Exploring The Advantages Of Investing Through A Broker-Dealer With Brad Shepherd

December 20, 2023




CWS 264 | Broker Dealer


A broker-dealer isn’t just a guide; it’s the key to opportunities, due diligence, and next-level investment experiences. In this episode, Brad Shepherd from Sugarhouse Investments talks about the benefits of investing with a broker-dealer. From a former hands-on landlord to becoming the founder of Sugarhouse Investments, Brad shares his story and what really goes on in real estate syndication. He also touches on the evolution of syndications, choosing the right investment, the broker-dealer advantage, and more. Tune in now!

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Exploring The Advantages Of Investing Through A Broker-Dealer With Brad Shepherd

I have a special guest. I have Brad Shepherd from Sugarhouse Investments. Brad has over twenty years in commercial real estate. Brad is also a broker-dealer, so we’ll talk a little bit about that aspect of real estate. Brad is in Boise, Idaho via Austin, Texas. He went from hot to cold, which is probably the opposite of what everyone else does. Brad, thanks for joining us.

Thanks a lot, Chris. I appreciate it.

Usually, what I like to start with, Brad, is having people start with what they have going on today and I’ll rewind it back after that to figure out how you got in real estate, what you do, and how you got to that. Why don’t you let the audience know a little bit more about Sugarhouse?

I appreciate that. Sugarhouse functions as a licensed private securities broker-dealer rep. What that means is private security is a fancy way of saying that we raise money for commercial real estate projects generally via syndication. Most people here, broker-dealers are thinking about the property broker-dealers. I’m on the security side. I have a few securities licenses. I function more like the old school. You need to call up your stockbroker and you want to buy 100 shares of Microsoft. Nobody does that anymore, but it’s that sense. Instead of a public security, we’re dealing in private securities, which a syndication is exactly that.

We’ve been running Sugarhouse for seven years now. I consider myself a recovering landlord. I’ve done plenty of flips. I’ve done development. At this point, I have two of my own personal rentals, but I’ve sold off most of them to focus on commercial real estate projects. It’s been a good fit for where I’m at now. I’m mid-40s. I have a couple of young kids. Being on the capital raising side and working with experienced operators who are generating solid returns are just as good if not better than what I get from my own personal rentals. It’s been a fantastic fit. That’s been my mission. It’s to take this opportunity, lightbulb-moment, or the concept of investing passively in commercial real estate deals to other busy individuals who like the idea of owning real estate without having to deal with it. That’s been a fun endeavor for the last 6 or 7 years.

That is awesome that should do that. Two things that got stuck in my head when you mentioned that I want to go down the rabbit hole are the experience of the operators and raising money. As you know on Facebook, you can see a million different ads of things, and a lot of “gurus” make it sound like raising money for these syndication deals is very simple. You don’t need to do due diligence on the sponsors and many different avenues of that. Let’s first talk about sponsor experience and the importance of that.

It’s up until about a year and a half ago, everybody was a genius. You couldn’t lose in real estate. Everything went up. The financing was cheap. The values were ever-increasing until they weren’t. Financing became expensive. The values stopped increasing. The tide went out and we realized quickly who had the experience to weather this type of storm and who didn’t. The crux of the service that we try to provide to our potential investors is knowing who are the experienced operators. The ones that can deliver on their promises day in and day out.

Not that nobody ever has issues. Bumps come along even for experienced operators, but they’ve seen these things before or they’ve seen something similar before. They know how to manage it. When we’re evaluating a deal, we partner with a handful of operators. We have plenty of folks that come to us asking for help raising capital. To date, we’ve said no. It’s been more different types of connection points but we have such a deep vetting process with our operators. It has to go through my compliance department and my broker-dealer’s checklist.

Now that the financing piece has become so dicey, we’ve added a few more components to our checklist as well. Who on that operator team has the financial acumen that understand the banking relationship, the financing details, and the gotchas within the loan documents and covenants? Two years ago, they weren’t that critical. We all thought but that’s been key to weathering these cap rate expirations and DSCR requirements or the Debt Service Coverage Ratio requirements.

