Royal Oak Conversations – Tom Bonadio

Welcome to the third episode of Royal Oak Conversations. This discussion features Tom Bonadio, Independent Director and Audit Committee Chair of Royal Oak, and the Founder and Senior Counsel of The Bonadio Group.

We're also excited to share that Royal Oak Conversations is now available on Apple Podcasts, Spotify, and Amazon Music. Please click to subscribe to the show in your favorite podcast player.

Transcript

Royal Oak Conversations is produced by Royal Oak Realty Trust for informational purposes only and does not constitute an offer to sell or a solicitation to buy any security. Investing in non-traded REITs involves risk, including potential loss of principal. Please consult your financial or tax advisor before investing.

Now: onto the show.

Mark Allen (Host): Hello, I'm Mark Allen, President and Chief Development Officer of Royal Oak Realty Trust. Today it's my pleasure to sit down with someone I've known a very long time. Tom Bonadio, among many things, is a CPA. He's the founder of the Bonadio Group and a board member at Royal Oak since inception.

He and I go way back. Back in the '90s I had the privilege to caddy for him a number of times at Oak Hill. Years later when I moved back to Rochester with JP Morgan, we reconnected on the business end. We found we shared that same drive to grow our respective businesses and give back to our communities.

And when I joined Royal Oak in 2016, with Tom already there, it was full circle. So Tom, it's a pleasure, and, and welcome.

Tom Bonadio (Guest): Oh, thank you. I'm glad to be here.

Mark: Before we begin, gotta ask, how was I as a caddy back in the days at Oak Hill?

Tom: You know, until you mentioned it I had forgotten that you were a caddy of mine.

Mark: Oh, not good. Not good.

Tom: But I can tell you that you're one of probably a half dozen caddies that I've had over the years that are now prominent business people. One of them is a CEO of a large client of ours now. But they caddied for me at Oak Hill, so that's a great program.

Mark: I love it. And I remember those rounds. Before we begin, or as we begin, talk about The Bonadio Group. You formed it in 1978. What was the spark? What drove you to do that? And give us a bit of background on that business.

Tom: I started with Arthur Andersen after graduating from Fisher here. Spent seven years with them. They're a great firm, but they didn't treat their people the way I wanted to be treated, and if there was any opportunity at Andersen I was gonna have to leave Rochester 'cause the market here was too small. So between those couple of things, and you know, my family were all small businesspeople. They all worked for themselves, so I always wanted to work for myself.

I got enough guts in 1978. Me and my original partner and my mother were our first team, and we were over here at the Executive Office Building in 400 square feet. And that was 48 years ago.

You flash forward to now, we're the 40th largest CPA firm in the United States, headquartered in Rochester, New York. 1,100 people, 123 partners, and doing about $225 million. So in 48 years they went from very small to one of the largest in the country.

Mark: So, currently as you sit in the role of Bonadio Group what is your involvement with the firm today?

Tom: I was the CEO for a little over 40 years. I turned that over to Bruce Zicari, who's doing a great job as the CEO. I am still employed as a senior counsel. I'm the chairman of the Bonadio board. Um, and I'm on a number of committees, like our merger and acquisition committee, things like that. So Bruce and I talk quite often. I let him call me if he has a question or anything I can advise on, but I pretty much let him run the ship, and he's done a great job doing that.

Mark: Your energy level throughout your career continues to amaze me. I know that's not your only ball in the air, but that's amazing.

Go back in time and I remember hearing a story with the Bonadio Group. And maybe it was some financial challenges and someone was involved that otherwise maybe some folks aren't aware of?

Tom: I've told this story many times, but we call it "the Bubba story." So in the early 1990s, the economy was terrible. The firm was struggling. I split with my original partner. He took half the business and left me with all the overhead, and we had run out of money. I mean, literally no money. Banks wouldn't give you anything. I had all my money that I had in there. My parents had loaned me all the money that they could and we were at a point where I couldn't make payroll.

