Gary Carmell is president and partner of CWS Capital Partners, an investment management firm with a $4 billion+ apartment portfolio. Along with his two partners, Gary is focused on creating wealth over long periods of time without taking excessive risk. Gary Carmell joined CWS in 1987 and is responsible for all aspects of acquisition financing (debt and equity), high-level communications, and is significantly involved in the company’s strategic direction and capital deployment. He has an MBA from USC and a Bachelor of Arts degree in political science from UCLA, a degree that he believes gives him a unique perspective in his profession.
As a young man, Gary was drawn to California by family vacations, UCLA basketball, and his passion for the Grateful Dead. When his girlfriend gave him the option of moving to California with her or breaking up, Gary followed her to the Golden State and started a career in real estate investment. Gary is the author of The Philosophical Investor: Transforming Wisdom into Wealth, a collection of lessons learned and wisdom drawn from his 30+ years of professional experience and filtered through his unique right-brain perspective. Gary runs a weekly blog at www.garycarmell.com, where he reflects on topics on personal and professional development, current events, and more.
BRYAN WISH: What’s the One Away moment that you want to start us out with today?
GARY CARMELL: As I reflect on it, I grew up in the Midwest, in the Chicago area. I was the youngest of four. The next youngest sibling was about five years older. Sometimes I felt like I had five parents. When they all went away, I had a lot of independent time and times that I enjoyed trying to figure out what I liked and didn’t like. As I was growing up, we would often vacation in California. In high school, I became somewhat of a follower of The Grateful Dead which wasn’t that unusual with my peer group. I became a deadhead. That led me to travel around the Midwest to follow them during their summer tours. There was always this California vibe and connection with them. There was this combination of embarking on my own journey wanting to find my own path and follow the road less traveled. With having grown up and vacationing in California, was also a big fan of UCLA basketball under John Wooden. The universe was conspiring to send me west when no one was going there from my high school and maybe one other person might have been going to UCLA, if one at all, in my graduating class. I was really on my own. That was something I was looking forward to.
BRYAN WISH: It sounds like The Grateful Dead was a big part of your identity or it gave you a sense of home. What was it about their music or the types of communities they built around them? What did the deadhead community embody for you?
GARY CARMELL: It’s very typical when you’d go to a concert you’d see a band – like I was a big Who fan and I loved to see The Who. You’d normally want to see their greatest hits. They’re the greatest hits for a reason. The Who was somewhat known for never changing their setlist over years. If you saw one show and you see another show, it’d be pretty much the same. The Dead, on the other hand, never repeated a show in their history. I really appreciated their independence. That they did what felt right to them and the community followed. If you have a high degree of conviction and belief in what you do and love what you do and you’re delivering value to people, I think you’ll find the audience for that. They happen to be at the right place at the right time and very unique moments in history. I saw them 35 times, which sounds like a lot but in the world of the deadheads, it’s really not much.
The beautiful thing about a long-term relationship are the nuances of that relationship. The things on the surface, like the greatest hits, that gets boring after a while. When you’re at a show and there’s a mistake an that’s okay. That’s very human. Or they do something completely unexpected or they go in a very improvisational way, which is what they were known for, and they take you to a place you hadn’t experienced before and you do that together as a community. Then you have that common experience and you can talk about it. That, to me, is what’s powerful about relationships in life. You develop this very unique relationship with that band and the people in that community. It’s not the greatest hits, transactional thing, kind of wham-bam, thank you, ma’am, move on. That’s what I liked. It was an ever-evolving, ever-growing set of experiences. You never know what you would encounter in that journey and who you’d meet.
BRYAN WISH: That has so much application to life. When you were growing up, did you feel an escape or was The Grateful Dead your first experience of seeing what independence looks like?
GARY CARMELL: When I was growing up, it was somewhat common for kids to go to overnight camp. People think in hindsight that I was abused. I went away to camp ages 10, 11, and 12 for eight weeks. People are like, “Wow. How could you send a kid away for that long of a period of time?” That was a great opportunity and a blessing. I grew up in a time pre-internet, pre-cellphone. We were able to just go outside our house, play sports, hang out with our friends. We weren’t micromanaged. Our parents didn’t know where we were. Not that we were up to no good. It’s just that they said to be home by dinner. Particularly, in the Midwest, when the weather was pretty volatile and winters were tough, you’d really appreciate the summers and the springs. You’d spend a lot of time outdoors and connect with your friends. That environment that I grew up in, having gone off to camp, having had older siblings, watching what they did, how they found their paths, some of the decisions they made, and the ways they improved their lives, that rubbed off on me.
