Scott Everett – Co-Founder & Managing Partner, S2 Capital

Scott Everett started his real estate career in 2007, after receiving his broker’s license. He formed Royal Ventures, LLC in 2008 to provide brokerage, asset management, and development services for multifamily and commercial investors. In 2012, he founded S2 Capital to acquire and redevelop multifamily real estate with his partner, Skip Bird. In the past five years as co-founder and managing partner of S2 Capital, they have built a real estate investment company that has acquired over $900 million of multifamily assets and three operating companies that generate annual revenues in excess of $75 million, with over 150 employees. Scott is also an active investor and board member for multiple early-stage companies and enjoys being involved in the growth of early-stage ventures. Scott also contributes significant time and resources to Jonathan’s Place, a local emergency shelter for at-risk children. Scott is married with three children and lives in Plano, Texas.

Tell me about your early career.
I have always had an obsession with entrepreneurs, business, and money. While in high school, I started multiple online companies, from a nightclub website to building gaming computers that I sold on eBay, all of which taught me valuable lessons in business, but ultimately failed or weren’t profitable enough. While reading a Forbes article about Blackstone and Steve Schwarzman about a pending IPO in detention during my senior year, I became obsessed with private equity and the business model of buying distressed companies and other assets. I set out to learn as much as I could through books and online classes, and ultimately realized I wasn’t smart enough for hedge funds and private equity, so I settled on real estate! The year I graduated from high school, I went out to raise a $100,000 fund to buy and flip single family homes. In the Fall of 2007, it was becoming clear a financial crisis was pending and I had no luck attracting capital or good deals. I had the benefit of seeing how bad markets can get and was up every morning at 5:00 AM to watch CNBC and learn from the failures, all while raising a family. My girlfriend (now wife) at the time was pregnant in high school at eighteen years old. In 2009, I decided to drop out of college and start a full-time commercial real estate company while I waited tables at night for a Mexican restaurant. It took eighteen months of failures before I finally put a deal together that had merit. I had sourced an off-market opportunity at a historically low price and also found a capable equity group to partner with me out of New York. We contracted, went through due diligence, and I had negotiated a 3% acquisition fee and 20% ownership after we closed the deal. That fee would’ve been $150,000 to me at closing and would’ve changed my life and validated the decision to drop out of school to become an “entrepreneur.” After four weeks of due diligence, we scheduled a call to review everything with the seller and out of left field, my partner, who had all the control and power, stated they needed a price reduction of $500,000 or they would drop the deal. The seller immediately responded they would give nothing, so my partner terminated the contract on the call and ignored my phone call, thereafter. It felt like my world had collapsed in thirty seconds! My heart was in my feet, as I vividly remember putting my server uniform on that night to go wait tables and felt like crying. I spent the next few days panicking and trying to revive the deal, but both parties ignored me. By the end of the week I remember telling myself, “Move forward and make this the story you tell about never quitting when you are successful one day.” The search started over for new deals and a new partner. It took another twelve months before I sourced both once again, spent six months of my life thereafter, only to have another deal fall apart at the finish line. It was crushing and truly made me re-evaluate everything I was doing and every decision I had made to that point in my life. I was now twenty-three years old, watching friends graduate college and get good jobs, while I raised my 4-year-old son with his mom I couldn’t yet afford to marry, lived at home with my parents, and was still waiting tables. I decided I’d come too far, and with every failure, I had learned very valuable lessons, made great contacts in the industry, and was picking up momentum, but not quite yet making money. In 2012, at twenty-three years old, I started S2 Capital with my partner Skip Bird, who had thirty years of real estate experience, but like me, had a few setbacks over the past year. We were both starting from scratch and determined to make it happen. We made a great team, since he had the experience and equity contacts, while I had built a network of deal contacts and underwriting knowledge, and was willing to commit sweat equity pursuing deals. In October 2012, we finally closed our first deal for an acquisition of $6 million and 184 units, and nearly lost our ass since we had no idea what we we were doing. I was onsite 10 hours a day managing the project and learning from the ground-up, trying to save the project as well as our infant company. Five years later, we built a company with over 150 employees, reached #14 on the “Inc. 500” list, reached #1 for the fastest-growing real estate company in the U.S. in 2016, and #1 fastest-growing company in Texas. We have built a portfolio approaching $1 billion in value, totaling over 12,000 units, and it’s been the most exciting times of my life. I owe so much to the people that supported me for the first five years while I failed many times, and the last five years as they’ve guided and supported me through our growth. I would need a full book just to thank my wife who believed in me and supported me through all the tough times, and who I now have three wonderful children with, and to all my family, mentors, partners, and friends who have guided me through all the success we’ve enjoyed today.

