Fractional vs Full-Time CFO – How to Unlock New Levels of Financial Clarity Like We Did | Ep. 30

Episode Summary

In this episode, host Brian Spear converses with Mike Hart, a 30-year real estate finance veteran and the full-time Chief Financial Officer at Sunrise Capital Investors. Reflecting on his extensive career path—ranging from commercial and investment banking to overseeing real estate outsourcing teams at CliftonLarsonAllen (CLA) and managing financial operations for billion-dollar REITs—Hart shares critical insights into structuring a resilient corporate finance function. The conversation focuses on the strategic inflection point when a growing business must transition from external, fractional accounting solutions to a centralized internal strategic seat to unlock long-term profitability and sustainable compounding.

Hart details a practical four-step financial framework centered on establishing accurate historical data, deriving concrete insights, taking disciplined action, and deploying sophisticated Financial Planning and Analysis (FP&A). Rather than chasing top-line growth for growth’s sake, the discussion offers actionable strategies for protecting investor capital through strict cash management practices, technological efficiencies like AI-powered accounts payable automation, and defensive portfolio architecture. Hart emphasizes the distinct corporate flexibility unlocked by scaling self-sustaining fund structures over isolated syndications, explaining how diversified asset pools absorb operational shocks. Finally, the episode highlights the necessity of planning for black swans by maintaining laddered loan maturity schedules, providing real estate operators and passive Limited Partners (LPs) with a direct playbook for assessing an operator’s back-office resilience and identifying durable investment vehicles built to survive market cycles.

Key Takeaways

• Moving from fractional to full-time financial management allows real estate platforms to transition from baseline compliance to deep strategic planning, enabling operators to analyze metrics at a granular level.
• Profitable growth must prioritize bottom-line margin expansion and consistent free cash flow over top-line revenue expansion to prevent an enterprise from collapsing under the weight of unoptimized scale.
• Implementing technological tools like artificial intelligence in high-volume back-office tasks allows growing operations to double invoice processing capacity without escalating administrative headcounts.
• Portfolios can proactively insulate themselves against inevitable black swan events by building out laddered loan maturity schedules that stagger term debt expirations.
• Passive investors should evaluate a sponsor’s underlying back-office structure, distribution track record, and explicit financial guardrails rather than focusing exclusively on short-term yield projections.

Key Topics Covered

• Fractional CFO vs. full-time CFO trade-offs
• Four-step financial framework (Data, Insights, Action, FP&A)
• Financial Planning and Analysis (FP&A) design
• Free cash flow optimization and cash management strategies
• AI and back-office accounts payable automation
• Fund structures versus single-asset syndications
• Risk management, debt laddering, and mitigating black swans
• Sponsor evaluation and due diligence criteria for passive LPs

Episode Chapters

00:00 Intro

Brian Spear introduces the foundational importance of building robust financial systems within a growing real estate platform to protect the downside and optimize decisions before market forces demand it.

00:39 Working at $1B+ REITs

Mike Hart details his 30-year trajectory through commercial banking, investment banking, billion-dollar REIT structures, and leading the national real estate outsourcing business at CliftonLarsonAllen (CLA).

01:54 The Sunrise Capital Difference

Hart explains the core values and long-term operating strategies that motivated him to leave public accounting to join the Sunrise Capital Investors executive team full-time.

03:54 Getting on the Team (Full-Time)

The discussion outlines the process of upgrading internal financial systems, comparing it to an organization learning how to walk straight before it can run at maximum speed.

06:23 Full-Time vs. Fractional CFO

Hart highlights the cost-effectiveness of hiring fractional providers during early corporate stages while addressing the limitations part-time capacity places on execution.

09:27 When to Hire Full-Time

The conversation addresses the specific operational scale and complexity markers that require a business to bring key leadership seats like the CFO and Controller in-house.

15:48 Seeing Beyond the “Numbers”

Hart breaks down the fundamental shift between traditional backward-looking accounting reporting and the forward-looking strategic responsibilities required of a high-tier CFO.

22:43 Most Businesses Miss This Completely

The speakers discuss how the vast majority of real estate operators get stuck in data collection and interpretation rather than executing forward-looking strategic projections.

28:10 Forecasting Long-Term Returns

Hart shares practical methods for projecting Adjusted Funds From Operations (AFFO) per lot, evaluating capital expenditure returns, and optimizing long-term property refinancing timelines.

32:05 Using AI to Boost Efficiency

Hart explains how the corporate finance team integrates AI and machine learning platforms to scale invoice coding workflows and automate predictive financial modeling.

37:23 Funds vs. Syndication Structures

The dialogue outlines how reaching critical mass within a fund structure lowers asset-level overhead, creates capital stability, and reduces the cash flow volatility seen in individual syndications.

41:01 Dodging Mistakes of the Past

Hart draws on his experience navigating the 1980s farm crisis, 1990s rate environments, and the 2008 Great Recession to explain defensive real estate underwriting.

45:47 Enjoying the Ride

Hart shares his perspective on tracking micro-wins like optimizing interest via bank sweep accounts while balancing the demands of a high-responsibility C-suite position and a blended family.

48:33 Sign of a Top-Tier CFO

The discussion focuses on how an innately competitive, benchmark-driven mindset transforms a corporate finance department from a cost center into a core competitive advantage.

50:56 What LPs Should Ask

Hart provides passive investors with specific questions to ask prospective sponsors regarding corporate financial leadership, distribution consistency, and capital guardrails.

53:38 Mike’s Sage Principle

Hart shares his definitive piece of advice for the audience, which centers on aligning personal wealth timelines with the realistic risk-return profiles of given asset classes.

55:22 You Have the Numbers, Now Act

Brian Spear summarizes the core lessons of the conversation, reinforcing that operational growth is only sustainable when supported by disciplined, forward-looking financial stewardship.

Full Transcript

[Transcript begins]

Brian Spear: The best real estate outcomes are easy to admire after the fact. Property stabilizes, a community improves, cash flow becomes more predictable, capital gets returned or redeployed, investors see the results, but the result is not the most important element here. Inside a serious real estate platform, one of the most important questions is whether the financial systems can actually keep up with the growth. Can the company see clearly? Can it act quickly? Can it protect the downside? Can it make better decisions before the market forces its hand? That’s what I want to unpack in the conversation that I have with Mike Hart. He’s a 30-year finance force, our CFO here at Sunrise Capital Investors. Mike, before we get into Sunrise here, just give the listeners a short version of your background, a little bit of your path on how you got into real estate finance.

