of the first ones I tied up was with a guy named Harold Polman, an older gentleman in Dallas. He was probably like 80 back then, and he said that nobody had ever been able to rezone it, and it had a creek in the back. This story is actually how I met my wife. But he said, look, you can put it under contract, nobody's ever been able to fix this. And I said, look, just give me a shot, I'll get it solved. And I didn't have money to pay the engineers, and I should find those guys and send them a big hug. But I was able to resolve some of those floodplain issues. I did a LOMR and a CLOMR, and it was- the land, he let me option it for like, I don't know, 800, 900 grand, and I did the CLOMR, the LOMR. It took forever. The engineers did it on contingency. And then KB Home bought the lots. I think it was like 65 lots, and they bought them at significantly more than that. I paid the engineers; they got maybe 2x what they would have gotten if I had paid them on the front end. And everybody was happy, and Mr. Polman was was ecstatic. And he just, to answer your question, he gave me a shot because he thought there was no downside, and it didn't matter who I was if nobody was even trying to solve this problem for him. 

Chris Powers: And was your plan when you got to Dallas to entitle land with capital light and was this the plan, or was it like I'm just going to get to Dallas and try and find something to work on? Or was this the goal when you got there? 

Fernando De Leon: Yeah, well, no, I think I kind of sniffed my way into that opportunity. I think it was like, I didn't have a plan for sure. I just fell on that deal, and then I said, okay, I can do this multiple times. And then some of the money that I made on that first one I could roll over and over again. But I wouldn't call it a plan. I think it was just like, it was the only thing that was available to me at the time. 

Chris Powers: You're eight years older than me, so I have time to get there, but when I was 25, our stories are so aligned, we had been developing student housing at TCU and came over to West 7th and there was a gentleman that had assembled like 30 single family lots. And I bought it thinking we could build townhomes. We put a few more lots together. We had about nine acres. And you mentioned Graystar at lunch. Graystar approached us literally 30 days after we had closed and said we'd like to buy the land. I had no idea what zoning even really meant at that point. Sure enough, similar story, we got it rezoned multifamily, huge win. 

Fernando De Leon: And that's part of the supply chain, right, Chris? Like the Graystars and the Blackstones and the KB Home are these giant companies and then...

Chris Powers: And they don't want to hold land or take entitlement risk. 

Fernando De Leon: And so, there's a part in the supply chain for folks like us that can create a lot of value. And by the way, just because the numbers are bigger on the other side doesn't mean that they're extracting as much value as we are in the process. 

Chris Powers: I remember selling to Greystar. My friends are probably going to listen to it, who I sold it to, thinking there's no way these guys are going to make a penny on this multi-deal. They just paid me X for this land. I think they made like $40, $50 million on that deal. This is like 2011. Okay, so you're kind of doing that. ’07, ’08 hits. Were you hit hard? Did you have much exposure then? So you just had- 

Fernando De Leon: I had zero deals. I didn't own anything. I had a little bit of capital because I had sold everything, all the lot development deals and the pay per lot deals, the land deals, I had sold everything, and maybe had one apartment deal, and that was in pretty decent shape. And I had a little bit of money, and then I called a few friends, a few Lebanese friends, and we started doing work together. And man, that 2008 to 2012, ’13 period, those four or five years, I just went all in 200 times in a row, and it was just constant and it was fast and it was a lot of loans and a lot of crazy stuff. 

Chris Powers: Making loans or buying loans? 

Fernando De Leon: No, buying loans. The banks wanted to get them off the books. Sometimes they’d sell them to me with seller financing. They'd sell me a $6 million loan for three and seller finance two and a half. They just needed to take it off their books. So, I did some of that, but there were a lot of people that were not willing to do certain things to go roll up your sleeves and fix problems. And I was like, give me everything you’ve got. And so I did literally several hundred transactions in four or five years. And I don't think we'll ever have those years again. They were- I mean, there were deals where sometimes they were small. Like I remember buying 24 condos from a California bank for $3,500 a piece. And they were in a tough part of town in Dallas, but I fixed them up and sold them each for about, I don't know, $160,000, and they were $3,500, maybe I put another thousand of improvements into it, and then I sold them all. Back then, Uber didn't exist but the limo drivers, I sold the first one to a limo driver, and then he got all his friends to buy, and I gave him a commission. So, I was seller financing him, and so I told him every buyer that you bring, I'll discount a year of amortization. And so he got his condo for free, and I sold all of them to people in his industry. So anyway, there were interesting things going on at the time, but I did a lot of transactions. I mean, those were 10 to 20 times your money kind of deals that I don't think I'll ever see again. 

