Fernando De Leon
Founder and CEO of Leon Capital Group
Willy was joined by Fernando De Leon, Founder and CEO of Leon Capital Group, a family holding company that built and operates a portfolio exceeding $10 billion in assets across multiple businesses in healthcare, financial services, and real estate.
In a recent episode of the Walker Webcast, I had the pleasure of sitting down with Fernando De Leon, Founder and CEO of Leon Capital Group—a family holding company with a portfolio exceeding $10 billion in assets across diverse industries, including healthcare, financial services, and real estate. Our conversation spanned a wide range of topics, from Fernando's formative years to his vision for the future of Leon Capital over the next few years.
Data centers in industrial space and nuclear power
Recent surges in investment in data centers and artificial intelligence are transforming the industrial real estate landscape. Developers are eagerly acquiring industrial properties to meet the growing demand for data center space. However, companies like Leon Capital and others in this sector are not primarily challenged by real estate acquisition. Instead, they face significant obstacles on the power supply front.
Data centers require immense energy to operate the servers and maintain optimal temperatures, intensifying the demand for power with each new facility. To address this, major players like Microsoft are exploring alternative energy sources. Notably, one of Microsoft’s new data centers is set to receive power from a unique source—nuclear energy—at the iconic Three Mile Island facility. This shift highlights a growing trend toward innovative power solutions in the data center industry.
Leon Capital’s real estate portfolio
Leon Capital’s wealth and solid track record have been built on its investments in the multifamily sector. With 15,000 units under management and many additional units under construction in mind, I couldn’t resist asking Fernando what he believes sets Leon Capital apart.
Fernando attributes much of its success to the strength of his team, expressing gratitude for what he calls “the luckiest team in the world.” Together, they recognized the potential in the Sun Belt—particularly in Dallas—and strategically capitalized on this region. The investments have paid off handsomely, especially over the past few years, reflecting the team’s keen market insights and exceptional execution.
Diversification of Leon Capital’s assets
While Leon Capital initially planted its roots in real estate and hard assets, it has evolved far beyond a traditional real estate company. Over the years, Leon Capital has diversified its portfolio across various industries, including healthcare, where it owns and operates over 150 dental clinics employing more than 270 doctors and 1,300 medical practitioners.
Even more remarkable is the fact that these businesses aren’t franchises—they’re fully owned and managed by Leon Capital. Moreover, the ventures outside real estate weren’t built on a whim; they were carefully developed as strategic solutions to challenges faced by their core business units on a day-to-day basis. This approach underscores Leon Capital’s commitment to purposeful growth and innovation.
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Building A Billion-Dollar Legacy with Fernando de Leon
Willy Walker: Welcome to another Walker Webcast and welcome to our first webcast recorded in our studio in our new Denver offices. And it's my great pleasure to have my friend Fernando DeLeon joining me of Leon Capital Group. Let me do a quick intro first, Fernando, and then we'll dive into this discussion.
Fernando is the founder and CEO of Leon Capital Group. It is interesting. It's more of a family office than it is a private equity firm, and it manages funds that invest in financial services, health care, and real estate. Fernando grew up in South Texas, went to Harvard University, worked at Goldman Sachs for a short period of time, realized that corporate life was not for Fernando or I should say working for somebody else in corporate life was not for Fernando, and has successfully built Leon Capital into owning businesses in 13 distinct operating companies. We're going to dive into this conversation into both the building of Leon Capital as well as their real estate holdings and how Fernando has created what he has created. So first of all, thanks for being here.
Fernando de Leon: Thanks for having me. It's been a long friendship. I think we've known each other for at least 15 years.
Willy Walker: Yeah. Fernando of the Leon. There's some real lion in there. As I think about your upbringing, Fernando. The youngest of six, where does the lion comes from. Because as you've gone through your whole life, you've wildly outperformed, if you will, you've been at the very top of everything you've done, but there's some fire that is deep inside there. So I want to back up because I know where my fire comes from. And I'm curious as you think back to growing up in South Texas, as you think about your formative years of being the youngest of six, where does of the lion come from?
Fernando de Leon: Yeah, I was the youngest of six. I was the only one born in the United States. All of my siblings were born in Mexico. And I had this amazing privilege. So from my family's standpoint, I had this golden ticket to go to the big leagues, to perform in the United States at the highest caliber that I could. There was this responsibility that I owed to everybody to take advantage of the opportunities in the United States. I navigated those cultures, those systems going back and forth between the border and it created a sense of accountability. I think that's where it comes from. Primarily, it is the responsibility to my family to do well. And when you contrast those systems, when you contrast them daily the way I did when I went back and forth between two different countries, I went to school in the morning in the United States and in the evening in Mexico. I recently took my children to go see the school where I went to evening school. It is an agrarian school in Mexico, and the children of farmers went to school there in the evenings. I interacted with my colleagues in school. I lived this duality and it threw into relief for me how powerful the American system was and how anybody with talent or with perseverance could do well in this country. Those are formative lessons and things that I learned from being in that contrast daily and that created a little bit of that fire that you're pointing out.