Mike Hart: Well, I’ve been in finance my entire career, which is almost approaching 30 years now. Started out in commercial banking, went from there into investment banking, and then about 15 years ago, I moved into real estate finance full-time. So I worked for a couple different real estate firms, one billion dollar REIT, one company that was structured like a REIT, but wasn’t a REIT for tax purposes. And then about six years ago, Clifton Larson Allen, CLA, a large top 10 accounting firm, came and got me because they needed someone to help with their outsourcing platform for real estate clients. So I worked for CLA for about six years, started out working on a number of their larger clients, companies, real estate clients nationwide on a fractional CFO basis, ended up running their outsourcing real estate team toward the end of my time there, and then came over to Sunrise almost a year ago now. A wonderful day. Loved every bit of it.

Brian Spear: And we haven’t been the same since, man. So yeah, we worked with you, what, maybe two years remotely prior to you coming on full time. You were kind of on the outside as a fractional CFO before joining Sunrise. So, I mean, what did you see that made you believe that, you know, this was worth stepping into full-time over at Sunrise, bud?

Mike Hart: You know, like you said, we worked together for about two years before coming on full time. During that time, I was working at CLA, had numerous clients across the country in real estate, different models, different strategies related to real estate, was really able to see what was going on in the real estate industry. And then when I started working with you and Kevin, it was very much a way to say, these guys are doing it the right way. You know, they’re looking out for their investors. They’re looking out for their employees. They’re looking out for their tenants. They’re really kind of doing it the right way. And they’re doing it, you know, on a long-term basis. It’s not something, hey, let’s go out there and do build and grow as fast as we can and get out. It’s how do we build this long-term, not only for ourselves, but for our investors, our employees, and for the tenants to make their quality of life better. And it’s not something you see every day in probably any industry, and it’s not something that I saw every day working at CLA across numerous companies, numerous clients across the country.

Brian Spear: Well, hey, I must say, I appreciate the kudos. That’s beautiful. And I tell you what, there’s been a lot of moments over the past decade and beyond that growing this business where I felt some pride and proud. Maybe, I mean, I don’t know. This was a top-tier level one for me. I almost am about to say nothing made me more proud. There’s a lot of things that made me proud. But one of the top things was when the fractional CFO guy that knows us better than a lot of different folks, knows the numbers and the books better than anybody else in the whole company, you know, was willing and interested in wanting to come on full time. That said a lot about kind of where we were at on our journey. And, you know, you said something that kind of in our prep leading up to this that I liked. You know, the company, we weren’t starting from scratch, right? We were kind of up and running. But every growing company, they eventually have to straighten out some of the systems that are going to allow it to run a lot faster. So, you know, what did that look like from your seat? You know, knowing what you know about Sunrise.

Mike Hart: Knowing what I know about Sunrise at the time and knowing what I know now, it was a matter of Sunrise was doing good things. They were moving in the right direction. But like every company, not everything was perfect. How I framed it was you want to learn to crawl before you can walk. You need to learn to walk before you can run. And Sunrise, they weren’t crawling. Sunrise had learned to crawl, had learned to walk, but they were probably walking with a limp and it’s tough to run full speed when you’re walking with a limp. And so I saw, you know, we were doing things right over here, but there was some stuff that needed improvement. It’s not that we were doing it wrong. It’s not that it was going down the wrong path, but just needed to be optimized. Let’s put it that way. And having the knowledge that I did, working with numerous clients, seeing what other people were doing in the industry, I could say, hey, there’s a better way to do this. But one of the things that I was looking for, it’s tough to do that when you’re fractional, when you’re essentially part-time. How do you really dive in, get your hands dirty, make the changes that need to be made when you’re only doing it five hours a week, 10 hours a week, whatever it might be? It’s a full-time job. It’s a full-time commitment. You need to be able to say, hey, I’m going to be here for the long run. We need to do things this way. And it’s tough to do that when you’re fractional, when you’re part-time. So this opportunity coming in-house, being on board, you know, really being able to commit to the company, to my coworkers, the investors, everybody involved in the organization, all the different stakeholders really made it possible to make the changes, make the improvements that we needed to make.

Brian Spear: Love that. And of course, I’ve got my personal perspective of why one might be interested in why Sunrise ultimately did choose at the outset to ultimately have outsourced accounting literally since inception many, many moons ago. But of course, there’s some shortcomings associated with that, right? So why did Sunrise and why would any company ultimately outsource accounting kind of in the early stages of growth of the business? A little color there.

Mike Hart: I’ll go back to my sales pitch from when I was trying to bring on new clients from CLA. It’s cost effective. You know, you don’t need – when you’re starting out, you don’t need a full-time CFO. You don’t need a full-time controller. But you need those services. Right? You need someone to be able to look at the books. You need somebody to be able to do the books, to put in the inputs. So you need all these different jobs in the accounting department, but you don’t need them full time. So what you end up doing is you either over hire and over pay, and now someone’s doing, you’re paying too much for somebody to do some AP or some bookkeeping, or you under hire and under pay, and now you’re getting a good deal on payment, but that person isn’t able to really do all the different functions that you need to do. So outsourcing is a great solution. You can get a controller for 20 hours a week, you can get an AP person for 10 hours a week, you can get a CFO like me for 10 hours a week. And as a company is starting out or growing, that’s a perfect solution for them. Additionally, having the books done externally helps with the confidence in the books. Having an external accounting firm looking at those and reviewing those really kind of helps with the controls, helps with outside investors and that sort of thing, knowing that there’s some confidence in the books. So coming in-house, we’ve had to make some changes related to that. We’re looking to have external auditors review the books on an annual basis, that sort of thing. Because now that it’s not being done externally, those are some changes that you have to make. But for a company that’s just starting out, fractional accounting work, fractional finance work, fractional CFO work is a great answer to a lot of different problems related to the growth and trajectory of the company.

