Episode 46: Larry Connor - Founder of the Connor Group

0:00This week, I sat down with Larry Conner, founder and managing partner of The Conner Group, one of the top luxury apartment investment firms in the United States. Larry started in 1991 with$400 ,000 in three apartment communities in Dayton, Ohio. Today, the Conor Group manages over$5 billion in assets, outpacing firms like Brookfield and Blackstone, with 30 % annual returns over the last 40 years. Out of 241 acquisitions, they've lost money on only eight. Beyond real estate, Larry is one of the most accomplished adventurers in the world. In 2021 to 2022, he became the first person ever to dive through the deepest part of the ocean and travel to the International Space Station in the same year.

0:42He's won national racing championships, competed at Le Mans, and is planning to dive through the Titanic wreckage. In this conversation, we talked about how a catastrophic business failure taught him everything, why being different is the only path to exceptional results, the strategies that create 60 % to 80 % margin improvements, how he built a culture of extreme accountability, his philosophy on risk, and much more. If you enjoy this episode, please follow the podcast and rate it a five stars on Spotify, subscribe on YouTube, and share it with anyone who might find it valuable. I really enjoyed recording this, and I hope you guys enjoyed listening.

1:16Thank you. Thanks, Larry, for joining me. Really appreciate it. Happy to do it, Amir. Well, I want to start off where I always do, the beginning. Your father was a Marine, if I'm correct, who fought in the Pacific during World War II. Your mother served in the Red Cross in Europe. The child of two people who served in pretty profound ways. How do you think that shaped your perspective growing up and what was growing up like? I think it creates respect and appreciation. You know, they never really talked about that. So we as kids really didn't know much about it. And then get to adulthood, learn more about what they did and how they quietly served.

2:09But both of them in their own way made a significant impact, you know, for the safety of, you know, America. So I think you take those lessons with you. And what was your what was growing up like for you? What kind of environment was it? Oh, I think it was, you know, really a pretty typical middle class, you know, go to school, get good grades, things like that. Not that I did because I didn't get good grades and I wasn't a very good student in grade school or high school. but you know my parents believed in the American dream and you know own your own home get a college degree pay for everything do the right thing help your neighbors so I think by being in that environment, you take away some lifelong lessons.

3:18And you mentioned you weren't a great student in middle and high school, but you graduated, if I'm correct, summa cum laude from Ohio University, and you didn't major in business as many people would expect, but rather English and history. I'm just interested in, talk me through that liberal arts education. How do you think it influenced the way you think today doing real estate?

3:46So the back story is I went to a Catholic high school, a good one, here in the Dayton area. and the students there, the vast majority of them were going to go to college. And so they went and they were looking at different colleges. Well, I didn't have that problem because there was no college that would take me except one. In the state of Ohio at that time, if you graduated from high school, Ohio University, don't be confused with Ohio State. it's about an hour and a half away from Ohio State, had to take you. So literally at orientation, they told you, look to your right and look to your left.

4:40One or both of those students will not be here at your end. So that got my attention because I think my parents had drilled into me. And I'm not sure this is correct, but understandable. Like, hey, look, you got to get a college degree. And if you don't get a college degree, you're not going to amount to much anything. So I flipped the switch and became very focused and dedicated to getting good grades and participating in other functions. I got straight A's for, I think, right at the end of my junior year, I finally got a B. And the only reason why I ended up at a 3.4 versus a 3.6 or 7 is that senior year, I kind of coasted.

5:38But yeah, and you're right. With the value of hindsight, I should have pursued either an economics degree or a business degree. But I was trying to find the curriculum, which I decided was the easiest one where you could get the best grades was liberal arts. So I was an English major with a concentration in Shakespearean literature, which, as I've said in other interviews, you know, qualifies you for nothing. And but anyway, so I actually think if somebody was to ask my opinion, the college experience, you can learn as much, if not more outside of the classroom, kind of living alone, living away from home, living with other people than you do in the academic arena.

6:40and after you come out of college you start your first couple businesses the one leading up to what ultimately becomes a conor group the one before that was orlando computer corporation ran that for nine years before it ultimately failed i just interested to hear about those first couple experiences and you call the orlando computer corporation your phd in the hard knocks of business what does that mean yeah well you've done your research which good job on that but yeah, that's absolutely right. You know, there is no better experience than experience. And you frankly learn more from your failures than you do your successes.

