How High-Net-Worth Investors Decide Who They Trust With Capital | 961

[Dave Lorenzo] It is my pleasure to introduce you to Glenn Wasserman. Glenn Wasserman is the CFO of Driftwood Capital. And as Chief Financial Officer, Glenn oversees corporate financial strategy and all financial operations, including accounting and financial reporting. He also provides strategic recommendations to the chairman and CEO, the president and COO, and the members of the executive team.

Glenn has worked in the finance industry for his entire career, most recently as Chief Operating Officer at GFI Capital Resources Group, a diversified, full-service real estate company specializing in development, hospitality, construction, finance, real estate, and insurance brokerage. He has also served as Chief Financial Officer of Denihan Hospitality Group, an executive vice president, capital markets, and strategic planning at RXR Realty, among other positions. Glenn is a dear friend of mine, and his youngest son is a fantastic baseball player at Riviera High School.

So if you're in South Florida and you wanna see a really great pitcher, I will let you know when Tanner Wasserman is pitching, you can come see him. He also can tear the cover off the ball hitting-wise. And quite frankly, to me, that is more valuable from the Wasserman family than anything Glenn is gonna teach us about high net worth clients today. So it is my pleasure to welcome Glenn Wasserman here.

Glenn, thank you so much for doing this. It's a privilege to have you. [Glenn Wasserman] Well, thank you so much, Dave. I appreciate the introduction, and I will tell you the feelings are very mutual in terms of my respect and admiration for you.

And I really appreciate the opportunity to participate in today's discussion. So thank you very much. [Dave Lorenzo] It's our pleasure. Okay, so Glenn, we're gonna start off with our first question, and John and I are gonna ask you a question each about the integrity level of the hierarchy that we've outlined here.

So when high net worth clients talk with you about reporting and disclosures, what kind of questions tell you that they care deeply about transparency and about alignment with you and your team, and not just about returns? How do you know that integrity is really important? How do they demonstrate that to you? [Glenn Wasserman] Yeah, that's a really great question, Dave.

What stands out to me is when the investors don't talk necessarily about the performance rankings, but they talk about how the numbers are constructed. So what's captured in the headlight returns, or what are the assumptions that are driving these returns that are buried in the model? And they really want to understand not only how we're going to deliver the returns, but they also focus on the fee structures at every level, and not just the management fee, but it gets into the carried interest and the transaction costs and the underlying expenses.

And really what impacts me most is when I hear potential investors say, what would make this look worse today than it does from your base underwriting, right? Where might your interest diverge from mine? How do you get paid if this underperforms? And then it's really talking about the structural alignment and the long-term transparency, not just trusting the base underwriting or the base upside story.

And I oftentimes put myself into the seat of the investor. And when I'm interviewing with someone or talking with someone, I ask questions and I provide information as to what I would ask, what am I focused on? And so I really put myself in their seat and I try and answer questions before they're even asked. So it's really talking about transparency, it's talking about alignment.

I am known as a conservative investor. I have an MBA, I've taken all the valuation classes at NYU, but at the end of the day, I have three kids, I have a wife I support. And so I'm a very conservative investor. And so when I talk to potential investors, oftentimes they will ask, or maybe they already know that I'm invested alongside of them.

And so they will say, Glenn, are you invested in this deal? And I tell them, yes, I am, or no, I'm not. And I tell them why. So I really try and put myself into the seat of the investor and I really try and deliver information more proactively.

I don't wait for them to ask the question. I tell them what I would be interested in if I was sitting in their shoes and someone was pitching an investment opportunity to me. [Dave Lorenzo] That's great, thank you, Glenn. John, you're up.

[John Alfonsi] Yeah, thanks. It's great information, Glenn. A lot of portfolio managers may not be as forthright as you are with investors. So when there's periods of underperformance or higher risk, how do those high net worth clients express their expectations around honesty and accountability?

[Glenn Wasserman] Yeah, we've been involved in some interesting investment cycles. I actually joined Driftwood back in 2020 in the height of COVID. So we were operating in a pandemic and there were a lot of high net worth investors who wanted to know what was going on and they were very, very direct with me. So they don't expect perfection.