Brian Spear: I couldn’t agree more. Ultimately, that’s why I and we ultimately decided to do that at the outside of the business. A lot of things that you hit on there, I’m going to double click into a little bit more. If you look at strategy, a business strategy and what you’re ultimately trying to achieve, and you look at the value chain and the old Michael Porter value chain – Every business, they’re going to have some unique value propositions, some things that they’re very good at, right? Some very interesting competitive advantages. But by no means at the outset of your business are you going to be an expert in every respective portion of that value chain. And in the areas where you’re not going to be an expert, in an area where you’re not bringing some sort of unique value proposition, oftentimes bringing on a third party or vendor to help offset that and bring in some additional expertise is prudent. And that’s really what it was for us. And as our team grew, right – We actually didn’t start with CLA. We worked up towards CLA. CLA is a top 10 firm in the country, literally the largest outsourced biz ops team in the country. We had a couple of smaller versions and we outgrew one, we outgrew the next, we outgrew the third, and ultimately we landed CLA. And then eventually you get to the point where now we’re at the size and the scale and oh my gosh, we got to start thinking about maybe bringing this in house. But let’s talk about, you know, when does that company outgrow it? When does the company eventually outgrow that maybe third-party accounting, some fractional CFO work along the way? A little bit of color there, and maybe then what changes? You know, after you do bring it in-house, what changes when finance moves from a third-party reporting to an internal strategic seat? Yeah.

Mike Hart: A company will eventually outgrow outsourcing, maybe not completely. You know, they’ll still need some outsourcing for some jobs. They’ll still do some outsourcing. But there comes a point where, like Sunrise, you need a full-time CFO. You need a full-time controller. You need full-time people that are focused on the business, that are concentrating on the business, that aren’t, you know, splitting their time between Sunrise and another company or five other companies, that are really just focused on the core business and what needs to be done, not only from a planning standpoint, but from a team makeup standpoint. So there is a point where the business essentially becomes large enough or too large to outsource some of these key roles that it’s better to have in-house. Not only from a cost standpoint, it’s cheaper to bring a CFO in-house full-time than outsource a CFO online, full-time, but also from a knowledge and commitment standpoint to say, this is what I’m doing. This is my role. This is my job. It’s not split between this and five other things. So it’s really a matter of the growth of the organization and say, when does it make sense to bring these different roles in-house full-time. And Sunrise was at that point about a year ago to say, hey, we’ve been outsourcing this for a while, but now is the time to bring these key roles in-house. We may still outsource some, and we have used CLA and some other partners to do some work here and there over the past year as we’ve kind of built out the team and understood the different roles that we need. But the key roles, myself, Brenda Smith, our controller, coming in-house has really allowed us to do what needs to be done from a team-building standpoint, from a processes standpoint. And that’s just, it’s something that, while it’s possible to do as outsourcing, it’s not as efficient, it’s not as effective as doing it in-house.

Brian Spear: And it’s been wonderful to have you here full time because we’re getting a lot of value in a fractional manner. But when you’re in a fractional manner, you know, we’ve talked about this before, you’re an inch deep and a mile wide in a ton of different organizations. You get best practices across the board in a litany of different areas, tons of benchmarking, a lot of benefits. But now we have the opportunity to go an inch wide and a mile deep into Sunrise and get extremely granular and drawing out insights and so much more beyond that. But it’s beautiful to see. One additional thing I’d say is, you know, what changes, right? When we’re bringing folks in full time, and I’m sure other organizations are the same, but we’ve had an exorbitant amount of value driven when we bring on legitimate C-suite guys, hire the key folks in key roles, right? I think a lot of guys that are building businesses have difficulty ultimately letting go of the vine, trying to have all decisions run through them. And at the end of the day, the buck stops here. There’s got to be one person that ultimately makes those decisions. However, the truth is it is impossible for one human being to be expert level in every respective area of a business. And again, given the fact 25 years in different areas of finance, growing to the top, managing the entire national real estate platform over at CLA. I mean, I haven’t had 25 years doing that, okay? So you know things that I don’t know. If I have seen further than others, it’s only because I’ve stood on the shoulders of giants, right? And if you bring in somebody that is top tier in that respective seat, one of the windfalls that you receive is not only that one individual filling that one respective role, but you’re not going to be able to do that and the tons of experience that they bring, but you also get the network, right? You mentioned Brenda, and we’ve brought on numerous different individuals now. You’re also getting the network. We’ve talked to Todd previously when we hired him as the president of Ops over at Sunrise Communities. You’re getting his entire network for decades doing this, and building out that entire team, that entire infrastructure, all the systems and processes that come along with it. And it doesn’t happen overnight, right? You know, snap your fingers and Mike just solves all the world’s problems. Okay. But it takes a little bit of time, but you get so much more value than simply Mike. I mean, any thoughts on that, bud?

Mike Hart: Yeah. Like, like you said, you know, my role previously, you know, I was, I was an inch deep and a mile wide because I was working with clients across the country. I was working with CLA offices across the country doing different things, generally in a CFO role, but also in a manager role, different operations related to that. So I was spread relatively thin, that’s how you are when you’re an inch deep and a mile wide. But being able to focus here at Sunrise, like you said, it’s now I’m a mile deep. But there’s still things that I don’t know or that we need help with that, hey, we’re looking to do different lines of credit or we’re looking to get different tax strategies or whatever we might be looking to do. So I can go to that network and say, hey, this is what we’re looking for. And while I’m a mile deep now, I’m still only a mile deep in my pond. And there’s a lot of ponds. So going to that network and saying, hey, we’re looking for a corporate line of credit and finding the right opportunity to say, yeah, we’ll set you up with that. And being able to do that for for Sunrise is great using that network or tax strategies and say, hey, this is what we’re looking for. You know, from an exit standpoint, we’re selling some businesses, those sorts of things. What do we need to do from a tax strategy standpoint? How does that look? So having that network, having the 25 years of relationships built up, of the knowledge of how different real estate companies are working within the industry, seeing stuff before. Hey, I’ve seen this before. I’ve dealt with this before. What’s a 721 exchange? What’s a DSD? I’ve dealt with that before. I’ve had clients that have done that. I’ve done that personally in other roles. Whatever that might be, really brings that knowledge to Sunrise so that we can continue to grow the organization and potentially grow it using different strategies, using different techniques to really kind of maximize the return for investors, maximize the opportunities for employees, whatever it might be.