7:25And even before Orlando Computer Corporation, I had owned and operated a couple of businesses and done really well with them. So the foray into the computer industry was something I knew nothing about. And we were in the wrong place at the wrong time with the wrong plan and way too little capital in a fairly capital intensive business. And ultimately, we went out of business. We didn't file bankruptcy or anything, But all of my capital that I had made, all the investors capital we lost. And and it was it was exceptionally difficult. But those life learning lessons has really helped me succeed since then.

8:21And what were those lessons that you learned from specifically a computer corporation? Yeah. So fundamentally, you succeed or fail based upon what we call the four P's. And they are people. If you don't have the right people in the right positions doing the right things, you're not going to be successful regardless of the chosen endeavor. Two, you got to have a plan. By the way, it has to be simple and executable. Three, you need processes and systems. And whether it's how you deliver customer service or how you sell or how you manage inventory or whatever it may be, you need some processes. We didn't have the right ones and enough of them without being burdensome, by the way.

9:24And last, you need perseverance. That we had. The first three we were short on. And so perseverance carried us for nine years. But since that time, in the various businesses, and not only have we had a real estate investment firm, We've started two other technology companies, both of which have been very successful. One we still have today. The other one we sold in 2018 to private equity. We've really focused on and maximized the right people, the right plan, right processes. And on the topic of perseverance, after Orlando Computer Corporation failed, in 1991, you founded Connor Murphy & Berman.

10:13One investor. $400 ,000 to buy three apartment communities. Talk me through kind of the beginning of what ultimately became the Connor Group. And what was that specific insight where you were like, I can succeed where most others are failing?

10:30So it's an interesting question. I and another fellow, Jim Murphy, decided to start that. Bob Berman, the third guy, he was the guy who was the financial backer. And so I went to Jim and I said, I think the real estate investing world is a good world to be in. And I think we've run businesses successfully. So my observation, having bought some real estate kind of part-time and on the side is, they're pretty archaic in how they operate and that we can bring a whole new business model specifically to running apartment communities. And so we started the firm with the idea that we were going to build it all with people who have never done it before, who weren't encumbered by preconceived notions on how you ought to deliver what we call resident satisfaction or customer satisfaction.

11:37In fact, we never call them tenants. That's what the industry does. And how we could add value and how we could find new sources of revenue and how we could keep the resident longer than most apartment communities that just kind of turn over 50 or 60 percent of them a year. And all of that happened because of the prior business experience, both success and failures. And what was that first big deal? Or what was that first landmark deal for you? So it's really interesting. At the time, this is 1991, there was a savings and loan crisis in the United States. And so we were buying three apartment communities from a S &L in Kansas City until one Friday.

12:40And we had worked on this deal for like six months. And this S &L had taken these three apartment communities back in a foreclosure. but two of them were in great locations and the other one was okay and so we were tidying up the final details to close so we called the SNL in Kansas City by the way they had about 400 employees there and nobody answered the phone and we're like uh that's not a good side 400 employees nobody's answered a phone So we spent the weekend trying to figure out what's going on. And it was, I don't remember, it was Monday or Tuesday. We get a phone call from this thing called the Resolution Trust Corporation, RTC.

13:35And they go, by the way, maybe it was a phone call. Maybe it was a written communication. On Friday afternoon at approximately one o 'clock, we seized the SNL in Kansas City. I forget the name of it. And so that started a year journey, a difficult year, because you couldn't even find someone to talk to. And then once you did, it's like, wait a minute. We're taking over these loans. You're going to get made whole. this is exactly what you want to do. Well, unfortunately, like some, not all government agencies, it's more form over substance. Long story short, in every problem, Amir, there's always an opportunity, what we call a silver lining or hidden gift.

14:32You just have to find it. Many times it's not apparent. So we spent a year finding the right people, building a relationship. Almost to the day a year later, we closed. By the way, the property operations had actually materially improved, which means the property was probably, the three properties in the aggregate are probably worth a million and a half or$2 million more than what our price is, not only do we not have to pay more, we negotiate another million dollar discount from the RTC. So the moral of the story is stay in the game, figure out a different solution and have perseverance. I guess this is much more of like a personal question, but you persevered through your first few businesses.

15:28You persevered during this period, during your first deal, when many others would have given up. Is it innate, your perseverance, or where do you get it from? Why do you think you persevere? Well, I don't think it's an exclusive club, but I think it's an important club to be in. I remember reading a quote from Charlie Munger a few years ago, and he essentially said the following, everybody in life struggles. The key is never quit. And that's what most people don't really realize. Like they think you have to be some brilliant guy that went to an Ivy League school to start and build really successful business.