Willy Walker: You're a really good speller. You won spelling bees. Where did that come from, just a natural gift, or did you like to read the dictionary?
Fernando de Leon: That is a good question. I'm a competitive guy. I learned English as a second language when I was about eight years old. And I was told that ESL students couldn't be in the spelling bee. So I said, “I want to be in the spelling bee.” And I wasn't allowed to because I was just learning English. At the time there were about 400,000 words in the English language, and I wanted to learn all of them. And I won. I ended up asking my school principal, Rachel Ayala is her name, a wonderful human being. And she allowed me to be in the spelling bee. So I won in my classroom then in the school bee and then in the city bee in South Texas, and then ultimately represented all of South Texas in the National Spelling Bee. But it was from being told that I couldn't do something, I wasn't allowed to do something. And that's where it developed. Also, there was prize money and so prize money at the time was in dollars. And it was important for the family. And I wanted to go earn some of that prize money. I ended up getting some prize money for winning in South Texas and for representing my region. And there was an economic incentive there.
Willy Walker: Do any of your other siblings have that sort of when someone says, “No,” they say, “Why not?” In other words, is that something that's unique to you, or did your parents instill that if somebody puts a very up in front of you, you should question why it's in front of you and see if you can get through it?
Fernando de Leon: Yeah, I think there's some of that in the DNA for sure. There's a brother of mine and a lot of times they say, Alfonso is his name, “Alfonso is like Fernando, but in pesos.” And so that's kind of the family joke. And we joke about it.
Willy Walker: Is he in Mexico?
Fernando de Leon: yeah, he straddles the border. He's got business interests in Texas and in Mexico, and that's pretty common along San Diego, Tijuana, the Arizona border, Texas border pretty common. There's quite a bit of that. And that goes through the recurring theme. But I do think that being privileged with being an American citizen allowed me a different landscape and a different frame where I could compete in different forums and business and academics, etc.
Willy Walker: You apply to college and you get into Harvard and you get a scholarship to go to Harvard. What did you feel like the first day you showed up there? Did you feel like you belonged or did you feel like you didn't belong and had to prove that you belonged?
Fernando de Leon: There as you can imagine, I hadn't traveled much, had left my little town very few times. And I got to Boston Logan Airport. Harvard actually thought I was an exchange student, like an international student. They were kind of confused.
Willy Walker: Waiting in the international terminal and you flew up from DFW.
Fernando de Leon: It's kind of like that. And there was a gentleman named Bill Friedman, who was my host family. I had this alum who became my host family. And they were extremely supportive. I was a 17-year-old kid who hadn't seen much of the world. And when I got there, that was already that support system. But also, I interacted with some interesting people from all over the world. And you quickly understood it was a unique place and you could make the most of it if you explored. And that's what I did. I spent a lot of time studying evolutionary biology, things that I thought would help me understand human behavior a little bit better. And so I spent a lot of time kind of focusing on economics, biology, psychology, and thinking about that. And it opened my brain up to a very different world.
Willy Walker: When you're there it is a totally different world from where you'd come from to arriving there. Which can be very intimidating but at the same time can also be incredibly motivating. What was the moment where you were sort of like, “I'm going to take advantage of this situation to its maximum.” Was there some moment of either being in a class, talking to a professor, or getting a certain grade in the class that said to you, “I'm good enough to be here?” Was there some moment where all of a sudden it was like, “Wow, not only do I belong, but I can suck the nectar out of this experience?”
Fernando de Leon: Yeah, I think it was early classes with professors like Stephen Jay Gould, Laurence Tribe, and Seminole economists that opened your mind up. That certainly helped. I think there was a time when I interned at the Institute of Politics under a senator from Wyoming, Alan Simpson, and he was a fascinating guy, like the most charming, highly intelligent.
Willy Walker: Biggest hands I’ve ever met.
Fernando de Leon: But had this humanity that was contagious and could bear hug you. And I loved that guy. He had me talk to visiting dignitaries and fellows who came through the Institute of Politics at the JFK School. And when I interacted with some of these folks, I said, “This is the foreign minister or an attorney general, I think I can roll with these folks. And I think there's some sort of implicit equality here that I don't have to be overwhelmed and intimidated by him.” There were experiences like that where a kid from a small town just ends up in this environment and you either get steamrolled by it or you embrace it and you say, “Let's go.”
Willy Walker: What did your family think when they came to visit you there?
Fernando de Leon: They loved it. They didn't visit much, but I took them to all of these historical places in Boston and in Cambridge and it was a new world. But they also were pretty deliberate. It was, “Hey, what's the next step after this? You’ve got this opportunity. You've got to go make the most of it.” There wasn't a lot of warm and fuzziness. It was kind of built-in. And what's the next step was an often asked question.
Willy Walker: And so when you tell them you're going to Goldman Sachs, they're like, “Yes.”
Fernando de Leon: There was a split decision. Some of them thought a bank was a commercial bank. They imagined me working at Wells Fargo or something. Some of my siblings and other family members understood the investment bank was a great place to understand the flow of capital. And that's what I got there was this view of the world that was the supply chain of money, of capital. And I've used the lessons there and the things I learned there to formulate a way to invest and a way to manufacture real estate assets in a way to build businesses. And those were good lessons from the Goldman experience.
