Michael Sonnenfeldt: The Most Successful Real Estate Deal of All Time and Building a Community of Billionaires

What was the original fee? And what was the requirements? Um The original organization twenty years ago started with people who had created net worths of between ten million and a hundred million.

And very quickly The top end exploded with success. Uh, so it grew to a billion dollars and Um More recently we've

Realize that our focus Is on members between twenty million and a billion And uh what I was gonna say is the main difference between uh Vistage and YPO and Tiger Twenty One

Is the average net worth of Vistage and YPO members is probably maybe a tenth. Fifth of that of Tiger R How long ago, uh, did you start the company?

Uh about twenty one or twenty two years ago at this point. What was the original idea? It's really a simple idea. If you're an incredibly successful entrepreneur. could be building a business for ten years, twenty years, thirty years.

And then you sell the business. You think that uh it's the magic moment when you sell it. But actually what happens. is the day after you sell it. You have a lot of money, but you might be

alone. You might might have an assistant, but you don't have a thousand employees. You don't have anybody laughing at your jokes anymore. You might even have to get your own coffee. And everybody around you thinks that you're wealthy And successful But you've lost the platform. That allowed you to feel

successful and all of a sudden you're back at a new point. And the number one challenge that you have Is to be a wealth preserver. So you don't lose what you've made. Except that

You don't know anything about Preserving wealth. Is a great entrepreneur or a great leader or a great manager and you're good at inspiring troops, but you don't have any troops anymore. So you have this dramatic shift. And

Uh it turns out that what it takes To be a great entrepreneur? might qualify to be a mediocre investor. When you're an entrepreneur, you focus on a single opportunity. You're highly emotional about it.

You uh you give it everything you can. When you're an investor you have to be more dispassionate. You have to have a diversified portfolio. And you have to have You have to be unemotional about it. So the sum of it all is that

There's a little understood transition which a few Very lucky, very successful people. Get to go through. And we wanted to study that, which is what we've done over the last twenty one years. To help you

People in that transition. uh get through it and on to a better place. When you originally started the business, what was the uh like what was the product? Was it like YPO where it was a monthly group meetup? What w what was it? Sure. So Uh you mentioned YPO. Which is a fantastic organization.

There's another similar organization called Vistage. And they both are for CEOs. And Uh if those are the great colleges We're the one great graduate school.

And so we have a lot of YPO members. That graduate into Uh Tiger Twenty One and a lot of Vistage members. that graduate into Tiger twenty one.

Uh and just to give you an idea. The uh The vi I've ti uh last time I looked both Vistage And Uh YPO have about fifty thousand members globally. It might be sixty now. I've looked at V Vistage has fifty thousand members.

And YPO each. Oh oh oh. Okay. That's about thirty thousand each, I think. Could be a little more. I haven't looked in those couple years. Company. Oh, these are huge businesses, sure. Vistage charges like fifty grand a year, right? Or I think Vistage is around fifteen thousand or eighteen. I don't have the exact number. Could be twenty. YPO doesn't have a single price because depending on whether you go on the uh trips and uh there's different people pay different amounts. But The big difference between those two, which are great organizations, is YPO is self facilitated.

By its members. Whereas Vistage and also Tiger Twenty One Our groups are led by professionals. We we have over a hundred groups around the globe now. And uh so we have a cadre

Of over Uh forty Professional chairs. Might be sixty, excuse me. Sixty professional chairs. That we've trained exquisitely to lead these incredible

Groups. But the bottom line is that Those are the two Great. Organizations for CEOs and business owners.

And when you decide as a rule for life That you wanna get off of the merry go round. For whatever reason Uh the next decision point is best. uh focused on with peers.

That you'll find in Tiger Twenty One. So basically the original premise and you can tell me if that's still the premise is You um You have a c a a small group of peers. I don't know how big the group is, you can tell me. Twelve to fifteen people. So twelve to fifteen people and you meet of some type of cadence, like four or some weeks. Monthly full day a month.

And you have a coach or uh what do you call your coaches? Facilitators. Chair. They're the chair. You have a chair who leads these discussions and What was the original fee? And what was the requirements?

Um The original organization twenty years ago started with people who had created net worth of between ten million and a hundred million. And very quickly The top end exploded with success.

Uh so it grew to a billion dollars and Um More recently we've Ріалайз аукці Is on members

between twenty million and a billion And uh what I was gonna say is the main difference between uh Vistage and YPO and Tiger Twenty One. is the average net worth of Vistage and YPO members is probably maybe a tenth.

Of that or Fifth of that of Tiger or If you do the math We have uh a hundred and forty billion dollars under management.

We don't manage it. Our members manage it by themselves. We're not a money manager, but collectively Uh we have about uh twelve a little under twelve hundred members. So it's a little over a hundred million dollars per member. That's crazy. So and what's the price now? Uh the membership is about thirty three thousand dollars a year. That's that's We we try and have a kind of one

Price So the only thing you pay is a single membership fee? uh unless you come to the annual meeting. There's lots of other events that are included. But because there's hotels and all that kind of stuff, if you come to the annual meeting, there's an additional charge of a couple of grand. So I uh

I I can't do the math in my head, but like that's like over A hundred million in revenue. It's a it's about a thousand it's very s it's a very simple business model. It's about twelve hundred people that are paying a little more than thirty thousand dollars. So it's about thirty five or forty million dollars. Oh.

twelve thousand members, my bad. And uh and that's what it costs to run. That's crazy. And what's crazy is twenty Ten million. Today is a lot is a significant amount of money.

Twenty years ago, ten million was obviously a significant more than it is now. How do you how did you find your first Oh. So I was in a vistage group.

Uh which had about fifteen members. And in a dramatically weird coincidence In nineteen ninety eight. Uh six of us sold five or six of us sold our businesses. We were all in that vistage group.