16:17By the way, it may benefit you to go to Ivy League school and to be super smart. But the reality is the people that we have seen successful, whether it's in business, not-for-profit, sports, whatever, are those people who have great perseverance, determination, grit, work ethic, rather than necessarily, you know, money or pedigree. And so

16:52when I talk to people about starting a business, building a business, many times we talk about those fundamental building blocks. And it's certainly been, you know, our case, not that you want to do it, but the reality is if you're going to do anything exceptional, One, it will be hard. Two, you will have obstacles and adversity. Three, if you persevere and you have a plan, your chances of overcoming those are pretty good. Never heard true words. And I'm interested in what the average deal looks like for the Conor Group. So what does a typical deal look like, an acquisition? What draws your attention, diligence, and then ultimately what levers do you pull to improve the margins?

17:46So again, good question. So the average size deal that we buy today is about$85 million. They generally tend to be more suburban than urban. And so what we buy is is and how we describe it is we buy great properties in great locations that are really underperforming to their potential. What does that translate into? That means their expenses are too high, their revenues are too low, and they're what we call customer satisfaction or resident satisfaction is bad. So frankly, the more screwed up it is, the better we like it. So if we walk in and we go, unbelievable location, great physical facility, floor plans, amenities, everything, and just terrible operation, there's a high likelihood that's the property we'll buy.

19:02And so you think your strong suit is operations. And then how do you how do you improve operations? So it's a two part really answer. One. Yeah, our foundation was built on. Innovative, different, we think better operational strategies. And the only way to do that is to have the right group of people, whether it's on sales, service or leadership. And so we have spent our career in trying to hone that and refine that. But again, I come back to what we talked about earlier. People are the number one key to success. This is not an individual game. It's a team game. Two, we believe that we are exceptionally disciplined investors.

19:59So I'll just give you one example. In a typical year, the last couple of years haven't been typical, we'll receive information. We operate in 16 cities around the United States. We'll receive information on 700 to 800 potential properties to buy. We will actually in our analytics department underwrite probably three to four hundred of those. And then literally we will go and visit physically probably 200 from all that. We'll probably buy eight or ten. So literally, if you think about it, we buy the one percent. And so, again, it's discipline, it's focus, it's hard work, it's, you know, perseverance to extract, you know, the kind of returns that we've done.

20:49And so people will ask us to finish the thought, well, what are your returns? Well, they're outliers. So if you look over the last 30 plus years, we've been in business 33 years, our return to our limited partners after fees, after fees is 30.4 % annually. And if you look at the last 10 years, it's 35%. And if you look at the last five years, it's like 39%. So, you know, you've done enough interviews with people from other investment fields and whether it's venture capital, private equity, you name it, that I think that's rarefied air we're talking about. Very much is. And just to clarify, what do you think it is that you're doing?

21:41You think it's that focus on people? You think it's that 1 % that most of the other big firms are not to achieve these returns?

21:50you cannot be exceptional and do the same things as other people so our model is radically different than what the average operator does that's why we hire nobody nobody from the industry think about that we build a business and never hire anybody from that industry. And the reason why is, by the way, there's some nice people there, but what we do is so different for people to make the mental switch to what we're doing is next to impossible. So you got to be different. Two,

22:37discipline, focus. If you look at a hundred deals and you only buy one, That probably makes that standard. Three, hire exceptional people and share the wealth. For example, we have a partner program. Anybody in our firm can be a partner. We literally have two people who are groundskeepers. They're the people who pick up the grounds in our apartment communities. They are equity owners in our firm. they've earned it they're a lead at what they do and we have sales service management we have people in accounting recruiting you name it we've got about 70 partners out of our 400 associates and so it's a real differentiator but again you have to treat those these special people different and when you're interviewing people who don't come from the industry What qualities are you looking for to make sure that they're exceptional?

23:39Yeah. So let's just take a what we call general manager, somebody who's going to run the apartment community. Well, the first thing we think about is, hey, this is a$85 million investment. So they are going to run this business, an$85 million business. So they got to think like an owner. So we can give you, we essentially have what we call the big eight. And I'll run through them pretty quickly for you. And by the way, they're all important. So don't get hung up on what's first. Number one is they got to be able to motivate people and manage them. People work for people. Two, they got to be highly organized and multitasking.