Willy Walker: But you didn't love Goldman.
Fernando de Leon: Or maybe Goldman didn't love me. I don't know. It was not the best fit. It was a place that at that time was right out of the move and had gone from a private partnership to a public company. Things were changing. You're young, I was 22/23 years old. I wanted to go and taste the world and build something. I wanted to own assets.
Willy Walker: But most people who have your upbringing, who get to Harvard and get to Goldman Sachs actually are like Shangri frickin la. Like I've come to the chosen land in the sense that now I've got the opportunity to just go start making more money than I ever could have conceived making. And I'm just going to make the most out of this experience. What was that entrepreneurial bug that was in there? There are tons of people who've done that and just say, “I'm here, I'm staying.”
Fernando de Leon: Some extraordinary people, by the way, people that I have so much respect for sure. And I had an entrepreneurial experience when I was young. So when I was in my early teens, I was a translator for American developers who were building facilities in Mexico, warehouses primarily, and manufacturing plants. Around that time, NAFTA had just been signed in the early 90s, I was in my early teens. And I was a translator for developers and for other people. I had been supporting developers building facilities. And I really liked that. I had helped them get entitlements. I had helped them get permits. I had equity. I had ownership in assets early on.
Willy Walker: It cracked me up when I found out that you'd actually taken a 10% equity stake in something you'd gotten what an industrial center entitled. And you said to the guy instead of paying me I’ll take equity in this thing. You were young when you took that equity.
Fernando de Leon: I was a kid. I was about 14, 15.
Willy Walker: Most kids who are 14 don't even know what equity is let alone to ask for it.
Fernando de Leon: I think when you don't have something, you're always looking for it and I didn't have much.
Willy Walker: That's important.
Fernando de Leon: It's a funny story, there was a developer and I was his translator and he had at the time, you didn't just need entitlements for zoning, you needed labor permits. So you needed to actually have the unions accept you as an employer of their unionized labor force. So you could get a building permit, but you couldn't get a labor permit. The Labor permit was authorized by the labor unions. And I had heard my grandmother once say that the head of the union was a man who really liked her. I really cared about it. And so I go to my grandmother and I say, “Grandma, don't you know the head of the union? I need some support.” And she says, “Oh yeah, that man has been in love with me since we were kids.” And she said that. And I said, “Do you think you can give me an appointment with him?” And she said, “Absolutely, I'll set it up for you.” So she sets it up. I go and meet him. And it was like out of a movie. It was a Jimmy Hoffa caricature. And he says, “So you're Ampatos grandson.” I said, “Yes.” And “I've been in love with that woman since we were kids.” So he treated me very nicely. And was very respectful of my grandmother. And he wrote on a piece of paper on a napkin an authorization. And I took that to the developer and I didn't show it to him. I said, “If you had labor permits, if you had everything ready to build, what would you give up for it?” And he threw out a number and I exchanged that for equity. And then I became his partner and we did a few more of those. It was an interesting time. And I was a kid, but I was hungry and I wanted to take care of my family. And that was pivotal. It was an interesting time in the family dynamic for other reasons. And I took the opportunity and went past it.
So to answer your question about why Goldman didn't fit, I had that bug and I had already developed it. And then I merged it with a philosophical underpinning at Harvard. And so I said, “I want to go back and do what I was doing. I just want to be smarter about it and more institutional and deliberate about it.” And that's what I did. So I left New York and went to Dallas. I couldn't go back home because it was too small a city. But Dallas was this thriving metropolis at the time, maybe 4.5 million people. Today it has almost 8 million people. So I bet on the right city. It was very formative as a real estate developer being in a city that grows that much was a big part of the equation.
Willy Walker: Before we dive into that next chapter, as I hear you talk about your upbringing and that drive and the entrepreneurial nature you have, your kids are growing up in a very distinct situation. Do you and your wife fret about them not having that? And I gotta turn it to you specifically about you and your upbringing not that. But do you ever sit around and say, “I know what developed that entrepreneurial, that drive, that fire inside of me. And I don't know if my kids are going to get it because of the way they're being brought up or what they have around them.”
Fernando de Leon: What parent doesn't worry about the development of the future of their children? I think I do. And my wife does as well. I don't worry that they will miss out on opportunities. And I think there is a certain pragmatism in our household that we try to communicate to our children. So one of the things that I always try to have them interact is with where I grew up and see that environment creates a sense of normalcy in our household. But I think they all develop in their own ways. And I don't think having economic resources necessarily limits their entrepreneurship. I know plenty of people who have taken the company that their father and grandfather built and made it much larger than it was when they took it over. I think you know a couple of examples like that as well. But there are great people that have built things and they grew up in varying circumstances. So I think that comes from every child, every person's ability to harness their talent and to look for rewards in whatever place that they want to pursue them. But I don't think that there are any must-have variables in a person's life that limit or improve their ability to do what they want to do with their life.
Willy Walker: One of your early investors at Leon Capital was Carlos Slim. How did you meet Carlos Slim and get him to invest in you?