'Cause we were business owners trying to Managers, owners, CEOs. And uh We love the group.

And so after th our businesses were sold We didn't want to leave the group, but we found over about a six month period We were going to meetings trying to figure out how to make your CFO and your sales team and your production more efficient, but we didn't have that anymore. We were just business we had sold our businesses So I

frankly uh said, Wow, I'd like to be spending time with peers But what I wanna be learning is how they're going through this transition. Of becoming a wealth manager. And how they can help each other be more successful. Managing through that uh transition.

And that was the roots of Tiger Twenty One. What was your first business? My first business? The one or sorry, the one that you sold. Uh the first business that I sold. Uh I developed something called the Harbor Side Financial Center with a partner

We were fifty fifty partners, I was twenty five. He was fifty seven, it was the largest commercial renovation in the country at the time we bought A run down warehouse that had been the largest building in the world in nineteen twenty nine when it was built.

Eclipsed a few years later by the Pentagon. But it was an industrial warehouse on the waterfront in Jersey City. directly across from the World Trade Center. And I had the idea literally on a seventeen because I worked there when I was seventeen. That it was just three thousand feet from Wall Street.

And what was happening is that was in the age of large computer centers Mm-hmm. Downtown Wall Street firms building computer centers, and if they didn't want to be in Manhattan, They would go to a far away campus on a suburban you know, somewhere in suburbia

And people felt like they weren't in suburbia. They felt they were in Siberia. It was too far from the mothership. And I had the idea that if you could put some of those computer centers into this Huge industrial warehouse. It would be five minutes from the parent.

Under the Hudson through the Path train. Uh and in three minutes You could get back to whatever the parent companies

And that was sort of the original insight that this old industrial building Had floor loads. And f and ceiling heights. that would accommodate raise floors for computer centers and the weights that you needed, the weight loads, the floor loads. And uh that was basically the idea.

And that's the thing that you sold before but that was Yeah, I sold that uh when I was thirty. Then I did another business that was um basically a real estate merchant bank that acquired a lot of distressed real estate.

When uh the real estate market crashed. in the late eighties. I don't know if you remember that the stock market crashed in eighty seven. The real estate market followed. And uh so I was able to acquire a couple hundred properties. from banks that had gone under and the federal government had taken it over. And when I sold that business

In nineteen ninety eight I said I don't wanna have to go back to work Uh I wanna know how to preserve money. How to people who've sold their business How do they think about what they're gonna do?

So that they don't take stupid risks and find out they've lost it all. Has a Building Tiger Twenty One. Was Tiger Twenty one supposed to be a a uh No. No, it's actually it's been a labor of love for me.

But yeah. Oddly, was it able to create more wealth than the other things? No. It's uh

It's it's it hasn't at all. Uh basically for twenty years I put every Penny. Back into Tiger. Of revenue because I wanted to

Higher Some of the best people in the world and the best teams. And and get it right. But there's a lot of inherent value in it, there's no question. Because uh we have extraordinary members and the value of our franchise

has to do with our members and the team we've put together. Uh was incredible, but I I uh realize that in order to скал до бізнес To fulfill its potential.

I needed more senior help. And in order to attract that senior help. I needed people who were interested in equity. So having a private equity partner made it easier to to attract

World class talent. Who would uh own part of the equity. You're kind of in an interesting position. Which is like you know

Or you work with a significant amount of wealthy people. And you have like some interesting ins insights. Where what have you seen are kind of like the levels of wealth that someone Where like they see changes in their life. You know

Like so many things I could give you one number or another. But it's really a state of mind. You know, you you have people who are retired and they Get X dollars and then you have other people who are retired.

And they get ten X dollars. And yet the one who's Yeah. might be more evolved and emotionally balanced. Because of

meditation or work they've done. You know, the most interesting thing is there's Ендле стадії That show That

Up to Um Um that whether you ask people were who earn seventy thousand Seven hundred thousand or seven million dollars a year.

How much more do you have to earn? To be happy. And the number is something like twenty percent no matter where you are. The average person

Just needs just a little more to be happy, which tells you about the unfilled nature of human ambition. I've read a a bunch of stuff like that and If uh w the way that I remembered it, and I could be wrong, it was like two X. So it was like

Or maybe it was for net worth. So like if your net worth is a million, you're like, Well, I would feel a lot better if it were two. But then they talk to people who it was a hundred. And Most people would say like man if you have a hundred liquid like it's gonna be a little bit hard to screw up. But even they were like

Yeah, but if I had two hundred, I think I would finally feel more comfortable. You know, the fact is that wherever you are You have the illusion that if you had a little more, it would make your life a little easier. But sometimes if you have a little more It's a burden because now you have to manage it.

And when you say it's a burden, what I mean is intellectually You have to work harder to make sense of it. And in that sense it is a burden. It's like a job. It's just it's just in the nature of things that the grass always seems greener on the other side. And and that's part of why I say A lot of this is just a mindset and and there's another part which is really important as well.

You know, it doesn't matter whether we're talking about three million or thirty million. If you take somebody You take two people who've worth Three or thirty million. And one had been worth fifty million and lost twenty.