Brian Spear: Let’s pivot over to maybe building out a finance department. And really, what is the goal and the vision of finance in general, right? You’ve made the point previously that a lot of people can report the number, actually give you the data, the books, as it were. But the real value is understanding what the number actually means. So, Mike, when you look at a growing real estate platform, what are the basic financial building blocks that really have to be right first?

Mike Hart: As I said, I came in-house about a year ago. Our controller, Brenda Smith, came in-house about a year ago. We’ve worked on building out the team. We’ve had a new person join us here in Houston in January that was also from CLA. And really that’s just to get a foundation of saying, okay, here’s what we need on an ongoing basis, whether that’s weekly with AP or monthly with the monthly financial reportings or quarterly with the investor reports, whatever that might be. How do we get the numbers in a timely, accurate manner to say, here’s what’s going on. Here’s what’s going on with the properties. Here’s what’s going on with the funds. And knowing that we can look at those numbers and understand at a kind of a granular level, what’s going on, why are expenses up? Why are these things moving in this direction? So that we can analyze those, because you need those numbers to be able to say, okay, we’ve got the accurate reporting, we have the financials, we can look at trends, we can go back and look at data. Where is this trending? What is this doing? So that we can say, not only so that we can say, hey, we need to look at this specific line item because it doesn’t correlate to previous amounts for that line item. But what I like to term is, the accounting nature of it is looking backwards. What happened previously? What’s happening, you know, at these properties. And then the CFO’s role is to be able to take those backward looking numbers, turn around and look forward and say, if this is what we’ve done, what are we going to do? Where are we going? And that’s my role to say, here’s what we’ve done. Here’s where we are. Here’s where we’re going. And what do we need to change? How do we make where we’re going better? What do we need to change? You know, one of the things that we’re talking about in the department and across the company is saying, what changes do we need to make to make it better? So is that from an accounting standpoint, you know, what do we need to change in our department? Is it cash management? Is it paying bills timely, but understanding the cash flow of those bills. If a bill doesn’t need to be paid for 30 days, what kind of return can we get on the money in those 30 days until the bill is due? Or conversely, if we can get a discount on a bill by paying it within five days, what kind of discount can we get? Those sorts of things, cash management. And taking that aggressive, very cognizant and disciplined manner and taking that to the rest of the organization and say, you know, every dollar counts. What do we need to do with this dollar to make it count? And, you know, we had a team event in January where we brought all of Sunrise together to really talk about the organization, where we’re going. One of my things that I stress was, from an accounting standpoint is every dollar counts and laying that out to the various departments across Sunrise, Sunrise communities, the investor relations team, accounting team, and saying, if we can save $50 a month per lot, what does that translate to the company? And it’s a huge windfall in terms of the amount of value the company gets out of it, you know, across 3,000 lots, $50 a month. I mean, it’s, it adds up to, to essentially buying a new, another property of buying another $4 million property because of that added nature. We’ve added seven properties here in the last, you know, six, eight months. Okay. Those properties now add X amount in value. How do we, how do we really kind of maximize that value as we’re growing. Those are the sorts of things that the accounting team needs to look at and needs to pay attention to as kind of the stewards of the money, the stewards of the capital for the organization to really understand what’s going on and how do we translate that into future growth and future benefit.

Brian Spear: Absolutely. You know, I love to use the phrase small edges compound. It’s the old Jim Collins flywheel concept of once you actually are running the business model effectively, efficiently, and getting everybody rowing in the same direction around the flywheel, those small edges, right? You know, talking about being more mindful about cash management on a 30 day horizon, right? Paying it a little early versus paying it a little later. How can we actually win on either side of that coin? Yeah. Small edges, exceedingly small. But if everyone in the organization is doing their part, those small edges compound to massive enterprise value over long periods of time. That’s beautiful to see. Now, maybe reverting back to the framework of building out the finance, and I agree in terms of like rear-facing versus forward-looking. I use that analogy all the time of a vehicle, right? So the very basic building block is getting the data correct, actually doing the accounting in such a way that you have timely numbers reporting accurately and timely numbers so that you actually have high quality data, right? Geico, garbage in, garbage out. That’s step one. I would just use a four step framework in terms of finance, right? The first is just getting the data correct. Rear view mirror. Make sure that what happened last week, last month, last year, all that accounting is done bulletproof and in a timely manner. That’s the first piece, getting the data done. The second piece is actually understanding and getting insights from them, right? Numbers are one things, but you have to find a way to turn it into words, right? But taking it one step further, the old adage that Brian Tracy would convey is that knowledge is not power. That insight, that is not power. The application of knowledge is power. So the third step is actually action items. What is action items being taken from the insights that you’re actually learning by digging into the numbers? And then the last piece of the puzzle, the fourth step, is actually financial planning and analysis. FP&A, forward looking. The first three, all that stuff is still rear view. You’re looking in the rear view mirror. What happened last week, last month, last year? And then how can we improve moving forward based off what already occurred as opposed to understanding forward-looking, again, what’s our cash conversion cycle? What are we doing in the budget and the guidance over the next year or two or three? And what do we need to do in terms of strategically modifying to get out in front of the next hire and XYZ for the betterment of everybody involved, right? That’s the simple four-step framework that I would put in place in terms of finance in general, most of it rear-facing, but ultimately trying to get to that forward-facing FP&A for the betterment of all. But, you know, Mike, you’ve seen a lot of different stuff, work with a lot of different companies over time. In that journey, where do operators usually get stuck, right? Is it in collecting the numbers? Is it in interpreting the numbers or acting on them? Where do operators usually get stuck?