How did the concept for S2 Capital come about?
I had initially been working on multifamily development projects and was frustrated with the amount of time it took before you could make any money and reap the rewards of your risk and work. I had read about a company called Knightvest and Conti and their growth back in 2011 and decided to shift gears into multifamily acquisition/rehab-based on the metrics they were describing. It was the best decision I ever made.

How did you initially fund the business?
We had to borrow a lot of money in the beginning and I aligned myself with a wealthy entrepreneur who received a large stake in our first few deals for putting up the capital and signing on the loan guarantees, since me and my partner’s balance sheets weren’t big enough. I always tell people to worry about putting together good deals first, because if it’s good enough, you will attract the capital.

How did you come up with the name S2 Capital?
My partners name is Skip, so Skip and Scott became S2.

How was the first year in business?
We almost blew up our first deal. I spent 12 hours a day onsite firing, hiring, and firing again until I finally pushed everything across the finish line. It was very touch and go the first year before we really figured out what we were doing. The market definitely bailed us out and was a huge lesson for what not to do, which if you can survive, are the best types of lessons.

What were some of the challenges you initially faced?
For me, it was competing in an ultra-competitive environment against a lot of people with a lot of money. We had to be very creative in how we found and structured our deals in the beginning, and once acquired, we had to be the best operating partner in our market to continue to attract equity and debt. After the first four to five deals, we had finally built a brand known for executing and doing what we say we are going to do, which goes a long way in business.

Did you have a lot of competition?
It’s highly competitive. After five years, and being the fastest-growing real estate company in the nation for the 2012 to 2016 period, we are finally large enough and well-capitalized to compete with anyone in the business. For the first two to three years, we were always the bridesmaid, at best, and final competitions or in the broker network for new deals, equity, and debt.

What was your marketing strategy?
As a company, we chose to fly under the radar. Sometimes, it’s best not to draw attention to yourself, especially in the commercial real estate business. We launched a year of public relations just to boost our brand, mainly to assist us in attracting top talent, but you don’t want to be negotiating deals and have the other side of the table feel they are getting screwed because of an article they read about how great you are doing.

What was an average workweek like for you back then?
The first few years was definitely 12 to 14 hours a day. As I have scaled the company to over 150 employees, it’s actually freed up my time to do other things that I love, like spend time with my family, work out, travel, and play golf. I still work 60 to 70 hours a week, but it’s not non-stop anymore.

Were you profitable by the end of year one?
No. It took eighteen months before we finally started to see some net income. But the next forty-eight months after that blew away our wildest dreams in terms of cash flow, asset values, and net income.

How fast did the company grow during the first couple of years?
It was very slow the first two years. We acquired 400 units the first twenty-four months, totaling $8 million in portfolio value. Over the next 36 months, we acquired another 11,000 units, totaling over $1 billion in portfolio value. After the end of year two, we had three employees, and by year five, it was 150. It’s been a lot of crazy fun.

If so, what do you think caused that high spike in growth?
It was mainly building our foundation and attracting capital. That takes the longest in the beginning, but if you focus on it daily and plan for it, you can look up and be astonished at how fast things can take off. It never really hit me how fast we were growing until years later. I was always chasing the company ahead of us, even though they were leading the nation in real estate growth prior to us. You have to stay focused, motivated, and not get caught up in your own success. Just keep your head down and work as if every day the company could fail, because in your infancy, it really is that fragile.

Did you ever feel you had to sacrifice a lot of personal time for the business?
Absolutely. In the first four years before S2 Capital, I made no money and spent my days working on my first real estate company, while bartending and waiting tables at night. My son was four years old before S2 started and I pretty much only got to see him on weekend mornings and afternoons for the first six years of his life. Today, I have three kids and, for the most part, I’m fortunate enough to be home for dinner most nights, put them to bed, and spend time with them on the weekends.

Fast-forward to today. How fast is the business growing?
2017 has been our best year on all fronts, from operations, asset management, acquisitions, to dispositions. We’ve done more in the first five months of 2017 than all of 2016, and we’re excited to see what the second half of the year brings us. It also is our first time expanding outside of Texas markets and into Florida, which I am very excited about.

How do you organize your day?
I start with highest priorities and try to knock those out as early as possible. For our business, deals can die within an hour and you can lose thousands, if not millions of dollars. After I’ve put out fires, I usually spend a few hours a day in meetings but try to avoid “meeting for the sake of meeting,” and I almost never let a meeting run longer for more than one hour. Towards the end of the day, I will check on our operational performance for the day and work my way through emails. I always try to get some sort of response out to every email by end of day, even if it’s just a, “Thanks, will send tomorrow.”