And now there were thirty. And another had been worth twenty million and made ten. And it's now worth thirty. Those two people are worth thirty million. You could use the example with three million as well. But the person who

Got to thirty million by losing twenty. feels absolutely devastated in the person who got to thirty million By making another ten. feels generally quite positive or proud of themselves. It's the same thirty million. So

It's a lot of things that are specific to the individual That uh Uh generates the psychology. There was that one article that came out that's c total nonsense. It came out years ago. It said like You don't get significantly happier after a certain amount. And the amount they said was crazy. It was seventy thousand dollars a year, but of course this was like fifteen

Years ago. And I thought that was Crazy. I'm like, I don't think that's true. But

And I was like I do think there is like a number where it's like, all right, maybe like there's like a threshold here where you're you could definitely continue to get happy, but like there's a baseline. And Um I always thought I'm like I think

You will always want more money. But Today. Maybe like If you have if you're in like the ten or fifteen range liquid, I'm like

Maybe there's like all right, maybe Life won't change significantly more. after that because like you know, like that's You could screw that up, but like You gotta kinda screw up majorly and

But I don't know. That's kinda what I always thought. What's the thing? Is a number that shows up in literature meaning Um below seventy thousand every increment that you get closer to it. If you were earning thirty thousand and you get to fifty, fifty to sixty, anything up to seventy thousand

Increments have dramatic increases because it's just kind of obvious. It's basic needs. You need to put a roof over your head. You need to put uh square meals. Uh on the table. You might need a car. And it's seventy thousand you can pretty much afford most of those things. Not in the lap of luxury, but you can afford those things. Below it, it's really, really tough.

Uh so that's kind of it might be ninety thousand today with inflation, but it's somewhere And then I don't mean to trivialise the difference between Seventy and ninety. But everything above that. Um, you know, for every level that you have You can just spend more and create the same sense of

being overextended if you're not disciplined. And it's the rare person Who generates excess Uh capital. And doesn't change their lifestyle. So no matter how much they have, they keep spending more.

'Cause if you can keep that gap Of not needing what you have. That gives you a cushion. Uh that's rare and really uh something remarkable for those who have it. Have you met people who have done that who have been, let's say, worth hundreds of millions of dollars, but still live like uh

Don't even live nearly like that. Well, you know, the most classic example would be uh Warren Buffett. Who still lives in a thirty or fifty or hundred thousand dollar home that he bought in uh The Midwest where he lives.

Um in Omaha. Uh and Um You know, it's really hard to have one person comment. On another person's health.

You wonder what's all that money for? But Now he's given half of it or something to charity. And there's tremendous benefit uh gained From the money he's given to charity, but

You know, uh It's one thing to live within your means. That's Responsible. It's another thing to be so disconnected. Between your wealth.

And what you're living that s there's something going on inside And uh you know, I'll leave it to the shrinks to figure it out. But it's kind of hard to understand why A person who might be working sixty, seventy, eighty hours a week as if uh

There's no tomorrow. And then They might be worth a certain amount of money. But they're living on one hundredth of it. As if they had a hundredth

Less. You know, they had one percent of the wealth that they do. What are they hiding from There's lots of answers. They're all dependent on different people. Most of the people I hang out with, so I'm thirty two years old.

I uh started an internet company. My co host Sean is a a little older a year or two older than me, also started an internet company. And the majority of our friends are in like the late twenties. early forties age and like all mostly except for a few in the internet. And so like I run in this like very like internet y young circle. And the vibe that I get from Tiger is that it's a little bit older and more like traditional businesses or maybe finance.

Or real estate. who have who have kind of knocked it out the park. Um Is is is Tiger twenty one mostly am I am I Categorizing it correctly, or do you guys actually have like a a lot of yellow?

How we've grown. And when you have uh, you know, eleven hundred and fifty or sixty members Um the answer is the average age has uh fallen over the history From the high fifties to the low fifties.

Uh but in order for it to do that, given that a lot of people stayed Most of our new members are in their thirties and forties. So we have a lot of internet folks. But The reason they're joining Tiger as opposed to something else.

is when they're sitting around, they're not just sitting with internet folks, they're sitting with people Who have You know real real estate experience. and experience running businesses uh you know in the uh in i in the in the world that isn't just from the internet. And the reason we're so excited to have

Uh folks. that are in the crypto space or the internet space is precisely because their understanding uh these new technologies that are gonna transform the world. In a way that many of our members Wouldn't otherwise. So it's this combination that makes uh some of our meetings so electric.

Have you noticed the difference between Like let's just say group A is like these people who are made their money on the internet, made their money in only like Three or eight years. Uh all selling Just internet stuff, so you know, like not real stuff that you can touch.

versus let's say like the small business owner who like scaled something over twenty or thirty years and then eventually sold it or made cash flow along the way. versus the tech person who was probably poor for a long time and then suddenly boom they're not. Have'cause they sold their business and they weren't ever profitable. But have you noticed a difference in those people's attitude or the problems they have? Well They're probably

You know, as many differences as there are people, but there's some fundamental truths that I think you're pointing at. You know, um When I went to business school At uh MIT forty some years ago. You know, if you were doing a marketing exercise, say come up with a product

That you could sell to a thousand people. And today if you go to Stamford to a marketing course They say come up with a service you could sell. To a billion people. Literally a billion people. That's what Facebook does and some of the other uh major

Social media. So Scaling. Із на час а диференці. We have a dramatically more frictionless

economy the nature of internet and technology allows businesses to scale. That's why we have unicorns today. But we almost never did in the past. So when you think about life expectations

People who started out thirty or forty years ago. Had an expectation. that they'd be they'd have to put their nose to the grindstone for thirty years before they'd hit a payday. Uh not all of them, but some of them. And of course

There are many different types of wealth. I distinguish between People who are Workers. versus people who have some kind of God given talent.

a singer, a basketball player, an actor, uh a rapper. These are people not who are building businesses but have God given talents. They of course they have to work hard to hone those talents, but it's very different when your wealth Is created from your own talent. than when you have to scrimp and save you know, to make a payroll and and get everything done. But then if you compare that

to people who are creating wealth today, first of all, they can do it in three to five years. You have unicorns In you know, three to five years or Uh not much longer. And so One of the big differences is

That Um If you were fifty eight twenty years ago and you sold your business. You probably were retiring because you spent thirty years

Doing something. Uh and that was your first sale. But today if you sell You might be thirty or thirty five or thirty eight. You're not retiring. You're going on to the next thing. So the I think the biggest difference is this kind of expectation of What a life looks like. You know, a generation ago, a really successful entrepreneur

Had one Or maybe two uh serial successes Today a successful entrepreneur could have three, four, five, or multiples of Because he or she has figured out

how to manage a couple at the same time. Yeah. Elon Musk is not the only person Uh who has multiple businesses, he's certainly the most

Visible but it's Much more a creature of today. Uh it happened in the past, but just much less so. When I was Selling my business.