Fernando de Leon: There were a lot of people early that believed in me when I didn't have anything when I didn't have any evidence that I could perform. So that period of time from 2007 to 2012 was very formative and we did a lot of distressed investing, purchasing loans, special situations, and dealing with banks and life insurance companies to resolve problems and the loans on their books that were problematic to them. And the kind of people that supported me were usually entrepreneurs. They were usually people who had built something on their own accord and understood that there was this moment in the cycle where things were very dire. And that was a good moment to run away from the conventional wisdom. So there were great people like the Slim family and others. There was a gentleman who at his ripe age of 82 would ask me to do more. And he became one of my best friends in the world. And he wouldn't stop. He'd was sort of living vicariously through me. And they were extremely formative. So the timing was good. The philosophy of those men and women who had believed in me because they had built something of their own at some point in their careers. And so there were a handful of families that were all thoughtful and insightful, and many of them continue to be investors with us in club deals or in anything that we pursue. So I'm very proud of that.
That is very meaningful to me. And I believe that one of the biggest joys of my life is rewarding them for believing in us. And it's almost a moral imperative to me to take care of that capital, to continue to grow it, and then to compound it for the last 15 years and then for the next 40. And when we talk about these things, we talk about them as they were lifelong projects. So sometimes they named children after me for generating good returns and things like that are very interesting and I love it. I think one of the coolest things about being in our position is to generate great returns for people who believe in you and believe in us and my organization. All of them, there's a dozen people like that who supported us when they probably shouldn't have.
Willy Walker: I've never had any children named after me. And I have investors named votes. They haven't named them. They basically said, “My vote is thanks to the refi that I've gotten from Walker & Dunlop.” That's funny.
You talk about compounding interest. I know you and I have talked about this before when you and I had various meals every time. But compound interest is the most basic principle and yet so many people miss it. And two things. Do your kids understand the concept of compound interest. I think they probably did before they learned how to brush their teeth, the understood the principle of compounding interest.
Fernando de Leon: A lot of eye rolling now that they're getting to be teenagers, a lot of eye-rolling now about compound interest.
Willy Walker: Yeah. You once said to me that you think that the state pension funds ought to instead of doling all their money out to various funds, they ought to just reinvest in the projects that they have and watch it compound. It is quite something. This does get back to what you create in the capital in the manner that you did. In other words, as more of a private family office than a private equity firm. Pick on either one of those.
Fernando de Leon: I think the American system of capital is extraordinarily complex. The private equity industry has built so much value for the savers of America, the pensioners that receive their retirement savings. The private equity alternatives industry has compounded their capital at an extraordinary clip. So Americans should be very grateful that the capital has been compounded at that rate for them.
I was recently in Norway and I saw that Norwegians compound at 8% a year and on about $2 trillion of assets. And easy math, $160 billion of GDP. But that's for 5.5 million people in Norway. The per capita compound interest of people who are growing their wealth just while they're sleeping is remarkable. And I think much of that has happened for American savers who went to the pension systems, corporate and public pension funds, where I think there is a certain additional complexity. The California teachers and the Texas teachers and the Pennsylvania truckers, the corporate and public pensions, they have retained the services of investment managers to compound capital on their behalf. And they pay fees for that. The private equity industry where it got a little more interesting is that they also became many times public companies. And so those public companies are also owned by mutual funds and 401Ks. Financial Services Index funds, all of whom are also owned by CalSTRS and other pension corporate public pension funds. So it seems to me that if they own the funds and they own the investment manager through public equities, they own both sides of that trade. And that's become interesting. It would be a little bit like if you had a toll road and you had a toll road manager and you have drivers in their cars every day, they pay a toll to the toll road manager. And effectively the toll road manager doesn't own the road, doesn't own the cars, doesn't own the riders, but has a contract to take some dividend and some royalty from that system. And I think it's a fair system. But I think it's complex and often misunderstood.
Willy Walker: Your comments as it relates to benefits that have come to pensioners in the United States. I just wish you'd write a memo to Elizabeth Warren when she tries to go out and take down Blackstone and other equity firms to just sort of to the people you're trying to represent actually have benefited dramatically from these firms. And there's a little bit of doublespeak and all before it comes out.
Fernando de Leon: I think I’ve seen systems in contrast. I've seen a system in another country. I've seen it here. And this system rewards people. People respond to incentives in a way that no other system of governance has ever been created in the history of mankind. This system, this social experiment that's the United States has never been recreated anywhere else. And so when human beings respond to that reward system and incentive system the productive output is unlike anywhere else in the world. So for those naysayers should look at other systems whether they're Latin American systems or social welfare systems in Europe, they're entirely less productive per person and per unit of labor. And unit of talent anywhere else in the world.