Chris Powers: Okay, real quick, we went from ’08 to ’13 really quick. We did a lot of transactions. So, in ’08, you call some friends, you raise what, you're just like, hey, I'm going to go start finding deals and I'll call you as I see them. And so you were kind of raising money as deals came in. 

Fernando De Leon: Well, and I was also like buying more of my deals every time I sold another one. So I had more capital when I sold one. So I was selling quickly, leaving a little bit of money on the table, because I thought it was very unique. Like, let's say, I bought a little property for two million, and I thought maybe maximum value was four, but if I could get three right now and get half the profits, then with that profit, I could buy something that was significantly more discounted. So I just did it fast. I moved really, really quick. But yeah, there was a handful. There were primarily two people that were there, and one guy, a very wealthy guy, he was like an older guy, he was late 70s, and he would say yes before I even asked. He was just like, he was loving it, and he totally saw eye to eye with me. He was like, I totally agree with you, we'll never see a time like this, because I was saying that in 2008. And he said, you don't have to call me, just get it done. Yeah, and so we just saw eye to eye, and he was like living vicariously through me. So then I would call him just to tell him how things were happening and incredible guy, one of my favorite people I've ever met in my life and very wealthy and an innovator. Like, this guy had invented private education in Latin America. So he had built for-profit schools in Latin America and sold it right before 2008, like 2006, to private equity and made several billion dollars. And I couldn't find enough deals to satiate that friendship. 

Chris Powers: I know. And you're hiring people along the way. One of the businesses you got into, you were building single-tenant retail. And that was just like a strategy in and of itself. How did you get into that? Because you did, what, 3 or 400 of them? 

Fernando De Leon: We did about 300. It's interesting. A lot of, again, in this, like where people reside in the supply chain, big companies didn't want to do 7-Eleven and Raising Cane's, build to suits or developments. And I was willing to do it, and the IRR was high. The numbers were small, but the IRR allowed me to generate high octane. And so, we did some 7-Elevens and some net lease built to suits, and I liked the ROE. We did a lot of it. That market dramatically changed. Margins came in, and margins came in for the tenants. So, some of them, their four-wall economics just changed quite a bit, banks, pharmacies, companies like that just couldn't withstand the margins so they needed to reduce their occupancy cost, which made the development business really difficult. So, I started moving away from that and sold, I think I have maybe like a dozen of those left right now, some Canes and some Starbucks. I actually own a few of the real estate with the founder of Raising Cane's, and he's had this wonderful run. They're a tremendous concept. But we were there early in doing built-to-suits when they were probably at 40, 50 locations. They're at 1,000 now. 

Chris Powers: And were you just, as simple as it can get, did a deal get brought to you, you built a Raising Cane, you got to know their head of real estate, and you just said, we'll just keep doing it... You tell us where to go, we'll just keep doing it. 

Fernando De Leon: Yeah, some of that, and also, like for instance, the banks were shutting down branches, and so Chase would call me and say, hey, I've got 30 locations, or 20 to 30 locations, but you've got to buy them all, the good ones and the bad ones.. And then, so we'd buy them, and then we'd put different restaurants in some, gas stations into others, pharmacy in others, and so we would allocate, or some of them we would just sell to third parties, to dental clinics and things like that. A lot of times it was like surplus real estate that we could repurpose or pads that we could carve out of a Walmart or of a Target and things like that. It was human capital intensive and very difficult to scale, but it was high IRR, and early stages, it served a purpose ultimately. That capital, we reinvested it into mostly into operating companies outside of real estate. So those early gains, like if we sold a building, I put that gain back into a dental clinic or something like that, and then that's what formed our non real estate portfolio of operating companies. It came out of those early gains out of the 2008 crisis and then also out of the early multifamily gains, early net lease gains. We simply compounded that interest over a long period of time.

Chris Powers: Okay. You've said a lot. I’m going to break this down. First off, if you could share, you don't have to, what was the deal with the billionaire? If he's giving you money before you say yes, was it like the same deal every time, you just knew what it was, or was every deal structured differently? Or was it like, I'm going to give you the money, no fees, we'll split everything 50-50? 

