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Posted May 3, 2022

Fundraising Feature: John Falkner at FSO Capital

Fundraiser Feature John Falkner at FSO Capital

At Juniper Square, we’re committed to transforming private markets by helping firms operate more efficiently, raise capital more effectively, and serve their investors better. As a result, we’ve had the unique advantage of seeing how more than 1,200 GPs have achieved success. Taking a journey alongside them and helping them build enduring businesses and delight their investors is both a privilege and endlessly fascinating.

The story arc for each of these firms is unique, but they do share a few traits. It takes determination and vision to achieve success. It takes imaginative founders who see past what is to envision what might be. It takes leaders willing to change the status quo. It takes courage to build companies and resolve to overcome challenges and transform their organizations again and again.

We share our customers’ stories internally and online to provide insights. Now we want to share more about the leaders at some of the most successful fundraising firms. In reading their stories, you’ll find out how they got started, learn about the setbacks they’ve encountered, and how they approach capital raising. You can benefit from their advice and lessons learned along the way. We hope you see yourself in them and you’re motivated and inspired by their stories.

Check back often to learn how our customers have achieved fundraising success or reach out to find out how we can help you make your mark. In the meantime, meet one of the top fundraisers at Juniper Square: John Falkner from FSO Capital Partners.

John Falkner FSO Capital
Meet John Falkner, Principal and Co-Founder at FSO Capital Partners

Q: How did you get your start in real estate?

A: I attended the University of Colorado Boulder where I studied finance and real estate. After I graduated, I started working for a hard money lender in Denver. We lent on everything from multifamily to land, all over the country. It was a great entry point into real estate because, from day one, I was basically underwriting or valuing different types of real estate collateral in different places.

I was there for a couple years and then the financial downturn hit. The company I was working for started to unwind and eventually closed down. It was tough. There weren’t a lot of job opportunities so I decided to start my own thing. I moved back to Arizona where I’m originally from and started buying foreclosed houses. I bought properties on courthouse steps and did fix and flips.

Q: What did you learn from that experience?

A: The importance of being nimble—and that I wanted to work for myself.

Q: What happened next?

A: I started putting together a portfolio, buying single family houses and smaller multifamily properties as rental units. Eventually, I joined with my two business partners, Jeff Sherman and Scott O’Neill, to create FSO Capital Partners. Both Jeff and Scott come from extensive multifamily brokerage backgrounds. Scott was brokering out in LA and Jeff was brokering throughout Arizona, Texas, and New Mexico.

Originally, we shared resources, but we weren’t necessarily doing deals together. It got to the point where we decided we should combine resources. I can’t speak for them, but it’s certainly been a great decision for me. We’ve accomplished a lot together in a relatively short amount of time. Last year, we purchased more than $100 million of Arizona real estate in both Phoenix and smaller tertiary markets like Flagstaff, Prescott, and Yuma.

Q: Congrats on your $100 million dollar year. What’s ahead for FSO Capital on the fundraising front?

A: There’s a lot going on in the markets in 2022 and we’re excited to see what happens. There’s potential for rising interest rates, certainly, which will make it even more difficult to deploy capital than it was in 2021. But we’re a small overhead operation so that allows us to be patient. And from that point of view, we’ll take deals as they come our way.

We underwrite deals very conservatively, so we’re looking at the acquisitions we can make with fixed debt day one versus a more leveraged or floating-rate loan. We seek to eliminate risk where we can, and that’s one area where that’s possible right now. It will limit the amount of deals we do this year, but we’re okay with that. We want our properties to deliver a substantial yield early on for our investors. We don’t want to rely on IRR as being the exit or I should say the catalyst of the return. Most of our investors want to see quarterly distributions and, as investors ourselves, that’s what drives us. We want that recurring income. It’s hard to find right now, but we have a great team so we’re doing a good job at it. And Juniper Square has made it extremely easy to scale our fundraising.

We started to raise capital in mid January, and we expect it will be our biggest equity raise to date.

Q: How do you divide up responsibilities at FSO?

A: We all have connections in Arizona and the surrounding states. Jeff and I grew up here and Scott has lived here since attending college at ASU. Together, we have a sizable pool of resources and brokerage connections across the southwest.

Jeff is on the acquisition side. Scott spearheads our capital improvement projects across all the assets we own. I’m definitely more of a systems guy, so I play a role on both the finance and operational sides of the business.

We collectively tackle fundraising. We all brought investors to the table. It started out very organically, with just a small group of friends and family. We haven’t done much marketing, so we’ve been fortunate to grow that initial group of 20 to more than 200 almost exclusively through referrals.

Q: How have you scaled your business to accommodate growth?

A: We’ve grown very quickly as a company, so I was tasked with figuring out how to scale our growth—and bringing on Juniper Square has been essential in allowing us to do that. We utilize other software as well. We use monday.com and, of course, we’re heavy users of Excel, but we’re actively focused on building out our systems and working with third-party service providers to make sure we’re operating as efficiently as possible.

Q: What would you say your biggest challenge is right now?