Mike Hart: You know, I would say it’s a lot of interpreting. Hopefully, they’re not getting stuck collecting the numbers. That’s kind of the basic, you know, you need to have the numbers. You need to have your data. If for no other reason, then you got to file your taxes at the end of the year. So that’s hopefully not where they’re getting stuck. What I’ve seen people is they’re getting their numbers, but they’re not looking at the numbers. They’re not analyzing it. They don’t have either the skill set or the techniques or the time to say, what do these numbers mean? And then as you said, what’s the action item related to those numbers? What do we need to do to change them? What do we need to do to improve our processes so that we’re not just going around and around and not making those improvements? And then the final thing that we talk about, which we’re really focused on, my role is really focused on, which I would say very few companies do. The good companies, the great companies, they’re doing it as saying, now that we have the numbers, now that we have some action items, where are we gonna be six months from now, 12 months from now, 10 years from now? And what do we need to do to change that trajectory? Or what do we need to do to compound that trajectory and really kind of take whatever business it is, whatever company it is, to whatever that next level might be for the company or for the principals of the company, for the investors of the company, whatever that might be. And I would say, not only do people not get stuck there, most people don’t even get to that point. They’re getting stuck in the steps that are prior. They’re getting stuck in the analysis and action item step and getting to that forward-looking point where we are, is something that, you know, I don’t know what the percentage is, but I would say it’s probably only the top five or 10% of companies get to that point to really say what’s coming up down the road. How do we get to where we want to be five years from now, 10 years from now?

Brian Spear: To that end, right, how do you get to where you want to be five years from now, ten years from now, pivoting to growth? You know, maybe a lot of people stumble into growth. And because they haven’t really thought through it, don’t have a really good strategy, haven’t thought through the FP&A of really what needs to occur to get there, right? A lot of real estate companies, they talk about growth. But fewer talk about profitable growth. What is the difference between growth and profitable growth?

Mike Hart: You know, one of the things that I like to say is we don’t want to grow just for growth’s sake, right? We want to look at the profitable growth. So, you know, one of the things that we’re doing is looking at a variety of metrics to say, what does our growth look like? What does our results look like today? What are our results going to look like tomorrow, depending on, you know, how we’re budgeting this out, how we’re growing and looking at the profitability or more likely the cash flow, the free cash flow from that growth to say what do we get from a from a return standpoint from for our investors for our company for that growth what’s that profitability look like because we could we could do different things and you know overpay for properties or load up the properties with various, you know, different financial instruments and debt. But what does that look like at the end of the day from a free cash flow standpoint? So we’re really looking at cash flow to say, what is our profit – what’s our profit for the individual lots? What does a lot bring in on a cash flow basis, on a profitability basis, whether that’s for a month, a quarter, a year? What does that look like today? What’s it gonna look like five years from now? How do we maximize that cash flow so that we can understand our growth, but also understand here’s what that translates into dollars. Here’s what that translates into returns for the company and for the investors so that we can analyze that and understand where that’s going and what changes we can make to make that more profitable, make that number larger.

Brian Spear: Oh, it’s beautiful. Again, you mentioned good to great earlier. It’s the old Jim Collins good to great profit per X, right? Trying to find the unlock in the business, what are the things that you need to be focusing on, the numbers and how, right? What kind of profit? Is it revenue? Is it profit? Is it cash flow? Is it, is it AFFO, right? After tax cash flow? Like, what are we talking about here? What is the thing that we need to be focusing on per what? Where should we be growing? What sort of financial guide rails do we need to have in place to ensure that you’re not just growing for growth’s sake, right? You can go buy another business and swallow a monster, but it can ultimately take you down, right? It’s the old Roman Empire analogy. You don’t want to just grow for growth’s sake where you collapse under the weight of scale. Some of the things that we talk about internally here are ensuring that the top line growth, revenue is outpacing the market, right? We’re doing better than our peers benchmark in the industry, but simultaneously that the bottom line is growing at a rate higher than the top line. So we’re getting margin increasing on an annual basis, right? Trying to have some guardrails in place that ultimately allow you to grow sustainably, profitably for the betterment of all, not just as you had put it, right? Growth for growth’s sake. So, you know, talking maybe about FP&A, forward-looking. A lot of folks are, you know, looking at historical reporting. But FP&A is about looking forward. Give a little more color on what that unlocks for the business. How does it help you make better decisions moving forward?

Mike Hart: With the growth that we’re experiencing and that we’re targeting. Like you said, we’re looking at the top line. How is that growing? How’s that growing relative to peers? How’s that growing relative to the market? We talked previously about the expenses. Okay, now we have variety of expenses. How do we save on those expenses? Is it working with different vendors? Is it making sure we’re bidding out all the different contracts that we have to really kind of maximize our savings on the expense side to really kind of squeeze that number as best we can, knowing that we wanna work with reputable companies, we wanna work with reputable lenders, we want the various tasks and jobs that we need done at the properties done in the right way, in a safe way. So we’re making sure that we’re doing things correctly, but also as efficiently and as relatively inexpensive as possible. So we’re looking at both of those models. And all of that is driving that bottom number to say, okay, here’s what your net income is. Or as we’re looking at it, we’re looking at a lot of AFFO. What is our cash flow after all of these expenses, after debt, after CapEx projects? What’s our return on our CapEx projects? If we’re going to do a build out for a community, if we’re gonna do an improvement, how does that translate into additional dollars? Are we able to charge more for rent? Does it save us something in the long-term on the expense side relative to utilities or whatever it might be, and saying, okay, how does this drive our bottom line or what we’re looking at as AFFO per lot, those sorts of things. And then being able to turn around and say, okay, what does this do long-term relative to, okay, the capex, we’re gonna spend X amount today, but over the next five years, we’re gonna get a return on that five-fold, ten-fold, whatever it might be, from a property improvement, higher rents, cheaper costs related to utility expenses, or whatever it might be, what’s that return look like? And being able to say, okay, now we have our budgeted out. We’re budgeted out five years. We’re budgeted out 10 years. Here’s our growth trajectory. What does that mean from a property standpoint individually? And then how does that roll up? How does that roll up to the fund? What does the fund’s growth look like? When can we refinance that property? Because now it’s at maximum occupancy and all of the tenants have been seasoned, and we can put it on a long-term low interest rate debt. And what does that mean for proceeds that have come into the fund that can be distributed or redeployed into new properties? All of that plays in together. It starts from that minuscule little, hey, how do we get this vendor to be cheaper by 50 bucks a month to what are we gonna refinance and sell 10 years from now? All of it plays in together because it’s all tied together. All those financials are tied together. You know, accounting, I like to say, it’s the hub of the wheel. Everything is flowing into the accounting. We’re looking at all of this, all of these numbers, all of these analysis. And then we’re going back to people and saying, you know, how do we get this vendor cheaper? Can we raise rents over here? What’s the return on this CapEx project? And what does that translate to years from now in terms of a return for the company and for the investors?