Fernando De Leon: It was the same deal, but what it allowed me to do, the one thing that was really relevant was that I was allowed to buy more and more equity in the deals that we purchased. So, it was structured, but I could ratchet up. And so, at the end, I owned 98% of the capital stack. And so, it had gone from 2/98 to 98 and 2. And so that was the smart sort of deal structure that was in there. It started in a different point, and then as I reinvested my gains, I just owned more of my work. 

Chris Powers: Okay. And then I'm assuming by 2013, you weren't a solo man operation. You had a team at this point. So how were you- you've mentioned multi, single tenant, I think you said retail. Were you hiring like market experts or market leaders to run each asset class, or was it not as structured at that point?

Fernando De Leon:  Man, I wish I could say that, but it was just people that were willing to take a risk on me and the strategy. And so there were people, some of which still work with me today, that are really- they were willing to go and do something different and they believed in the cause and they could make... I mean, I think we were... I was able to reward people well early because we were doing- we had so much spread. And so I think, yeah, we started recruiting people in different positions. I wouldn't say that they were like, okay, you're the net lease person. It was really like, okay, everybody, go do what you can to create value. Here's the opportunity set, go and extract it. 

Chris Powers: So, you would just walk in every day and there would be deals coming in from every which direction? 

Fernando De Leon: Yeah, and we treated the brokers well. All the brokers that brought us opportunities, we put them in the deals. We were always a little bit more- I remember getting calls from people that were offering a deal, and then they had issues in their life later, and I was always supportive. Like, you had somebody who was thinking of you and then you would support them in life. Whether it was like tuition for a situation or a divorce or whatever, when people came to me, I always try to treat them with respect and dignity, and then we develop these relationships that go back a long, long time. You were talking about Stream earlier and some of the brokers at Stream that still work with us today on the industrial business, they helped me work out of loan portfolios back in the day, and we've been working together since. 

Chris Powers: So you kind of said 2008 to 2013. Did that opportunity kind of start drying up by 2013? So did you ever, at any point did you step back and- because we'll talk about where the business is today, and in 2013 say, okay, we've done a ton of deals. We've made a lot of capital. We've got a lot going on. Did you start to put a more formal strategy in place like this is how we're going to grow? 

Fernando De Leon: Yeah, for sure. So yeah, and you're right that ’13 I would put as kind of the watershed moment where the market just restabilizes, not everywhere. In Europe, we acquired a portfolio. 

Chris Powers: How do you get to Europe? How did that even come across? 

Fernando De Leon: Well, it was a partnership with Hillwood, and it was a friendship that we had, and we ended up buying a portfolio of assets there. And some of it was just kind of muster up some courage and go for it. Europe was going, if you'll recall around that time, ’12, ’13, Greece and the Southern European economies were going through kind of later stage what had happened in the United States in terms of the dislocation of the capital markets, so we could see the values. You had nine, nine and a half caps for quality, core assets. So, it made sense that we would jump into it. But we did that, and then the window closed. 2013 I would say was the moment where I said, okay, everything's kind of back to normal, the lenders are lending, the capital markets are stable, and then we had to reorganize, and what we reorganized was into effectively the real estate business units were multifamily, industrial retail real estate, net lease real estate, and then the non-real estate subsidiaries which were at that time just a couple of operating companies in healthcare. But we kind of brought people that were specialists at that point that ran each one of those businesses, and they were endowed with a lot of autonomy to make decisions, but they had skin in the game, and they were subject matter experts in that particular category. 

Chris Powers: And I mean this with all due respect, you can brag on yourself, but I'm just thinking through this. So, in 2013, you're in your early 30s. You have had this incredible run. You've made good money. You've built a great reputation. Perot is a giant. They could probably partner with anybody in Europe. How did you make the partnership, and did you find the deal and bring it to them? Like for somebody that hadn't invested in Europe, partnering with a global company, and this is why I say I mean it with all due respect, like why you? 