We’ve seen some operators get in trouble when they didn’t understand those covenants. At the end of the day, our due diligence checklist, and this is what we explained to our potential investors. It starts with the operator, and then we look at the market and the deal, but this starts with the operator. We need to see an operator team that has the experience across the team to be able to handle the ups and downs that come along with these types of projects.

How many pages is your due diligence checklist?

In the current lending environment, item by item, we have 5 or 6 pages at this point of the checklist that we’re going through and the background checks that we do. What about this? What about that? It’s pretty extensive.

The reason I ask that question is for people tuning in, we have our distress mortgage note fund and we also have work with broker-dealers and other firms that I thought people did good due diligence until I started getting due diligence questions from broker-dealers. All of a sudden, it was like, as you said, you get a 5, 6, or 10-page checklist that basically is intense. What’s great about it for people who look to raise money, is it makes you think about things you may not have thought of in the past because it is extremely extensive.

They can go into succession planning and key person insurance policies. Do we have those in place? It is extremely extensive. For anyone who’s an operator, I recommend at least talking to people and saying, “Can I see your checklist and understand it to see if I would even qualify?” It gets you thinking about a lot of things about raising money or questions that people may ask you that you might not be prepared to answer that now you would be prepared.

The honest truth, your average limited partner investor or LP isn’t going to be asking those questions. My job is to do that for them. Every once in a while, the operator is going to run into a sophisticated LP who’s going to have these questions. Who’s the operator to have answers ready for detailed examinations from the investors or the capital raisers that they work with?

We had to also go through a FactRight report if you’re familiar with that company. That is a pretty extensive probe.

Probe is the right word.

Being a securities broker, you probably also see when you mentioned people asking you to raise money for them. I never want to ask names of these companies. My understanding is you are basically working with investors who come to you. You’re looking out for their best interest or reviewing these investments. What are some of the red flags that you may see or you’ve seen in the past that said, “This isn’t the type of deal for our investors?”

Right now we focus on just a handful of different asset classes. Most of our deals are in the multifamily and apartment complex space. It’s an asset class that’s super familiar to all of us. We’ve all lived in an apartment at some point, self-storage, industrial, and mobile home parks. We have opportunities that have come to us with ATM funds and Bitcoin mining funds.

The potential returns are pretty attractive but it gets outside of an area for us where we feel like we are confident in our ability to project confidence and to do the diligence that we want to be able to do for our investors. This isn’t a red flag by itself. Maybe it’s a yellow flag when you see 50 years of combined experience. What is that combination of? It’s one guy and there are twenty and the others are brand new, or one guy has 40 and the other guy has only two. What’s that combination of?

We understand the value of a team. The bulk of the folks haven’t gone through any cycles or any exits yet. That’s going to be something we’re going to be a little bit nervous about. We want to see a breadth of experience from multiple members of the team and various specialties. We work with an operator for a specific asset class and a specific geography. Also, they start talking about different asset classes and operators in different geographies, we’re wondering why and what’s going on.

That’s a cautionary tale for us. What’s the change in focus about right now? We want you focused on what we’ve aligned ourselves with here. One other thing that popped in my brain and popped right back out. Those are a few of the items that come to mind. Maybe none of them are total showstoppers right out of the gate, but they’re going to force us to dig deeper.

When you start adding them up, it’s part of that checklist. It’s interesting because, for example, we are in the private credit space and people ask us that question a lot like, “Were you in this business back in 2008?” I joke with people. I say, “No, but if I was, I wouldn’t be in it today because everyone who was involved in private credit in 2008 has retired sitting on a beach somewhere because you’re buying all this debt at $0.5 on the dollar and made millions.