They were probably the first open-source business model out there because they let tapers tape their shows with no questions asked. They set up taper sections. Those tapes would get widely distributed and there was no charge for them. It was so exciting when you found a source that had tapes from the latest shows and you saw the setlist and were eager to hear it. It was before the internet and before digitization. There was something to look forward to. The band just felt they didn’t want to be cops. They didn’t want to police things. It turned out that they grew the market much bigger than they otherwise would because they got the word out. People were really intent on seeing them when they came to town or following them on tour. It became a very powerful economic ecosystem as well as a social one.
BRYAN WISH: That’s a beautiful distribution strategy.
GARY CARMELL: It was purely unintentional but it worked.
BRYAN WISH: It seems like a dream come true.
GARY CARMELL: Never had to buy. Always free as long as you provided the blank tapes. You would get them from the tapers or your connection.
BRYAN WISH: Still very cool. My stepfather, you guys would get along. He loves music of the times. I’ll have to talk to him about this. You found this independence. You grew up in the Midwest and got to this point to figure out where you wanted to be. You had a draw to the west. How did this influence academic decisions post high school life?
GARY CARMELL: A lot of people in my family were attorneys. They convinced me that I didn’t want to be an attorney. The skillset they had was they were very strong writers and communicators. I had an ability to make an argument and defend that position. Some of the advice I got was, “You can always go to business school or something more technical from a graduate standpoint. But why don’t you learn to think critically, have a diverse liberal arts background as an undergrad, learn how to write, communicate, and those skills will serve you well an you can top those off with something more technical.” That resonated with me. My common path was to become a political science major to get that kind of background. That’s what I did. I took a few economics courses and accounting courses.
As time went on, I was in college from ’83 to ’87. The stock market was booming. We think it’s booming now but it was a real boom time then. A lot of the things that were taking place, the precursor of all those things took place in the 80s with venture capital, private equity, leverage buyouts, the stock market boom, quantitative investing, etc. I started getting more interested in the financial markets and how things worked in the economy. I started setting my sights on something in that arena. Towards the end of my junior year, I met a woman who would become my wife. She was a year ahead of me. That was a seminal moment. I end up Midwest, pulled to the west for many reasons we talked about. While I’m there, this shy, awkward, geeky guy, ends up meeting this more sophisticated, lovely person. From there, she went off to Europe that summer. I went back to Chicago. Then when it came time for my senior year, I went back to UCLA and she grew up south of Los Angeles in Orange County. She went back to her home. She started a career in retail. We stayed connected during that senior year. When it came time to graduate, she said, “Where do you want to work?” She knew I was from Chicago. She goes, “So, I’m not going to Chicago. If you want to stay together, you have to move to Orange County.” I thought about it for about five seconds and I said, “Okay, this sounds like a good option. I don’t know anyone in Orange County. I have no connections.” She said, “What do you want to do?” I said, “I’d like to manage stocks and bonds and be in the investment and management business.” She said, “Okay, there’s an area in Newport Beach which is home to many financial firms called Fashion Island. It’s a beautiful mall with a lot of businesses there surrounding it. Why don’t you go walk around to these companies with your resume and see if you can finagle an interview.” I had nothing better to do. Newport Beach is beautiful. It was probably a lovely June day.
The first building I walked into, there’s a list of the building tenants on the wall by the elevator. It said, “Clayton Williams & Sherwood Inc. an investment management firm, suite 400.” I take the elevator to the fourth floor, find their suite. Then I go up to the receptionist and I ask her, “Are you guys hiring?” She goes, “I think so.” I wrote on my resume, “Interested in a financial analyst position.” I leave the resume. I go to about 3 or 4 other firms in different buildings. I didn’t get the same welcome response from the other receptionists. They were like, “What are you doing? No one does this. This is kind of weird, kind of creepy, crazy.” I was a little defeated after that. I felt a little embarrassed. I went home and she asked how it went. I said, “You kind of threw me to the lions. It was kind of humiliating.” She goes, “Well, you never know what’s going to come up from that. What’s the downside?” I go, “Yeah, you’re right but nothing is going to happen.”