Fernando De Leon: I think there was sort of a shared cause, like an understanding of a market, there was a moment in time. Not everything was clear in that moment. And I think they're incredibly thoughtful people. We were, I was willing to invest capital, and sometimes capital can be fungible or a commodity. I don't know. I've always had a great friendship with all of them, with Ross and with Bob Vicente and the whole team, they're wonderful people, consummate professionals. So, I think we just sort of saw eye to eye, willing to risk some capital together. That's always been I think how I've treated everybody, and I think consequently people treat me that way. 

Chris Powers: What do you think it is, maybe it's again to understand the social construct where you have felt good about continuing to double down over and over? And like were you ever kind of like, damn, I made a lot of money, I'm constantly going all in it, just never crossed your mind? 

Fernando De Leon: I've never actually been interested in sort of truing up and seeing where we are. What I really love is to see the snowball of compound interest. And so I don't think about things in the context of four or five years. I think about them in the context of 40 to 60 years and 20 year intervals where I can compound capital at a unique rate of return that allows me to create prosperity, achievement in every one of the companies that we built, mostly because I feel accountable to the people in those businesses. The people that run these businesses, I'm accountable to them. And I think fundamentally compound interest and capital formation is really about being right or having good ideas. It's sort of the purest way to test if you're right about something. If you make a mistake, and I've made plenty, then you don't get to compound capital, you destroy it. And if you are right about your thesis, the way to stress test it and to prove it is did money grow, did it make people's lives better, did you create value for the people that are in your apartments or that receive services in our healthcare companies or with whom we do business. So, I think capital is an important scorecard for valuing whether or not your investment thesis and your ideas, your principles are correct for a long period of time. 

Chris Powers: Okay, you have a ton of- if we just took, I'm reading, if you just took healthcare, you have specialty dental brands, frontline dental implants, advanced med, aesthetic partners, vision, directed partners. I can go on and on. Maybe we'll start with the first one. Did you have a thesis around healthcare, or did somebody come to you with a thesis around healthcare? 

Fernando De Leon: That's a funny story. So, no, no thesis, no nothing. I think when people tell you that there's all this planning, I think usually, I don't think for entrepreneurs there's a lot of planning. I think you build things based on necessity and instincts and wanting to push something forward. I think business plans and things like that are sort of over-hyped. We own a shopping center, and it was a tough shopping center. It was tough to lease it. I bought it on auction, and actually the auctioneer, the person that helped me buy it eventually became the CEO of Crexi, and we can talk about that in a minute, but I bought that shopping center. It was a tough shopping center to lease. And we got an offer to lease from a dental clinic, and we would have taken anybody on that, to lease it. So, we did, and then we started, they reported sales and revenue and we started seeing how it worked, and it was pediatric dental. So, I started seeing the way they ramped, and I was like intrigued by how they had a business that served children with braces and oral care, and their revenue got to about 2, 2.5 million in revenue. And you can appreciate this, when you're leasing real estate, all you ever do, or when you're buying or leasing real estate, all you ever do is underwrite the credit of a tenant. And so, you're looking at their P&L, their financials, you're looking at whether or not they're going to continue being a viable concern, a going concern. And so, I looked at it and I was underwriting this P&L, and I was intrigued by it, and I partnered with this group to build a second one in another location, also one of my pieces of real estate. 

Chris Powers: So, you went to them, you said you should expand this, and I'll give you the capital. 

Fernando De Leon: Exactly. And some of that was going to be my build-out cost and TIs anyway. So, I took a flyer, and it worked well, and then I bought those two locations from that founder. And I took those two locations, we built a few more, then we started doing some M&A, and we built that into 265 clinics around the country. And it became a multi-billion dollar business with several thousand employees, and we did some of that through new locations, organic, M&A. But the real estate background, when we looked for net lease property for Chick-fil-A or for Chase or for CVS, that understanding of demographics was exactly the same understanding of demographics that we needed for the households that had children for the pediatric dental clinics. Exactly the same exercise. So, it was a very transferable skill set to do that. 

Chris Powers: Did you hire a CEO to build that business? 

Fernando De Leon: We did. We've had an excellent management team. The guy's name is Chris Scales, and he's an extraordinary manager. He's a guy that created, helped me create this sizable business. 

Chris Powers: How do you find him, or how do you find all the CEOs to run your companies? 

