Flagship Capital Partners Chief Production Officer J.C. Clemens Jr. explains how the firm thrived in a counter-cyclical market and became one of Juniper Square’s Top Fundraisers in 2022.
Q: Tell us about Flagship Capital Partner’s investing philosophy.
A: On the debt side, we focus on $2 million to $20 million loans, mainly for middle-market acquisitions in Texas. Credit unions and small banks can fund loans from $1 million to $5 million. Regional banks can usually handle up to $10-$20 million but are at much lower leverage and require recourse, and then $20+ million is Wall Street—that in-between is an area in need, and that's where we focus the debt side of our business. Flagship can provide higher leverage loans on a non-recourse basis for the middle markets, which is a very underserved section of the market.
On the equity side of the business, we're nationwide with a heavy focus on workforce multifamily. Again, we're focused on an underserved area of the equity world, so we like to be in that $2 million to $10 million equity check size because everything below $2 million can typically be raised by passing the hat, and Wall Street has $10 million and above covered. The Flagship mantra is that we're looking for inefficient markets on the lending side and inefficient markets on the equity side where we can get an above-market, risk-adjusted return for our investors.
The Flagship business flow is counter-cyclical. When the market is booming, and everything's great, there's a lot of cheap money out there. Flagship’s focus is being a stable provider of capital to sponsors when there is a higher level of uncertainty in the market. We are closers in any market environment, so people tend to flock to us when things get choppy in the capital markets.
Q: Do you think that counter-cyclical effect is what drove your fundraising success last year?
A: A lot of it comes from the experience of our senior management. People want to see somebody who's survived prior downturns. Our CEO David Mincberg was a large buyer of properties coming out of the Savings and Loans Crisis. He also very successfully navigated The Great Recession; so over the past 40 years, our CEO has always come out on the winning side of major downturns. Many of our investors saw the headwinds real estate faced last year and, above all else, were concerned about losing money. That was our number one conversation every day—Is there any possible scenario where I lose money on my investment? What are you doing to mitigate that?
We've seen a lot of deals that we passed on and thought ‘that one might hurt later on.’ But then we look 12-18 months later, and it's the one you're reading about in the papers. That’s why we stick to our regiment and our parameters. When you venture outside your box, there's the chance of an upside, but it also comes with a considerable risk of losing money.
Q: How has fundraising this year gone?
A: We have a lot of people calling us inquiring about investing. A lot of other investment funds in our space aren’t doing very well—they are issuing capital calls to investors, doing workouts with banks, and pumping a lot of money into their deals to live to fight another day. Some people are doing a staring match with their lender, which is a dangerous game. I'm not criticizing people having to put money into their deals right now, that's what you do to survive, but we're still distributing cash to our investors. As a result, many institutions and high-net-worth individuals are picking up the phone and calling us.
We have raised money very quickly and are preparing to launch a new fund because if things get super opportunistic and the deals are available, we want to capitalize on as many as possible. I have no idea how things will shake out, but I do know that there will likely be opportunities in some form or fashion. Therefore, we're going to raise capital and allow Flagship to be nimble and flexible.
20% of the information is not enough to do anything. But when you have 80% of the information, it's too late. You're trying to figure out that equilibrium and just to be ready to go.
Q: What is Flagship planning to do with that capital?
A: If the issue with the regional banks in the U.S. continues and they have to sell all the notes below par, then we will buy notes. If every person who bought a multifamily deal in the past 18 months is forced to sell at a discount, we will invest in those deals when the new sponsors make the acquisition. Flagship's partners understand that we know how to fund first-lien loans. We know how to invest in distressed acquisitions. We know how to invest in co-GP equity. We know how to purchase notes. If and when any of these opportunities arise, we're going to be ready to capitalize on those situations on behalf of our investors. Our investors trust us because of how we've performed in the past.
Q: How are you keeping your investors informed as things evolve?
A: We send a quarterly report, and we're always on the phone. Every week we review a list and figure out who's talked to which investor and what was the last time we met with them. Sending out a general quarterly or monthly report is helpful because having that data on their desks is valuable. But a lot of times, that information is too granular and can be difficult to digest. We want it to be an open and ongoing conversation—there are no foolish questions; ask us anything.
Having a platform like Juniper Square makes those interactions meaningful. While talking with the investor, we can pull up their portal and see they’ve got $3 million in this fund, $2 million in that one, and they've received so many dollars to date. It's also really nice knowing when partners open emails because they will say, “I think you sent that to me, but I can't find it—can you tell me when I received that information?” Then we can look and confirm. That’s the most considerable value we get—providing the correct information to the right person.
Flagship Capital Partners was featured as one of our 2022 Top Fundraisers, based on our analysis of the capital raised by our clients using Digital Subscriptions. Digital Subscriptions is one of our digital fundraising tools available to GPs, helping them raise millions more in capital year-over-year.