A: Our biggest challenge is definitely finding good deals. We’re very selective, but we’ve been wildly successful at raising money when we do find a deal. Last year was a great year for us—we bought more than $100 million of real estate. We’ll see what 2022 brings, but I’m confident that, if we find the good deals, we will raise the money. It’s all about finding deals right now.

Q: So I assume your biggest priority is also finding good deals?

A: Yes, our biggest priority is locating the types of deals that are so hard to find right now—the diamond in the rough, something that might be an off-market opportunity, or a deal that just might have a lot of ‘hair’ on it, so to speak. Those are the types of deals that others might turn away from, but allow us to really dig in and find a way to get it done.

We have one deal under contract right now. We’re doing our due diligence and inspections, but we’re confident that we will close soon—and it’ll be a good way to start the year from a deal-making perspective.

Q: How has Juniper Square helped your fundraising efforts?

A: With Juniper Square, we can target specific investors when we raise for our next deal. It gives us options to be strategic with how we raise capital. And as our equity raises get bigger, it doesn’t put more pressure on us or create more issues because all the information we need is readily available and updated seamlessly.

With the ‘old-fashioned’ way, you can easily strike a key wrong and inadvertently have a situation where an investor who wanted to invest $2,000,000 only gets $200,000 and then not have enough room left for them to participate as they originally anticipated. Juniper Square does away with issues like that—and eliminating errors and improving accuracy is just one more way we can deliver value to our investors.

I’m confident our next raise is going to go really well—and I know Juniper Square will play an important role in making sure it goes smoothly.

Q: Do you think it’s going to be easier or harder to raise capital in 2022 versus 2021?

A: That’s a loaded question. There’s an abundance of cash looking for opportunities right now. The harder part is finding good deals. Luckily, we have a great track record of finding and vetting deals, so the fundraising process is one of the easier parts of the business for us. We’re out there talking with investors and using Juniper Square to communicate the details. It seems to me there’s a lot of money out there, now we just have to find the right deals. It’s a good problem to have.

Q: Do you think you’ll expand your fundraising efforts beyond Arizona to find more deals?

A: We’ve looked at deals in Texas and New Mexico and we have some great broker contacts in Las Vegas, but right now we’re really focused on Arizona. We love Arizona. There’s a lot of energy and new job creation going on, so it’s an exciting place to be. Plus, we have a great network here in Arizona. If we were to go into a market where we don’t have that same network built out, it would be more difficult to find those unique opportunities that create alpha.

A big part of our job is asset management and we are proud of our hands-on approach. We regularly visit our assets and it’s more efficient if they are close by so we can get to them in a timely fashion. None of us wants to be flying all over the country checking in on deals. So, for now, we’re content just being in Arizona. Eventually, I could see us scaling up and expanding into other states, but it would definitely be a regional move so we can continue to provide active asset management.

Q: What’s your biggest fundraising priority? Is it raising more money, speeding up the process, or finding the perfect deal?

A: Finding the deal is always the number one priority. It’s all about finding opportunity. We go through a lot of deals before we find one that works. When we do find one, we get excited and we want to quickly find out if our investors are equally excited. Juniper Square allows us to accelerate that process, which is a huge value add because the faster we can accomplish the process of getting firm commitments, the more comfortable we feel. Juniper Square is really valuable at accelerating that process so we can get a good idea of how excited our investors are and how much we can expect to raise.

Q: What do you look for in your real estate deal?

A: The math has to work. Right now, we feel like some are starting to stretch to get deals because yields have been compressed so much that, in order to make a deal work, you need to go into bridge financing, which means much higher loan values. We limit deals to those we can close on with fixed debt, permanent financing on day one. That allows us to eliminate rising interest rate risk from day one. It’s another reason why we’re bullish on Phoenix. We’re very much of the mindset that the Phoenix market will continue to expand so we’re content holding assets here that fit what we want to do long term.

Q: What’s the average capital commitment per investor?

A: On our last deal, it was about $140,000.

Q: You’ve grown rapidly from 20 to 200 investors through referrals. Do you plan to stick with that approach or expand your marketing efforts?

A: We’ve been successful with our fundraising on referrals alone so we don’t plan to expand on that at the moment. Our last fundraise was for a deal we closed in Flagstaff—it was close to $13 million and we oversubscribed for that deal in 10 days. So there was just a lot of demand there. So yeah, we’re really confident that we can raise the full amount of equity in our next deal. Our job is to bring good deals and then our investors can decide from there.

Q: What would you tell someone who was considering Juniper Square?

A: I would tell them that if they have ambitions to grow their business and run it better, then Juniper Square is well worth the cost.

Q: What’s your best advice for building a business?

A: Bringing good deals to the table encourages investors to invest with you, but ultimately they are looking to invest with a firm with integrity. Be honest with your investors and don’t make them wait on a response. Juniper Square helps us to be responsive and provide targeted information.

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FSO Capital Partners was one of the top fundraisers raising capital on Juniper Square last year. They credit both Juniper Square’s easy-to-use software and their partnership with our administration team for their success.

Find out how the partnership helped them exceed their fundraising goals. Then contact us to find out how we can help you raise more money, too.