Fernando De Leon: Him in particular is a little bit different because he came with the original business. He was one of few, and he's still- he's the last man standing, and he grew into the position. So I saw him become a world-class CEO. I had a front row seat at that. Many others, I mean, there's all kinds of people. You mentioned the med aesthetics business. There's a woman named Nicole Caramonte who runs that business. Nicole is like, I call her the LeBron James of med aesthetics, of med spas. And I think she's the GOAT. She built this, the initial business. I bought five or six locations. Today, we’re, I believe, the largest multi-brand med spa company in the United States, and she runs it, and she's a pro. She knows exactly what needs to be done, and she's got a great team around her. 

Chris Powers: Was that another situation where they were a tenant, or after you had done number one, you said, let's go start looking for other companies like this? 

Fernando De Leon: The first couple of them, so dental and then the vet business, were both PropCo-OpCo deals. And actually a third one, which is a lab business, was also a PropCo-OpCo deal, those three. And then it became a strategy. We said, okay, we understand how to operate these businesses. We have expertise to scale them, to grow them. And then we can put extraordinary managers on them to scale them. So those three were PropCo-OpCo, and then it turned into a very self-sufficient formal strategy. 

Chris Powers: So, note to anybody listening, if you were about to lease one of his retail centers, there's a good chance you're going to also end up selling part of your business as well. 

Fernando De Leon: Call me. 

Chris Powers: Do they scale pretty efficiently? Like, do you have to raise a bunch of capital? Are you building out of cash flow or you can-? 

Fernando De Leon: So both. In the med spa business right now, we're opening de novo new locations, and we build them out of cash flow. Oftentimes when we were doing M&A, the sellers of a practice, let's say, we were at 40 locations and we were going to buy a three location practice, we would acquire that practice and then the seller would roll some equity and become our partner in the holding company, in that med spa management organization. And so they became partners in that particular business. So it was a combination of bringing on that kind of partnership, buying some outright, and then building with cash flow. 

Chris Powers: But you never started one from scratch. You're always starting something with a- you're buying a proven concept with a few units and then scaling from there?

Fernando De Leon: That's correct. Yeah, that's right. It's always been something that was already, that had some momentum, and then we scaled it from there. But when we scaled, I mean, sometimes there was four or five locations or two, and then we scaled. So, there wasn't that much infrastructure, which again, that is part of the extraction, the value extraction process is you're there from the beginning and then you build a value. But most of the time, we could underwrite four wall economics and see the way that each of the practices were performing from a P&L standpoint. 

Chris Powers: How does a store, like how do you miss? Again, because it's a lot about just the demographics around the data should say they should use it. Where could you go wrong if the demographics are right? On maybe a single store. 

Fernando De Leon: Yeah, I mean, on a single store, there's always issues, there could be issues with margins. We've seen costs increase dramatically in all our businesses, so we have to be very, very assertive about protecting the cost structure. That's where things can go wrong. I mean, I think I started the business with very little savings. And so, my initial savings was probably $80,000 when I got started or a few hundred thousand, and so every time I see an expense, I look at it and I say, if I can start a business with that much money, then that means that every $80,000 should be compounding into a billion dollars. So I'm very assertive about protecting the cost structure. Every little cost adds up, and I think that's, if I had to point to one thing where things can go wrong, the complacency of letting costs erode your profit margins. 

Chris Powers: Okay, so you're in the healthcare space. What's another line of business that you're in? 

Fernando De Leon: So, we have three businesses in real estate, we have six operating companies in healthcare, and then we have Crexi, a property technology business, and then we have three businesses in financial services. One is insurance, the other one is consumer lending, and then we have an equipment leasing company. And I would say the consumer lending business, we call it Patient Capital, that's another business that came out of the healthcare business. So it's a separate business, it's run separately, it has its own P&L, but it is very much a fixture inside everything that we do. So I'll give you an example of how that came to be. In the dental implant business and frontline, we saw that sometimes our customers couldn't get financing. So, let's say you had a hundred people that had a 700 FICO score, and when the lenders, the big banks finance healthcare lending or consumer lending, they securitize those loans and sometimes you see dips in the securitization model where they are not awarding financing to credit worthy consumers. So in my dental implant business, we started saying, okay, what does it cost us to provide the service? As long as a customer can give us a down payment to cover our fixed costs, we will finance them. So, we started lending to our own customers, and we had very low cost basis loans because most of the down payment was covering our fixed expenses. So, we started originating several million dollars of loans every week based on that model, and so we, Patient Capital today originates those loans, and it's a little bit like our float, to use the Berkshire example. We use that capital to either sell loans, securitize them, leverage them, and then use that liquidity back to invest in other subsidiaries. 

