September 30, 2025 • 36 mins
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
you have to look for a great deal.
If you're not getting a greatdeal, don't transact.
Sit and wait and be morepatient.
If anything we learn from thedays of 21 and 22, patience is a
virtue.
Speaker 2 (00:12):
So the big question is this how do real estate
investors who don't have a tonof free time, don't have access
to off-market deals and didn'tstart life on third base, how do
we conservatively grow our realestate business to support our
families, finally leave thecorporate rat race and build a
legacy?
That is the question.
In this podcast, we'll give youthe answers.
(00:33):
I'm Ed Matthews and this isReal Estate Underground.
Greetings and salutations.
Real Estate Undergrounders.
It is Ed Matthews with the RealEstate Underground.
Thank you is Ed Matthews withthe Real Estate Underground.
Thank you so much for joiningus today.
I'd like to thank you all forall of your follows and your
comments and your texts to theshow.
Keep them coming, because thatreally helps us.
(00:55):
It helps us grow and it givesme direction on the types of
subjects and guests that you'relooking for.
So keep that stuff coming andthank you again.
Today I have Mike Zlotnick, bigMike from Tempo, family Funds
and Syndications.
Mike and I were just talkingabout our kids and having
high-end athletes for children,and what that means is we no
(01:16):
longer have our own weekends,but we can talk about that later
, mike thanks.
Thanks for joining us.
Welcome to the show.
Thank you so much for having me, absolutely so for those folks
who haven't discovered you yet,why don't you tell us a little
bit about you and Tempo family?
Speaker 1 (01:31):
Sure.
So I live in Brooklyn, New York, with four monkeys and a cat
for human monkeys and my wife,and so we have four kids and a
real cat.
I'm a real estate junkie.
I just love real estate.
I'm passionate about this.
I actually spent 15 years as atechnology executive and then I
discovered 2000 Real Estate.
I invested passively for nineyears and then became a
(01:52):
full-time real estateprofessional fund manager in
2009.
Look back, it's my genius zone.
I love it.
So I'm very passionate aboutreal estate.
We focus heavily today oncommercial real estate deals.
I know you do a lot ofmultifamily, so we do a lot of
multifamily.
We love that asset class, butwe do also other strategies
open-air shopping, industrialstorage.
(02:15):
We're also lenders.
We have some niche strategies.
Commercial real estate is whatwe day in and day out, and
that's it.
Speaker 2 (02:22):
Awesome, yeah.
When I discovered you onLinkedIn, it was particularly
interesting.
It was the blend of assetclasses that you pay attention
to.
Obviously, these days,especially living here in the
Northeast not a lot of reallygood deals that you see out on
CoStar or elsewhere that theyreally pencil.
There are pocket deals that Isee that are getting close.
(02:42):
For instance, at Clark Streetwe haven't bought a deal in over
a year and I don't know whatthat says.
I think that says that we'rereally picky, but it may say
something else, who knows.
I'm curious about what you'reseeing in the marketplace in the
asset classes that you follow.
Speaker 1 (02:59):
Yeah.
So appreciate the clarity andrespect your patience and not
transacting or trying totransact for the sake of
transacting.
We have the same way.
It's not about the volume, it'snot about the quantity, it's
about the quality.
So today we're looking for deepvalue deals or no deals.
We either are a lender, whichwe continue to do, or we got to
(03:21):
get into a very predictable orvery deep value deal.
So what does it mean?
This year we only did one dealin multifamily.
We're a little different fromthe traditional operators.
We're actually capital partnerthat's the best way to describe
it.
We marry money and opportunity.
We are not direct operators.
So what that means is we seekthese jockeys, these people who
(03:44):
run these horses, these deals,jockey ahead of the horse.
We basically seek guys andgirls like you who are deep
specialists in your strategy,vertical integration, whatever
market.
You know what's a great deal inyour market, how to get it, how
to market.
It's hard to find great deals,but they exist.
The industry is most certainlysignificantly impacted by the
(04:07):
higher, for longer, interestrates.
All other things being equal,there's financial pressure on
many owners.
