Spotlight: FactRight and Brandon Raatikka

Wallace:
Let’s chat a little bit about FactRight. Can give me some background on the company.

Brandon:
Yeah. So FactRight is known as a third party due diligence firm. So we perform due diligence on alternative investment programs and then advise independent broker dealers and registered investment advisor clients so that they can make the best investment decisions to their clients.

Wallace:
Okay.

Brandon:
So our analytical team is made up of attorneys, CPAs, CFAs, MBAs, and other professionals with experience in the industry and we are designed to assess an investment program, I would say from a comprehensive perspective, from the legal to the financial to the asset specific considerations.

Brandon:
Now, we were founded in Minneapolis in 2006 so we’ve been doing this for quite a while. We originally helped clients assess syndicated tenant in common investments for 1031 exchanges and since then we’ve grown and diversified with the industry into other forms of alternative investment programs but 1031 investments remain a large share of what we cover.

Wallace:
Okay. Do you guys get into doing any appraisals and that sort of stuff, or you just … You review the reports that come in?

Brandon:
Yeah, that’s a little bit of outside the scope of what we do, but that is a key part of the due diligence process when we’re looking at investment programs, and I’m sure we’ll get into that a bit later in our discussion.

Wallace:
Okay. So FactRight is one of only very few that do what you do in this industry. You said it’s primarily, or a lot of it’s the 1031 business. All of its alternative investments, right?

Brandon:
Correct.

Wallace:
Okay. So who hires you? Is it the property, the sponsor, generally?

Brandon:
Yeah. So typically the investment sponsor manager engages us on behalf of their selling syndicate, if you will, as a matter of convenience. The due diligence is time to be ready when the offering becomes available to investor clients so often our review process runs parallel to the sponsor finalizing the terms of the investment, but we do also work directly with BD and RIAs through customized consulting relationships where we’re engaged directly by our clients and we sit as a member of that broker dealer or RIA’s investment committee and make program recommendations to that firm based on their client needs, their risk profile, and their areas of interest.

Wallace:
Okay. Are you ever hired by lenders?

Brandon:
We are not, no.

Wallace:
Okay, but would lenders rely on the third party report?

Brandon:
You know, our reports are primarily for the wealth management community, again to aid them in making investment decisions. I’m sure lenders have seen factor reports in the past, but usually they’ve completed their underwriting by the time we sort of get involved in the whole process.

Wallace:
How long does a report generally take to prepare?

Brandon:
Well, it can really vary based on the type of investment. For DST reviews, anywhere from two to four weeks, and I’m sure we’ll get into this a little bit later in terms of what our due due diligence process is, but there’s sort of a lot of back and forth with the sponsor during that process. We also … Not only do we look at investment programs, we do about 150 to 200 of those per year, we also do due diligence on the sponsor from an operational perspective as well. So oftentimes when we’re looking at a program, we’re also looking at the sponsor and so that process can take much longer, as you can imagine. It’s a bit more intensive than looking at a property investment, especially if we’ve seen sort of the structure, the shell, of that investment program through prior reviews of that sponsor, if that makes sense.

Wallace:
So I would imagine getting a, I don’t know, not necessarily a comfort level, but getting that familiarity with a new sponsor is going to take a while. Is this kind of a niche? How did you get into it? What’s your background?

Brandon:
Yeah. So appropriately enough, I think I took kind of an alternative pass to the industry. Was a history major in college, went to law school at the University of Minnesota. I focused my coursework there on business law and estate planning. Also took a securities regulation course, which was fascinating. I always wanted to get into real estate. Ever since I can remember, I’ve just really enjoyed geography and architecture and even in law school, I suspected I’d do something a little different than traditional practice.

Wallace:
Sure.

Brandon:
So after a foray into site acquisition work for telecommunications companies, which prepared me for some of the more technical aspects of the work that I do now, I joined FactRight as an analyst and been here for 15 years. I’m the COO now, and I oversee our 1031 syndication review practice, so I’ve seen literally hundreds of DST programs during my time with FactRight.

Wallace:
Well, you’ve seen an exciting time in the industry. You got in right before the hiccup back in ’08 so seen some ups and downs.