Chris Powers: I don't mean to dumb it down simply, but it's like, okay, you own these businesses, you see a business that you should own within the business. You wake up, you're in a good mood, you've had a good breakfast, you probably walk into your office, you're like, we need to be in this business. 

Fernando De Leon: Well, sometimes it's a little bit more angry than that. It's a little bit like, why is this problem occurring? How do we fix it? Take insurance. You're a property owner. We are getting hammered by insurance on premiums. So, I said, what is the cost of our insurance and how do we- let's just start by brokering it to ourselves. So, we started brokering it to ourselves and we saved 6 to 10%. 

Chris Powers: But do you go hire a person that's a specialty? 

Fernando De Leon: Of course, yes. 

Chris Powers: Okay, so you say we want to start brokering it to ourself, I'm going to meet somebody in my network or hire a headhunter and we'll find a person that can start this business for us. And you'll give them some seed capital or something to kind of get going. 

Fernando De Leon: Exactly. And then, so our companies, the 12 companies that we already own, they are the first customers. And then we have to go provide that service to somebody else. So, in Patient Capital, we service all of our companies and then we provide that same lending service to other healthcare clinics around the country. And so now that business becomes self-sufficient, and it becomes a sizable business in short order. 

Chris Powers: Since you're not private equity and you're doing it with your own money, do you ever like recap the businesses, or do you just grow them out of cash? 

Fernando De Leon: We do. We have sold minority stakes. We've sold businesses entirely depending on where we are in the cycle. The lab business that I mentioned earlier was in a warehouse actually. And the tenant, the company went bankrupt. They had a problem, and we needed a meet debt service. So I ended up buying the company so we can meet the mortgage payments. And that business, we ultimately sold it to LabCorp. And so, yes, we will sell businesses, sell minority stakes, recap them. We'll do anything that improves. And by the way, sometimes businesses are no longer- have sort of seen their useful life. Many businesses change, and take the net lease business. Net lease business, we did sell 300 locations, and we never- 300 pieces of property and we never went back to the net lease business, the retail business because those, that business became economically unviable. So, in every company, every holding company, there are operating subsidiaries that will become obsolete over time, and I got to watch those and get there early. 

Chris Powers: Okay, there's a lot of real estate listeners on the podcast, so we have to hear the Crexi story. So, a guy auctions you a retail building that ends up becoming the founder of Crexi. How did this one come about? 

Fernando De Leon: So, Mike DiGiorgio, he brought this idea to bring, to really sort of create three lines of business. It was data, so market intelligence. It was an auction business, which we do today, and a listing service, a la Zillow and in commercial real estate. And he had this great idea. He had a couple of people that were co-founders, buddies of his that were early, and they had this idea they needed capital for to sort of bring technology to the commercial real estate sector, and it was early days. We wrote it on a napkin. He asked me- I asked him, how much capital do you need for this? And he wrote it on a napkin, I signed, and then I sent him some money, and we got started. And it's become a business that today has 4 million monthly active users on our site, getting comp, leasing comp data, sales comps, our auction businesses is growing, and then the listing service, Crexi Pro, which many brokers use to list their property, has become pretty endemic in the industry. But it was, I remember sort of thinking a little bit, we were talking about an office building that he was talking to me about, and he said, why don't you ever invest in office? And I said, man, I just, I don't understand the office building business because the TIs are so damn high, and so if the law firm or the tenant leaves, you got to spend like a million bucks to bring somebody else on there and your cash flow is wiped out, so I just don't get it. So instead of an office building, like just tell me, like bring me the opposite of an office building. And he said, the opposite of an office building is data. It's technology, and we should do that. And he was right, it was a brilliant idea. And now Crexi has this incredible place in the marketplace. Obviously, we have a giant competitor that is the biggest in the space. And what I'm trying to do, Mike DiGiorgio and I are trying to do, as well as all the great people at Crexi, is provide options to brokers. If you don't have any options, prices go up. If you have a dominant force that is the only option for you, your subscriptions and your cost to receive that service are going to be very inelastic. And so we provide options in that commercial real estate sector. And so I think it's a tough undertaking, but I put a lot of capital into it. We put a lot of years into building it. Our machine learning and artificial intelligence models are now extremely complex at Crexi where we're able to synthesize data. And so, we've become a very impactful player in commercial real estate and especially in PropTech. 