They are not expecting that everything is going great, but they want clear communication. They want it unfiltered and they want it early. They wanna be proactive, not reactive. And the questions that they ask is usually like, tell me what's happening before I see it in the numbers or before I get your quarterly report.

But it's not just tell me what's happening, tell me what you're doing about it, right? It's not sugarcoating it, what's changed or whatever. It's really the focus of what are you doing about it? Oftentimes, I revamped our investment memorandum in my company and everyone would always highlight all of the good things.

And I said, okay, guys, this is great, but tell me the risks to the investments. And then more importantly than the risk, tell me the mitigants, tell me how you're addressing the risks here. So it's really the same thing in these periods where we have underperformance or we have higher risk. And not every one of my investments are home runs.

If I look at my track record, as much as my owner wants to say, Glenn, don't include that asset, there was something going on there. We are a registered investment advisor. We can't pick and choose what goes into our track record. We have to show the good, the bad, and we have to show the ugly.

So to me, accountability matters more than that reassurance. It's communicating to your investors what decisions are being made, what lessons are we learning or did we learn, how are we capturing it? So it's really giving them very straight and direct communication. I mean, I can always sound optimistic.

I don't have to sound like the world is ending, but I also, I can't sugarcoat it when our performance is not good, when we're in a cash management or cash trap, or we have a maturing debt coming up and my trailing 12 month performance is not going to allow me to refinance at the same level. And guess what? I'm not gonna be able to generate that distribution that everyone was counting on, or I have to wait to sell an asset before I can generate that. So to me, it's really the accountability more than just reassuring them that everything is going great.

[Dave Lorenzo] All right, so Glenn, let's talk a little bit about competence now. So your role is such that when, by the time you get to the investors, they've already met two or three other people at Driftwood, right? So by the time they get to you, there's an implied level of expertise. You guys have 4 billion in assets.

You don't get to be the CFO of a company with 4 billion in assets without overcoming some hurdles. Explain to the folks who are with us today how you demonstrate competence in a way that somebody who has achieved their wealth, who has accumulated wealth without a vast knowledge of alpha and financial, without necessarily sophisticated financial acumen, right? You're dealing with people who may have a significant amount of money to invest in your funds, but they have expertise in a very narrow area.

They may have a coffee company in Chile or something, or Columbia. They may be manufacturers here in the US. So how do you demonstrate your competence as a CFO in a way that the average person can understand and feel good about? [Glenn Wasserman] At its core, we are hospitality real estate investors.

We know hotels. We are very good at that. We're vertically integrated. So we not only acquire existing hotels and develop new hotels, but we lend to other owners of hotels and we have our own property management company.

So we are truly vertically integrated. We know hotels. I'm not a foreign currency guru. I'm not an interest rate prognosticator.

So when someone is going to entrust me with an investment, they should know that I am focused on investing their money into real estate, into hospitality real estate, and I'm gonna do everything I can to minimize the impacts of everything else. So what does that mean? I will explain to them certainly the benefits of an investment, why you want to invest in this particular asset or this particular loan or this particular development. And then I will also walk them through all of the steps I'm doing to minimize whatever potential disruption could impact that underlying investment.

So I'll talk about how I enter into interest rate caps or I'll swap floating rate for fixed rate debt, or I will enter into foreign currency exchanges so that I know exactly how much I have to convert so that when I deliver a distribution to them or an interest payment or the like, I know exactly what my risk is. I'm not subject to wild volatility in the market. So I always, again, I go back to, I put myself into the seat of my investor. I try and determine what their level of competence or knowledge about hospitality real estate is.

I get a lot of investors who are very knowledgeable about it. In our room, when I was first introduced to Lauren, she said, oh, by the way, my dad used to work for one of your competitors, a private equity hospitality investor. So she and he, if I was sitting down with the two of them, they know the hospitality industry. I don't necessarily have to focus on the underlying drivers of growth there, whether it's occupancy and ADR and operations and the like.

I can really focus my discussion to their knowledge. But if I'm sitting, or their experience, if I'm sitting with a group, like you mentioned earlier, Dave, if they are a coffee producer in Columbia, I can talk about why real estate is a good hedge to many of the other investments that they're doing. I can highlight the fact that we reset rates on a nightly basis. And so, yes, interest rates may go up and go down, and we can move our average daily rate that we're asking in relation to what's going on in the economy today.