Willy Walker: I was at a breakfast yesterday morning at the New York Stock Exchange with Argentine President Malay, and it was fantastic. And it was fun to see his energy. His experiment, which I hope works. “Boy, Oh boy.” But the front page of The Wall Street Journal today, I don't know if you saw it and slamming the gavel. And it was so fun, his excitement about all of it. But at the same time, I was in Argentina in the late mid-90s when Menem was there privatizing everything. There was foreign direct investment. The peso was tied to the dollar and the economy was growing nicely. And then obviously the Brazilian devaluation in late 1998 made it so that the peso got devalued in Argentina and everything kind of went to hell in a basket. But for 25 years we've had socialist regimes down in Argentina trying to figure this thing out. And it just hasn't worked. And he's got an austerity plan in there that is seemingly wildly draconian right now with 60% of the population. I was reading up before breakfast yesterday. Right now, estimates are that 60% of the population lives under the poverty line. But he talked yesterday at length about where inflation has gone, where their current account balances have gone. And it's working. I hope he can make it.
Fernando de Leon: That system needed a jolt and it needed somebody with that level of energy and even an overcorrection is probably going to land in a good place overall.
Willy Walker: Yeah. And with all that said about the states, though, Fernando, do you think we're getting soft?
Fernando de Leon: Yeah, I think this country has so many opportunities that sometimes an excess of opportunities makes people sort of a little insular or slow to recognize how powerful the system is. We have too many options. It's like if you go to an ice cream parlor and there are 100 flavors of ice cream versus three. You're a lot more likely to just kind of pull the trigger and go forward when you have fewer options. But this system has created a great deal of opportunity sets, and I think we are all learning how to interact with some of these new opportunity sets, whether they are technology or AI or digitization, these things are all coming at us pretty fast and we are all trying to figure out how they interact with our daily lives. But I do think we have a lot to be grateful for and I am staunchly opposed to folks that are anti-America or that berated or that want to accentuate some of the things that are not great about this country, which are the case about every human being and every nation in the world. But what is powerful, the incentive structure is unlike any other in the world. But I do think that there is a generational need to re-emphasize that, and for people to embrace it and be exalt it.
Willy Walker: You started, as you said previously, of getting basically what I call friends and family or partnership investments in distressed deals and started to buy existing deals. You started to build deals. You now have about 15,000 multifamily units. And your two big real estate portfolios are multifamily and industrial. Primarily. And then from that as the beginning of Leon Capital, you've expanded out dramatically into other financial services as well as into health care. As it relates to real estate, how are you feeling about both that you own? What's being developed right now? And then as it relates to where we are in the cycle as far as putting more capital to work.
Fernando de Leon: Yeah. In the real estate business, we take industrial, for instance. I think that business is very healthy. We are manufacturers, so we develop. When we develop, we're usually building at a substantial discount to where our market prices are. If not, we're not building. And we also had some great years to acquire existing assets. You've got some pretty fundamentally sound tailwinds in the industrial business. Today e-commerce is probably about 15% of all retail sales are happening online. You compare that to the Chinese economy, where about 30% of all retail sales are happening online. If we move on par with the Chinese system, we would need another 2,000,000,000 to 3,000,000,000 sqft of industrial for distribution. So e-commerce, big tailwinds where we have our buildings are full, we have great demand from that user pool and others.
Willy Walker: I know you owned a bunch of retail and you saw that shift happening and you basically got out of retail and into industrial because of the square footage that's needed to feed the online world versus they're there for the need of industrial warehouse space that is needed to do that of the retail. What year did you see that and make that shift?
Fernando de Leon: I didn't just shift. I got my butt kicked. It was pretty humbling. I wish it had been a press of a button, sell a stock. But it was about 300 retail assets and we sold a lot from call it 2016. I saw that Bed Bath & Beyond was fulfilling their goods through warehouses, not through brick and mortar. And it was pretty evident. But we saw it in real-time in our shopping centers, in our facilities. So easier said than done. And we did. I think that pivot, that transition was painful, but we did it as best we could. And we saw it around 2016. It took us a few years to sell retail assets and redeploy that capital into industrial. We've been in that business since we acquired a company in 2012 in Europe. And you'll recall that 2012 was still pretty bad in Europe, you had Greece and the Southern European countries were still under duress. And we bought a significant portfolio in Europe. And so we've been making these kinds of trades for a while. But we did feel it. There were other parts of retail that were less disruptive, fast food restaurants, things like that. And then some banks got disrupted dramatically. But we shifted that. They shifted that capital and moved it. It was painful. But around 2016 was the time when we started reallocating that capital base.
Willy Walker: And do you put any data center/next-gen technology on the infrastructure side in the industrial space? Or do you do that completely outside of it?
Fernando de Leon: That’s a tough business. I think it's our lowest cost of capital business where you have a different outlook and capital base in order to build or acquire data centers. We are not in that business, but we are competing dramatically for it. We were competing for power in our industrial buildings and the data centers were winning and our AI overlords.
Willy Walker: Did you see that Microsoft is getting power from Three Mile Island?
Fernando de Leon: I saw it.
Willy Walker: Think about that. That's fascinating.
Fernando de Leon: It is just fascinating. It's going to be interesting that AI overlords need power and we must fulfill it or they will be angry.
Willy Walker: By the way, Bill Gates has sat there and been the biggest proponent of “new nuke.” He's done study after study. He's had all the great minds of the world. He's promoting this and it's just kind of wild that Microsoft is now back taking the poster child of why we don’t want to build new nuclear power plants and is now going to rehabilitate and get more power.