I would talk to some bankers and I would talk to some friends and advisors And a nice amount or like yeah, sell it and get paid and like, you know, you don't have to worry about money anymore and that's wonderful. And then the other group of people though were like Uh Man, starting something that works. is really, really, really hard.

And A lot of people sell a business and want to start it again and they don't realize like You know, like uh there's some luck involved and it's just really, really challenging and sometimes you get confident and you think, oh, I can just do it again.

And so if you don't have to sell it, never sell it. And I've lately fallen in the category of like If you don't have a lot of money Sell a company if you if that means that you're like financially secure.

But then after that Oftentimes Try not to sell anything ever. Uh like to see if you can just like run it or get it to run it on its own or hire people. Yeah.

Getting something going is such a pain in the butt. Do you fall do you tend to uh When you're talking to your members, do you Wha what do you think most like

Which of those categories do you think is actually a little bit more true or more common and uh I I think you're on to something really important and it it's kinda like all of the above. One of the biggest learnings is that most people who sell their first business Have no idea.

That it feels like having the rug pulled out from underneath you. Because you see a big dollar amount. And and you're so focused on the sale. That it's the everything else that's kinda the shock. And uh

The most important one is the momentum or the platform. That you don't even realize how valuable it is. So you know, one of the things we really You really have to think about not just the pros. But the cons

And and particularly in an environment like today, forget that the markets are down This year in a low interest rate environment. When you sell You know, a typical industrial building obviously

Uh you're talking about um Uh other other types of metrics, but it used to be a typical meat and potatoes business would sell for seven or eight times earnings. And You know, if you

Take a business that was making I'll use an example three million dollars. And you sold it for twenty million dollars. And you paid the taxes Now you have sixteen million. But if you buy bonds at two percent

You're now making Three hundred and twenty thousand dollars on that same Capital That was generating three million dollars before you've lost ninety percent of your ear power. And we call that sticker shock. And ninety, I would say the vast majority of people who sell their first business

go through sticker shock'cause they haven't Really thought through That the passive earnings On the profits of the sale. Will generate dramatically less income.

than the business itself did. Now of course the positive is That when you get when you sell that business, you don't have all the risks of that business. And maybe the business had risks That could put it out of business. So a good sale take chips off the table and that has a lot of benefits.

But I think you're really um You know, you're on to the central Issue around Selling businesses. Because particularly

Uh if you hold on to the business, you don't have a tax liability. I'm not against taxes in general. I'm just saying that it it eats into some of the value, whereas if you continue to own the business. the full value is working to make the business Larger and larger. Uh.

So when you're thinking about risk. Um, I think the greatest service that we do is help Some of our members Think about The things they hadn't thought about.

When they're thinking about selling. Like what? Well, just what we're talking about, this sticker shock, this this sense of Do you really want to lose the platform? uh that you have and will you have enough capital

Because we've had Many examples of people who Think when they sell the business It's gonna be easy street, but when they don't realize the loss of income That occurs.

When you're Taking dollars from a sale. And putting it into passive assets. Or worse. In order to generate income like they had before, they take risks

They don't understand in investments. 'Cause investing can be a lot harder. You know, when you own a business It's kind of like being on a dog track. A dog track you have a fence to your left and a fence to your right, somebody shoots a gun behind you and you can only go forward.

You know, if you're a paper clip manufacturer or you sell rocks or frankly even an internet service. You have one direction, you want to be the master. Of whatever your business is. And that's really hard. But intellectually when you're an investor

How can any one person understand all the markets and if you're starting out With no fundamental understanding of the markets'cause you've just been running a business One of the real shocks Is most people think the hard part is making the money And then once you have the money you're on easy street.

But from an intellectual challenge point of view, many of our member members find Uh the challenge of managing the wealth that they've created is actually intellectually More challenging. than the business,'cause the business might have come naturally to them. They might have had an idea and they just pursued it.

To its uh good ends. When I saw I mean I didn't know it this was only a year a year and a half ago or a year and a couple months ago. I didn't know anything, like I uh I I mean I knew nothing. Like I didn't know like when people said that they're gonna short a stock I was like I d I I don't know what shorting means. And they say they gotta go long, I'm like

Don't know what that means. And so uh like it it was And people Like, you know, friends and family were like, Well, what are you gonna do with your money? And I'm like, I don't I don't know anything.

Like I I I I think people are surprised that your ability to earn Is not often correlated with your ability to like invest. Uh Just the opposite. That's that's what I'm trying to say. You can be a great entrepreneur

And a really lousy investor. And You know, just to give an expectation for uh people who might be listening. How long do you think It takes

To go from being a successful entrepreneur That is a mediocre investor where you were a year ago. How long do you think it takes till you have Sort of a modicum of confidence that you know what you're doing. As an investor.

mean years. I I don't know. I mean I I've been studying it now for a year and a half and I feel like I don't know much. Five years. Five years. Yeah. That's

And that's if you're really working at it. What I just did was put So I Are you familiar with HubSpot? Sure. So they're the ones who bought us. So I own HubSpot stock and then the rest was just

mostly a vanguard total index fund. And some real estate. And real estate funds. What a With your folks. What do you what's like the asset allocation of like a

Uh what you've seen d what's like a fairly successful. Sure. So I wanna yeah, I wanna be really we're not an investment advisor. But I do track. the asset allocation of our members and can simply report on it, which is Yeah, you guys put out this annual report. That's awesome. I love that. So the

The asset allocation very roughly. Is uh Traditionally real estate has been king. with about twenty eight percent of the assets, maybe twenty seven. Does that include f uh uh primary residents?