They financed with floatingrate debt, they had rate caps
expire, they had a maturity clip, whatever you want to call it.
Yeah, there's a motivation.
So if there's motivation, thereare deals.
Now they're not happening ingreat value.
Everybody's holding on,surviving until 25, surviving
(04:28):
until 26.
People are just holding on.
If they can hold on, they thinkmiracles are going to happen.
Maybe they will, maybe theywon't.
Nonetheless, when you'retransacting today, you got to
see a great deal in my book, orno deal, that's it.
That's the philosophy.
Then you go into underwritingand you got to look at the
different metrics.
I'm happy to give you somedetails of what's a great deal
(04:49):
to us today.
What's your buy box look liketoday?
So I'll give you some veryspecific metrics.
Some people are going to look atme like I'm insane and then I
hear this all day long Peoplebuy.
I had a conversation.
We just looked at a deal inTampa.
That's trading.
Let's call it mid-fives caprate.
Nothing special, nothingexciting.
You have almost no spreadbetween the cap rate and the
mortgage rate.
(05:10):
Those are not great deals.
There may be interesting dealsif you believe in the market
growth over the next five years.
All that stuff.
Deep value deal to me today iswhat we did in early part of the
year, in Q1.
9% cap rate on purchase nearAnn Arbor, michigan, 7%
financing.
It's a floating rate but it'sfixed for three years.
Basically, you have 200 basispoints or 2% positive spread
(05:35):
between the cap rate you'rebuying and then the cost of
financing.
That's a margin of safety.
Going back to Warren Buffett,charlie or Benjamin Graham right
, you want a margin of safety,200 basis points.
I think 1.5% would be minimal,2% or better you're doing pretty
good, we do the exact samething.
Speaker 2 (05:53):
That's our first metric.
Speaker 1 (05:55):
Number two right, I go relative to reconstruction
cost.
So people talk to medevelopment all day long.
I look at the development.
I say I can't get a discount onit.
I can't get a discount on it.
I can't get a deep value.
It's cost to build, what itcosts to build.
Maybe construction costs couldbe a little down, with labor
being a little softer.
You could argue that, but youcan't really fundamentally do it
cheaper.
So on an existing, you can geta steep discount to
(06:18):
reconstruction cost.
In that example, we bought at79,000 a door.
Reconstruction cost is about200 a door.
Then you have to discount forthe condition and age.
I go look back at the peak ofthe market.
How much of a discount are wegetting today of the 2022
pricing?
Why?
Because it's a metric, it's acomparison.
What I do know is that themarkets have generally adjusted
(06:43):
between 20% and 40%.
Anecdotally and mathematically,20 to 40% is the right range On
that particular asset.
That thing traded at 125 a door.
We bought 79 a door.
It's about 35% off right, oneof the challenges I don't really
know exactly what the market istoday.
Transaction volume is low andcops are minimal.
So to get it, I want to get adiscount on the basis, but I
(07:04):
can't always establish themarket.
So I want to get a discount onthe as-is basis, but I can't
always establish the market so Ican compare to what I traded at
and then feel pretty good aboutthat discount.
These are just three reallyimportant metrics, the different
metrics.
Of course, on top of this canyou add value through energy
efficient improvements and getsome utility company
reimbursements.
Can you do, obviously, yourstandard unit renovations.
(07:25):
And what is your average renttoday On that property?
Every rent is $1,150 a door.
What's the market?
And then you could argue andyou got to look at the comps.
But you got to have a prettydecent step up from there.
This is the classicunderwriting model.
You still go back and you pushrents.
How much we like to look ataffordability Like this is
suburbs of Detroit, it's fairlyaffordable.
(07:46):
Now if you go to some othermarkets, affordability is on the
edge.
And then you could still argueyou could charge $1,500 a door.
But what happens withaffordability?
Can people actually pay $1,500in that area for these
apartments, for this type of aproduct?
But the first three are themost important ones.
Speaker 2 (08:04):
Indeed, I couldn't agree more.
Yeah, I learned this from afriend of mine I met on Twitter.