A week goes by and I get a call from the first firm I went to. It’s from the HR person. She said they want to interview me. I said, “What do you guys do again?” She said, “Real estate.” I said, “Well, I’ve always wanted to be in real estate.” This was 1987. I go through the interview process and I get the job. I start working. I remember it was on July 20, 1987. My first boss had an engineering background. He gives me a book on how to learn Lotus 123 which was the precursor to Excel. He goes, “Figure it out.” He knew I was a political science major. He goes, “By the way, what were you going to do? Open up a political science store?” I said, “No.” I was already getting harassed on my first day or two there but fast forward to today. I’m still with the firm 34 years later. I’m one of the partners there. I spent my entire career in real estate.
BRYAN WISH: Committed, loyal, clearly one to figure it out. Meeting your wife at UCLA seemed to be a moment that helped give life a lot of clarity as well. What did you see in her to say this might be someone to stay in California for?
GARY CARMELL: She had a lot of qualities that I didn’t have at the time or didn’t feel I had. She was very ambitious in a healthy way. She was courageous in that she didn’t let fear get in the way of her pursuing what she thought was right or what she wanted to do. She had a very joyful spirit; just a fun person to be around. We shared many of the same values and cultural background. She came from a really nice family, a very fun family. I was young and she was probably my first real meaningful relationship. I was hitching my tail at her wagon. Intuitively, it was the right thing to do. It was probably faster than I was expecting or thinking at my age but I just knew that she would probably hold me accountable in life and make me a better version of myself and that 1+1 could be 3. She was very type-A at times. I was more laid back. Between us, we ended up making good decisions and raising kids together and having a very eventful, adventurous life that was a lot of fun.
BRYAN WISH: So neat to hear you speak in such a beautiful way.
GARY CARMELL: They say a good friend stabs you in the front. She was ruthless about doing that if she saw something that she didn’t like.
BRYAN WISH: When I reached out, I noticed this reflective and intuitive sense with you. It’s pretty clear you have a knack for following intuition and having a knack for knowing. How do you channel that or tune into that to steer you?
GARY CARMELL: I think it was Kierkegaar who said that life is lived forward, but it’s understood backwards, but we make decisions in real-time. I thought a lot about thinking. I’ve tried to reflect on models. People often look to very successful people and try to emulate them which is very understandable. Not everyone knows what they want in life. I think a lot of people know what they don’t want in life. If you can be clear about that and try to avoid that, I think that’s very helpful. That’s a good filter. I see people who are sort of slaves to their emotions or need to numb themselves may be more than they should or they’re not very considerate or respectful or kind to others. I’ll say things that aren’t modeled very well and they don’t get the outcomes that they want in life. It doesn’t serve them. In going back and answering your question – everything is easy in hindsight. What are you going to do in the moment?
This is kind of controversial. I’m going off on a tangent. Sometimes the value of therapy for some people – my sense and experience is that you bring a different self to that interaction. When you go out to the real world and you’re triggered by something, either fear, greed, your insecurities, you’re no longer in that protective cocoon environment. I’m always going to ask, “What are you going to do? What did you do? Why did you do it?” That’s really in the moment. It’s easy to intellectualize and to talk about it. It’s hard to actually do something that maybe goes against your grain.” I’m trying to be cognizant of my own fallibilities, my insecurities, my lapses in judgment, and surround myself with people that can hopefully help create some clarity for me in terms of blind spots that I may have. I’d say that part of what’s worked for me is having a bit of a narrow focus in terms of how my intuition has been channeled and played out. I think carefully about my work. I started at a time where the company was 18 years old. Now it’s 52 years old and had a great deal of success. After I started, things started going backward for many different reasons. I was really intrigued. I couldn’t blame myself because I was so new but what was it that people at the firm missed? I’m not saying it critically because many people missed it. What did the industry miss? I really tried to understand cause and effect. What can lead to something? There’s errors of optimism, errors of pessimism. You think the good times are always going to continue. You think the bad times are always going to continue.