So I can position an investment with my company into a broader investment strategy that they may have and highlight the benefits of investing in hospitality real estate. So I really try and tailor my message to those clients based off of their experience and their knowledge of my real estate kind of niche in the industry. [Dave Lorenzo] Great, thank you, Glenn. John, you got the next question.

Before John goes, if you have questions for Glenn at any point along the way, raise your digital hand. We don't need to wait till the end. If you have a question on anything related to the topic that we're covering at the time, raise your digital hand, and we'll go to you at the point where Glenn finishes his current answer. John, you're up, please.

[John Alfonsi] Yeah, thanks, Glenn, because that dovetails nicely into the question that I had when you mentioned about the knowledgeable investor. How do knowledgeable high net worth clients challenge assumptions in your reports and disclosures as compared to a mainstream investor? [Glenn Wasserman] That's an interesting question, and I've actually had instances in the past where certain high net worth clients asked for supplemental reports. They wanted more than just what we were putting into our quarterly reports.

So what we put in there, obviously, is our most recent quarter performance. We'll put in our trailing 12 months. We'll put in all of the relevant metrics, the ADR, the occupancy, the REFR, and the like. But the knowledgeable kind of high net worth clients really challenge kind of the inputs, not just the outputs, right?

So they're asking why returns moved, or they'll ask whether or not the underlying assumptions for this investment are still valid. So are the operating performance growth assumptions realistic? We're coming up in 2026, and I'm going to send out a report that's gonna talk about a budget for every one of our assets. Inside of that budget, there's going to be certain assets that are going to see significant growth.

And it's gonna say, well, why is that? Well, maybe I'm coming off of a renovation or a repositioning, or maybe there are certain assets that I have that are in markets where the soccer tournament is going to be playing. And so we're going to have the World Cup coming to Houston and Atlanta and Dallas and Miami. And so I have assets in those markets that I need to highlight and communicate to the investors.

It's not just increased demand, but it's talking to them about how, yes, I'm expecting better performance this year, but I actually turned off the reservation system until the World Cup committee selected what cities every team was gonna play in. And so I had conversations with my high network clients that said, hey, we're waiting to turn the reservation system on until I know that, oh, Chile is playing in Miami. And I know there's a huge contingent for Chile that's gonna travel with that team.

So we're gonna hold off and not sell too many packages to these international travel companies because we wanna raise rates and be opportunistic in those markets. So it's really talking about the underlying assumptions. It's also coming up with a lot of sensitivity analyses. So how sensitive are these outcomes to one or two or three of the key variables?

Usually it is your hold period. Usually it's your terminal cap rate, right? That drives a lot of our investments from an acquisition or from even a lending, not a lending stand, but more the acquisitions. On the development side, it's what happens if your cost of development goes up by 10, 15, 20%.

What's the impact of tariffs on all of your developments? And frankly, we spent a lot of time ensuring that we had contingency in our developments to overcome whatever tariffs may get hit. We shifted very quickly. We even made decisions that may have been in retrospect too early to make, but given what was going on with the administration and how quickly they were setting and changing these tariffs, we shifted where we were sourcing many of our development inputs, whether it's glass or whether it's windows and the like.

And we started to make decisions so that we can be proactive and not reactive. So really when we speak to these high net worth clients, it's not just tell me the performance, but it's the inputs and what changes over time. Interest rates are coming down. Does that mean you're changing your exit cap rates?

Your operating expenses in California are going up so much because they're instituting minimum wage growth that is so far above what anyone was underwriting. That's going to impact our investments in that state. So we have to communicate those types of changes to these high net worth clients so that they're in the know more than maybe what a quote unquote mainstream investor may ask. [Dave Lorenzo] John, I'd like you to go to the next category, which is courage and ask Glenn a question about courage.

[John Alfonsi] Yeah, sure, Grant. Obviously courage, we all need it, not just the cowardly lion. What have you heard from clients that reflects their readiness to make difficult capital decisions within their own families or their advisory teams? What is it?