We used to be a little moreaggressive when the market was
ascending.
Looking back on it, it workedout, but it was pretty risky.
We would go as low as 1.5.
And I was talking to thatfriend and he was like what are
you doing?
You should be at minimum.
(08:27):
He was saying 1.9, andpreferably 2.0 in terms of
spread between cap and your debtcost, and I started doing the
math and thought, yeah, I got tostop being a little bit of a
cowboy.
Speaker 1 (08:34):
I just look at a self-storage deal and I know
your audience is mostlymultifamily.
But I look at a self-storagedeal in Houston Class A
properties and they're buyingthem at 5 cap and financing 5.75
cap.
Thank you, have a nice day.
You have to look for a greatdeal.
If you're not getting a greatdeal, don't transact.
Sit and wait and be morepatient.
If anything, we'll learn fromthe days of 21 and 22.
(08:55):
Patience is a virtue.
Speaker 2 (08:59):
Couldn't agree more.
It's us old guys that are goingto be.
We're going to survive this.
So talk to me about the otherasset classes.
You mentioned self-storage.
I'm not invested in any dealsthat had a general or limited
partner basis, but it's alwaysbeen intriguing to me because
you look at like traditionalmultifamily performance year
over year is, depending on whoyou talk to, right around 13%,
(09:22):
and I'm going back decades.
Right when you look atself-storage, that average is
around% and for me that's reallyattractive.
And then a friend of mine,brian Tully, has gotten me
really interested in flexindustrial and those returns are
pretty attractive as well.
(09:42):
I'm just curious, from yourperspective, those other asset
classes, is that where yourfocus is now, or are you more of
a?
I'm going to take what themarket gives me and evaluate it
one by one.
Speaker 1 (09:54):
Yeah, these are great questions.
Let me start because we'remarrying money and opportunity.
We are capital partners, we areflexible, so we are
opportunistic.
Number one.
Number two we're not big fansof storage because the cap rates
are still low.
I've looked for years withstorage.
We still have some oldpositions many years ago, but
beyond that I can't find a greatdeal of storage today because
the cap rates are too low.
(10:14):
Where we are finding reallyinteresting opportunities in
industrial, there's a flexindustrial and there's also a
single tenant, triple netindustrial.
We love those type of deals.
The entire underwriting comesdown to underwriting of a tenant
.
You have a 20, 25-year lease.
You have a high-credit, qualitytenant.
You have triple net, absolutetriple net.
You have annual 2% to 3% annualrent escalation clauses and I
(10:37):
compare it to multi and I saywhat's the average around the
country?
Rent escalation clause,non-escalation clause, it's the
average annual increase.
Right, you try 2% to 4%, but ingeneral 2% to 3% is about what
the US.
Speaker 2 (10:53):
It's a good solid core holding right.
Speaker 1 (10:56):
Exactly In industrial .
2% to 3% is absolute additionto NOI.
There's no additional cost.
The roof goes, the parking lotgoes, the fence goes, insurance
is up, it's all triple net, it'sall paid by the tenant.
That's why we like industrial.
We're looking at industrial nowbecause it's so predictable.
We also love open-air shopping.
It's been a huge contrarianplay years ago.
(11:18):
We are on that eighth deal inthat strategy and I can tell you
every single one of them hasdone well.
Multifamily has done therollercoaster thing through the
peak of 22.
Open-air shopping has been nosupply.
Multifamily got overbuilt inmany markets.
In open-air shopping there'sbeen fear of building Amazon, in
(11:39):
fact, and you have very limitedsupply.
So we've seen prettysignificant rent growth, healthy
.
Most of those deals have beenfinanced with long-term debt.
Today really like open-airshopping if you can get a deep
value and they traded muchhigher cap rates.
So you're talking aboutindustrial deals.
We're looking at between 8 and9 cap rates.
Open-air shopping.
We just did a deal in San Diego, downtown San Diego, purchased
(11:59):
at 9.25 cap One purchase with84% occupancy and financed with
6.5% fixed rate for 10 years.
Prepayment penalty burns offafter 5.
