Stockdale Capital’s Dan Michaels On Doing Everything, Everywhere, All at Once

Stockdale Capital Partners is playing offense at a time when many of its peers are playing defense, Managing Partner Dan Michaels told Commercial Observer.

The Los Angeles-based investment firm, co-founded by Michaels and brothers Steven and Shawn Yari, focuses on opportunistic investments primarily across the Western U.S. Yet, Stockdale, which has nearly $3 billion in assets under management, is uniquely ambitious compared to other firms of its size. Not only does it cast a wide net with its investments — from malls, to medical offices, to hotels, to multifamily properties — it handles virtually every aspect of that process in-house, from fund management, to development management, asset management and property management. 

The approach is clearly appealing, as Stockdale this year closed its second real estate opportunities fund, currently at $750 million when co-investments are included. 

Michaels, Stockdale’s globe-trotting managing partner, recently sat down with CO to talk about this vertically integrated investment strategy, aggressive growth when some competitors are bailing water, and why he thinks institutional capital believes in his firm’s capabilities.

This interview has been edited for length and clarity. 

Commercial Observer: Stockdale has pursued an aggressive acquisitions strategy over the past year or more, of all asset types, and a number of those deals were in cash. Tell me about that strategy. Why was now a good time for you to buy?

Dan Michaels: We’ve always come at our investing through a special situation, focused on distressed properties. There have been times when there’s been more or less distress through the cycle. And, obviously, over the past five years, there’s been a significant roller coaster of illiquidity and dislocation, which, honestly, I think, has caused a pretty significant washout for anybody that tried to hold on, post-COVID, through inflationary pressures, interest rate pressures, etc. 

So you’ve had this wall of maturities up against this massive lack of liquidity, and that’s all leading to extreme opportunity for investors like us, focused on special situation deals across various asset classes. So we get to spread the net pretty wide. 

What’s interesting, I think, for us, is because we can look at it from the equity and the credit side, and we look at it from all asset classes, we can look at buying an asset, we can look at providing preferred equity for an asset, mezzanine for an asset. We have the ability to put all the tools on the tool belt to go out and find the best relative value deals — be it multifamily in Dallas, or medical office in the Bay Area, or retail in Southern California. 

And there aren’t many owner-operator platforms that control their own capital that can close all-cash. And we’ll look at distress deals. So, when you tell people you have capital and you can close all-cash quickly, you tend to get a lot of people coming to you for solutions. 

Last time we spoke, you told us about Stockdale becoming this powerhouse, vertically integrated, one-stop shop, which is different (or at least ambitious) compared to other firms of your size. Why try to have a hand in everything rather than specialize in a particular asset class or aspect of business?

We started the firm as a distressed turnaround investor. When you do that, you’ve got to keep your eyes open for the best relative value. You don’t come off and say, “I’m the Southwest multifamily guy for this submarket in Atlanta.” Instead, you sit there and say, “I’m going to figure out how to drive value.” 

Now, the way the allocator market works is that, because it’s easy for the allocators, they want to chop everybody off into their own little portfolio, and then they want to say, “OK, I picked all the guys.” We’ve rejected that from day one and said, “We’re going to do that ourselves.”

And so at the end of the day, we’re just replicating what the allocators are doing. We’re just doing it as an operator. It just takes time and money. That’s just the bottom line. And the reality is, a lot of folks that know real estate, they may know one asset class. They may be great at industrial in Atlanta, or multifamily in Dallas. But that’s different than building a private equity firm as a fiduciary, where you’re giving diversification across different investment theses and markets, and that’s what we’re focused on.

At the end of the day, does that just come down to having the right people around you to enact that vision?

100 percent. It’s being able to drive that operational capability and capacity, and doing that as a fiduciary with an institutional acquisition approach, and being able to hire. We have hired aggressively lately. We’re growing through this period. I think we’re one of, certainly at our size, we’re one of the only managers in the entire U.S. that has grown as aggressively through this period, comparative to most folks that are playing a bit more defense. 

So we’re going to continue to invest in the infrastructure and the talent. I think we’re in one of the greatest talent-buying opportunities I’ve ever seen in my career.

This is a talent game with a lot of firms on the sidelines … and organizations that are in transition. You’ve had a lot of firms get acquired or taken over, invested into, and so there’s just a lot of dislocation for one reason or another. We’ve been trying to provide the opposite, which is a stabilized growth environment where we’re going to continue to build up and reward our partners, junior and senior, across the organization as we scale.

Let’s talk about a specific asset class. Retail, particularly in Southern California lately, has strong fundamentals coupled with low supply and relatively affordable prices compared to other property types in the region. Stockdale earlier this year purchased The Oaks mall in Thousand Oaks, for example. Is retail prominently on your radar for future deals, or was it just the right opportunity at the right time?

It is on our radar. We’re very focused on malls and lifestyle retail. Both aren’t highly trafficked. Both are outdated. Both need some value-add, capex elbow grease to them. So it’s the perfect confluence of deep value, with not a lot of players, and the ability to impact change at the property level.

Stockdale earlier this year closed its latest real estate opportunities fund, currently at $750 million with co-investments, which is its largest fund to date by far. So, clearly, institutional capital believes in you. What have conversations with investors been like? What do you think they see in you?

I believe there is a shift where limited partnerships (LPs) are looking to go past the allocators, reduce gross-to-net spreads, and have better control. And you saw that where a lot of fund LPs, pension funds and the like, were building their own platforms: They were allocators, they had their own sharpshooter operators, where they had to get their multifamily guy and their operator guy and their retail guy. And, to be honest with you, as I’ve heard, a lot of those efforts haven’t been as successful as some of these pensions would have liked. 

And so they’re sitting there saying, “OK, I can write my check to the big allocators, who charge multiple layers of fees, or I can pick individual operators and be my own stock-picker.” But there aren’t many owner-operator platforms that are vertically integrated, that fund-manage, asset-manage and property-manage all asset classes, and they go up and down the cap stack, equity and debt. And, so, we’re in the second inning of what we’re going to create, but it feels like the mousetrap we have is a little unique relative to our competitors.

I think a lot of LPs look at us and they’re saying, “Well, wait a minute, you’re not an allocator, but you do all these asset classes? And wait a minute, I had six of you, how are you doing it all at once?” And the reality is, it’s on our shoulders to show that we have done it. We are doing it. We’re continuing to grow. … And, I think at the end of the day, our deals speak for themselves. 

For you, personally, what is the end game of that? Where do you see Stockdale in 15 years?

We’ll continue to grow and to offer more service lines, to offer our products no differently than the big guys at an institutional level … and to provide an operational capability at a lower fee base than most investors are getting via the big allocators. 

I think that there’s an opportunity to capture market share by doing that alone. Because, at the end of the day, when investors are asking, “You’re the fund manager, who’s the guy doing the deal?” And you say, “He’s sitting next to me.” And then they ask, “And who’s the guy managing the deal?” He’s sitting next to me. “And who’s the guy doing property management?” He’s sitting next to me. So they say, “Wait a minute, you’re not doing third-party in anything? You don’t have to contract it out to another operator or another property?” No, it’s all in-house. 

That level of control is unique, and I think it becomes more and more important in the coming years. And I think reducing fees will continue to be an important theme for these investors as they think about how to drive the best net returns.

Nick Trombola can be reached at ntrombola@commercialobserver.com.