Fernando de Leon: I have a theory about that. I think the word nuclear is an aggressive word, linguistically, going back to my spelling bee days. I think maybe we should call it something else and maybe it'll be more customer friendly or people friendly. The term nuclear invites an implicit fear in general, so maybe we can call it something else and rebrand it. The way we did…
Willy Walker: Split Adam Power.
Fernando de Leon: Split Adam Power. The Chilean sea bass used to be the Patagonian toothfish, and now it's the Chilean sea bass.
Willy Walker: People get a premium for it.
Fernando de Leon: Maybe we should call it something else.
Willy Walker: On the multi-side, because a lot of both the wealth you've created as well as your operating track record has come from the multifamily space. 15,000 units, you've got a bunch under construction right now. How do you feel about where we are in the multi-market? Even being in multi and in Dallas, it's been an incredible place to be.
Fernando de Leon: Yeah. And look, first of all, I think that the team that I assembled there, I'm the luckiest guy in the world. The first person that I hired in that business to run it today, David Cocanougher our he's been with me running that business for the better part of 15 years and is a savant in running that business unit. I think part of it is the leadership, the team, the people that are there that create so much value. But secondly, yes, you're right. Some built markets have been very generous to us, but we've also done some really hard things. As you often point out, the housing manufacturing business is difficult because if you're building a car in a factory, you've got a contained environment that you can replicate over and over. But when we're manufacturing housing at scale, we're doing it in 30 different municipalities and jurisdictions that have different siding and brick and building codes and zoning issues or topography or site constraints. And so doing it at scale is very difficult to do. And we've done it. And the capital markets have been rewarding us for doing that hard work.
Willy Walker: And every one of those people with the power over an entitlement didn't fall in love with your grandmother when they were in high school.
Fernando de Leon: That's funny.
Willy Walker: Let's talk for a moment about the diversification of the business, because it started in the hard assets in the commercial real estate space and is now so much broader. And I remember distinctly as there was one breakfast that you and I had in Dallas where the previous conversation that was all around real estate. And then all of a sudden, you're like, “Did I ever tell you about my dental business? I tell you about my dog grooming business?” and I'm like, I got a second. This thing is just going and going. But like, in the dental space, you have 155 clinics. You have 270 doctors and 1300 medical practitioners. In that business, to talk for a moment about and that all of that is under a franchise model.
Fernando de Leon: No, we own and operate all of these businesses. I would start with this. Every business that we've ever built has been an outgrowth to solving another problem in our business. So, for instance, in real estate, I got tired of paying a lot of increasing costs for insurance every year. So we started with a captive insurance vehicle. Then we realized that the supply chain of insurance had a lot of intermediaries where we could remove some of that cost and save money. And then we started brokering insurance for others. Then we started financing premiums and so on and so forth. So we were trying to solve a problem in our life. And then we built businesses around it to deal with that and we tried to create that solution. And health care was no different. It helped in health care when we had a shopping center, there was a dentist who wanted to lease space and he leased space from us. And then he wanted to open another location. He didn't have capital, but he had a P&L that had a 30% four-wall margin. And it was pediatric dentistry. And I looked at it and said, “Pediatric dentistry seems like something that is relatively insulated from Amazon's grip. And they probably won't be able to put braces on a child.” And I said, “Why don't we open the second location?” I provided the capital and I happened to have some real estate in my portfolio. So we put them into one of my shopping centers that probably had some leasing issues at the time. And I solved two problems. And then those two locations turned into ultimately 300. And it's a fantastic business that has something that is making people's lives better through health care and dental care for children. We have oral surgeons. We have orthodontists. We have an amazing group of people, dental implant surgeons, when somebody gets a smile, it changes their entire life trajectory by eating better, having more self-confidence, by being able to develop themselves socially. And those are things that are meaningful to me. And I wanted to do that. Every healthcare operating company today came from a set of similar circumstances.
Some, like the mental health business, were interesting. I was intellectually curious about that space. I wanted to understand what was happening to the human brain. And there was this explosion in research that I wanted to understand better. We turned to the mental health business, and we learned a lot. We partnered with folks. Today we do mental health services for American veterans. We do it through the correctional system as a subcontractor for the DOJ. And we do these things and they're very high impact. But they came out of a little bit of curiosity to see how life was changing from a mental health perspective and a cognitive perspective for my personal life and for the people around me. I wanted to understand it better. There was curiosity. And it turns out that sadly or not, the demand for mental health services across the country has skyrocketed. And we are a provider of those services. And I'm proud of the work that we do.
So some of them came out of real estate. Some came out of trying to solve a supply chain problem with insurance, and some of them came out of intellectual curiosity.
Willy Walker: All of those are heavy lifts from an operating standpoint. They're really operating businesses. They're not fixed assets businesses. How have you found your management style as a leader and as an investor? How has it had to morphed or not from going from being an owner of hard assets into an owner and manager of some really scaled operating businesses?
