How Two Brothers Earn LP Trust As They Scale to $1B AUM | Will Matheson

In this conversation, Will Matheson discusses the operations and philosophy of Matheson Capital, a multifamily investment firm based in Charleston, South Carolina. He highlights their focus on transparency, investor trust, and the importance of communication in building relationships with investors. Matheson shares insights on their investment strategy, fee structure, and the challenges of passive investing, while also addressing how they attract new investors and plan to scale their operations in the future.

Podcast Transcript: Pat Zingarella & Will Matheson

Pat Zingarella (00:00): Well, thank you very much for joining me. I know we were gossiping a little bit before we got started here, but why don't you start by just telling us a little bit about Matheson Capital and how you guys got started, and we'll hop right into it.

Will Matheson (00:17): Thanks, I appreciate it, Pat. So Matheson Capital, high level: we're based in Charleston, South Carolina, and we invest in multifamily across the Southeast - North Carolina, South Carolina, Georgia, Alabama. That's where we own right now. Started buying in 2018. We've had seven or eight full cycle deals. Very thrilled to say we've never lost any investor capital. So that's the short version.

Pat Zingarella (00:42): Yeah, that's good. And you guys have returned a much higher IRR than I've seen amongst other GPs on Invest Clearly at this stage in your business. What differentiates you in that area?

Will Matheson (00:56): I always give this disclaimer whenever people ask about that, which is: yes, our average LP IRR is 37.5%. That is bolstered by shorter-term holds. As you know, how IRR works is very time-sensitive. So when we were getting started, we were very focused on doing short-term heavy-value-add deals, because we bought our first property when we were 25. Shockingly, it's not the tech space - no one's going to give you tens of millions of dollars of equity at that age.

When we were getting started, we were very conscious that we're going to do heavy value-add deals and get in and out in a short amount of time. So on those eight full cycle deals, the average hold period has been pretty short, and that's allowed us to do it. Going back to that, we were telling investors: if you want to do a 10-year hold and get a coupon every three months, then there's someone who's got a lot more gray hair than I do you can invest with.

We're not asking you to commit to us for the next 10 years. We don't have a track record. We're 25. I was in high school during the Great Recession. But we want you to date us and see if you like what we do and see if we're competent. And that's been a big part of our approach on the exited deals. There's some other stuff that we do that I think really differentiates us, which the biggest of all is: we're a fixed-rate debt borrower pretty much exclusively. We have one deal with a bridge loan that's floating right now, and that's because we bought it in under 40 days.

Pat Zingarella (02:30): Very cool, man. Okay, so you didn't have a track record then, you've got a track record now. Everything about Invest Clearly is based around LP trust and creating transparency. Why do your repeat investors trust you currently, and what should new investors know about how you build trust and why they should trust your process?

Will Matheson (02:51): As far as our existing investors and new investors, we try to be as transparent as possible. I say this all the time when I'm doing introductory phone calls with somebody new who wants to be an investor: if you're invested in Matheson Capital, you're either going to have my phone number or my brother's phone number. If you ever have questions, you're not getting passed off to some investor relations line, you're not getting passed off to some investor relations email that no one's going to respond to for four weeks or whatever the case may be.

If you have a question about your investment, we're going to answer it. Because I have this antiquated notion that if someone's going to give you tens of thousands, if not hundreds of thousands of dollars, I should pick up the phone when you call me. Just call me old-fashioned. So we really try to be as transparent as possible. We're not a monthly reporting group - we used to be, but it's just a huge time drain. But I'll send out a quarterly report a month later.

I'll have an investor call me. Actually, earlier this week, I had an investor ask me questions about a quarterly report. He asked me on Tuesday. I texted him Wednesday morning saying, "Hey, I saw your email. I'm working on getting you answers, but I'm on the road all day today, so I'm not going to respond, but I saw it and I will address it." So we try to be incredibly transparent. I had a period where I didn't respond to an investor for four days and I wrote him an apology email saying, "Hey, I'm really sorry. I was on the road again, but you'll get these answers," because I've seen other sponsors I've worked with and it's just like a black box. You're just shouting into the void anytime you want an answer. So we try to be incredibly transparent.