Chris Powers: And you haven't sold it. 

Fernando De Leon: We have not. We've got great partners. VC is in the cap table and we own a significant part of it, the founders and the investors. We've never- we've raised capital along the way, but we've never sold it outright. There may be some public listings in the near future, we'll see. 

Chris Powers: Cool. Okay, so as you think about the business today, so now you're 16 years old, have you had another watershed moment? Or like how do you- you now have 13 operating companies, a huge real estate business. Like, how does the next decade look? Is it still no business plan, let's just keep building? 

Fernando De Leon: There's a little bit of, a couple foundational ideas, I think, for the next 10 years. One is that whatever technology was doing to all of our lives, if it was 20% of our lives 10 years ago, it's 75% of our lives, business lives, on a go-forward basis. So everything we own has to be digitally improved and digitally transformed. So we're spending a lot of time improving all those businesses. We're investing more in technologies. So whether they're startups or venture capital, we're investing with folks that are very competent. I mentioned to you earlier TQ Ventures, it's an early stage VC fund that's run by two incredible guys, Schuster Tanger and Andrew Marks, and they're finding so many great ideas in their ecosystem and we're invested with them, folks like that that have good ideas in technology. So I think software and technology and AI investments will be a larger part of our holdings. And then I think, in financial services, we have evolved an investment management business, and then also I think insurance will increasingly be a part of our holdings. I believe, if we can figure out how to be more relevant in that industry, hold balance sheet risk, generate float and asset management agreements with insurance, I think we can take that capital and turn it into permanent capital and continue to invest. So, I think technology elements of our existing and future businesses, and then also insurance and financial services. 

Chris Powers: Okay, there's two things, we got about 15 minutes. There's two things I wanted to hit on. One was on the investment management business that we were talking about at lunch. You had said for a couple years, I'm not interested in this. A guy from Apollo approaches you. Maybe just walk me through how your mind was changed, how you looked at it totally differently. 

Fernando De Leon: Yeah, so Corey Calvert said, he was at Apollo, he was leaving, and he came to me, and we ended up working together to build a distribution platform for investment vehicles for the fund business. And I had been generally sort of averse to it because I was a business builder and I wanted to grow these operating platforms. But I think the world changes, the world gets larger and more complex, and we started meeting people, investors from the RIA channel. And I started meeting people that were now co-investing with us. And they were really helpful in three things. Human capital, so they would refer recruits to us, they would refer people that could be a part of our organization in any one of our businesses. They were investors too, so we had more scale with capital. And then also they would like send deal flow. So, companies that we could buy, real estate that we could look at, the RIAs had underlying clients that were really interesting people. And so, it created this networking effect for us that turned into a giant opportunity set. And then it was really hard to resist being connected to all these people, and those were huge networking benefits that came from it. So, then we said, okay, let's do more of this. And then we acquired several companies where the owners of those companies said we want to reinvest some of our gains with you, and I didn't have a vehicle for it. So they reinvested into structured investment funds and people like Nicole Caramonte, she invested with us because she sold a business and put some of that back into real estate and folks like that that were really important in our ecosystem, and I needed investment vehicles to be able to share not just ideas and people but also have kind of a natural constituency of people that we could be accountable to. 

Chris Powers: That goes back to the social systems entrepreneur. 

Fernando De Leon: I think so. I think it's a lot of that. It's kind of understanding how these things will play out in the future. I was pretty humbled by it because I didn't really think that investment management was sort of a part of, should ever be a part of my life. I had, like you, listened to Charlie and Warren for years rail on private equity and then... but all systems evolve, and we adapt, and I think this is a really important and good thing for my company. 

Chris Powers: All right, I think it's important we sit here. So, we can talk about it from the real estate perspective, the business environment, we just went through an election, there's just, the world's kind of changed a lot the last couple years. You see the world through multiple lenses. What are you thinking about the market? Like, as you lead into next year, where do you think we are? 