I tried to become a student with a curious mind about how this business works, how to avoid the pitfalls, and where one can take advantage of opportunities. It’s always evolving and always changing. In my particular niche in real estate, I’d gravitate to things that would help me become a better decision-maker and influencer. Not the modern-day influencer but an influencer in the firm in terms of the direction that we go, avoiding uncompensated risk and taking advantage of highly compensated opportunities. My wife and I were able to channel that in a personal way to personal real estate decisions that we’d make. Leaping on opportunities to buy this piece of real estate and build up a little bit of a portfolio there. They’re correlated, of course. What I learned in my business was easily applicable to the personal portfolio. My wife was a very talented retailer at Nordstrom. She really understood the consumer mind and how to merchandise. If we’d run out of property, she had a profile of a customer that she really wanted, that she thought it’d be great for. She knew how to price things. It was a really good symbiotic relationship there. There’s sort of the work focus, kind of the personal-finance focus, and what I realize, for me in my personal investing, I actually like these pieces of real estate because I have relationships with the people that occupy them.
This is a recent insight. It’s more fun, more interesting, more rewarding. A lot of people don’t like landlords. I get it. I try to take a boutique approach and boutique quality properties that attract a certain type of clientele. I very much value that and it’s kind of rewarding to see how official it can be that they can live there and have nice memories created. That area has been effective in some ways. We have a son and a daughter. Just trying to be in tune with their talents, maybe some of their blind spots, and just trying to help guide them in ways that deliver deep satisfaction for their lives and they can keep on growing. Then travel and being around interesting people. Just expanding one’s mind. Reading a lot. Then at the end of the day, you never know when lightning is going to strike and that intuitive lightbulb is going to go off.
BRYAN WISH: It resonates a lot with a personal period right now. I’ve never heard someone describe intuition as a culmination of perspectives from different walks of life. It makes sense though because there’s a lot of data points you can pull from where you can arrive on a decision that might be a better one or that might intuitively feel right because you have a lot more factors at your disposal to make a decision off of.
GARY CARMELL: That avoids what Charlie Munger refers to as the man with a hammer syndrome where you only have one tool in your toolbox which is a hammer. So, every problem looks like a nail. When I think back on what ingredients have gone into the recipe of decisions or insights that I’ve had that have helped move the company forward, have rewarded our investors with compelling rates of return or reflecting on mistakes we’ve made and learning from them – in no particular order, there’s economics, there’s psychology, there’s demographics, there’s sociology, there’s politics, there’s geopolitical, there’s human interaction, there’s communication. You need many tools in your tool chest. Not that you can become an expert in all of them but it just broadens one’s mind where it’s not all just the numbers and what appears on the spreadsheet. It’s what are the trends? Why are people moving where they’re moving? Why are they making the decisions that they’re making? Why are we in a bubble? Is there too much greed? Not enough fear? What are the financial flows? There’s a lot of stuff that goes into it. What I like about my business is it’s somewhat slow-moving. We can buy a property and own it for 10, 15, 20 years. We don’t always have to be trading. Continuing to do what we do is a decision in and of itself. Staying the course is a decision. A lot of what I do is just saying, “Hey, I think we’re okay to continue to do what we’re going to do. We don’t have to be trigger happy and sell X, Y, and Z just because we’re bored or feel we have to do something.” Just hanging on can be a great decision.
BRYAN WISH: That’s pretty deep. Holding on is a decision within a decision. Your fascination with pattern recognition, cause and effect happened maybe more so when the firm started going downhill because you were able to dig in and start asking some of the questions and then understanding holistically, the factors that played into it. By learning that, it was transferrable to being applied to every aspect of your life. Is that fair?
