How We Approach Operator Due Diligence…and Baseball

Do you enjoy major league baseball? Have you thought about the great lengths someone else must go to...in order to allow you to enjoy this sport from the comfort of your recliner?

MLB recruiters work hard so we can watch from our couch or box seats, and the team owners can enjoy a nice profit.

The coaches and recruiters for MLB teams go to great lengths to locate and woo the very best players. They scrutinize a player’s record, their performance under pressure, their physical strength and capabilities, their fit with the team, and more.

 They review qualities like personality, character, and mental tools. Intangible qualities like coachability, mental toughness, intelligence, perseverance, aggressiveness, instinct, work ethic and more are all taken into consideration.

Sometimes a player can check almost every box but still not make the cut. A friend of mine, Bruce, spent his entire life preparing to play professional baseball. He told me he trained for about six hours a day from the time he was about six through his twenties.

After leading his University of Georgia Bulldogs to the national championship, Bruce was drafted by the Boston Red Sox organization. After rising quickly through the ranks from A to AA to the AAA team, Bruce was on the verge of a call up to the major leagues.

One night, Bruce disagreed with his manager’s decision on something and lost his temper. Bad. This turned into a 30-minute screaming match.

Bruce, on the verge of graduation to the Majors...was quickly demoted down within the Minors. His career ended quickly. And he had to watch every other starter on his team go to the Majors with the lifestyle and millions accompanying. Bruce tucked his tail and went back to grad school. He’s never made over $75k.

Lots of boxes checked. One box (coachability) unchecked. Bruce failed the due diligence test.

This sounds awfully similar to what we do here at Wellings Capital. When we launched Wellings Capital, our goal was to vet the very best operators and provide our investors diversification across...

• Asset types

• Operators

• Geographies

• Individual assets

• Business strategies, and

• Time

The Importance of Operator Due Diligence

But the key to all of this is operator due diligence. And we drill in deeply on every prospective operator. Because the human factors, track record, and inner-workings of the operator are far more important than any individual deal to us and our investors (the best operators usually have the best deals, and we do look closely at the deals).

Less than stellar moral compass? 

Not a fit.

Debt structure too risky? 

Not a fit.

Don’t pass the criminal, financial, and other background and reference checks? 

Not a fit.

Not in the same business since before the Great Financial Crisis of 2008?

Not a fit.

Lacking acquisition strategy targeting mom-and-pop operators with significant upside?

Not a fit. 

We take the time to carefully get to know every candidate. We know things about some that their own staff and family don’t know. For example, last month we had a court runner visit a local courthouse in California to pull felony records from 20 years ago. This was for a key executive we are evaluating.

Because many of these tangible and intangible factors will make the difference between a good investment and a great one.

And when times get tough, it could mean the difference between preservation of principal...and the loss of it.

We are very active in this process...so you can be passive. If you want to learn more about our operator due diligence process, you can schedule a call with us here.

We love what we do. And the more we learn about the due diligence process, the more we are aware of how little most investors really know about the operators and the projects they invest their hard-earned capital in. Whether you invest with us or anyone else, be sure you don’t skip this important process.  

Real estate investments and securities offerings are speculative and involve substantial risks. Please do your own research, draw your own conclusions, and seek professional advice. The information contained in this article is for informational purposes only and is not intended to provide investment advice. Investors should consult their own tax, legal and accounting advisors before engaging in any transaction.