So you're locked in into a verystrong spread.
You have a lease up on thatproperty.
It was a very motivated sellersituation.
That's a great deal.
And then you have essentiallyStarbucks ADVs Cheesecake
(12:24):
Factory.
The difference betweenIndustrial open-air shopping,
multi and storage is thisIndustrial and retail open-air
shopping, long leases,predictable long leases.
Right, you go multi, typicallyone year.
Sometimes you have a two-yearlease, but typically it's a
(12:45):
one-year lease.
Storage is month to month.
When times are good, you pushup your rents.
When times are not good, youhave a problem Storage wars.
If you oversupply the marketboy, that's a big problem for
the storage industry.
So that's a layer of land ofsome of these strategies.
We do a bunch of other things.
We do recreational land.
(13:06):
Literally, we loan money onpeople who buy land recreational
and then they sell it or sell afinance on their website for
guys and girls to run their dirtbike or shoot their guns.
It's funny how it works, but wedo that.
We do a number of other things.
I'm not saying there's anyright strategy or wrong, but it
changes and if we seek betteropportunity in a given market, a
(13:26):
given strategy, we can considerwhat we love about multifamily.
Now it's deeply discounted.
We just got to find the rightjockey and the right great horse
and we're happy to write acheck.
I mean, from that perspectiveit's a game of patience.
And the other really bigbenefit to multifamily what I
love today bonus depreciation isback 100%.
(13:46):
It costs sex way better thanindustrial.
It costs sex way better thanopen area and the only thing
that's better is mobile homeparks.
They say that you couldbasically the whole thing.
There's no foundation walls.
You could cost seg better.
So multifamily is still a greatbuy today.
It's just got to find a deal.
Speaker 2 (14:02):
Yeah, no, it's exactly why the government put
it back in place, because themultifamily market has cooled so
significantly due to theinterest rates.
It's also probably why thepresident is pounding on the Fed
right now to drop rates,because that and home building
is a gas engine for the overalleconomy Supply problem.
Speaker 1 (14:22):
We can talk for two hours, but I'll give you a very
quick economic theory.
Right, when you hike interestrates, you kill demand, but the
problem is you kill supply too,and to incentivize supply you
need lower cost of financing.
Speaker 2 (14:32):
And we're already at a deficit because 2008, 9, 10
took out the general contractorclass, basically halved it and
those people most of them didn'tcome back.
And there are a whole lot ofpeople who used to build
apartment buildings and housingsingle-family houses who now own
(14:53):
Starbucks and are real estateinvestors instead and buy land
and don't develop.
It's literally in our town, thebiggest, probably one of the
biggest in the state builders.
He hasn't built a house in 10years.
Speaker 1 (15:09):
You need low interest rates, obviously close to
financing.
You've got to give them sometax incentives and other
incentives.
Northeast has been interestingIf you actually look at historic
data and I looked upstate NewYork and I have some family
upstate New York girlfriendshave been super healthy in
Midwest and Northeast for thereasons of limited supply.
People are building Florida,they're building Texas, they
build places where it wasattractive to build.
(15:30):
Here we have very limitedsupply.
Speaker 2 (15:32):
Yeah, and that makes sense because the population in
that Sunbelt to Texas, out toArizona, that population has
exploded.
Speaker 1 (15:39):
Affordability is another big issue when
affordability gets out ofcontrol.
Speaker 2 (15:42):
Yeah, so storage, open air multifamily, obviously.
What other asset classes areintriguing to you?
Speaker 1 (15:52):
I'm not a big fan.
I'll just tell you what this isa whole theory.
But I really have a box and adon't buy box, so my buy box is
really no new construction ingeneral.
But we're talking about being abridge lender.
We've done some bridge lendingwith a cross collateral,
additional collateral.
I don't mind being a lender,let them build and if they put
up with collateral and they havea problem, okay, we have
collateral.
(16:13):
Hospitality not a huge fan,although it's done relatively
well.
In the post-COVID world.
I am concerned sooner or laterwe will get into a recession
cycle and hospitality might justslow down.
