Fernando De Leon is the Founder/CEO of Leon Capital Group, a commercial real estate investment and development firm managing over $3 billion in assets. Mr. De Leon also manages LCG Ventures, a private equity investment vehicle focused on real estate-related businesses, and healthcare assets.
Mr. De Leon began his investment career as an analyst at Goldman, Sachs & Co in New York. He earned his Bachelor’s of Arts, cum laude, from Harvard University, where he was a Hoover Foundation Scholar and National Coca-Cola Scholar. He serves on the board of several portfolio companies and sits on the Harvard Interviewing Committee and the Dallas Assembly.
We sat with Fernando to learn the story of how he helped create Crexi, his thoughts on the rise of CREtech, and what opportunities exist post-COVID to build investments into more resilient and valuable assets.
Crexi: Can you share with us your role in the origin of Crexi?
Fernando De Leon: I knew Mike (DeGiorgio) from his days at Auction.com, and he came to me in 2014 with this idea for an online CRE marketplace for brokers, buyers, and sellers. He believed that technology would have wider adoption within commercial real estate, and he wanted to make that vision a reality. After explaining the concept to me over drinks, I immediately saw its potential and asked him to write down whatever financial support he needed on a napkin. I knew I wanted to help him hone his idea and build it into a self-sufficient business.
Building a company from scratch is immensely difficult — statistically, it’s one of the hardest things to do. When you zoom in on the two industries Crexi was entering, the odds stacked up even higher. Commercial real estate’s been operating the same way for centuries, and the technology start-up scene is hyper-competitive today.
I was helped early on in my career, and thanks to that help, I built up a significant investment portfolio. I believe in backing ideas that create prosperity for stakeholders, so it makes sense to offer support when you meet someone with the same talent and scrappiness and belief that Mike and his team have. I knew they could build something that would change the industry as we know it — they just needed someone to believe in them and give them the fortitude to create something that’s never before existed.
Crexi: How did your CRE experience play into your support of Crexi and CREtech in general?
FDL: I entered Crexi as an advisor on the commercial real estate side of the market rather than the tech side. Besides helping the founders refine their business model, my job was to add credibility and champion the platform to brokers and other professionals in our network.
I’m continually trading property, so I asked all the brokers we deal with to use Crexi as part of their obligation. Our team introduced Crexi to many investment sales brokers, explaining how they’d benefit from the technology and how it would enhance, not replace, their business. These people from CBRE, Marcus & Millichap, and so on eventually became early adopters and even fellow investors. We were able to take insight from those brokers back to Crexi’s team and help them shape the products that we offered and the platform accordingly.
Crexi: What trends do you foresee developing in the commercial real estate market, given current events? How do companies like Crexi play into those trends?
FDL: As a result of COVID-19, every digital marketplace has seen an accelerated adoption in the last six months that would’ve taken five to ten years to happen naturally. Commercial real estate is no different from other sectors in this way. Crexi provides buyers and sellers with a data-powered, transparent, and accessible marketplace — principals who are currently blocked from face-to-face interactions are turning to Crexi as an alternative method of connecting with brokers.
On the other hand, brokers who can’t meet with clients now have a lower cost, easier alternative to making their properties more visible than they could locally. Crexi’s marketplace puts 250,000 eyeballs on a property… this exposure didn’t exist 20 years ago. COVID-19’s pressure on transaction activity is making CREtech’s value all the more apparent.
Crexi has been able to carve out its position as an intermediary between brokers, buyers, sellers, landlords, and tenants to keep doing transactions. The company is well-positioned to take advantage of the widespread digital adoption we’re seeing. I believe the post-COVID world is ripe for Crexi, despite competition and institutional preference for the old way of doing things. It’s only a matter of time.
Technology has a similar impact as water does on our natural order. It doesn’t let you stand still, it’s a force that simply overpowers any inefficiency that’s in its way.
Fifty years ago, Sam Walton leveraged inventory management systems to displace small stores and consolidate economies of scale. But if you told him that you could click a button, and store inventory would be managed through the cloud, and a customer could get their product delivered at home within hours, he probably wouldn’t have believed you. Fifty years from now, it’s possible that Amazon will be displaced by more efficient delivery systems — maybe a 3D printer that makes the product you want on your desktop, in real time.
No serious investor believes that commercial real estate won’t see similarly disruptive forces.
Crexi: Your company prides itself on playing an active role in its investments: how have you assisted those organizations in navigating amid the coronavirus?
FDL: My involvement in Crexi hasn’t changed much: I join in on semi monthly touchpoints with Mike and advise on new ideas and strategic moves. Regarding my other investments, we own some businesses that we operate in-house, and others we hand off to management teams.
Some of our investments have had a tougher time than others during COVID-19. For example, we run a chain of dental clinics that had to pause business for two months early in the pandemic that is now seeing a recovery as communities open.
Our portfolio’s multifamily units have performed exceedingly well as shelter became the most essential human need, but we’ve certainly seen diminished value to commercial assets that lease to sit-down restaurants or movie theaters. We’ve been working with our teams directly by supporting leadership through ideas, capital, and guidance to try and help them navigate current events.
Crexi: What strategies have driven your investment decisions to date, and how have you adapted your approach to recent market changes?
FDL: As an investor, we need to continuously clarify what we believe in and what assets are the most resilient — it begs some hard questions. With COVID-19, we had to reevaluate the overload of operating expenses, identify where we were complacent before, and determine how we could be more mindful in hiring and other costs that might disadvantage us. I’ve had similar conversations with other business owners: now’s the time to hunker down, stay defensive, and minimize exposure. This is typical of economic cycles, too, so it’s a good strategy shift to familiarize.
For example, I hadn’t invested in retail for a while, choosing to swap those properties for warehouses in line with the e-commerce boom. Those assets proved a lot more resilient from a defensive strategy both pre-COVID and now than brick-and-mortar retailers. Despite short-term closures, our dental business was also a defensive decision: you can’t replace in-office dental work with technology, at least for now. Sure enough, patients returned once those offices reopened.
Government support has defended many markets during this period: the liquidity from business loans and unemployment benefits has helped backstop systems that needed support. But government involvement is a band-aid solution for a more significant, structural shift our country’s economy must navigate.
People who worked at Sears will shift to Amazon warehouses as the workforce reallocates to businesses that successfully navigate how they emerge from COVID. Industry by industry, we’ll see more damage to some than others (tech and healthcare’s stability compared to retail and hospitality, for example). But in the grand scheme of things, our $20 trillion economy can handle a 5-6% dip in GDP — I believe we’ll start seeing stability by 2021.
Crexi: What advice would you give your fellow developers and investors during these times?
FDL: This is a moment for clarity and an economic reset. The market was a runaway horse moving 100 miles per hour, and now that that vibrant economy has come to a grinding halt, it’s time to look around. Ask yourself: where were you complacent, where were you overspending? Where were you leaving your business vulnerable? How can you optimize all elements of our business?
This moment will allow people time to modify their businesses and make them reliable and resilient for the long haul. Most people I respect have been looking at expenses, people’s performance, and deliverables, surveying every part of the business to find that clarity.
In terms of investing, this period allows people to see clearly, too. There are businesses we own that have diminished in value, yet other companies (like Crexi) have proven more valuable because they were resilient to a pandemic. If a business can withstand the extraordinary social and economic pressure of the COVID-19 crisis, it’s probably more valuable now than you thought it was!