And partners weren't getting paid for a while. That was okay, but you had to pay the employees. We had a janitor back then who was more than a janitor 'cause he was a friend to a lot of our people. He had retired early from Kodak, took one of their buyouts. And to kind of keep busy, he said, "You know, can I be your janitor?"

And, his nickname was Bubba. And one of my partners had told him, "Bubba, you may need to look for another job 'cause I'm not sure we're gonna be here."

I was in late one fall night right in the middle of the lowest cash flow we'd had, and Bubba comes in and he looks at me and he says "I hear you got a case of the shorts."

Of course, I'm not sure what he means unless he's talking about my height. And I said, "What?"

And he says, "Cash shorts. I hear you got a case of the cash shorts."

I go, "Yeah."

He goes, "How much do you need?"

I said, "Well, I've been working and I think I need $80,000." He reaches in his back pocket, takes out his checkbook, writes me a check for $80,000, puts it on my desk.

Not even a handshake. He just says "Pay me back when you can and give me some interest." Picks up the garbage and walks out.

So our dining area in the building is called The Bubba Bistro. And we have a plaque thanking Bubba. You know, I'm a religious guy, so I always think that God's watching you and when you need him the most he steps in.

Mark: Well, it's a testament to perseverance. It wasn't always up one direction. I'm sure there were other issues and obstacles that you and your partners managed.

Tom: You don't go from three to 1,100 without going up and down a lot.

Mark: I think the culture, not just in the community here in Rochester, but across the state, in Texas and other parts of the country that you've kind of passed that business and tradition that to a lot of the firm.

Let's pivot over to Royal Oak for a second. You've been involved since inception. You've been a sizable investor since inception. What drew you to Royal Oak back in the 2013-2014 timeframe?

Tom: So initially it was Larry Glazer. Uh, Larry came to see me, said, "We're gonna start…" - this was originally called Buckingham REIT. And Larry was the founder putting it together with Dan, and, he said, "You know, I'd really like you to be involved. I think you got a good reputation. I need a CPA on this board."

And Larry has always been a interesting person to me. Very successful. I liked him a lot as a person. And so I said, "Okay." And then as things went, Larry passed and Dan took over, and Royal Oak has had the type of explosive growth that my firm's had: growing to over a billion dollars in assets now, but really started with nothing in there.

Mark: Well, I remember a story Dan shared after Larry passed - he being a CPA, you being a CPA - you came into the office and went under the hood. Tell me about that visit and kind of what you came away with.

Tom: Well, I had my opinions on what should be done and what shouldn't be done. Now, Dan was gonna run this, and I said to him, "You know, if you want me to be involved, I really think you need to be looking at these kinds of things." And I don't remember the list that I went through with him, but I think I opened his eyes on a few things that he hadn't seen before, and that kind of got him into a better place to be able to grow the business.

And Dan has done a great job and he's basically been not only good for the business by himself, but he's brought in a great team of people. You know, you don't get to a billion dollars without having great people. And I think this team has done a spectacular job building this up. I look forward to the next billion that we're gonna put on.

Mark: Well, and we thank you. One of our - our mission statement is to deliver financial and professional rewards for all stakeholders. And that includes the management team, the manager of the Cambridge Street team, the Royal Oak investor base. Inclusive obviously of our board. And then beyond that, tenants, banks, brokers - any and all people we interact with. But you've seen this go from zero to a billion with now 1,200 investors across the country, and it's that consistency of personnel and people that really helps the track record.

Tom: And I think their mission and the quality and the excellence of what they've done has been consistent right from day one. Like I said, I give Dan a lot of credit. He's done a great job with helping the shareholders continue to get a good return.

Mark: So we've talked a lot in the past about private investing. And you've been active with other companies. You know, whether it's passive or active, but you've been a private investor for a long time. How do you think about allocating to private investments? And then maybe second to that: How do you think about that with the Royal Oak allocation or appetite?

Tom: Well, when we do private, when I'm involved in private investing, it always starts with a couple of key things. Management's number one. You know, can you trust them? Are they hardworking? Do they have their own money in this deal? All those kinds of things about management. 'Cause if you don't have good management, I don't care what you're selling, you're not… you're gonna have a problem. And I've had a lot of them where the product was fine, but the management wasn't. And management, even if there is a lot of bad things that happen, a good management team will figure out a way to get around it and keep going.