Right, I'm not a big fan ofwhat is operating business
masked as real estate Peopletalk about.
They love Airbnb hospitality.
It is an operating business.
(16:34):
It's real estate, but it'soperating business.
Then you go into people talkabout senior living or
independent living or full care,senior living facilities,
heavily operating business.
I don't know the business.
It depends very much not onreal estate but on ability to
operate.
Storage is a little bit of thatoperating business.
It's real estate but it's alsoheavily operating.
(16:55):
That's why I'm not crazy aboutstorage and the cap rates are
too damn low to make itinteresting.
Office don't really like officefor the fundamental problems.
Right, people redevelop, theytry to redevelop, but it's hard,
from what I talk toredeveloping an office building
into anything else and againdevelop and redevelop and I
would rather stay out of it.
So what I know is a buy boxdeep value, multifamily deep
(17:15):
value, open-end shopping,industrial and debt mass debt
recovery, debt on existingmultifamily assets.
So from that perspective, giveme a good project.
If you need some liquidity andwe can come in the right
position, we'll look at that.
Speaker 2 (17:30):
Yeah, right on.
So it's interesting, right.
You're clearly out ahead ofprogress, right?
Because manufacturing, forinstance, is moving pretty
rapidly back into the US.
At least components of it isripe for that.
Speaker 1 (17:45):
There's additional incentives for domestic
manufacturing will continue tobe, and that's what we love,
especially industrialmanufacturing, not industrial
distribution.
Data centers Data centers arebeyond cool, but it's a hot
trend and they cost a fortune tobuild, and AI is growing at a
rapid pace.
The problem is you need tobuild brand new.
(18:07):
It's built to suit, it's veryexpensive and people are dumping
money and we can't even competeon the scale they're building.
We are a tiny fish in ahumongous pond, so we try to
play in the opportunities wherewe can actually be a reasonable
size player and avoid these $500million projects.
Speaker 2 (18:24):
Yeah, played because you can't compete.
There's just there Our asset.
Net asset value is theirrounding error, exactly.
So, in terms of the deals thatyou're seeing coming across your
desk, is it?
If I'm hearing you right, it'sa lot of retail open air and a
lot of industrial and a wholelot less of the other asset
(18:47):
classes right now?
Speaker 1 (18:48):
Yes, what we are is again we are a capital partner.
We have strong relationships,opportunities.
So people talk I got to gothrough a thousand deals to
select five.
We don't look at a hundreddeals to select five.
We look at 10 to select five.
And the reason it's like thisis because we get pre-screened
deals that are either close tobeing under contract.
(19:10):
So what we see is we maintainopen communications with our
closed relationship partners andwe try to understand what's
coming up and in some cases weeven use this technique.
This is a very powerful andvery simple technique.
Some folks already fundedclosed deals but they need
liquidity for the next deal.
We will come back and we'lllook at the existing deal that
(19:30):
they recently funded and closedand say okay, we'll step in,
we'll buy out your position or aportion of the position if we
like the deal.
So we are opportunistic.
We're not trying to nickel anddime and come up with crazy
discounted offer, but if theygot into a great deal from the
start, this backfill concept Ireally love it.
(19:54):
As an investor, you don't haveto fund a new deal.
You could pick up a recentlyclosed deal.
You can analyze, you could seehow it's doing and if it's doing
well and somebody needsliquidity.
You could do it that way.
So it's not a heavy volume.
But we are talking to a lot ofour relationship partner
sponsors and trying tounderstand what they have coming
up, and these discussions arewhat I would say.
Very recently, things havegotten a little bit last volume
wise.
In other words, people are notseeing the one big beautiful
bill pass.
(20:15):
Depreciation is back, peopleexpecting interest rates, maybe
a little more bidding activity,but we're sitting waiting for
these strong deals and if theydon't happen, it's okay.
Speaker 2 (20:25):
Yeah, it's going to be fine Because there are other
asset classes, and Iwholeheartedly agree with your
approach.
Okay, so let's get into thelightning round the final five.
I'm curious about leaders likeyou who have done very well and,
from a financial perspective,things are taken care of right.
