Weekend Interview: Three Pillars Capital Group CEO Gautam Goyal

This series gets into the heads of the decision-makers of CRE, the people shaping the industry by setting investment strategy, workplace design, diversity initiatives and more.

Gautam Goyal doesn’t see blood in the streets just yet in his preferred asset class — Class-B and C multifamily — but he's gearing up for that to change in the next few months.

Goyal, who co-founded private equity firm Three Pillars Capital Group in 2017 and took over as CEO in July, said the real pain for lower-tier apartments will come when current cap rates start to expire and investors miss their return on investment goals, which he believes will start happening in force before the midpoint of this year.

Three Pillars Capital has completed $500M in multifamily transactions in the last five years, and its property management arm, Greenline Apartment Management, manages more than 3,000 units in the Houston metro. Before co-founding the firm with Josh Welch, Goyal worked at a hedge fund as an energy trader.

The following has been lightly edited for style and clarity.

Bisnow: Baron Rothschild once said the “time to buy is when there’s blood in the streets.” Where is the blood today?

Goyal: Focusing on Class-B and C multifamily, I would say there’s no “blood” quite yet. I frequently speak with professionals in the capital markets space like our lenders and investors, and our prediction is this will start to happen once current cap rates begin to expire. That is when we’ll see the “blood.”  

My expectation is that, over the next six months, operators who maybe were not able to generate returns on their investment will be desperate to sell. For operators who did not factor growing income into their business plan at the start, it will be too late to shift gears and look to create this through a value-add program — giving them no option but to exit.

Bisnow: What is your most controversial CRE opinion and why are you right about it? 

Goyal: With the current trajectory of interest rate hikes, the Federal Reserve could end up overcorrecting. Six months to a year ago rates were unrealistically low, which created a huge problem with inflation. The response to this was increasing the rates, which ultimately caused the volatility we’re now experiencing across the commercial real estate industry. 

These factors have resulted in a very small margin of error for buyers paying huge prices. In order to succeed, you have to be able to create significant value that will result in profitability. With the market tightening up in terms of financing, projects are harder to transact, and fewer deals are making sense. The upside to this is it squeezes out nonperformers who try to rely solely on organic rent growth to carry them through. The real key is to focus on fundamentals — adding value, prioritizing tenants and delivering a quality product. This is the crux of Three Pillars’ investment strategy, and a major contributing factor to our continued success in today’s strenuous financial market. 

Bisnow: If you weren’t in real estate, what path would your career have taken?

Goyal: I’ve always chased opportunities that allow me to create and innovate. Before founding Three Pillars, I spent some time in the consumer technology space working with engineers to create a social networking app. This experience proved to be extremely beneficial once I pivoted to real estate because it taught me a lot about project management. 

When I was at the University of Houston, I traded energy for a hedge fund, which is an industry I still have a passion for. I gravitate toward careers that reward thinking outside-the-box, so I probably would have ended up in one of those areas. 

Bisnow: If you could make one change to the industry, what would it be?

Goyal: I would bring more innovation into the industry. Real estate can oftentimes be a very extractive environment — people show up with a lot of money to see how they can pull a profit, but don’t go much farther than that. At Three Pillars, we always go the extra mile when adding value to our properties because it differentiates us from many competitors.

Taking the time to make thoughtful, thorough decisions in the value-add and renovation stages of projects allows us to maximize ROI and create more longevity in our tenants. Although this limits our availability to do a higher volume of projects, it ensures that whatever projects we do undertake are successful investments. Because the market was so good for so long, too many operators relied heavily on that, and stopped innovating when it came to improving properties and increasing overall value outside of rent growth.

Bisnow: What is one thing you would do differently from early in your career?

Goyal: Honestly, I wouldn’t change much about my professional journey. I’ve always been drawn to entrepreneurship, so, while it may have taken me a few years to discover the opportunities in real estate, each of my business endeavors before founding Three Pillars taught me valuable lessons.

There will always be trial and error — every success and misstep I’ve experienced helped me figure out what worked, what I was good at, and ultimately how to build and maintain a successful company.

Bisnow: As a leader, how do you decide who is worth mentoring and who is simply not a good fit?

Goyal: For me, it all boils down to a growth mindset. It’s hard to mentor someone who is stuck in their ways and unwilling to take risks or be uncomfortable. Staying curious and pushing yourself to get out of your comfort zone is absolutely crucial when attempting to build a company from the ground up. This is a major reason why my business partner and I work so well together — we’ve always been willing to spend the time learning things that didn’t come naturally to us.

Besides intellectual curiosity, you have to be a hard worker and unafraid of failure. When taking an entrepreneurial path, you will undoubtedly make mistakes and have setbacks. What is most important is that you aren't discouraged by these failures, but rather view them as opportunities to grow and learn. 

Bisnow: What are your thoughts on the metaverse? Does it have any relevance for CRE?

Goyal: Personally, the metaverse is not something I see myself utilizing professionally. But, who knows, maybe down the line I’ll be proven wrong. 

Bisnow: What do you see as the lasting impacts of the pandemic on CRE? 

Goyal: The onset of the pandemic created a lot of fear amongst owners that they wouldn’t be able to sustain themselves through market volatility. Hopefully, the lasting impact of this will be a greater focus on delivering a quality product rather than relying solely on organic rent growth — which, as I mentioned above, you cannot always guarantee in a tumultuous economy. I also think we’ll see operators better preparing for “rainy days” by making sure their business has enough capital to withstand long periods of low income. Overall, the pandemic has made many in the space hyper-aware of potential risks, and many will do whatever they can to cushion themselves from potential blows caused by shocks to the market.

Bisnow: As you know, there is a massive conversation underway regarding advancing more people of color and women into the C-suite. What are you doing to address those voices and that movement within your own organization?

Goyal: As a first-generation American and the son of Indian immigrants, my path toward entrepreneurship and success has not always been easy. As a result of this, I greatly value hard work and want to surround myself with colleagues that hold similar values. The workforce at Three Pillars is made up of people from a large diversity of backgrounds, but, to be honest, these decisions were not actively borne out of any specific diversity initiative. What matters to me and to my company is a person’s integrity, talent and work ethic, so naturally my teams remain diverse as a reflection of this. 

Bisnow: So, this is the weekend interview. What’s your typical weekend routine?

Goyal: I’m always plugged in, so my weekends often look very similar to my weeks. I love business hours because I feel like that’s when everything’s happening. I am a big tennis fan, so if I’m not working, you might find me at a match.