But then you need to look at the product. You need to see where does this fit? Is it something that people really want? I look at Royal Oak as a part of someone's portfolio. It's a very solid, consistent return, tax advantaged. So should it be 100% of somebody's investments? No, I don't think so. But when you're balancing a portfolio where you've got some stocks that are higher risk and you've got some that are medium risk, you have this as kinda your base.

You know that this is low risk, measurable, definable returns. And maybe, maybe there's a little bit more down the road. Who knows? But it's the kind of thing you can count on it happening every month. I mean, we collect 100% of our rents. It, uh, is still amazing to me that that happens. We've done a great job not only buying properties, but working with the properties, selling them when they need to be sold, working with the tenants. This management team has pretty much got it figured out, and now it's just a matter of continuing to add at the same level and, and maybe seeing our returns go up and be a good candidate for who knows what down the road.

Mark: I think insider alignment is important. That, that, that rings true when I think about private investments. What do you have in the business? And we promote the fact that we're close to 7% of our common stock owned by insiders inclusive of our board and management team with our families. And that's our job is to be alongside as good stewards of capital of our investors. 'Cause they've worked hard for their money, and they've given us some of it. To your point, it's not 100% of a balance sheet, but you're absolutely right on that.

What are some things about Royal Oak that, that others may not be familiar with because you're an insider, you're on our board? What are some things that you maybe wanna highlight to the general population as of importance to you?

Tom: Well, I've talked about the management team, but I think we have an unbelievably great board. I mean, if you look at the people on this board, this could be the board of a major publicly traded company. We've got people that have been around the community for a long time, people that are highly trusted. They're smart. They've been successful in other businesses before. It's a very high quality group of people. So you have a high quality management and a high quality board. And I think we're very true to our mission.

It can be, you can be stretching out there trying to find properties at the wrong time and because you just need to add properties. We haven't done that. We've done it when those properties were good investments and we've managed them after we bought them. So we haven't done the "Well, let's, let's take some more risk." No. We stay true to our mission. And if we can't find properties that fit our mission, we don't buy them.

Mark: The board is impressive. The board is part of our sales presentation. The governance is critical. This is episode three of this Royal Oak Conversations exercise. We will have all of our board members on this studio. We'll have committee members that we have both within acquisitions and finance on this platform, just to understand who's involved.

Because back to the people the board plays a tremendous role. And it's something that we do promote and highlight.

Tom: I'm on a couple boards, some highly, large billion-dollar public companies, and I spend as much time on this board as I do on ones that that are doing 6 billion in revenues. And I like it, and it's a pleasure to see it grow

Mark: The board works a lot more than one would think. The day of this taping is our second quarter board meeting and we'll be getting you off to our Audit Committee that you chair. Talk about the Audit Committee and what that means as it relates to the Royal Oak investment.

Tom: So I think the board has looked at this. We want a board that's set up as if this was a public company. I mean, it's not a public company, but we have many, many shareholders so that we need to account for. So our board organization is very similar to what you would find at a large publicly traded company.

So Audit Committee, definitely a part of that governance structure. I'm the head of the Audit Committee for numerous companies, public and private, and we run it as if we're gonna be traded tomorrow on Wall Street. We've chosen to have a Big Four auditor. We go through all of the necessary Audit Committee requirements, including measuring our IT status as well as our numbers. So we've got our fingers on the pulse of what's going through here and we're making sure we're protecting the shareholders from an audit standpoint.

Mark: And, and certainly our CFO, Charlie Knittle's played a great role.

Tom: He's come a long way. He was a younger guy when I first got started here, and he's grown in that position to become a full-fledged CFO.

Mark: Yeah, it's exciting. And we will have Charlie on soon and, and Deloitte's been a good audit partner of ours for a number of years. So I wanna go back maybe to the, the, the Tom Bonadio, the leader, the legend. You can smile at that, but it's true here in Rochester.