What kind of triggers that? [Glenn Wasserman] It's interesting. We don't oftentimes deal with families or high net worth family offices that aren't aligned with their investment strategy. But there are times where we do work with clients that say not everyone's comfortable with this allocation, but maybe the leader of that family office firmly believes that we need to diversify.

We need to invest in hospitality even though we've had a challenging year or two there. So a lot of times it's working with these families or these family offices where I need to provide them the information and the, I don't wanna say the courage, but the wherewithal so that they can have the courage to talk with their other family members to say this is why we should do this. This is why we should make this difficult capital decision. I have heard in my experience where a child would come in and she or he would say, my father built this portfolio, but it doesn't match the current need and we need to change it.

And I'm prepared to move in a direction that was different than what my family has historically invested in or my father or my mother has historically invested in. So working with those leaders is great. It's oftentimes uncomfortable at times for them because they have to then go out and justify an investment decision to their brothers, their sisters and the like. And there are certain instances where I've worked with a very, very affluent family.

This family invests a lot in our debt offerings. There was an instance where, and this isn't sharing too much information because I'm gonna not disclose who it is, but we had a loan that had matured, but it wasn't paid off yet. So they were in a time where technically they were in default. So technically the loan was in default and the lead of that family office got very, very nervous.

And he came to us and said, listen, I understand that you think the loan is still good, but I'm concerned. I don't know when they're gonna pay off. I don't see the path towards payoff. And we were communicating with him the entire time.

We were giving him like, it just so happens that the state is gonna wind up buying this hotel and they're issuing bonds in order to do so, but it's taking them longer and longer and longer to do this. And frankly, the investor got scared. And I later learned that other members of the family did not want him to sell, but he made the decision to sell their position to us. We took them out, not at cost.

We took them out at cost plus. We gave them a return, but the return we gave them ultimately was lower than what the natural return was going to be had he not divested early. This decision maker, the lead of this family really made a courageous decision. I don't agree with the decision.

I actually personally was in the investment. He asked me what I was doing. I said, I'm staying the course. I firmly believe we're going to be fully repaid.

And even if we're not fully repaid, we're going to wind up owning this asset. He, for his family and for his investors, thought it was best to get out. And so we helped facilitate that, but I give him the courage for making that decision, although I didn't agree with him, but I certainly acknowledge that he made that decision. [Dave Lorenzo] Glenn, we're going to wrap up here with the three foundational elements.

I want to just touch on one more thing and then I'll open the floor to anyone who has questions, raise your digital hand with any questions that you have. Let's flip the script on courage and talk about times when you or a member of your team or a member of the Driftwood team has had to have difficult conversations with investors. And take us behind the scenes. So you and the executive team are having a conversation about something that you're going to have to disclose to investors that you don't want to.

Talk about what goes into making those decisions and having the courage to share bad news and what your strategy is for sharing the bad news. [Glenn Wasserman] Yeah, it's tough. It really is tough because we're very cognizant of communicating, being as transparent as possible. And so for instance, when we were during COVID, there were certain states that shut down.

And so we didn't have any guests. We needed capital in order to service our debt because our lenders didn't give us any holidays. We had to service our real estate taxes because unfortunately the states, even though they shut down weren't giving us any breaks. And so we were communicating to our investors that, hey, we need capital.

But again, I always put myself into the seat of the investor. I knew that we had many of our investors were not flush with cash because they may have been in the same position. Maybe their jobs were impacted. Maybe they're in the service industry.

Again, I go to the dentist in Idaho. The dentist wasn't seeing anyone because they weren't allowed to. So we could have done an equity capital call and that individual or that family office may not have been able to fund it. And so instead of doing that, we came up with a structure.

We were creative. We came up with a structure that said we're gonna raise preferred equity. You have an opportunity to invest your pro-rata share but don't worry. If you don't invest, you're not gonna be crammed down.

You're not gonna be diluted. We recognize the fact that this is a very challenging time but we need capital. And so we were transparent about that. We came out with that message.

We debated this internally. We had a number of individuals and executives who were like, listen, if you can't fund your capital call, you can't fund your capital call. Everyone knows these are all accredited investors. They know what they're getting into.