The other thing I’ve seen, especially over the last 24 months, is operators who go from one asset class to the other or start popping up. I’ve seen one and they’re chasing that shiny object. They’re doing multifamily. As you said, anybody could have made multifamily during a period of time. The next thing, they’re doing oil and gas. That’s too complete. If you’re doing multifamily, you could switch maybe to office or retail. It’s different, but oil and gas are complete.

That’s an operating business life a lot of times or private credit or switching short to rentals. When I start seeing that as an investor myself as well, that starts to raise flags when I see that. Do they have that experience or are they just chasing that shiny object? Along with that, you’re doing that due diligence. What are some of the benefits that people have investing in syndications when they go through a broker-dealer rep?

A frequent question I get from a potential investor is, “Could I go directly to that operator and invest?” The answer is yes. Working through the broker-dealer rep like me doesn’t change their outcome at all. It doesn’t impact their returns. My compensation comes from the general partner’s acquisition fee, which is paid regardless of where the investor funds come from. My value-add to the potential investor is this idea that we know the market. We know the operators have done well. We’re not always privy to every inside detail by any means. We generally get wind of which operators are struggling with, who we might be seeing, and what properties might be seen in a distressed situation in the near future.

We were able to steer our potential investors to these operators and we now have the experience and deep pockets to weather these storms and the bumps that come along the way. We also provide a single source for multiple operators and asset classes with one investor portal where you can keep track of all the investments that you make through us.

I remember the very first time I invested in this syndication in 2016, I found an operator that was willing to take my money. I thought, “I did great. They’re willing to work with me. Lucky me, I found somebody that was willing to let me write them a check.” I was thinking that was the hard part. I realize there are a thousand operators out there. How do you identify the good ones? That’s the hard part. Not finding somebody willing to take your money.

CWS 264 | Broker Dealer

Broker Dealer: That’s the hard part: not finding somebody willing to take your money.


We’ve tried to deliver that at a concierge-level hand-holding experience. Here are the ones that not just have opportunities available but ones that are worthwhile exploring and provide that level of responsiveness. We bring a significant amount of dollars to the operators. When I call them, I get a quick response. We hang out and do regular check-ins. We spent time driving all their projects together. We understand their processes in and out.

We have spent time with them individually as people to get to know them. It’s a level of upfront work that the average LP is not going to be able to do. We do that with all of our partners. It’s basically a hand-holding concierge experience to identify multiple operators in either similar or multiple asset classes, align the geographies, have a single portal where the investors can access and view their results, and keep this as a hands-off experience like it was designed to be for the passive investors.

One thing that pops into my head when you’re discussing all of that is I’ll give an analogy that might be accurate within a different asset class. Using a broker deal like yourself, especially if you’re an investor who does not have the time to do a lot of research or due diligence. It’s no different from when most people hire somebody to review a stock for them or something else.

I’m not comparing stocks in real estate, but they’re very different asset classes. It’s very similar where if you don’t have the expertise to understand it, Brad does. The question that I would ask you is, does the GP pay you basically for the money raised? If I went to invest in a fund that you have an affiliation with, I’m not paying you the broker deal. The GP is paying you. Why don’t more people use a broker-dealer?

It’s simply awareness. People are out there hearing a GP on a show or on a website. I’m not a big SEO guy. I don’t have a massive online presence but I try. I’m always happy to have those conversations but it’s awareness at this point. This is a relatively young market, with the idea of investing in commercials. Most people I talk to, I tell them, “Did you know that apartment complex that you drive by on your way to and from work?” It’s normal people like us who own those.

That’s a surprise to most people. They didn’t realize that they could potentially invest in those types of opportunities. Once people do learn of those, “Who is it? How do I get access to those?” I think it’s an awareness thing. With our model, the licensed securities representative model, I’m not a financial planner, but my fiduciary responsibility is to the investor. I sit on the same side of the table as the investor. Not the GP.