Obviously the track record matters, but we try to be accessible. We try to be transparent. We also try to really lay out to people when we show them a pro forma or an investment memo the parts of it where this is the risk, this is what we think the potential problem is, this is where we don't think that we're actually going to do what the investment memo says. Let me elaborate on that because that's a really weird thing to say.

We're more focused now on longer-term holds than we were when we started. Part of the reason we did the short-term holds back then - 2018, '19, '20 - was so we could do longer-term holds. But it looks really stupid to show a one-year hold on a pro forma. It looks dumb. It's like, "Yeah, I think I'm going to get you a 40% IRR." So we would tell investors, "Yeah, here's a three-year model. We're going to try to sell it in a year - a year and a day, for capital gains reasons." And we still do that.

We're raising on a deal right now. I've had the conversation multiple times where it's an older asset that'll cash flow, and I say, "Look, it'll cash flow. It's a great area. I really like it. The downside is I don't know what it'll sell for in five years. I have no idea because it's a '60s construction property. It should cash flow. If we hit our pro forma, we should be able to do some refinancing just on a DSCR constraint. But I don't know." We're very upfront about that. So we're accessible, we're transparent, we lay out the risks, we lay out the upsides. I hope that doesn't sound too boilerplate.

Here's one more for you: I'm very transparent about the worst deal we've ever had.

Pat Zingarella (06:10): Yeah, let's hear about it.

Will Matheson (06:13): Worst deal we've ever had: Greenwood Village Town Homes. I don't know how many times I've talked about this property. We ended up getting - for a deal that was bought in December of 2019, which you would think, wow, what a great time to buy a deal - we eked out like a 1% IRR. I actually think it's below 1%. We didn't lose money. Our investors made the most minuscule profit imaginable when we sold it in March of 2022.

There were a lot of reasons that deal had problems. Right before closing, some bad characters moved into the property. We were scheduled to see them in eviction court the day the courts closed because of COVID. So good timing. And the property was small - only 24 units, really gated, serene. But as soon as we couldn't evict the bad characters from the property, the property essentially became overrun - that's a little bit harsh - but drug dealing was constantly taking place at the property. All the tenants who actually paid rent left. So Evan and I were pumping money into the property to keep it afloat because we didn't want to go into forbearance, which was all the rage back then. So we were the first ones putting money into the property. We had to go through four different property managers, some of whom quit because the property was such a problem.

We ended up getting out of the property in March of 2022 by packaging it with another asset we owned in Charlotte. This was in Charlotte, North Carolina. So we packaged the two together, sold them as a portfolio. We bought it for $3.3 million, we sold it for $4 million, call it. But what ended up happening is we had a yield maintenance prepayment on the loan, so we paid about a quarter million in yield maintenance. We had pumped a lot of other money into the deal, so at the end of the day, we pretty much made no money. But we were transparent with investors. We've had investors where that was their first deal and they've come back, which is kind of amazing because talk about a terrible first impression.

Pat Zingarella (08:25): Yeah. Well, that's what I was going to ask. When you're having that conversation with new investors on the phone who have never met you for the first time, is it received well as "I appreciate the transparency," or is it like, "Oh boy, what's next?"

Will Matheson (08:41): I don't know that I've ever really been shut out by an investor. I don't know that that's ever happened, but I feel like most people appreciate the transparency, especially around something like this - this was a COVID-related issue. In my humble opinion, I think where you really run into problems with investors is when you say, "Here's my business plan," and you just fail at the business plan. Like, "I'm going to buy this property and I'm going to do value-add renovations and I'm going to hit these rents and this is what's going to happen." And then that doesn't happen.

There are horror stories in South Carolina because South Carolina taxes reassess upon the sale - it's not like a four-year, eight-year cycle. So I've heard stories of someone buying a property, so the taxes go up, and then they say they're going to do a value-add plan and the rents don't go up. So they just made the property less valuable than when they bought it because now the NOI is down because the taxes jumped and they're pumping money into units that's getting no return. That's how I think you really lose investors. But if it's interest rates, if it's COVID, if it's the sales market just swinging out from under you - there are macro factors that we can't control.