What's a leadership lesson that you tell the troops back at the Bonadio Group or you tell your grandson over dinner? What are things that should be noted?

Tom: Always starts with hard work, and some of these things you hear politically about people not really working that hard and expecting to be successful, it just isn't true. You have to be able to put yourself into the position, be willing to work at it, go through the ups and downs of what's going on, and continue to move forward. I mean, you just never give up. You just keep finding a way to move forward. I personally have always enjoyed seeing things grow and be successful.

You know, I'm a CPA by trade, but really that's kind of just the background for me. My real strength is helping people grow their businesses and be successful at what they do, and that's what I've tried to teach everybody at the Bonadio Group.

You know everybody can find an accountant, but can they find an advisor? Someone they trust who can help them make the tough decisions to go forward, and that's what I think has been one of the key secret sauces to our firm growing. Because we don't just count the numbers, we actually tell people, "This is what the numbers say, and this is what you need to do to get better."

And a CPA is actually the most trusted advisor that people have. They will tell their CPA before they tell their spouse what's going on, and that's the type of position that we've tried to maintain. By doing that and giving back. We really give back. It's part of the culture at our firm. It's always been part of my life. So I've been very happy.

My mother was born in Italy. My father was a garage mechanic. But they taught me the key things in life, which is work hard, be honest, give back, family, friends, those types of things. And you don't get that in college, but I was lucky enough to get that at home, and I've tried to instill that in our firm, and I think most of our people get it.

Mark: Well, I'm smiling about the hard work because back in my banking days when I got to Rochester, I knew two people in the business community: you and Kip Palmer because I used to work at the fish shop. But we became closer in business and when I'd text you and call you and do you know this company, you know this person, then it was more, then it became a vice versa or a mutual. The hard work never slowed down. And it's true for you to this day.

When I shoot you a text or a call - immediate response is there. I think people that there's a 24-hour rule in business and Jamie Dimon at JPMorgan lives it. Your clients are your lifeblood, and if you're not doing everything and anything for them, you're gonna be swapped out.

Tom: No one has to be with our accounting firm. It's not like certain public companies have to use a Big Four. None of our clients have to use us. So if we don't treat them well, there are definitely a lot of competitors out there that would love to take them.

Mark: When I was on this session with Josh a couple months ago, we talked a lot about "trusted advisor" and being a trusted advisor. That's been in my DNA. And it's not something you achieve overnight. Maybe you could just expand on that because you'd mentioned the CPA being that core complement to one's business and family decisions.

Tom: I mean, a good CPA knows not only the client, he knows the family. He knows what's going on in that business beyond the numbers. He knows how the CFO is operating. He knows what the key business problems are. And when there is a discussion about anything from succession or to the fact that their profits are not where they need to be or any of those types of things, the first call, I want that first call to be me or one of my partners or people in our firm. And that's when you sit down and actually make a difference for somebody. A lot of times you go to them and say, "Look, I've just seen this problem. You know, I'm happy to help you address it." And the more aggressive and assertive you are, I think the more clients appreciate it.

Mark: That's awesome. What advice would you give - obviously working hard and being honest and being an advisor - what advice would you give to someone either coming into the CPA field or wanting to become an entrepreneur or start a business? What would you say to those people?

Tom: Well, just working hard and being honest. This is Rochester, New York. I mean, if you cheat, it gets out pretty quickly, and that'll be the last time people will do business with you. This is not New York or LA where you can get away with stuff like that so in this community, everybody knows who the cheaters and who the people are that they can trust.

And you have to be patient. It doesn't happen overnight. You know, it takes a while for you to build a reputation that people will realize that you did work hard your whole life and that you were a really good advisor, and that you've been honest with people.

Not that everybody agreed with you all the time, but you've been honest with people. And you've tried your best to help people along. And that includes inside the firm. I've done that with my partners. I've tried to help them along. We just had our retirement party for our partners who are retiring, and it was nice to hear each of them say, "And Tom did this for me."

