Harvard graduates Jonathan Reindollar, age 31, and Matt Karle, age 28, are looking to disrupt the real estate industry. They run Cloudland Capital, a real estate private equity firm in Denver that is focused on investing in smaller deals in the $300,000 to $20 million range, an area largely ignored by larger private equity firms.
The business partners believe there are stronger returns in smaller real estate deals, such as single-family homes, vacation rentals, affordable housing, and aggregation of retail properties and small hotels, than in the traditional properties many funds seek to acquire. They aim to overcome inefficiencies in managing, transacting and scaling these deals that have kept larger investors away.
Reindollar formerly worked at Rockwood Capital and Highgate Capital and Karle previously at Moelis & Company and KSL. Both noticed that many private equity firms were chasing the exact same real estate deals and were not getting the returns they could be.
The former classmates began talking about starting a business and decided to focus on deals too small for the institutional investors like Blackstone to pay attention to. There was only one problem with these deals. “They’re really inefficient to manage and transact on,” says Reindollar.
They began looking for ways to solve this inefficiency. As they did their homework, it became clear the problem overlapped with the solution. “There are so many entrepreneurs that want to start their real estate business and scale these small real estate platforms,” says Reindollar. “All we have to do is match the equity with those needs, anything from $300,000 in deal size to $20 million. As long as it is scalable and we can create a larger platform, that could be interesting to bigger institutional investors down the road.”
The duo soon noticed that while there was a lot of room for investment activity in the space, there was another obstacle: It was not easy to find the right partners. “Our biggest challenge isn’t deal sourcing or finding the right strategy,” says Karle. “Our strategy is reliant on finding the right people. We’re looking for people that are ethical, smart, and have entrepreneurial grit and drive.”
To find the right partners, they’ve spoken to more than 75 owners. So far, they have committed to two deals with three entrepreneurs. In one deal, they’re aggregating vacation rentals. “We’re trying to use the first fund to show proof of concept,” says Reindollar. “Once we can show that, we want to continue to upsize this fund.”
They are trying to build a moat around the business by working closely with the entrepreneurs they back. “It’s a human business,” says Reindollar. “It’s not a business of throwing more money behind something. It’s developing connections.”
The fund plans to hold onto deals for longer than average. “Our desire to hold onto these assets for a longer period of time allows people to build this scalable business,” says Karle.
Given the rush of larger investors into the ecommerce space to aggregate small online stores, it may not be long before they face competition. But that doesn’t deter them at the moment. “’Small is beautiful’ is exactly what we’re excited about,” says Karle.