Pat Zingarella (10:08): Yeah. And I think your position of bringing that up on calls is what LPs are looking for right now. It's refreshing that you say that you and Evan are readily available. The biggest thing we hear from investors right now, even those that are losing money, are focused on the communication more than anything. It's like, "Yeah, sure, I don't know what this is - I'm assuming this is going under - but I just wish someone would call me back." It's a wild thing out there when people are facing total loss of capital, and the one thing they're bringing up more to me than anything is, "I can't get ahold of them. No one's telling me what's going on." So it's nice.

But that leads me into my next question. So right now it's you and Evan taking the investor calls, you've got direct communication with your investors, you've got big goals over the next few years at a billion under management. How does LP communication and retaining the same trust process and transparency process you have now work as you guys scale those acquisitions?

Will Matheson (11:11): I mean, that's eventually going to become an issue. The amount of conversations with LPs will exceed the amount of time at some point. I think we will have to bring on somebody to do investor relations, which kind of takes away from the direct outlet. But I still maintain: if you're investing in our deals, you're going to have my phone number. I think it's a Kevin O'Leary clip where he talks about having two phones - one's the personal phone, one's the business phone - but you're explaining to people that the business one's for emergencies. A lot of people have the number, but a lot of people still don't call it. So it's like, "Look, if it's a normal IR question of 'Hey, what's going on? I saw this in the report. What does this look like?' you can go that route." Again, I'm projecting into the future. I would say, "Look, you can go the IR route, but if you really need something, you'll still have instant access. You'll have my email. You'll have all that stuff."

Because again, managing equity is a privilege. It's not - you're not entitled to doing it. I do think where a lot of sponsors end up getting into trouble is the faucet just becomes so easy - you just touch it and the water pours out and you become a little bit entitled to it. And that leads to when you start juicing the fees to 4% acquisition fees and I've seen 4% asset management fees before because the money's free and you just take it for granted at that point.

Pat Zingarella (12:48): Yeah. Building on that in terms of Matheson, how do you guys make money on your business? How are your fees structured?

Will Matheson (12:57): So our acquisition fees are typically going to fall between 1 to 2% depending on the deal. So it'll be a 1 to 2% acquisition fee, a 2% asset management fee, and that's 2% of EGI. It's not 2% on equity - some of those fees are really, really high. I understand it's a little different if you're in a fund structure, but we're typically 2% upfront, 2% on asset management, and then we used to have disposition fees. I don't think we really incorporate those into deals any longer. So then it's just backend promotes.

Pat Zingarella (13:38): Do you guys have any plans to go the fund route, or are you sticking with single assets?

Will Matheson (13:44): Single assets for the foreseeable future. My thing on funds, generally speaking, is - well, I think there are benefits to LPs. Let me be really direct on that. I think that the fact that if a GP screws up one deal on a fund, they can wipe out their promote - they could do seven good deals, one bad deal, and they'll wipe out the promote - that's good for LPs.

I also think funds allow you to compete on timeline as opposed to price and surety of closing because I talk to brokers and I lose deals all the time to discretionary funds because it's just a surety of closing. I've got to tell a broker I have to raise all the money. Fund comes up and says, "I already have it." That's good for LPs. So the GP's portfolio-wide commitment, I think, is good for LPs. The fact that you have the money at hand makes it easier to do.

But I don't think I could raise a $100 million equity fund. And if you're dealing with a $30 or $20 million equity fund, to diversify the fund across seven assets, your average check size is below $3 million. You're just chasing these smaller deals that we're honestly trying to move away from. When we started, we were buying 32-unit deals, 24-unit deals, 15-unit deals. Now we're trying to buy bigger stuff because they're just very demanding on the small end.

Pat Zingarella (15:21): Sure, sure. What do you guys do to attract new investors now? How do you guys get new investors in the funnel?

Will Matheson (15:29): I mean, I'm embarrassed to say you've seen my LinkedIn posts. You've seen Evan's memes. Obviously I go to Invest Clearly. I have great results on that website and people come in through that website.

Pat Zingarella (15:31): Well, that's what I was going to bring up. You're active on social. I wonder, because you're super socially active - you're literally the only person that ever likes any of my tweets, so I appreciate that - but I didn't know if you guys are one of the ad-running companies or if it's mainly returning investors.