I have to understand the investor’s background, risk tolerance, time horizon, and strategy. How many kids do they have? When do they need this money? What’s their experience? Can they withstand the loss of this investment? Do they have the sophistication necessary? Before I can show them. Not tell them like, “This is the one for you. Here’s the deal for you.” I explain, “Here’s a multifamily opportunity in Dallas, and here’s the pros and cons of the deal. Here’s a self-storage fund with these types of parameters and the pros and cons of that. Which one suits you best?” I’ll explain that for them to make the final decision.

It’s an education hand-holding opportunity but sitting shoulder to shoulder with them on their side of the table. More people would be better served working with a licensed securities representative as opposed to going straight to the GP who has their deal and just their deal to tell them about and raise money for.

They’re great points for people. This whole syndication aspect didn’t start getting formed, from what I understand, is from the Jobs Act, where the 506(c) and some of these fund offerings that got vetted through, which are about ten years old. A lot of people don’t know. They’re like, “I’m going to invest in a REIT.” They don’t even know what a REIT is. They’re like, “I’m going to go buy a public stock.”

You can invest in that building which is owned by REIT but the building right next door to it is owned by John down the street as the general partner who lives and breeds and is part of the community in this area. It’s a very different offering and different types of returns potentially. There are pros and cons, public versus private that we could talk days on.

It’s all about the education and being able to understand that. This alternative asset class now and all different aspects of real estate open up the door for people. There are people like you out there who have done a lot of the due diligence as your fiduciary responsibilities with that investor. There is a lot more involvement from your aspect that makes life a lot easier for that investor.

I completely agree, and it’s fun. It’s a young industry. Twenty years ago, our parents would call up their stockbroker to order twenty shares of IBM or 200 shares. Now, we all go on to the broker’s website, Schwab, Fidelity, E-Trade, or whoever you’re using. It’s easy to do. We like that idea of ease with owning real estate. You can do that through a REIT. There are pros and cons to that. Liquidity is the biggest pro. The con is that you’re not the direct owner of that asset or participate in the tax benefits that could come from that.

When you want to go be a direct owner, people think, “I have to be a landlord. I have to be a flipper. I found out about syndications. That syndicator right there will take my money, lucky me.” If there is another level of due diligence that can happen even within private securities. You have private versus public.

Private is quite a bit harder to do your diligence on because you don’t see their financials when you’re going out there as you can easily see the financials for a public stock or a publicly listed company. How do you get comfortable? If you’re busy as a doctor, lawyer, W-2 employee, or business owner, you’re not going to have the level of experience to do that due diligence on a private security like syndication. That’s where the broker-dealer representative still serves a critical function.

One of the questions that I always ask is whether there are broker-dealers and investment advisors. Are they the same? Are they different? How does that play into account? There are a lot of terminology that are out there.

With the investment advisor-certified financial planner, you might pay a fee for helping them come up with a strategic plan for you, or you might be paying them a fee for assets under management, which was common. If you place $1 million with them, they’re going to place it in an appropriate portfolio for you. Each year, they take their fee for managing your funds, whatever that percentage is. A broker is essentially paid by commission for transactions. That’s how stock brokers are paid.

They get paid by activity. For me, that’s not how I get paid on the private side as a private securities broker-dealer representative. My commission is I get paid a percentage of dollars raised from the GP. You pick and choose. As an investor, do you want to pay that upfront fee to that investment advisor? Most of those folks are still only going to be dealing with public securities.

I’ve yet to run into an investment advisor or a financial planner who plays in the private security space. I’m sure they’re out there. I just haven’t met them yet but it’s a different approach. The approach that we’re doing as a broker-dealer is basically there is no cost upfront to the investor. It’s simply compensation from the GP side of that agreed-upon percentage of those dollars that we bring into their project.

I’ll make this statement because I know you probably shouldn’t. I believe most of my involvement with investment advisors is they work for a large firm and they push a lot of their own products from what I’ve seen. As a broker-dealer, “Here’s what we have to offer. I have these 5 sponsors, these 5 or 6 deals right now.” If somebody comes to you with a quarter of a million dollars, you can work with them to figure out which one might be best for them.