Fernando de Leon: First of all, those businesses are all run by extraordinary human beings. I could tell you the background of some of these people and you would be in awe. Nicole Chiaramonte, who runs a business for us and is a self-made entrepreneur and a leader of a 500 employee organization. And she came to me and said, “You should do this and I would love your support and I'll help you build one of the largest med spa companies in the United States.” I knew very little about that subject, but she knew more than I would ever know. And I could tell that she was tough and brilliant and knew the space better than anybody. So part of it was supporting her and that story is reproduced multiple times across our portfolio. So I am not going to sit here and tell you that I have a lot to do. But I do believe in people. I do support them with capital. And then oftentimes when somebody tells us that something is impossible here or there, I do go back to those days when they told me that I couldn't be in the spelling bee and go back to that inner child that doesn't want to be told no. And then sometimes we have to break things and recreate them and reinvent them and pivot. And a lot of the stories around our operating companies have been that's the style of leadership to be not bureaucratic, to be a founder-led business and then surround ourselves with really talented people.
And then also, I think one of the real competitive advantages that I believe we have versus a private equity model is that when we have people like Nicole or Mike Martin or other folks that run businesses for us, we can reward them and compensate them however we want. There is no sort of box. It's all about alignment. So folks like that, sometimes their equity is right alongside our new capital and they believe in it the way founders and entrepreneurs put their money where their mouth is. The ability to reward entrepreneurs and business builders from compensation and equity is something that's a real competitive advantage, I believe, in our model of investing.
Willy Walker: Thinking about the push-pull from the here and the now and the future vision. You've been a huge visionary on where the market going and you're very humble in saying a lot of it has been out of need and not necessarily some waking up in the morning and seeing the light on something. But the bottom line is that you've been able to continue to invest in new growth businesses and evolve Leon Capital from really being commercial real estate focused to being in 13 different businesses, three big sectors, and scaling it. When you think about the amount of time you spend managing the here in the now versus thinking about the future, where is a day in the life of Fernando sit.
Fernando de Leon: Yeah. Look, some of this is the devouring information that I am addicted to. I love understanding new industries, but some of it is a little bit of anti-incumbency, but some of it is contrarianism. I think that is that the core of entrepreneurship is to look for the state of the art of an industry, of a business. And then to say, “I'm going to create something different.” The delta between the state of the art and what you've created multiplied by the number of people that you deliver that to should be your reward. And I believe in that. And I built a business called Crexi® eight years ago. I co-founded it with a guy named Mike DiGiorgio. And Mike was somebody who had told me to invest in office buildings. And literally said, “What is the opposite of office buildings?” And I said, “The opposite of office buildings is probably data.” And we built a commercial real estate data business that today has 4 million people that would provide services to data listing services, and auction services. And it's become a great business with 400 employees and great leadership. But it was a moment in time where I said, “What is the anti-incumbent view of real estate?” I think that continues to be a little bit of the DNA of, “Hey, is this something we can do? If it's hard, why not us?” And I think that's part of it. But I do think that I'm 45 and I think there's another however many years I get to be on this earth and they'll be all about devouring new ideas, entertaining people that have great ideas, backing them, and then compounding interest for another 30 years, hopefully.
Willy Walker: In the real estate industry, when you have a great investment, you hold that for a certain period of time, you sell it. And all these operating businesses, you've got a big scale, but they just generate cash flow. Have you ever looked at either consolidating them, spinning some of them now, or making them publicly traded companies? What's the thought about that?
Fernando de Leon: Yeah, I think about that consistently -- capital structure. I do think some companies that we own should be public companies. I do think that there is a certain accountability from the public markets that could be overlaid on some of our assets that would be very beneficial for those management teams and for the long-term value of those businesses. Yes, we think about that. We sell minority stakes or majority stakes in businesses once in a while. And then also one of the things that has happened recently when the capital markets were in a funk is some of our managers said, “Hey, should we sell this?” And we said, “Maybe what we should do is improve it more.” And so give me a solution. For instance, I'll give you an example.
In our dental implant business, we saw that the financing programs for our customers, we get about 40,000 people every year through our clinics. And those customers, about half of them pay in cash. Half of them pay on credit. And it's not a reimbursable procedure. However, we saw that the debt securitization markets had dried up for consumer lending. I said, “Why don't we provide financing solutions for our customers?” And if a customer could pay the down payment that covered our fixed expenses, I would sell or finance the procedure for lack of a better word. And we started originating loans that had a zero-cost basis. So today we originate about $1 million a week in loans with a zero-cost basis in that business. And people first, told me I was crazy and that it would disrupt the flow and our customers. And now it's a great machine.
Willy Walker: Does that give you insight into consumer finance? My assumption would be that's like looking at FedEx, no U-Haul rentals give you a leading indicator as it relates to where people are moving in the country. I would think from a consumer financial standpoint, where that credit book is.
Fernando de Leon: For sure, absolutely.
Willy Walker: And it's been holding up recently?
Fernando de Leon: Yeah, it has been holding up. And I think the American consumer in general has held up extraordinarily well. But I would say it gives us, for instance, in our ophthalmology business, that is a lot of folks who are Medicare recipients. And we see 10,000 people turn 65 every day. And so you see demographically where that's going. We see the loan book, we see the equity that demographic has built up through their 401K's, home equity through their pension systems, and been reinvested through our private equity management system. We do have a window into that consumer world. And yes, the loan book has held up extraordinarily well. Our default rates are negligible, saw half a point.