GARY CARMELL: Yeah, it was one of those going back to, “What do you want out of life?” I’m not quite sure. I know what I don’t want is to have financial challenges with a number of our properties and to be dealing with investors that have entrusted us with their hard-earned capital that they were looking to us to maybe help fund school for their kids, medical care, retirement, maybe an addition to their home, charitable endeavors. Whatever it may be. They weren’t looking to us to impair their capital. They were looking to us to keep it safe and to grow it. The only way out is through. We had to deal with it. We dealt with it courageously and my partners are incredibly courageous. All the problems got worked out. All the investors were incredibly happy. It turned around. What can we learn from this? There are things I learned there and then another cycle happened and we found ourselves stuck in a position where it’s very common among real estate owners.
I probably should say I’m in the real estate business. We own apartments around the country. When I started with the firm, we were in manufactured housing or mobile home park. We were one of the larger owner-operators of mobile home parks in the country. In the late 80s, we started getting into apartments. When I started, we had something like $250 million of mobile home parks. Today, we have over 30,000 apartment units in an excess of $6 billion. We’ve pivoted and scaled the company significantly. I’ve been so fortunate to be part of that journey and that ride to see the benefits to so many that have occurred with regard to people that have invested with us. One of the key breakthroughs was in the early 2000s when the tech wreck hit and the NASDAQ dropped 80%. We were heavily invested in these tech-oriented markets believing that knowledge-based workers were the future of the country. We wanted to go where there was a pro-business environment, well-educated workforce where people could have a quality of life and the smart, intelligent people that could do the techy things would want to live like Denver, where you are. Unfortunately, those markets got hit really hard when venture capital dried up. The NASDAQ dropped 80% and then everyone was able to start buying homes as interest rates dropped. The mortgage market started to loosen up.
What our problem was is we owned what we thought were great properties and great areas, and that happened to be the case, but that would be a longer-term realization of that. We had these fixed-rate loans where the rates were 7 or 8% and the rates had dropped to maybe 4 or 5 or 6% but we couldn’t get out of these loans. If we had been able to, we could have refinanced, lowered our debt service, and then been able to make up for the shortfall in the revenues and been able to not have to feed properties to support them when they had negative cash flow. We couldn’t get out of these loans because they had prepayment penalties that were extremely costly. That’s a very common feature in commercial real estate which includes apartments but not common in the home loan market. People refinance all the time. They don’t pay penalties. In the commercial market, lenders do not want to get their money back early because they planned on having their money out for a long period of time at a certain rate of interest. If they get it back early and they have to reinvest those dollars at a lower interest rate, they want to be compensated for that which makes it extremely costly for borrowers like us to get out of those loans. That really bothered me.
There’s a line in the movie Dirty Dancing where it says, “Nobody puts baby in a corner.” I’m like I never want to be put in that corner again. The way to get out of that corner was to access financing that didn’t have those prepayment penalties. These were floating rates, variable rate loans. Most people don’t finance their properties using floating-rate loans because they’re fearful. What if they go higher and I can’t afford the debt service and I have to sell the property at a loss or I have to give it back to the bank? Very understandable. Especially what happened in the early 80s when interest rates went to 17% or 18%. I think Schopenhauer said that genius is looking at what everyone else is looking at. It’s not seeing something different. It’s thinking differently about that which everyone sees. Everyone was doing fixed-rate loans and the problem was they were looking at that as an asset and as a benefit. I was looking at it as a liability. I was thinking about it differently than most people. I said, “How do we shift this to our benefit?” I studied interest rates. I like to say I have three children: my son, my daughter, and LIBOR is the index that most floating-rate loans are based on. I went to town and started thinking about it and studying it. We tested it out by borrowing using floating-rate loans. Then we’d get a few more. Then I did more research. It became pretty clear to me. Eventually, I had these a-ha moments where I get clarity. With enough clarity, I have conviction and then I get courage. Courage to take the action to act on my conviction and clarity. This was we need to go all-in on floating-rate loans. We have.