Will Matheson (15:58): No, we're not an ad-running company. I've talked to groups about that and it's like, "Yeah, pay us $100,000 to set it up and then ad spend." I'm like, if you're charging me that, I want guaranteed results. Have you ever heard of Marcus Evans? The company? I would love somebody to come out and tell me that they've worked with them as a testimonial to how great they are. Their business model is like, "Pay us $100,000 and we will put you in a room with family offices and you can have conversations with them." It's like, I'd rather pay an equity broker. It's a $100,000 gamble at that point. Maybe they'll work with you, maybe they won't.

Pat Zingarella (17:07): Yeah, I'll look them up. I haven't heard of them. I know the agencies - some of them, the notable ones - but haven't heard of them. I guess that was kind of leading into my question: a lot of the GPs are doing it, right? They're running ads. They're really heavily investing in influencer marketing. I know you are active on social, which is great. How do you balance what's marketing and what's education? How do you define "I'm actually trying to provide value to potential LPs" versus "this is just a get-in-the-funnel-now type process"?

Will Matheson (17:49): So we're not a group that's putting out a ton of educational stuff. There's a few articles on our website that are explainers on a few things. We send out a monthly newsletter, but we don't do coaching. We don't do educational seminars or anything like that.

I'm reluctant to really say that the stuff I post on LinkedIn is educational. My LinkedIn theory boils down to: there'll be one thing a day that annoys me and that's what I'll post about. Something will bother me and I'll just be like, "This is dumb. This is my thought on it," which is edgy. I mean, it is educational in a way, but we don't have a systematic educational movement. I know some teams have gotten a lot out of that, but I am generally pretty skeptical of a lot of coaching and educational programs because it just seems like - look, I want people to invest with me. Let me be really clear about that. That's the business. But I feel like a lot of things are dressed up as coaching and education when it's really just a feeder to "this is why my deal is going to be good."

Pat Zingarella (19:08): Yeah. And a lot of that is coming out.

Will Matheson (19:15): Yeah, I mean, if you're - I know some people who do coaching, and this is painting with a broad brush here - but if you're the greatest sponsor in the world, why are you spending all your time coaching? I mean, well, actually I could give you a very good reason why: it's the income. I go on this rant quite frequently. Nobody wants you to make money as a sponsor, which seems like a contradiction, but at least on the front end, because it's like, "Well, you have to invest," call it 10%, and then you get the fee. Some groups are like, "Well, 10% net of fee," so if you're putting in your acquisition fee into the deal because it's 10% plus whatever your acquisition fee is, then money's fungible, but the whole point is you're not making money when you buy it. The asset management fee is not huge and you're going to have an asset manager, so you really only make money when you sell a deal, which makes sense in some respects. It's just - I think people own or manage and I think people coach because of the income. We don't do either one of those. We've had a lot of successes. We're in a really good situation financially. But we still try to stagger deals so that we believe we're going to have a promote hit every year or something like that. We still do that.

Pat Zingarella (20:34): Yeah, that's good stuff. All right. Now to the question we were talking about beforehand. What part of passive investing do you think needs to die?

Will Matheson (20:47): The part of passive investing that I really think needs to die is funding your distributions upfront through investor equity. It's not even robbing Peter to pay Paul. It's just robbing Paul to pay Paul. It's not a real return. It's a synthetic return. You're just collecting someone's money to then give it back to them because your asset is not cash flowing.

And the other aspect of it, which I think a lot of investors miss, is that you're just making it harder to end up profiting at the end of the day when you do that, because now you're getting a preferred return on top of the money that's being returned to you for your original preferred return. So you'll see deals where someone might be buying it for, say, $100,000 a unit. And then between their reserves, which are really used to pay the investor, and the closing costs, and the rate buydowns, and the capex, and the fees, there'll be a $150,000 basis on a $100,000 purchase. And it's like, "Well, that's great, but now the value of the asset has to go up by 50% just for you to break even." To get your equity out, you have to increase the value of the asset by over 50%, which maybe that works. I feel like people overlook that. They see the basis of the asset, but they don't see the total capitalized basis. And I think pre-funding your returns is a big part of why that happens.