Okay? So yes, you can make money in business, and there's a lot of other things, but just knowing that you've changed people's lives for the better is probably the best reward you can get.

Mark: You've been a mentor to hundreds of people if not more than that. Inclusive of your parents, who are some other mentors that have affected your personal and professional trajectory?

Tom: Well, my parents have been my number one. They were the number one foundation for what I did. In business, I've learned a lot. I'm on Paychex' board. I've spent a lot of time with Tom Golisano over the years. I've learned that every problem can be looked at differently than I do. So he's, I would say, a business person that I admire and that has taught me a lot, Tom would be at the top of that list.

I'm friends with Richard Sands. I haven't worked with him as much as I have with Tom, but is someone that I look at and say who built a business. They did an unbelievable job building that business. So there are success stories here in Rochester that are international. I've been lucky enough to know them. Some of them I've worked with closely, some of them I've just worked with a little bit.

I try to gather, whenever I work with one of them, I kind of look and go, "How would they look at this?" When you're talking about Tom, he's always gonna look at it differently than the average person. But I learned that there is an- always another angle to something to try to be prepared for.

I just always come back to my mom and dad. My mom, she was our first employee per se, but she really wasn't because when we started there was only two of us and we couldn't afford an employee 'cause we literally had no business. We were starting from nothing. and she worked for Nixon, the law firm. She was a receptionist at Nixon. And she said to me, "So who is going to type your letters? Who's going to answer your phone?" I go, "I don't know. We don't have any clients. I can't hire anybody." And she, without me knowing, went to her boss and got a three-month sabbatical and left Nixon for three months and came and helped us open our office until we could hire an assistant. So that's the kind of support that I look at and go, "That's the kind of thing I need to do for other people."

Mark: Family is critical. Critical. My dad turns 80 today. We were with him last night - my parents and my brothers. I think our firm, "family oriented" is one of our five values ensuring that we don't want our people to miss a kid's game. We're all hardworking, but it's parents, it's your own kids. It's critical.

Tom: And we install that at the firm. I don't care what hours you work. You wanna go to your kid's game, you go. You should go. You got a birthday party, you go. You get the work done later.

Mark: Back to the honesty side, which is important - beyond important. One of our values is stewardship. And that was something, you know, when I left the bank to come to Royal Oak, your point on the community and raising capital, we hire, we just added two people this, three people this month to the team, and we ask that, you have to be comfortable in a business that's deploying other people's money. We all sleep well at night because we're doing the right things. Whether you invest next month or whether you invested at inception like yourself, we're buying the same properties. We're staying in our lane. We're disciplined, but stewardship's critical. How do you react to that?

Tom: I agree with you. It's critical. I've seen a lot of entrepreneurs over the years, they don't wanna tell you the bad news. They'll do everything, but they won't tell you the bad news, and that is a critical mistake. You have to be transparent when things are good and when things are bad. And people will respect you. What they don't wanna do is be surprised that something bad had happened and they didn't know about it.

So I think at Royal Oak we're very transparent. I mean, we are communicating with our shareholders, monthly and sometimes weekly. There's nothing going on out there that our shareholders shouldn't be aware of, or at least we are trying to communicate with them.

Even when we've had some situations we've had to work our way out of; we've done it, but we've told them. There's an issue here, there's an issue there. So I think total complete 100% honesty, good, bad, or indifferent, you have to be totally transparent with. It's other people's money. It is not your money that you're working with.

Mark: Bouncing back and forth a little bit with Royal Oak. Real estate's an interesting industry, right? We have a financial landscape that changes by the minute, the month, the quarter, interest rates, inflation, market volatility. The public markets have been ripping. But how do you think about the landscape of real estate and Royal Oak - outlook and thoughts on what's ahead?

Tom: Real estate's been a standard type of solid asset for hundreds of years. I think it should be part of - a part of everyone's portfolio in one way or another. It balances off a lot of the other things. But honestly, I think Royal Oak is in not just in real estate. We're in the right real estate sector. You know, we're in manufacturing, distribution. We're in situations where people, it's critical. They have to have these buildings. They must be operating. And so I think we've been good at doing that, and I think anybody who doesn't have any real estate in their portfolio doesn't have a well-balanced portfolio.