What happened for us is it really came out to our benefit most recently when we have retooled our portfolio over the last 10 years or so. About 83% of our loans are floating rates. When COVID hit and we were worried about the impact on our apartment portfolio about whether people would pay their rent or not, when all was said and done, our operating income which is our revenue and our rents minus the expenses of our properties, dropped about 5% during COVID which wasn’t had in the whole scheme of things. Our cash flow went up about 50% and that’s because our floating rate debt was the huge contributor because that cost dropped. We always say at CWS, we want to be on offense when everyone else was on defense. During COVID, we were able to prosper. We were able to keep our properties in good condition because we had the cash flow to keep investing in them. We were able to generate returns for our investors that were surprisingly good for them. They really couldn’t believe it. As a result, we’ve been able to build up confidence and grow our platform and our portfolio. The intellectual genesis of it might have been from me but I have to give credit to my partners for listening and having faith and courage to actually act on it so that over time, even though it was sort of intuitively not obvious to them or didn’t always feel right, as we delve into it more and more and had a greater and greater experience with it, they were getting it. We were all collectively in this together. It was a powerful combination of a great partnership that made that work.
BRYAN WISH: I can just tell how passionate you got talking. The road and effort to study the floating rate and making those decisions years ago put you in a position to be on offense when everyone else was on defense. You were looking at your industry a little bit differently. It goes back to that intuition and how you develop that. You really brought in a diverse range of perspectives. It seemed to benefit you to really understand how to lock into something in the right direction. I know you wrote a book. Seems like a very introspective book on different lessons and some pragmatic approaches as well. Would love for you to share what compelled you to write the book.
GARY CARMELL: The book is called The Philosophical Investor Transforming Wisdom into Wealth. Wealth encompasses far beyond the financial realm. To me, it’s having a deep reservoir of resources that can allow you to recover when challenges in life materialize which inevitably will. Taking advantage of opportunities and to be able to hopefully find your purpose and live it out. I had been writing a lot over the years for our investors. I started writing fairly regularly going back to 1999. I’d write a quarterly article. I had a lot of that material written and we’d write annual reports. I felt we had a very interesting story to tell. We have now what is a 52-year-old firm. I thought that was compelling. The journey from this know-nothing college graduate, poly-sci major who stumbles into this job and tries to figure out his way. Then some of the personal stories of some of the lessons learned. Things to avoid in life. Things that catapulted our life forward in a very meaningful and satisfying way. I’d like to say the book isn’t for everybody but it has something in it for everybody.
It’s a bit of a marrying of the left brain and right brain in a way that hopefully your outcomes in life will make it much more satisfying and fulfilling financially or relationship-wise. Just the experiences that you have or choose to have or the directions you go. I have an analytical side and I have this right-brain philosophical side that I love to learn, love ideas, and I love to synthesize. I love the idea of skill stacking. There’s a lot of people who are great at one skill. There are some people who have two skills they’re good at. If you can maybe add a third skill to that, you can really make yourself invaluable. I sought that kind of political science, right-brained side that was unusual for the firm. Then I got a CFA which is much more common in the investment management stocks and bonds world. Then I could do financial analysis. Being able to put this in a way where hopefully I could synthesize ideas that there could be some breakthrough insights and communicate them to our investors and potential capital sources. The target market or positioning of this book was to be a luxury brand targeting deep pockets and deep thinkers. Ideally, they would be both. There would be the deep pockets and deep thinkers. If they didn’t have the deep pockets, maybe they would represent deep pockets. If they didn’t have access to deep pockets or want deep pockets, they’re just deep thinkers and curious minds would find it interesting. I continue to write our weekly blog. I do this because it just helps clear my mind. Sometimes I don’t know what I think and so, I write it. Maybe out of there, some insights will gather. Part of it is a lot of the blog also helps me stay the course as we talked about earlier. It gives me more conviction that, “Hey, I think we’re okay. We don’t have to pivot here radically.” Sometimes doing nothing can be the best course of action.
BRYAN WISH: I love that. I identify very right-brained and business partners, very left brain and yet can be right-brained and synthesize well. It’s why it’s a great marriage. What’s so interesting about you is it’s very evident that you have the left brain and the right brain. You don’t often come across a healthy balance in humanity. Very interesting. It’s been awesome learning about you. If someone wanted to reach out or find you, where would be the best place?
GARY CARMELL: My blog is garycarmell.com. If someone wanted to leave a message there, that would get to me. Our company website is cwscapital.com if you want to learn more about the firm. I appreciate the invitation. I don’t do many of these.
BRYAN WISH: Thank you for your holistic life perspectives that have driven your smart decisions. Look forward to staying in touch.