Willy Walker: It's amazing.
Fernando de Leon: We see the American consumer is holding up. And you're right, all of that informs our judgment about housing, about logistics.
Willy Walker: Do you want to go into seniors housing. You just used that stat of 10,000 people turn 65 every day.
Fernando de Leon: I would love to find a great partner who knows that business very well and that wants to continue to scale. And I think in that business we would rather partner with somebody that is already doing it well.
Willy Walker: What's interesting about that, Fernando, is that if you said to me, “Hey, I'm going to start up in seniors housing and we're going to raise a fund and you want to invest in it.” Because of your operating experience I'd say in a heartbeat. If most real estate people who are real estate developers and not operating company investors, you sit there and say, “Senior housing is an operating base.”
Fernando de Leon: Absolutely.
Willy Walker: It's not a real estate company.
Fernando de Leon: I totally agree.
Willy Walker: if there's anybody there who could handle the complexity of this? And there's housing space, that would be you.
Fernando de Leon: Yeah, I think it is a great great industry, a great business. But I do think you need very experienced eyes on an operating business like that similar to hotels. We have a healthy respect for businesses like that. I think we need operators who will roll up their sleeves and build them. And I think in that particular case, I'd rather find somebody to partner with and provide some capital too.
Willy Walker: In bringing this all full circle, your foundation supports ten scholarships for kids from South Texas. What do you need to win a Leon Foundation scholarship? What do you need to be doing?
Fernando de Leon: First of all, I think we want to do more in the philanthropy field. I do think I have a gravitational pull to where I grew up. I think you have to be the kind of person who wants to get more out of life. And that comes in a lot of different shapes and sizes. So there are some kids who have told me, “I don't really want to go to college, I want to go build a business. And will you support me?” And there's been people that want to be chefs. There's been people that want to go to college. We will support all stripes of people that have an inherent perseverance and sort of a little anxiety in their soul to go pursue a better life. So that is generally what you have to have. And I think we need more candidates and more people applying for these scholarships so we continue to do more in that field.
Willy Walker: And when you think about your own kids and you think about the future of Leon Capital, do you want the capital to be a family company? You have surrounded yourself with such an incredible group of professional managers and all of these different operating companies that you're not in any way wanting for great minds and great capable people. And at the same time, it's your firm. What's your thinking as it relates to what this evolves into?
Fernando de Leon: Based on the delta between where I started and my life today, I would never purport to know how my children's lives are going to evolve. I think it's up to them to decide where they go. If some of them want to build new businesses or help manage existing businesses, they'll have to earn their keep and be talented. And I don't think there are any prescribed rules that I would set in motion today. Of course, I'd love it for them to have fulfilling and satisfactory lives at whatever venture they go into, whether it's, you know, the arts or philanthropy or business or academia. I don't think any of the characteristics that they have today. I don't know how they'll correspond with the future. I think if you look at what traits will make successful people 25 years from now, it is very hard to predict because we'll have an interaction with technology and with so many different things that haven't even been invented that influence our behaviors, that it's very hard to predict where any person's skill set is going to lead them in the future. So I wish them the best and I hope some of them find something interesting to do inside our company. But certainly not a must.
Willy Walker: Final question, if you think ahead, ten years, financial services, medical and real estate. As it relates to the size of each one of those businesses, we won’t get into it from a revenue or from a return standpoint. But let's just say today there is a third for each, which grow in the next ten years and which stays where they are. Where do you see the growth opportunities?
Fernando de Leon: I think we need to be better technology investors.
Willy Walker: Inside of those verticals or do you think there'll be a technology vertical outside of those?
Fernando de Leon: Both. I am trying to surround myself with people who come from the technology field and have backgrounds at Google with AI and companies like that. And those people are helping me overhaul the digital strategy in every one of our existing businesses. That is happening real time and we absolutely have to get smarter on scheduling and appointments and customer service. We have to reduce operating expenses from things that are redundant, find technology savings and just get smarter in everything we already operate. So that's imperative. But we have to become better technology investors because everything in every industry will have such a strong layer of tech that I think enterprise software, these are new verticals, a vertical that will deploy capital in. With full certainty I can tell you that we've already begun to allocate and reallocate capital from industries in the ones we operate in and moved capital to technology. I can't imagine that for the next ten years, we won't do better there and do more.
And then secondly, I think there are some powerful sort of demographic forces that we understand that by virtue of my background, I have seen that I understand and I think could play very well into our businesses. The growth of the Latino demographic in the United States, the Latino cohort, and our ability to understand that particular customer base and that demographic, I think will lead us into certain business units that may be very interesting. It's a powerful engine of growth and a freight train that I think we need to begin to place some bets alongside.
Willy Walker: Fernando, a real pleasure. Thank you so much. Thanks everyone for joining us this week. And we'll be back again next week. It's really been great. Thank you, Fernando.
Fernando de Leon: Thank you for having me, Willy. I enjoyed it.
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