No, uh uh generally not. Um it's it's mostly investment real estate. And does that mean they own it or they're in a re Uh it could be they're in a read more likely They either own a building or they own a a limited partnership in a real estate fund.

Of some sort. Um Second would be public equity. Um about twenty six, twenty anywhere between twenty four and twenty six percent. That's so much lower than I thought.

Exactly. And private equity and this is unique to the Tiger community. Um our private equity has for the last couple of years been more than public equity. It's now a little neck and neck, but Private equity is around twenty one to twenty four percent.

And what's so remarkable is if you take those three numbers the private equity public equity and real estate It adds up to seventy plus percent. Those are the risk on assets So our members are relatively long term bullish.

on investments, even when they think we're going into a recession. They still are over seventy percent invested. In When I say risk on assets, that's what the you know, the investors say are assets that uh are risky and have to do with business like qualities.

Then a fixed income until you know now. Is at a historical low point. About seven. Seven percent. It was as high as twelve or fourteen in prior years. Uh and crypto and gold.

Creeping up one or two percent assets each. And Cash. At uh twelve percent. Our members cash.

Has stayed relatively fixed. Over a long period of time. The biggest it it Typically fluctuates between eleven And thirteen percent

But in the Um Pandemic. March of uh twenty twenty. It's spiked.

to twenty percent. Which statistically is off the charts. That's how uh concerned our members are. But generally in the twelve percent range is Is uh what our members are looking at in cash.

What do they love about real estate so much? I mean and Uh it's the gift it's the gift that keeps on giving. And first of all there Terrific tax. Attributes.

Of real estate because of depreciation? But You know When most people think of an investment asset and they buy a company That company is subject to competitive forces every single day.

It's why most operating businesses Don't lend themselves to multi generational families. Of course there are exceptions and some very important ones. But real estate is a much more tolerant asset.

for multi generation or or if you own Certainly uh natural resources, you know, if you own uh ver timberlands Those are good to pass from generation to generation.

Because when you own a great piece of real estate You know, the joke is your child can be Леса лес брилін. And still know how to collect the rent. And

Even in your own life style. If you own a great piece of real estate, the tenants have to pay the rent Even when you're playing golf. But when you're running a complicated technology company or something else.

You gotta be out there and working every day. Your team has to be really Really good. And I'm not in any way suggesting real estate It takes a different kind of unique smarts. It's not an easy game. But it's very different, uh One way to think about it

is if you took the whole economy I don't know if you remember the Dewey Decimal system of libraries, but if you broke the economy into all of its sectors And one of those sectors was real estate. And nine other sectors, medical and education, everything else, high spec, high tech. aerospace, etc. If you took those nine other categories

Real estate. Is more different than those other nine. than any of the other nine are to each other. Because of this durability, this multi generational capacity.

Of real estate. We always make a joke that people they get offended about this, but I'm like, it's kind of a compliment. We always say that real estate has the highest number of dumb rich people. Uh and that was kinda like my dumb like a fox. In other words, they may not people

Who have the same intellectual pursuits that you are? Right. But they can go and smell an opportunity. And sniff out. Where there's a problem. In a way that most other business owners don't. And that's why I say it's very deceptive

Because they're a breed apart. But that's become a little less so in the last generation. Because as real estate became more securitized. With different types of Ownership and debt.

that went to Wall Street, it became more of a Wall Street game. So it's a little more today a Wall Street game than it was twenty years ago. Yeah, and the the the The kinda the strategy that my wife and I had was let's just try to get Somewhat wealthy with tech stuff.

and have that continue to make cash flow and m and and You know, selling companies. And pile a lot of it into real estate because that's something because like with my business, we had to send an email every day. But it Gmail changed.

Like It could go out of business. A building that I own I could lose a fair amount of money on it, but like there's it's still a thing that someone will purchase even if it's at a huge loss, but it's not gonna go to zero, whereas my company, it definitely could. Like if I owned a conference business and a pandemic hit.

Like which I did. Uh like it went it literally made zero dollars. Whereas this land that I own that I'm looking at right now, like That's probably not gonna go to zero. You know. None of these things are as simple as we'd like.

I think you're making some really Excellent point. But If you owned retail Or

Um movie theaters. uh or airports in the pandemic, that went to zero too if you had any leverage on it. So it's not that realistic hyperbolic, but like I totally get it. It it's not that it's without risk. But as an asset category. It's a uh long dated asset.

I can find this client info. Have you heard of HubSpot? HubSpot is a CRM platform, so it shares its data across every application. Every team can stay aligned. No out-of-sync spreadsheets or dueling databases. HubSpot, grow better. Uh one more thing about the selling and uh because selling versus not selling,'cause you have a sh way bigger sample size. A, do you regret selling your companies and B The thing about selling like Let's say that you sell a business and you make thirty million, you pay taxes, now you're left with twenty.

To make twenty million Like you could build a business for five or ten years, sell it. And uh make that. To make twenty million after to make twenty million from cash flow, annual cash and and that's Really freaking hard.

Like you gotta I mean your your taxes are higher because it's income versus capital gains. But and then you I mean it's just like It just seems like Selling a business is probably the e the easier of the two, and it's still not easier.

It's still not easy. It's the easier of the tomb to to to accumulate like your first Bit. Would you agree with that or no? Well Yeah. It

It's it's The problem is That it's better to think of it as a shift in risk. Because when you made the decision to Um

sell for thirty million the example you just gave. What you've done is you've taken a lot of risk on the table. So the chance of losing that thirty million now goes down radically.