That’s the idea. I’m limited to the operators that I’ve partnered with that my broker-dealer and my compliance team have approved for me to work with. If there is a new operator that’s doing something amazing and I don’t have a relationship with them. We don’t have a contract between my broker-dealer and our compliance team, so I can’t place money with them. I’m limited to that. In that sense, what I’m going to be speaking to are the deals that I have currently with my operators that I have a relationship with. It is that type of conversation.

Somebody comes to us with a quarter million dollars. What are they looking to do? Are they looking to grow that or preserve that pure cashflow play, or do they want to be a little bit more aggressive about it? When do they need that? I can show them which of these opportunities might make sense for them in that scenario. I have to be able to justify to my broker-dealer, my compliance department, FINRA, or the SEC if they ever come asking, why did I think that investment was suitable for John Doe who came in with that quarter million dollars? What was it that led me to place the money there?

I have to be able to back that up, proving why that could be deemed, as a third party, justifiable and suitable. We had to cross a lot of Ts and dot a lot of Is. That’s the pain of being a licensed broker-dealer rep because you have all these checks and balances and people are looking over your shoulders all the time. For the for the investor, it serves the investor well.

If somebody says, “This sounds intriguing where instead of doing all this due diligence on all these different asset class syndications, I can find a broker-dealer that could do this.” If somebody is looking for a broker-dealer, what should they be looking for and what types of questions should they ask that broker-dealer?

You can always find any broker-dealer, whether they’re public or private. On FINRA’s website, FINRA is the managing body of broker-dealers. It’s an administrative arm of the SEC. BrokerCheck.org is the place you can go to search for brokers. You can learn about me. You can go on there and put my name in there and see where are my licenses, what are my licenses, and do I have any black marks against me. I don’t, but that’s where you can go do a little bit of research there. Type in the types of securities you’re looking for to find somebody that might be located near you or do some first steps.

You can always find any broker-dealer whether they're public or private. Click To Tweet

That’s a great resource. I would say we’re a pretty rare breed at this point. The number of broker-dealers that are in the private security space working in the real estate syndication arena, I know of about twenty of us that I’m in regular contact with. There are more than that but I’m not familiar with it. For me to dig into this and look for more, BrokerCheck.org would be my first stop.

If people want to get more information about your company or reach out to you, Brad, what’s the best way for them to reach you?

The best place to connect with me and learn about our opportunities is on our website, SugarhouseInvestments.com. Both my wife and I are from the Utah, Salt Lake City area. That’s our favorite neighborhood in Salt Lake. It’s called Sugarhouse and that’s where that name came from. That’s where you can learn a little bit more about us and our firm. Sign up for our email updates when we launch new deals. Schedule a call with me where we can get to know each other a little bit. That’s something I have to do to understand where that person is coming from. It’s a great opportunity to get to know each other and see if we have the potential alignment there.

Brad, thanks for coming on this episode of Creating Wealth Simplified. I want to thank you for tuning in to this episode. As always, please leave us a review on your favorite station. Brad, pleasure having you on.

Thank you very much, Chris. Pleasure is all mine. Thank you.

Thank you all.


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About Brad Shepherd

CWS 264 | Broker DealerBrad is a licensed securities broker who helps retail investors take advantage of the upside of real estate ownership without the management headaches, partnering with experienced operators in the best markets to offer pre-vetted, hassle free investment opportunities. Brad has been involved in commercial real estate for over 20 years. Along with his own rental portfolio and handful of house flips, his experience includes development and management of retail and hospitality space, and raising capital from both domestic and international investors. He’s been exclusively focused on capital raising for commercial syndications as a broker/dealer representative since 2017. Originally from Utah, after the last 10 years in Austin, Texas, Brad and his young family recently relocated to Boise, ID.


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