Fernando De Leon: So, I think this country, people ask me, a lot of people ask me if I invest in other, in like Latin America and Mexico where I have some connective tissue. And I really don't. Europe was a one-off thing, that investment in industrial. But I think the United States is for the next 20 years, the foreseeable future has these tailwinds, and I would say that there's probably three things that push those tailwinds. Number one is people, just the people capital, people coming from all over the world with good ideas, entrepreneurs, innovators. These are people that end up in Silicon Valley, they end up in the real estate business, they end up in all parts of new corporate formation. So, the flow of people. The flow of capital is huge. This is the only place in the world that I know of where you can raise $50 million for a company that has a 5% chance of making it. And you can do it. And so the flow of capital for venture, for entrepreneurship, it is unlike anywhere else. A guy like you or a guy like me with a good idea can get people on board and create value. So flow of people, flow of capital. And then I think thirdly, the flow of technologies and these things that we're inventing that increase productivity. Those are ideas and those are technologies that are flowing into everything we do and making us more productive. I saw the productivity numbers that were published a few days ago. It's the only country in the world growing its productivity. So, GDP divided by number of people and their productive capacity on the same subset of variables is unlike nowhere else in the world, not Europe, not Canada, not Latin America. Even off a $30 trillion GDP economy, we're still growing faster and more productively than any other economy. So, when you have people and capital and ideas all coming together, I just don't see a place in the world that matches that. I think you grew up along the border like I did, and you see the difference between the United States and its neighbor country. That difference, I mean, there's nothing- there's no other difference like it. There's nothing like it in Asia. The discrepancy in economic opportunity is unlike any other, in Europe, in Latin America, in Asia. I mean, do you really own anything in China? Do you really? I mean, what are the birth rates in Europe and Japan? So how do you make investments in pediatric dental care or in ophthalmology, in industrial, how do you make investments in a place where you don't actually own the fee simple? So, I think those three things contribute for the next 10 years, 20 years, indefinitely really to this huge productive capacity. And from a compound interest standpoint, I think it will be very competitive to generate good returns, but your capital will grow on the best risk-adjusted return here, especially in the Sun Belt, than anywhere else in the world. 

Chris Powers: I tell people all the time, if you want a really stark reality, go drive down I-10 in El Paso, and 100 yards to your left is Juarez and 100 yards to your right is UTEP or downtown El Paso, and it is, could not be too different- I mean, it's mind-blowing the difference in prosperity. 

Fernando De Leon: And by the way, there's no other- like if you look at, I think the only place where you can see a starker contrast is probably like North and South Korea, but you can't see such a stark contrast in Scotland and England or France and Germany or Thailand and Vietnam, any other border doesn't have that stark... US and Canada, Brazil and Colombia, like there's no other place where that contrast is so stark. 

Chris Powers: Okay, then I'll just ask you really quick on just real estate specific, and I'm talking next year or the next couple of years. Interest rates are up, costs are up, development's tough. How are you thinking about playing the real estate industry? Are you going to continue to be patient, or like what's your plan? 

Fernando De Leon: Yeah, I mean, I think in multi we have, well, first of all, yes, we have to be patient, and we've historically been very patient. I think the benefit of having entrepreneurs like us running real estate businesses is that you have a sense real time for where the market is and when you ought to be selling and when you ought to be buying. So, I think this is a good time to buy existing assets. I think it is hard to develop, therefore supply will come down, and then your rents should hold, and I think that's the thesis for entrepreneurs that are running their own book of business and their own balance sheet and their own investment vehicles. So I see the next 12 to 18 months with pricing that is pretty supportive of making an investment in industrial and multifamily. In multifamily, we've built, we've started a handful of projects this year because we see some markets where supply has dropped 75, 80%. So if I can deliver two to three years out, I feel good about that. And remember, in that business, if we're building at a 20, 25% discount to where the market is today in terms of cost basis, I feel pretty good about owning it forever. So we feel pretty bullish about the time. I think it's all market specific. I wouldn't say that about Detroit. I would say that about North Dallas or the North Dallas suburbs. I'd say that about the Sunbelt markets, like we operate in Raleigh and Charlotte and Florida markets, Texas, Arizona, all those markets to us make a lot of sense demographically relative to the coastal markets that are very expensive. 

Chris Powers: I think we'll end it there. This was awesome. Thank you very much. 

Fernando De Leon: Thanks for having me, man. That was fun.