Brian Spear: Of course, a lot of things revolve around the shared services, the shared service department. Of course, we’re talking about finance in the center of a lot of different pieces of the puzzle. You know, you build out the team internally over here at Sunrise. You’ve also got to contemplate all the myriad of things going on in the marketplace, right? With the advent of AI, it’s been absolutely amazing to see new technology coming across the board. We’re always looking to increase productivity per person inside of the organization for the betterment of all. So how do you think through that and how are you thinking through AI and technology in today’s environment and kind of ultimately building it into what we do inside of the finance team over here at Sunrise?

Mike Hart: Yeah, we’re thinking about AI a lot. We’re thinking about AI pretty much every day. Everyone on the accounting and finance team this quarter has a goal, a rock, to look at AI and say, how can AI help me do my job on a daily basis? Yeah. Not necessarily what can it do to supplement what I’m doing, but what can it do to actually take something off my plate so that I can work more efficiently and quicker. One of the big things is AP. With 35 plus properties and continuing to grow and hoping to grow at a scale on an annual basis, we’re processing a lot of invoices. Last year, we processed over 8,000 invoices. This year, with the new acquisitions that we’ve made, we’re probably going to process over 10,000 invoices. So that’s a lot of invoices coming in that need to be coded, that need to be assigned to different properties, that need to be put into the systems. So what we’re doing is we’re leaning on a lot of technology, a lot of AI to do that, where it’s reading invoices, it’s coding it, it’s putting it into systems. And it needs to be reviewed because it, you know, it needs to make, we need to make sure that it’s going to the right place, but it’s cutting down on the amount of time in terms of having to either manually key something or input that. So what we’re looking for on that end, and I’ve said this before, and I’m gonna stick to it, we wanna be able over the coming years to process double the number of invoices that we’ve previously processed with the same number of people. And leaning on AI and the technology to do that, which will really make us more efficient. We won’t have to grow our headcount and we’ll be able to do that. We’re also using AI in various ways in terms of analyzing financials to say, okay, here’s a financial analysis that we may have had to have, you know, someone manually code or manually put into an Excel spreadsheet before and cut and paste where now we can download documents into a financial program, have AI read it and come out and say, here’s things that you need to look at, which has really helped us to say, OK, what is that? What do we need to do from from an adjustment standpoint or from a improvement standpoint to say, here are the line items, expense line items, revenue line items that you need to look at to say what do we need to make improvements on? So that analysis piece has really helped with the AI technology. And then in terms of the modeling and the financial planning, that future looking piece, really, AI can put together a model, where are we gonna be in 10 years? And while it can put together the model, then we look at it to say, okay, what does that look like? What do we need to do? What are the changes? When do we need to refinance properties? So we’re really looking at a number of ways that AI not only helps us on a day-to-day actually doing the job and getting things done, but also on an analysis standpoint to say what’s coming up? What does this look like? What improvements do we need to make? So we’re leaning on it in a number of ways, and this is only the beginning. You know, what it looks like in 12 months, two years, probably will completely change what we’re doing today, which is why we’re continuing to look at it on a daily, weekly, quarterly basis to say, what’s the new thing that’s come out that can help us?

Brian Spear: A day one mentality. We’ll always have a day one mentality. Iterate and improve. We’ll never have made it. The minute you rest on your laurels is ultimately when you get, you get crushed, right? The old ABCs of businesses, you know, if you get arrogant or you build bureaucracy or you get complacent, ultimately that’s when you fail. So keep it ripping. Iterate and improve every single day. Love every bit of it, right? We’re never going to be the guys that ultimately slash and burn. How do you build an enduring culture inside of an organization if you are slashing and burning and ultimately laying off exorbitant amounts of staff, right? It’s not a prudent thing for the culture of the business. But you also need to be mindful, and we’ve overtly stated to everybody, that we’re going to be human first. We’re not going to go slash and burn based on AI. We’re human first here at Sunrise, but we’re powered by AI to make everybody superhuman. That’s the intent, right? Human first, powered by AI to make everybody superhuman for the betterment of all. So I appreciate you taking that to heart inside of the finance department and look forward to continue to increase productivity per person across the board here at Sunrise for many, many moons to come. Let’s double click into the difference between a fund structure and a deal specific individual asset, right? Syndication, one individual property. You know, you’ve got a lot of arrows in the quiver, a lot of tools in the tool belt, seen a lot of different things over time. And you’re now with a fund at your disposal, as opposed to having an individual deal, what does that fund unlock for the finance department in terms of allowing some more flexibility to optimize the efficiency of the business and ultimately – the after-tax cash-on-cash return for everybody involved. What are some of the material benefits associated with having a fund structure as opposed to just running one deal?

Mike Hart: As funds start to scale, as you get to a call it a critical mass, funds essentially become self-sustaining where you can say, we have X amount of equity, we have X amount of AUM, so much in properties, that if we wanted to for the entirety of the life, we don’t need to go raise more dollars. We don’t need to go get more equity. We can just continue to operate this fund. And the reason is, as a fund grows, your costs relative to the individual property start to decrease. Your overhead related to accounting, your overhead related to management, your overhead related to oversight, it starts to decrease on a per property per lot basis because it’s spread out over the number of properties. Additionally, having a fund structure allows to do more, I hesitate to use the word creative because I don’t want anyone to think it’s, it’s some sort of, you know, risky or anything like that. Um, trust me, I lived through, I was in banking in 06, 07, 08. I know what, what, what risky loans are and it would never go near them. But you’re able to do different structures where if you could package a number of properties together in a portfolio and get some debt that might be better terms than you would be able to on a one-off deal. You’re able to get lines of credit that are secured by a portfolio. You’re able to get different models where you can have an acquisition line. Those sorts of things that it just allows a fund to be more efficient, more financially stable than a one-off deal. A one-off deal, if you have something go wrong, you have something, the market turns in that specific area, you’ve got a number of tenants that move out, you have a large CapEx project, can turn a one-off deal very sour very quickly where a fund is able to absorb those things. So you get a little bit more steady growth as opposed to maybe some more peaks and valleys related to the returns with a fund as opposed to a one-off deal. So there’s just a lot of different opportunities that a fund provides than a one-off deal.