It's much less once you've Turned it into uh cash. But the chance of getting to sixty million might have gone down also. Because you lost the engine. Of growth.

So it's you know, do you wanna sleep well or do you wanna eat well? Are you long term greedy or short term greedy. But there's no question that When you sell your business. In my opinion, more often than not, it's it's not.

number dependent. It's risk dependent. You wanna Take risk off the table. You don't wanna h you don't wanna have the risk just as you said. Of losing your business anymore so you can

Take your chips off the table and diversify it over a number of investments. But it's gonna be much harder if the business was a a well functioning growing business To get to that you've you've increased the hurdle rate. before you can get to that next level of sixty or eighty or

Or a hundred million dollars. Do you regret selling your two things? Um and Tiger. Um you didn't sell it. First of all, I'm still the chairman and majority owner of Tiger. But it's run as if I'm fifty fifty partners.

And Tiger would be a great example. Um I'm uh sixty six. And the when I sold Tiger

the risk that I was most concerned about because I'm a cancer survivor Is uh Longevity. And sustainability if something happened to me. So our board said I was the number one risk.

And cause I love this business. I said, Well how do I how do I do how do I reduce that risk? Well, the first thing is I bring in a co owner And the second is we bring in a world class CEO. And

In order to bring in that world class CEO I needed to bring in a co owner. So Tiger is immeasurably stronger today. From a team point of view and an ownership

And a resilience point of view. It is still my legacy. I'm the founder. It was my idea. But I never went into it for money. And I'm not sure that I would have done any better on my own. I think I think the

the diversity of ownership and uh the addition of a team that we built into a world class team is just dramatically different than I could have created on my own. So I have no regrets whatsoever uh with Tiger. And um

With the other businesses it was interesting. I sold my first project that I mentioned to you when I was thirty. Um And What if you sell it? Can you say what you sold it for so we have context?

I mean it was uh It was a project that I was a partner in, but the project got sold for over a hundred million dollars. And The and that was in nineteen eighty seven. So that was pretty life changing, I'd imagine.

Uh totally life changing. Um But the point is that Um Uh

What I remember is not so much the dollar amount What I remember is it was heralded as the most successful real estate project. in metropolitan history in terms of financial return. And Um

So Uh but But it took me a couple of years to kind of find myself again'cause I went from being one of the top hundred developers in the country.

I also had the advantage I had a partner The project Was my idea. But selling was his idea. And he never would have got into that project if he hadn't been my partner.

And I never would have sold it if I hadn't been his partner. And we sold at the end at that point. A hundred percent, ninety nine percent Of what we were worth. And if

Somebody had got Hurt or Killed in construction. You know, it could have it could have wiped us out. And so we sold and we closed in January of eighty seven.

And in October eighty seven, the market crashed. And uh real estate followed after that. And we had been one of the top hundred developers. And we might have been one of five developers in the whole country. That had lots of capital.

And no buildings to weigh us down with the problems. From the market crash. So that gave us An extraordinary opportunity to get back in at the bottom. Uh and I did that by creating a company that bought distressed

Real estate from banks. Close to a billion dollars, uh what became a billion dollars of assets. Yeah. When

When people What one of the surprising things When I Hell. Started.

Well when when I saw it was I had never heard of this thing called an asset backed loan, which is like Basically one example of that is when rich people buy a home, you'll hear that they bought like a five or ten million dollar home in cash. And oftentimes what that m really means is they're using this thing called an asset backed loan. So basically if you have a stock portfolio of ten million dollars and it's like in a vanguard index fund or some basic thing like that, you can borrow like

sixty or seventy five percent of that app. uh a given a very very low interest rate as low as one percent. Um what were s uh what were some s some s what are some surprising things? that people who come into money after selling their company that they uh that they see and you're like it Like when I when my banker told me about that, I was like

Are you kidding me? This is like this is how people do it? This is amazing. What are some other things that kind of fit in that category? So I'm sorry, but I would never do that. Most Tiger members yeah, yeah. Most Tiger members wouldn't for two reasons. One Uh I don't have any debt. I wouldn't want any debt. It uh debt can be very corrosive at exactly the wrong time.

You know, the market has just gone down. for people who are levered, they could have been wiped out if you want to be here for the long term and preserve wealth. I would argue you want as little debt as possible. I'm not suggesting that's a good idea. I'm just saying it's an interesting option that people have. Like they can use to pay taxes. Sure.

Um but the other the other part of it is That one percent Can be illusory. Because the rate can go up if it's a floating rate. And if you have a spike in interest rates and you made

Assumptions that you were borrowing at that low interest rate. And then it goes up, you can really Reak havoc. With your balance sheet. So I uh one of the things that I think.

Uh that Most Tiger members enjoy when they reach a level of wealth. is the ability not to have debt. Hanging over them.

Now having said that Who are the best managers of debt? Well private equity firms And real estate. is the place where most debt

Is So people who've spent a career Managing debt, understand the power of it. But they just understand that at some point you want to reduce risk. Uh and take chips off the table.

Uh I think the other thing is something you said before. Not everybody fully appreciates Why they became successful. Because for every person who had a plan Somebody else was

Lucky, let's say. Doesn't mean that they didn't have a plan, but fundamentally they're lucky. And It's just a statistical thing. The The number of people who've had two successes

is dramatically smaller Than the number of people it's a bell curve. Of who's had one success. And for people to have three and four successes gets down into the

you know, one in a thousand entrepreneurs or something. And I think that um Many people systematically overestimate their own skills. When they've been successful.

And there's a real come up and that after they sell their first successful business They assume they'll be successful in the next one. And they get their clock handed to them as I did when I was thirty. Was a very painful lesson.