We don't have to baby them. But in reality, I mean, I'm sorry, I'm an individual. I'm an investor. I am empathetic to people's situations.

We've also had situations and I'm pivoting a little bit where we had individuals who got hit with a death in the family or a natural disaster. We had people get hit with wildfires in California and they came to us. Unfortunately, our investors, our investments are not liquid but they came to us and they said, listen, we're in a tough situation. We would appreciate if there's something you could do.

And we take it back and we listened to this. And we have made decisions to take certain investors out frankly at the detriment to Driftwood Capital and ourselves and many of us are funding these investments. But frankly, it was the right thing to do. So I always want to invest with people like, who think like that, who have that type of heart.

And so we've had the courage to go out there and we've made decisions that we think is best. Not all of them work out. We've had, we're in a situation right now where we have a couple of properties in a market that does not look like they're coming back. And even though we did this preferred equity raise during COVID, I don't think that money's even going to be recoverable.

We may have to turn over these properties to the lenders because there's just no light at the end of the tunnel, unfortunately. We've been communicating that in our quarterly reports for the last three quarters. It's getting out in front of it. It's communicating with them, but it's also telling them we're in the same boat with you.

We are going to unfortunately recognize a loss here as well. It doesn't make you feel any better, but we're in the boat with you. So it's not like we're off making decisions and moving on and forgetting about you. We're in the same boat.

We're going to get hurt. It's having that empathy. It's having that courage to have that difficult conversation with the investors. [Dave Lorenzo] Okay, Glenn, how can people get ahold of you?

And I know you're always open to people introducing investors to you. You're always open to answering people's questions. What's the best way for people to get ahold of you if they want to reach out to you? [Glenn Wasserman] Absolutely.

So I'm going to drop my email in the chat. Feel free to certainly email me. That's probably the best way. And then I can usually get back to you in one to two business days.

I try to get back to everyone that reaches out to me, but I do have, there may be certain times obviously when I'm traveling, but I certainly welcome the opportunity to continue to expand the network and the conversations. And again, I want to thank Dave and John for this opportunity to talk through my experiences with what I think is a really unique behavior model. So I give Dave a lot of credit and I'm certainly interested in reading about how many of the survey participants are giving their experiences with these behaviors and this hierarchy and how it drives successful people and high net worth individuals.

So my email is in the chat. And for those who can't see it, it's my first initial G, Glenn, gwasserman at driftwoodcapital.com. [Dave Lorenzo] Glenn, thank you so much.

I always learn so much when I speak with you. Thank you for sharing your knowledge with the group today. [Glenn Wasserman] My pleasure. Thank you for having me.

[Dave Lorenzo] Thank you. All right, so if you have not taken the survey, I would love it if you did take the survey. Jerf will put a link to the survey down in the chat now. I created a vanity URL.

And the reason I did that was so that you can share the survey with your friends. It's hnwsurvey.com, okay? So you can type in the https:// if you want, or I think if you just put hnwsurvey.

com in the browser bar, it will take you there. If you haven't taken the survey, it doesn't matter who you are, what you do if you're in this room. I would love it if you would take the survey. Also, I am really asking you to do me a favor and share it with five of your friends.

After this meeting is over, I will give you an email with some language, if you want, to share this survey. My goal is to have 1,000 professionals take the survey because that is the point of statistical significance where the margin of error, if you're a research wonk, is basically almost nothing. So I can honestly say that these behaviors are definitive. And just so you know, when I put that hierarchy up there, I came up with the behaviors from the 200-plus interviews that I did, but where the behaviors stand on the hierarchy came from the quantitative analysis.

So the folks who are working with people who have $100 million or more to invest demonstrate integrity first and foremost, and that's borne out through the quantitative analysis. So the more people who complete the survey, the more it validates the data. And my goal is when I share this with you, I wanna be able to say that you're basing your behavior on how to attract high net worth clients based on the most comprehensive study ever done. So that's why we're looking for as many survey completions as we can.

The link is there in the chat. Share it with all your friends who are in the professional services realm. It doesn't matter who they work with. Their take on this is equally as important as everyone else's.

I sincerely appreciate it. With that, I will.