24:21Even though we're in a low tech business, we run a pretty complex, compressed system. Three, accountability. They got to have self accountability and have to be able to hold other people accountable in an honest, direct, constructive manner. Four, grit. We define grit as passion and perseverance. Five, work orientation. If you're going to run a business, you can't say, well, I'm going to come in at nine and leave at five. It doesn't work that way. Six, they've got to have ethics and integrity. We think that our number one core value as a company is to do the right thing. And if you're a leader, you have to do that.

25:04OK, next is going to be follow the systems. We've developed a number of systems and and processes that, you know, you have to do. And then lastly, we want people are going to think long term, not short term. That's why we've had an opportunity to be a public company. We just wouldn't be a good public company because we're just not going to focus on quarter by quarter earnings. And I want to take a step back for a second to, I think, a very unique period for everyone in real estate, but especially you guys, was obviously 2008 and the great financial crisis. But I think kind of a decision you made to really reveal the type of investors you guys are, in which I think the quote is, we simply decided we aren't going to participate in the global recession.

25:56and you acquired a lot of distressed assets. Yeah. It's much easier said than done to be greedy when others are fearful. You guys have put that into practice. How do you maintain the mental fortitude? Mindset, belief, positive attitude, perseverance, grit, determination, belief in your models and your people. So it's all of those things there. By the way, you're absolutely right. Virtually everybody in the industry ran for cover. We did completely different and we ran toward the opportunity. And during that period, 08, 09, 010, we made phenomenal buys. By the way, I didn't say we didn't have problems at some of our properties.

26:45We did, but we figured out how to manage those and then take full advantage of the opportunity. The other thing that really helped us was we had a great investor base that we had demonstrated by performance and by integrity that we were going to do everything we said we were going to do. So these investors, even though some of them nervous, said, okay, we believe and we'll have faith in you. And they got handsomely rewarded. it. And another kind of, you bought out your partners in 2003, if I'm correct. And I'm really interested in, over the entire life of the Connor Group, what do you think were the most critical decisions that helped you scale from$400 ,000 to$5 billion in assets?

27:37I'll give you one right off the top of the head. At one point, when we first started, we had apartments, but we also had some office, retail, and industrial.

27:51Within two years, I said, we're getting rid of everything, and we're going to be narrow and deep. We're only going to buy apartments. We're only going to buy existing apartments. We're not going to do any apartment development. It's too risky. And that was a, and we'll build the business and expand based upon geography. That was one of the smartest things we could ever do. And we've stuck to the knitting and we haven't veered away, you know, since that period of time. So that would be transformative. Two, our whole operating model and how we continue to always change and improve has been a huge benefit.

28:40Three, we didn't look at how anybody else analyzed acquisitions, how they underwrote them. We built all our own financial and acquisition models that we have that are kind of proprietary. So we not only look at the quantitative component, we look at the qualitative component. We merge those two together. And if you look, you know, we've done 200, roughly 210 acquisitions over 30 plus years. And we've only lost money on nine, I think. So. And it's this relentless pursuit of excellence and a relentless pursuit of change and improve that I think. have all really helped us wrapped around with constantly trying to find, hire, and retain the best people.

29:43And when talking about people, a really important aspect to mention is culture. And you guys kind of are famous for a very unique culture, working Saturdays, no 90-minute lunches, six core leadership attributes of them, correct? How do you maintain this culture of excellence, describe it? And how do you make sure so that it's excellent, but doesn't become toxic? Yeah. So when we interview people, we believe it's our obligation to be honest and direct with them about, hey, here are the pluses working here and here are the minuses. And then also share with them that, hey, for a lot of people, this is not the right place to work.

30:27But for the right people, it's the best place they ever work. So I think that honesty really helps. And so some people just self-sort their way out. And here's a phenomenon that you can greatly minimize any type of toxic environment. Get a bunch of people together who all have the same fundamental beliefs and philosophies. For example, high achievers want to work with other high achievers. They don't want to work with low achievers. Hard workers don't want to work with lazy people. People who really have grit and determination, perseverance don't want to work with people who don't want to show up and make the effort and face adversity and overcome it.

31:24So it's really this alignment. OK. And, you know, we live by these core values and we're not perfect. But, hey, do the right thing. People count. Relentless pursuit of excellence, you know, things like that. And so you tend to, you know, have the people who are really aligned stay and the people are not. Well, you know, leave. Before we go back to the episode, I want to take a short break to talk about my sponsor, Rowe. The Generating Alpha podcast is presented by Rowe, the all-in-one banking platform for startups. Thousands of startups like Perplexity, Product Hunt, and more use Rowe. You get everything you need to manage your startup's cash.

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