So everyone should have - and this is a good, solid, easy, predictable, low-risk way to be in real estate. I mean, you can be in real estate and be very risky. I think this real estate is pretty solid, and I do think it's going to continue to get better over the next few years, especially the sector that we're in.

Mark: I appreciate that, Tom. After everything you've built and everything you've been involved in and are involved in, what gets you excited to get out of bed every morning? And what's the secret Tom Bonadio sauce? There's something.

Tom: Right now at this point in my life and career, I've had some health issues, so I've gotten through those. We're actually moving to Arizona. I'm gonna become a resident of Arizona. I'm not gonna be here in the winter anymore - just back here in the summer.

But I've tried to balance my life. When I gave up the CEO role at the firm, I wanted to be 50/50. That was my rule. Half the time I wanted to be working, doing interesting things, things that I liked.

And half the time I wanted to be playing and either traveling or playing golf or spending time with family or whatever. So I've seen people slow down and they slow down to zero. Very boring, very unhappy. I'm trying to be 50/50, and what gets me up is the same thing that's got me up for years, and I'm gonna try to help somebody.

Making some money along the way helps too but I'm gonna try to help somebody do well. And this investment fund that I created after - Impact Capital - after I stopped being the CEO, we raised about 35 million local money and we've invested in just under 20 companies. I work with those CEOs a lot, and so I do the same thing I've done my whole career. I advise them, I try to help them. Just in this case we own a piece of them. We've had some successes, we've had some failures. But I think long-term Impact is gonna do really well and that kind of gets me up in the morning.

Mark: You've balanced. It's the work hard, play hard, but then I think of myself sometimes as a behavioral finance consultant to our investors. How much should we give? I never wanna answer that question. But a lot of our - if not all of our investors - have some defined wealth. And maybe it's significant wealth but there's wealth and purpose. And if you don't have the purpose, that wealth you've accumulated doesn't find itself in the right spot years later.

Tom: Matter of fact, it can hurt your family. I've seen a lot of estate plans where they ruined their family by giving them too much too quickly, and taking away their desire, their need to work. And they've made some pretty miserable kids and grandkids.

Mark: Well, I'm happy for you, and I'm happy you're going to Arizona. And that's gonna be a wonderful for you there and your friends out there. And we'll have you back in the summer. Obviously.

Tom: Don't worry, I'll fly back for Royal Oak meetings.

Mark: Well, I'll fly out to see you and play some golf.

Tom: We got a guest room, so you're welcome.

Mark: Oh, thank you. Last question. So let's go back to me caddying for you in the '90s. If you were to look to where you're at now what would you be most surprised about, and what are you most proud about?

Tom: People will say, "Well, what were you thinking you were gonna do when you first started the business?" And literally my goals were make enough money to pay the mortgage and raise my family. That was my goal. And then things came along. When you work hard, you actually get more lucky 'cause you're working hard. And as opportunities presented themselves, we were able to take advantage of them.

Did I ever think we'd be one of the top 40 firms in the United States? And we're actually growing at a point where we could be in the top 30 in the United States soon. No - never thought that would happen.

But as opportunities presented themselves, we took advantage of them and we've stayed true to our core values, and we've been good to people. We've been good to our clients, and that formula makes you grow. That's what's been happening. We've changed a lot. The public accounting industry is changing at a very high rate these days between AI and private equity firms and all of those things, but we've been able to maneuver around those and continue to be a top performer in the industry. Never in a million years thought that was gonna happen. Never.

Mark: It's awesome, Tom. I really thank you for doing this. I thank you on behalf of our company - not just our management team and manager, but the stakeholders, stockholders of Royal Oak, thank you for your service to our business.

Tom: You're welcome.

Mark: Really excited to be alongside you for this run because I've had a lot of fun with it, and we are all having a lot of fun with it. But thanks for your time today, and I'm glad we could sit down for a little bit.

Tom: It's been my pleasure. Thanks.