Brian Spear: No, I agree. The phrase I like to use is that the returns revert closer to the mean, right? In an individual deal, you might hit a home run, might hit a grand slam every now and then, but occasionally you’re going to strike out and it’s going to hurt everybody dearly. In the fund structure, you’ve got a lot more tools, a lot more arrows in the quiver, and the returns, it allows you to optimize for efficiency. And then the returns revert closer to the projections along the way, right? Closer to the mean. So let’s maybe pivot and dig into you personally a little bit more. Talk about bringing your whole self to work. You know, I know you personally. You have an amazing background of perseverance and persistence over time. It’s a big part of who you are. We really haven’t dug into it too much today. But how has adversity shaped the way that you approach work, you approach risk, and you approach responsibility on a day-to-day basis?

Mike Hart: Well, as I said, I’ve been in finance for 30 years, 30 plus if you really want to dig into it, but technically 51 years if you want to dig into it. But I’ve seen everything, and I mean that, and I’ll talk to anybody about this. I saw the early 80s farm crisis. I saw the higher interest rates in the 90s. We just touched on, I saw firsthand the downturn, the great recession in the mid-2000s. So I’ve seen it all. And seeing that really, it doesn’t make me risk adverse, but it makes me understand, here’s the pitfalls. Here’s what could go wrong. We need to make sure we’re optimizing what we can optimize because there’s something around the corner that you don’t see. You don’t even know what it is. So we need to be as best prepared for that as possible. And so that’s one of the things that I’ve done in my career. Even before 06, 07, 08, we were we were in a good spot and one of the reasons we were was I honestly didn’t understand, A, the valuations on homes and B, how you could get a 2.5 for six months negative amortizing loan. Didn’t make any sense to me. So, you know, that’s one of the things that I look at and kind of guard against is to say, okay, what do we need to do for the long term? This isn’t for today. This isn’t for tomorrow. This is for five years from now. This is for 10 years from now. What does that look like in the long term? So some of the things that we’ve specifically done, and we’re starting to do these with our portfolio is loan maturity dates. What are loan maturities? If we have a ton of loans that are all coming up at the same time, what if rates are double what they are today when all of these loans mature? So having a laddered loan maturity schedule is important to me. It’s one of the things that I did at my previous job where we were looking to say, okay, what do we need to do to have this kind of laddered so that we don’t have any spikes in loan maturities? It’s relatively even. And that was kind of from a long-term standpoint. And then when rates went down, we’re saying, okay, rates are low, they’re at historic lows. The odds of them coming back down here are slim. So we’re gonna keep these properties forever. We need to put them as long-term loans as possible to take advantage of that, to say, what’s that? We’re gonna maximize the dollars now, put them on long-term loans to take advantage of where the rates are. So those are the types of things that we want to do in the finance department to really guard against potential downturns in the future, to make sure that, like you said, the fund, it’s regressing to the mean. It’s steady. That there won’t be those, you know, there might not be those real high peaks, but there’s also not going to be the real low valleys.

Brian Spear: The old adage goes, right? You only need to get rich once. You got to protect the downside. After you end up doing pretty well, you got a little bit of cash in your pocket. Focus on rule number one, don’t lose money. Rule number two, don’t forget rule number one. And, you know, you’ve brought up some great points here. I want to revert back to one of the sage investment principles that we have, right? We’ve got inside of our capital strategy, the seven pillars and then the 21 principles. One of them is planning for black swans. You know, the listener, you’ve heard me talk about this before, but this is an example of how you actionably plan in advance for the next inevitable black swan. It is going to come. So how do you structure your business and your affairs and your portfolio in such a way that you can survive? You can survive the next inevitable downturn because it’s going to come. You don’t know when, but it will come inevitably. And you have to ultimately, by way of example, stagger term debt expirations to make it through the next inevitable downturn. It’s beautiful. Well, Mike, talk about enjoying the ride, buddy. It ain’t all sunshine and rainbows, right? There are ups and downs along the way, but talk about enjoying the ride. What does that look like while you’re carrying the torch of a high responsibility role in the CFO seat over here at Sunrise?

Mike Hart: We’ve talked about this before. This is my bedrock principle that I have the most difficult time with. So it’s, it’s just who I am. I enjoy the ride from, from a, from a work standpoint, you know, for me, enjoying the ride is, is, is, is getting the numbers, knowing the numbers, getting the deal done. Hey, we, we, we got this property. We were able to analyze it. We were able to look at, we were able to put debt on it. This is what we’re projecting out. And, and, and getting the first quarter’s numbers in and hey, we’re right on target. We’re looking good. Or saying, hey, if we make these changes to this property, if we try to cut these expenses, this is what it looks like. One of the things that I’ve enjoyed the ride on, and I’ll get to my personal life in a second, but on the work, I’ve been looking at our what we’ve made in terms of our sweep accounts this year relative to last year. And I’m not going to put it out there yet, but I’m thinking we’re going to be able to, if you will, cover the salary of an accounting employee with the increase in what we’ve made on our sweep accounts this year relative to last year simply because of our cash management. We’re doing better on our cash management and we’re making more money on those. And so while it’s not directly going to pay for this person, I look at it as, hey, we’ve improved that much on our cash management that we’re able to theoretically cover an employee on the account. For me, I’ve got a blended family. We’ve got a number of kids. They’re all over the country in terms of college. And now some are moving out of high school and into college. So we’re moving kids around and some of them are out graduating and coming home again. And so that’s, you know, it’s a lot of activity on that end. But that keeps me busy and is what I enjoy.

Brian Spear: I agree, right? The old enjoy the ride thing is interesting. I also feel like I’ve historically been challenged with that. Kevin, I think he’s butter. He is unbelievable. I’ve never met somebody in my entire life that is so good at that piece of the puzzle. He’s just like a duck in water. It’s beautiful and an example to all of us, I think, in the organization. You know, I’m a recovering perfectionist, right? I’m always looking at the 1%, trying to find better ways to improve what we’re doing. So I struggle with that similarly, but such is life, right? I think it’s beautiful. Life is too short. So we’ve got to always try to be mindful about focusing on it. But, you know, give me a little color in terms of why. Why finance, right? I think a very select few people ultimately are interested in staring at spreadsheets all day and looking at numbers and ultimately trying to turn them into words for the betterment of everybody involved, right? So what innately inside of you, like what behavioral traits ultimately led you to want to ultimately pursue a career in finance, man?