But it was the most valuable lesson. Well, I uh sold this amazing project. Uh when I was thirty and then I started a business. In the real estate information, this is before the internet.

what Zillow is today where you can look up any house and get a Price on it. We created A business that was a precursor to Zillow before there was an internet.

It was how much of your of your of your net worth from the previous thing did you invest into this new thing? Oh uh I probably risk Somewhere between twel on the order of twenty five percent, something like that. And

So one of the biggest One of the biggest um Um Learnings. Is

When you Se la biznes. You know, many people think they're great investors. Because when they own a business If they make an investment they have to talk about it at a cocktail party.

And if they lose in money on an investment It gets swept under the carpet'cause the business itself is profitable, so it covers up Those losses. So many people who've been successful entrepreneurs Don't realize how

poorly they are as investors'cause they've never been battle test it without the benefit of the Company. Providing You know, the fill if you make a mistake.

So I think I think the one of the biggest mistakes that people who sell business make and it's uh what you said before Is that they're uh That they assume they can do it again and again.

And only a portion of people who've been successful once Are gonna be successful twice. W we're talking about earning money, what about spending money? Uh like something that I I asked myself as Yeah, I'm quite frugal and I say like I don't want to buy this, this, and this'cause it costs too much money and I just don't it just it in and it's some stuff like

Owning um you know, a lot of like objects in my home. It kinda just stresses me out'cause I feel like I gotta take care of it. But then there's other things like f flying nicely. Or staying at fancy hotels. Where I was like, I don't wanna spend money on that. And then I was like, Well, you know what, that actually makes me happier. Like this is fun for me. I should spend because that I feel it like the marshmallow test?

Yeah, about gr uh um Delayed gratification. Yeah, delayed gratification. Should I tell it for your listeners if they're not going to be able to do it? Uh very famous t test that was done at Stamford. uh in the I think fifties or early sixties, and you know, they put a table of twelve three year olds or four year olds out and they put one marshmallow in front of each of the kids.

And they said, uh, look, I'm gonna step out of the room. If you don't touch the marshmallow while I'm gone. When I come back, I'm gonna give you another marshmallow. And only one or two of the kids Could

Wait. For the person twenty minutes to come back. They just had to eat the marshmallow in front of them. Those one or two. could handle delayed gratification.

And it turns out that they tracked Uh many kids Who went through this and the very few who could delay gratification. В мон, мор сун. And more successful in business.

By various measures. uh over the next thirty to fifty years of their life. It's a remarkable study. And it has to do with What I was saying before when you're an entrepreneur, as apparently you were. You had to delay gratification'cause you were putting money into your business. You couldn't

You couldn't do all the things others who were making a lot less but didn't have a business were doing. And delayed gratification, the discipline of delayed gratification is at the core of uh Антопреноріал суксе But frankly when you're a movie star or a rock star or a baseball pitcher or a basketball player, delayed gratification isn't so much at the core of your success,'cause you you don't need to scrimp and save. You need to practice and and be well.

So When people sell You know, there's a syndrome where somebody's been very successful, but they've been delaying gratification so long That they only open up

One step at a time. They still are driving a Chevy. They still are wearing a certain kind of suit. They're wearing a Time X watch, but they go on a great vacation. Or they go on a mediocre vacation, but they're wearing a really expensive watch. You find when people have sold Their business they open up Slowly because

They wanna They wanna be smart. And they don't want to waste and they have to find that new balance. But you know, we have a rule at Tiger, which I think is the most important rule. It's called the two percent rule. If you've been lucky enough to sell a business One gauge you can think about.

is if you're solely Uh living on the investments in your portfolio If you can live on two percent of your assets or less then you're in a safety zone.

And obviously some people have the good fortune to earn a lot more. than two or three or four percent on their assets. So they can live on a little more But once you start living on more than two percent You're actually starting to stress.

the ability to preserve capital. And my guess is if you If you went to a whole bunch of Twive year old kids and said. You know, if you inherited a million dollars How much could you spend a year

And preserve the money. You'd be shocked. A lot of kids would say, I don't know, a hundred thousand or two hundred thousand a year. It's twenty thousand a year. And uh that learning is really fabulous. I a s uh there's this um funny, cool subredd subreddit tha a Reddit, a forum that I go to. And it's called Fat Fire. You know you know what Fire is like fire is like financially independent, retired early.

That f and typically fires like people who wanna save like a million dollars and live off like fifty thousand a year. Fat fires people who want to like earn A a huge you know, a much larger m and live somewhat lavishly. And on that subreddit, the number's like three percent. So it's a little bit higher than two percent, but like three percent. I think there was this thing called the Trinity study and they said like Four percent, frankly, I think that sometimes is too high.

But like the I I I bu I kinda buy in the the three percent range. And uh Anyway, there's this one book. Have you ever heard of this guy named uh Felix Dennis? No, I don't think so. He's amazing. He's kinda he's dead now, but he's kinda like uh a combination of Mick Jagger and Richard Branson.

So he was this. He was this British entrepreneur and he was kind of flamboyant like Richard Branson and like did a bunch of stuff, but he was like Mick Jagger in that he was like kind of a d degenerate, like he loved drugs and hookers and he was like he wrote about like his escapades when he got older. He was like I had a drug problem and I was never married so I was just like sleeping around and So he's kind of like a fun guy to read about, but he's got this book called uh How to Get Rich. It's it's kinda b poorly titled. in a way that it's like embarrassing to talk about, but it's a quite a good book.

