Harvard graduates Jonathan Rendollar, 31, and Matt Carley, 28, are looking to revolutionize the real estate industry. They raised $32 million to fund Cloudland Capital, a Denver-based private equity firm focused on investing in smaller deals in the $300,000 to $20 million range, an area largely ignored by the big private equity firms.
Business partners believe there are stronger returns in smaller real estate deals, such as single-family homes, vacation rentals, affordable housing, and grouping of retail properties and boutique hotels, than in the traditional properties many funds are seeking. It aims to overcome the shortcomings in managing, dealing with and scaling up these deals that have deterred major investors.
Reindollar previously worked at Rockwood Capital and Highgate Capital and Karle previously worked at Moelis & Company and KSL. Both noted that many private equity firms were chasing exactly the same real estate deals and weren’t getting the returns they could.
Former classmates started talking about starting a business and decided to focus on deals that were too small for institutional investors like Blackstone to pay attention to. There was only one problem with these deals. “They are really inefficient in management and transactions,” says Reindollar.
They began looking for ways to solve this inefficiency. While they were doing their homework, it became clear that the problem was interfering with the solution. “There are a lot of entrepreneurs who want to start their real estate business and scale these small real estate platforms,” says Reindollar. “All we have to do is match the capital to those needs, from $300,000 in deal size to $20 million. As long as it’s scalable and we can create a bigger platform, it could be very interesting for larger institutional investors in the future.”
The duo soon noticed that while there was plenty of room for investment activity in the space, there was another hitch: it wasn’t easy to find the right partners. “Our biggest challenge is not sourcing deals or finding the right strategy,” Karle says. “Our strategy is based on finding the right people. We are looking for people who are ethical, intelligent, and have the strength and entrepreneurial spirit.”
To find the right partners, they spoke to over 75 owners. So far, they’ve committed to two deals with three entrepreneurs. In one deal, they aggregate vacation rentals. “We’re trying to use the first box to prove the concept,” says Reindollar. “Once we can prove that, we want to continue to increase the size of this fund.”
They are trying to build a moat around the company by working closely with the entrepreneurs they support. “It’s human work,” says Reindollar. “It is not about throwing more money behind something. It is developing communications.”
The fund plans to hold positions for longer than average. “Our desire to hold on to these assets for a longer period of time allows people to build this scalable business,” Karle says.
As larger investors rush into the e-commerce space to assemble small online stores, it may not be long before they face the competition. But this does not deter them for the time being. “Little is beautiful” is exactly what we’re excited about, says Karle.