Pat Zingarella (22:22): Yeah, there was a good stretch where there was literally a theme on LinkedIn or X where people were just shredding those decks. They were coming in droves and people were just slaughtering them online. It was an interesting thing to see being a trend.

Will Matheson (22:41): Yeah, I mean, it kind of should be. If you're doing a rate buydown on a Fannie or Freddie loan, that's kind of still - there's a limit to what you can do. But if you're taking out a floating rate bridge loan and buying it down to 5%, I mean, the fees on that can be astronomical, but it's like, "Oh yeah, look, I have this 5% rate that I paid $5 million for upfront and now I can quote-unquote show cash flow." I mean, that's another way of essentially pre-funding your deals. There's a limit to what you can do with Fannie and Freddie, so I'll kind of give that a pass, but when you're doing it with the bridge lenders and buying it down to 5% cap rates, that's essentially pre-funding your distributions by artificially compressing your debt.

Pat Zingarella (23:40): All right, well, I know we're coming towards the end here, so I'd love to know: are you guys raising right now? Is there anything additional you guys want to talk about in terms of Matheson or your deals or anything that we haven't gotten to?

Will Matheson (23:51): I mean, we are raising, but we're bringing that to a close. We try to stay active, but what I really - and you didn't tell me to do this, I'm being pretty honest with you - so just like a peek behind the curtain is: we met at Best Ever in '24, and I was like, "Wow, this is a great platform." Every time we have a closing, we're like, "Here, investors, look over here. Go to Invest Clearly, go to Invest Clearly." So as your inaugural podcast, I think this is your inaugural one - can you talk about the platform? Which again, you didn't ask me to do, but I love the platform. I think it's great. I think there are a lot of bad GPs out there. I think some GPs broadly get a bad rap. But I think there are bad GPs and I think Invest Clearly is a great way to highlight good ones and kind of expose bad ones in a verified way. Please talk about that.

Pat Zingarella (24:57): Yeah. I'll actually turn it back on you a little bit because I appreciate that. You were one of our really early adopters and I know that platforms at the early stage are not easy to have confidence in. But I would actually love to learn what led you to actually start leveraging Invest Clearly. Obviously there are the surface-level items, but if you even take the business out of it, why did you kind of take the jump to ask your investors to start putting things on there?

Will Matheson (25:34): So it really is two things. Number one, I'm incredibly full of myself. So I couldn't imagine anybody giving us a bad review. I mean, at the time I started, we had like a 40% average LP IRR. And as I posted about on LinkedIn, we had a great deal that we bought in October '23. We sold in December '24. So it's a great deal. It's like a 40% return to the investor. But because it was in 14 months and not 12, it dropped our IRR to 37.5% - just brutally heartbreaking stuff. I posted the tombstone of our 40% IRR out there.

But the big thing was I was really confident in us, so I thought we would get really great reviews. And on the other end, I knew there were going to be other investors or other sponsors who felt the same way. So people who are reviewing other sponsors would see what we're doing and they'd be like, "I'm curious. Let me see who Matheson Capital is," et cetera. And we've had people come to us who said, "Look, I heard about you on Invest Clearly."

The thing about that is I know some people kind of take this approach of, "Well, I don't want my investors to be looking up other sponsors." Well, you don't own an investor. That doesn't mean you're going to go around and introduce every sponsor to "here's John, he's invested with me seven times." You're not going to do anything like that. But they're all adults. They're going to look for their own deals. If they want to look for new sponsors, they're going to look for new sponsors because they know what your job description is: real estate, private equity, real estate syndicator. Go on LinkedIn, just Google it.

So we felt like, if our investors are going to look for other sponsors, great, they'll be diversified. They'll work with other people. They'll see why we're the best. So we weren't worried about our investors seeing other sponsors. But we also saw the upside: if we're active on this site, other investors from other sponsors will see what we do. And they'll like that. And it's just a math game, which again, I think is a huge value on what the website is because there are a hundred other sponsors. Well, actually you might know how many sponsors are on your website.

Pat Zingarella (28:01): We're flirting with 1,400 now. A little over 100 that are actually actively engaged. You guys are one of the most engaged sponsors on there, but yeah, right around 100 actively leveraging it.