What are some of your daily habits that have contributed to your success?
I keep a pretty strict schedule. I am usually up at 5:30 AM. I go to the gym in the morning, read Bloomberg and the WSJ, as well as some local news publications to make sure I am aware of key items in the markets, and then arrive at the office around 7:00 AM/7:30 AM. I believe having a pretty consistent schedule allows you to not miss things or get behind. I also am a huge believer in working out in the morning, as it really helps get the brain going, and is a big mood booster. It’s also a great stress reliever for a busy and mentally-tired entrepreneur.

What are some quotes that you live by?
“Complaining isn’t a strategy” is a favorite of mine. It’s posted in our office kitchen.

What are some of your favorite books?
I read a ton, and attribute a lot of my early success to reading. I would spend hours at Barnes and Noble reading entire books because I couldn’t afford to buy them. The Peebles Principles: Tales and Tactics from an Entrepreneur’s Life of Winning Deals, Succeeding in Business, and Creating a Fortune from Scratch is a favorite of mine. King of Capital: The Remarkable Rise, Fall, and Rise Again of Steve Schwarzman and Blackstone, Rich Dad Poor Dad: What The Rich Teach Their Kids About Money That the Poor and Middle Class Do Not!, Raising The Bar: The Life and Work of Gerald D. HinesThe Real Estate Entrepreneur: Everything You Need to Know to Grow Your Own Brokerage, Gerald Hines’ biography, and The Education of an American Dreamer: How a Son of Greek Immigrants Learned His Way from a Nebraska Diner to Washington, Wall Street, and Beyond by Peter G. Peterson. I have an obsession with studying successful people who have accomplished what I hope to accomplish.

How do you define success?
I think living with a purpose and happily is success. That purpose may include being an excellent mother to three children or running a charity for starving children in third-world countries. Money will not bring happiness, but if you love what you do and see money as a means of supporting your purpose, it can be very fulfilling. I am a big believer in giving back to your community, family, and loved ones. You didn’t get here all by yourself. That I am sure of.

What is the key to success?
Perseverance is the most important quality. No matter the endeavor, you can’t be an excuse maker, and you just can’t quit. You can pivot, adapt, change your strategy, and even fail, but you can never quit.

Did you always know you would be successful?
I always felt deep down I would be successful. For me, success was building a great company and a great life for my family. I always had set a goal of being a millionaire by age thirty, and got there at twenty-five. The number becomes a way for me to keep score of how successful I have been at building a great company, so I continue to set it higher, and stay focused and motivated.

When faced with adversity, what pushes you to keep moving forward?
Failure was never an option in my mind. It may have taken five years, ten years, twenty years, but I was going to get where I wanted to go. My family deserves it, and it would be a waste of my immense blessings to just settle. I was born to great parents, in America, and had access to a good education. I was already ahead of 98% of children in the world. I had no reason to not give it my all and achieve whatever it was I wanted.

What is the greatest lesson you’ve ever learned?
Money truly doesn’t buy happiness. When I was eighteen, I always thought how cool it would be to have fast cars and big houses, but I ultimately learned life is all about the relationships you form – romantic, friendship, or family. It took me a while to figure that out, but once I did, life and work are much more enjoyable.

What do you enjoy doing in your spare time?
I have three kids, so they take up most of my free time. Otherwise, I enjoy golfing and hanging out with friends and family. I am a big foodie, so we are always going out to dinner.

What makes a great leader?
I think calmness under pressure is critical. Nothing ruins a company faster than an emotional leader who feels the need to bully and tear down employees. We are here to build people up and absorb the pressures of running a company, not exert our fear and lack of confidence on everyone around you.

What is your vision for the future of S2 Capital?
I want to continue doing what we are doing and look up in another five years and be amazed at all that we’ve accomplished. I’ve never set hard and fast goals for us. We stick to what we’re good at, guard our culture, hire good people, and try to have a lot of fun while we’re working. If you keep your head down and focus on those things, you will be amazed at what your team can accomplish.

What do you think is the most common mistake entrepreneurs make?
Failing to relinquish control and delegate. I see it all the time and it is the biggest impediment to any company. You have to empower your people, align everyones’ interests, and get out of their way.

What advice would you give to young entrepreneurs?
Dream big and never quit. Life doesn’t owe you anything. It’s up to you to make it happen, and when it’s not going right, don’t stop to complain and make excuses for why you failed. Move on and keep telling yourself it’s going to happen. Also, “Speak softly and carry a big stick.” There is nothing worse than hearing people brag about how great their company is going to be or how much money they will make when they get going. No one cares. Just make it happen, and the results will speak for themselves.