Mike Hart: Well, if you couldn’t tell from my earlier comments, it’s what I grew up with. It’s all I’ve ever known. When I was in high school, I won a state competition and came in second in a national competition in terms for economics. Um, so it’s just kind of all I’ve ever done. I honestly, if I wasn’t doing finance, if I wasn’t a CFO, if I wasn’t doing this, I literally have no clue what I would do. So outside of this, outside of, you know, my family, I have no idea what I would do. So it’s something that I’ve always been interested in. Luckily, I enjoy it. I don’t come to work every day saying, oh God, I gotta look at spreadsheets again. I enjoy it. I do enjoy the numbers. I wanna make the numbers better. How do we improve? For me, I think that’s part of my competitive nature. How do I improve the numbers? How do I get better? You know, it’s it’s it’s like looking at, OK, what are our peers doing? You know, and doing an analysis on that, saying, OK, here’s what the public companies in our industry are doing and here’s what we’re doing. How do we do better than them? You know, kind of the competitive nature out of it. So I kind of turn it to that, you know, drive me a little bit in that way. So that’s just the way I’ve always been. I’ve never really looked at anything else. So I don’t know. Maybe I’d be a great doctor, although I’m not anywhere near smart enough for that. But it was never something that I looked at, so I don’t know.

Brian Spear: I appreciate your competitive nature. I think your competitive nature has ultimately, in time, become a competitive advantage for us. So kudos. I love every bit of it, man. I’ve got to bring that whole self to work. It’s a beautiful piece of who you are and what you do. Let’s try to pivot a little bit to passive LPs, guys that are trying to allocate capital passively in various different investments. Yeah. For passive investors that are looking at different sponsors out there trying to find a good place to park their capital, what should they listen for when a sponsor is talking about their finance function?

Mike Hart: Every investor is going to be different. They’re all going to have different goals. They’re going to have different needs and wants from their investment and their returns on their investment. So really a couple things that they’re gonna need to listen for is what is that sponsor saying relative to their specific needs? Do they fit what they’re looking for? Are they looking for long-term growth and appreciation? Are they looking for relatively stable, relatively safe investments with maybe a tax planning strategy related to it? So part of it is the overall investment thesis. What does that sponsor really providing that is what they’re looking for. Second thing is, you know, what’s the sponsor’s track record? Have they been consistent in their returns? Have they been consistent in their performance relative to their funds or their properties? Have they given consistent distributions? You know, one of the things that Sunrise prides itself on is the consistency of our distributions, the consistency of the returns that we’ve had. You know, some sponsors in our industry have had to, you know, halt distributions, maybe the structure of the deal gone in and said, hey, we need additional capital. Sunrise hasn’t done that. We’ve been consistent with our distributions. So what’s that track record piece? And then on a finance standpoint, who is their CFO? Who’s running their department? What do those guardrails look like? What are they doing from that department to maximize things? Are they just, hey, we’re getting the accounting and here’s our accounting and that’s that? Or are they really kind of helping to improve the business, helping to improve the returns on the performance of the fund or the investment, whatever it might be, to say they’re actively looking to make things better for the company, for the investors, what does that look like? How is that active participation? What are their guardrails related to their investments? What is their return relative to those different things? So, you know, it’s a whole suite of things that investors need to look for. It’s tough to say, hey, you need to look for this one thing because there really is no golden magic bullet.

Brian Spear: Love that. Well, I know that there’s no individual golden bullet associated with solving that riddle for LPs. I hope that that adds a little bit of value for folks out there having the conversations across the board. But I will press you on one golden nugget as we round out the conversation today. What should it be?

Mike Hart: Understand your individual investing desires, needs, and wants, and understand what an investment can offer for that and can’t offer for that. And I say that from the standpoint of if you’re looking to double your money tomorrow, you’re going to take a lot of risk, and it might not happen, and you might lose everything. But if you’re looking to grow long-term, create wealth on a steady trajectory, that’s a different investment. So it’s really understanding what you’re looking for to be able to understand what the investment needs to be that you’re looking to go into. Okay.

Brian Spear: Beautiful stuff. And I think a beautiful way to round this one out, Mike. I tell you what, I have thoroughly enjoyed having you come on to the old Sage Investor Podcast for the very first time. I’m sure that it will not be the last. But you’ve added a ton of value for everybody today. And you’ve added an exorbitant amount of value for everyone over here at our team at Sunrise and all the myriad of stakeholders that we have inside of the organization. Again, proud to call you a partner and a confidant and look forward to continuing to build with you for many, many moons to come, buddy. But in the interest of efficiency of time for everybody involved, we’ll get the heck out of here for today. What stands out from this conversation with Mike is that finance is not just a back office function. At its best, finance becomes a discipline of stewardship. It tells you where you are. It shows you what is changing. It forces you to ask better questions. And when it’s used well, it helps protect capital before problems become obvious. That’s the deeper lesson here. A growing company can report numbers. A more mature company can interpret the numbers. But a durable company learns how to act on them and eventually how to look forward, how to plan ahead, and how to prepare for what may be coming around the corner. And that’s where Mike’s role becomes so unbelievably important. He’s not simply helping Sunrise close the books. He’s helping the team understand what the numbers mean, where small improvements compound, how growth can remain profitable, and how the platform can become more resilient over time. And for investors, the takeaway is simple. Know what you are actually trying to accomplish. If you’re chasing a quick upside, you may end up accepting risks that you don’t fully understand. But if your goal is long-term wealth, if it’s steady cash flow, tax efficiency, and downside protection, then the quality of the operator and the financial discipline behind that operator matters tremendously. And that’s the sage principle at the center of this episode. Growth is only valuable if the systems underneath it can support it. The goal is not to grow for growth’s sake, right? The goal is to build something durable enough to compound through cycles, absorb shocks, and keep making intelligent decisions when the market gets noisy. That’s how you move from chasing returns to mastering outcomes. We appreciate you tuning in each and every week to help us grow. So go ahead and please take a moment, leave a comment, leave a review. Just let us know how we’re doing out there, okay? Please let us know how we’re doing along the way. It would be very, very much appreciated. But until next time, you be great.

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