Will Matheson (28:21): Yeah, there are 100 sponsors that are actively leveraging it, but you've got 1,400 sponsors, so I'm sure there are a bunch of people out there who have invested in - I'm not going to name a sponsor who's fallen on unfortunate times. That just seems mean, even the ones that are publicly known. Their investors are coming out, and they may see us, even if the sponsor is not actively engaged. So if there are 1,400 sponsors in the world and we're doing a good job, there are plenty of groups bigger than us. They'll see us. Personally, I stand more to gain by being active on your site than I stand to lose. And I'm not losing anything because I don't own an investor. They're adults.

Pat Zingarella (29:08): Yeah. What's interesting about that too is that is a fear of some, right? And we exist whether or not the GP participates anyway, but my partner Joe runs another company called Scale IR and they put together a data set across their client base of how many LPs were actually in multiple GP databases. And I think it was some odd 40% of the LPs that enter into a GP's database as an interested person were actually in at least one or two other GP databases. And it happened within the first 30 days. So I think the ignorance that your LPs aren't shopping is kind of a wild concept. People are shopping across the board and it's better to represent yourself in the best light possible for when they see it than to just bury your head in the sand and think they're only looking at me and I don't want any part of this.

But I appreciate everything you said. And look, I've been kind of conservative on other podcasts that I've gone on. But everything you listed is sort of the reason why we did start this. When I was selling credit of investor lead-gen services at one point, I had talked to a sponsor whose coaching program was killing it and their real estate was getting beat up. And it was just a wild thought to me. And at the same time, there were really great sponsors out there that aren't marketing, that are going unheard of, that really didn't have a place to be found. And that was our goal: let's work with these companies who have deep relationships with their LPs that keep returning that may not be spending tens of thousands of dollars a month in ad spend. And let's give them a way to be represented and neutralize the marketing spend of other people who may or may not be good sponsors, but just have deep pockets.

So I appreciate everything you said and I really appreciate the support you've shown us and even something as simple as this. You were the one that told me to start this podcast, so it's something we've been thinking about for a while, but your nudge was like, "All right, yeah, I'll finally do it."

Will Matheson (31:23): Well, don't give me too much credit because as we discussed at the beginning, part of the reason I encouraged you to do the podcast is if a GP is anything like me, they just love to talk into a microphone and then I'll let my investors know and hopefully no one leaves us a bad review. But if they do, I'm sure we would deserve it. But no, that was just one of the other notes just in terms of the reason why you started and all that stuff, which is:

When you verify that the investors are real, you verify that an investor is real. You don't need the GP to approve of the person. It's like, "Hey, do you have a K-1? Do you have a screenshot from inside your portal or something like that?" So it's not Yelp. There is an anonymity aspect to it, which some investors like, some investors don't, but there's an anonymity to it, which I think investors can appreciate, especially if it's a bad review.

But it's verified. Instead of, "Do the results actually matter? Are the investors happy?" If the investors are happy and they're real investors, then they're going to come forward and they're going to talk about it. If they're mad, they're going to talk about it. So I think it's a great service. And I'm glad you're starting this. And I hope a lot of GPs come on. Even the ones that have obviously done well, I hope they come on.

The GPs that have kind of fallen on a bit of a hard time with floating rate debt - I'll give this as a fixed-rate borrower. I don't hold this over people's heads. I have some real sympathy. Look, 2020, 2021, I think some pricing got really stupid, but it wasn't until December of '21 when the Fed actually started saying, "Oh yeah, we're going to start raising rates." It all changed from October to December. Until then, they just kept saying, "We're keeping them low, we're keeping them low, we're keeping them low, inflation's transitory." And people bet that that was accurate. And that has caused a lot of problems for people. So I do have a lot of sympathy, even though we did stay immune to that pressure. We never got into the floating rate bridge loans. We always stayed with the fixed-rate debt. So I'm sympathetic, but I hope a lot of those GPs come on as well, because there was a little bit of groupthink there.

Pat Zingarella (33:49): Yeah, I hope so too. Well, thank you so much for joining me. Thanks for nudging me to do this and look forward to keep working with you.

Will Matheson (33:57): Yeah, thank you, Pat.