And He was like He he eventually founded um Micro Warehouse, which was a publicly traded company, but he also started Maxim Magazine. He was a publisher, so he made all of his money in magazines. And he was like, So I'm gonna die soon'cause I've got cancer and I'm I'll die with like a six hundred million dollar net worth, but if I could do it all over again

My goal would have been to make twenty or thirty million dollars by the age of thirty five and not focus on money making ever again and only focus on Uh like the people I cared about. But like a boxer who's punk dr uh punch drunk. I went back into the ring every time'cause I was addicted to it, even though

Yeah. It didn't always bring me the the most amount of fulfillment and happiness. I just want to share. Three reactions to that. The first is There was a

band leader from the late sixties or early seventies who was being interviewed a few years ago. And the announcer said, You know, You were the first band To make a milyen dollars a month. No band had ever made that much money. What'd you do with all that money? You guys must be rich.

He said, Well, we spent about seventy percent on wine, women, and drugs and wasted all the rest. But but the thing the uh the thing with uh Mick Jagger is what you don't see As he like works out six hours a day He uh He he eats

a food regimen that's like second to none. And here's a guy who's maybe Keith was a better example. Yeah. Well uh that's important because Even with Richard Branson with with his W whatever your persona is You know, he knows how to lever uh from a marketing point of view, he puts like nothing into a business

And others invest around his name, so his risk is very low. These are these are people who are real geniuses. At what they do. But the thing that The thing that you didn't mention. is philanthropy. Like how does people Create meaning

I I uh I think that people who've created A certain amount of wealth and then say a higher percentage. I'm gonna give back to causes that I believe in. and try and make the world a better place.

I think that's a a really important way to get meaning. So That guy who made six hundred and said I should have just made thirty Maybe he should have just been a little more philanthropic and and Looked around the world and said I can make an impact. In a positive way.

Have you heard of this book called You got a ton of books behind you, so maybe you have There's this book called um Dye w Dying with zero. It's by this hedge fund guy named Bill Perkins and I've just started reading it. But it sounds like the premise of the book is basically like

Uh. Spend like if you're gonna give it instead of giving away money when you're dead Like give your kids the money now so if they want to buy a home or do something like maybe you can Enjoy it together. If you want to leave money to a certain cause, just give it now.

Because you'll be able to see you'll be able to see it and you can all get a little more joy out of that. Sure. Um that that was the biggest debate. You know, for many years Warren Buffett said I'm leaving a big foundation when I die. And He said because I'm growing my capital so quickly

That by leaving it in my portfolio Alive so much more, and Bill Gates. Made the argument with him. Yes, but what's the value of a life save today? versus a life only saved thirty years from now when you die. And some things aren't financial calculations.

So the point that you're making is There's a lot of value to being philanthropic. Both with your time and your money. earlier on and not just uh Later on, and I think

Um One of the things that uh is really important as many entrepreneurs Have a lot more than money, they have skills and insights and contacts. That they can lever

Philanthropically. So I do believe In being as active as possible. Uh to make climate is my number one issue. And so I'm involved in climate. both politically, philanthropically, and in the way I invest.

And that's given me a lot of feeling at least of I'm doing as much as I can. Well last two questions. First, um Huh the the interesting thing about this your business

Tiger twenty one is From an outside, it seems like the it seems like the vast majority of the value is your like eight or ten person or fifteen person uh your your group. Which means I would think that there's a lot of pressure, or not of pressure, but there's a lot of Faith.

that the facilitator like you need that facilitator to be good. And if your facilitator stinks, then that could potentially ruin The experience. Which almost is like your business is almost decentralized. Regardless of what's happening. At HQ.

How are you how do you make sure your facilitators are good and are providing a valuable experience? So I think what you're searching for is kind of a classic example of would you rather own Three hundred gas stations. Or one oil refinery. If they're both worth the same amount of money.

Well, the answer's obvious on that one, I think. Which is what? multiple. I mean it's like you don't want you don't want You don't want uh all your you don't want one big ass customer. You would it would be nice to have a hundred More than equal.

But the fact is if you have three hundred gas stations that have all the same label on them, the same name You have a brand exposure that if something bad happens in one of them It could affect uh people's demand for the other. So

Our only asset is our people. Both our team our chairs that facilitate the groups. And our members. And we spend we have like a private university, we spend fortunes of time Screening.

The facilitators and then Providing lots of opportunities For the facilitators to learn. from one another, our facilitators come in from all we call them chairs of the groups. They come in from

All over the world to learn best practices from each other. And we track all of the relevant metrics to see Which groups are Performing well.

Which groups are not performing well. And of course the most important thing is that We have zero tolerance. For uh anything less than

high integrity. and maintenance of confidence if somebody if a member or a chair Ever violated that. They would be out in a second. So I'd say that

Maybe uh besides The core асет. Uh being Our Uh team.

And our members The thing we protect the most is our brand. by being really true to what what it stands for. And I don't think we've ever compromised On

Trying to put members first. That's That's kind of what we're about. I'm a I'm a member first. Well most of the value that I've gotten out of being a member of Tiger. has been Being a member.

Uh the fact that I've owned today uh Little more than half the business is Almost irrelevant. to the value that I've gotten by being a member. And all the opportunities.

that I share with all the other members That come my way as a member. Well you're awesome. The reason I wanted to talk to you was because I've Uh I know of Tiger, I've thought about joining, I've got friends that are part of it and I love the business model. My business was a l was

tangentially related, but not quite the same thing. We it was community based and I hadn't read or seen too many interviews with you and so I'm happy that we got to talk because uh I wanted to kinda explore this, but your your your uh You're cool as hell. I appreciate you taking the time. This is awesome. Thanks so much for having me. It was a real pleasure.

If people wanna do you use Twitter or anything. People want to find you, do you you want to point them anywhere? Um I'm on LinkedIn. I don't use Twitter. I don't I I I don't use Facebook.

Um but I'm available through LinkedIn and uh It's kind of easy. It's Michael dot Sonnenfeld at tiger twenty one dot com. Hell yeah. Thank you, man. I appreciate it. Thank you.

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