You're not struggling to payyour mortgage, if you even have
(20:48):
one.
Car payments are either handledor non-existent.
Car payments are either handledor non-existent.
The kids' college educationsare either they're lining up to
get major scholarships, likeyour kids, or professional
athletes, like your kids, orthere's a college fund sitting
there waiting for them toutilize, and you get out of bed
on Monday morning and you gocharging headfirst into your
office, and so to me, that'spurpose, and so I'm curious what
(21:13):
?
Speaker 1 (21:13):
gets you out of bed on Monday morning.
So I have a whole simple theory.
I just like to operate in thegenius zone.
I love what I do, so to me,it's not work.
And what is genius zone?
It's something you're good at,something you really love and
something that makes you money.
It's that simple.
I spent 15 years in technologyand I was making very good money
.
I was very good at this, but Iwasn't motivated.
(21:34):
I love real estate.
I'm a deal junkie.
I love looking at deals.
I'm a chess master.
So to me, all this analysis isjust fun, right.
I don't know what else I woulddo.
I'd go bored, right.
That's what gets me out of bed.
I just enjoy what I do.
I don't it.
It's almost like some peopleare motivated by a huge payday.
It's almost like this it's 40X,the book for disciplines of
(21:55):
execution you put in the inputs,the outputs will work out.
So I just love getting thedeals done, putting it into the
right framework, and then magichappens years down the road.
Speaker 2 (22:07):
Yeah, I think if you do a lot of the right things in
terms of your due diligence, interms of picking the right
partners and all your process,the money follows right.
It's not a matter of gettingout of bed and saying, okay, I'm
going to make a million dollarsthis quarter.
It's not a matter of gettingout of bed and saying, okay, I'm
going to make a million dollarsthis quarter.
It's I'm going to go do threedeals that need this criteria
and when I find them and I willfind them when I find them we're
(22:28):
going to attack.
I'm also curious about thementors you've had along the way
.
You and I actually have verysimilar backgrounds as
recovering technologists, so I'mcurious about the mentors
you've had over the years andwhat's the best advice you've
ever?
Speaker 1 (22:46):
received and who gave it to you?
Yeah, it's a great question.
And a lot of my mentors I callthem book offers, right.
So I read a lot of books and Iactually listen to a lot of
books.
So I love Howard Marks, marketCycles, obviously, warren
Buffett, benjamin Graham, rayDaly a huge fan right, follow a
lot of his theories.
And I do have some old friendsfrom technology world that were
(23:06):
sort of mentors.
I literally reconnected one ofthem out of Austin.
There's been so manyconversations and advice given.
I don't have a single onethat's been so transformational.
It's just more of.
I think the biggest thing thatI've learned from all my mentors
is a learner's mindset.
By far what I can tell you isbeing humble.
(23:28):
Humility and a learner'smindset will get you through
everything in life.
Indeed and honestly, one of myfavorite books is John Maxwell.
Sometimes you Win, sometimesyou Learn Right.
So just constantly.
Back to chess.
I literally am writing a newbook right now.
Part of the one of the chaptersin the book, one of the
(23:48):
descriptions that I'm talkingabout investing is like chess
you learn in investing like youlearn in chess.
How do you do that?
I'm a chess master.
I spent years practicing.
I analyze my own games andgames of the world-leading chess
players.
You look at what they did, howthey did it and understand the
purpose, and you understand theerrors and your own errors.
Same thing happens in investing.
(24:10):
We're not perfect.
We're going to make mistakesand as long as I learn my lesson
, I am happy.
Speaker 2 (24:15):
Couldn't agree more.
And that actually leads me tomy next question, because I
agree that we learn far morefrom our mistakes than we do
from our successes, and so I'mcurious about a professional
decision you've made over theyears that you look back now and
go, wow, I'd love to have thatback, and what'd you do about it
?
Speaker 1 (24:34):
Because of my humility, I am not proud of this
, but we did a bunch of deals in21, 22.
It is what it is, and thesewere multifamily deals.
I go back and I had aconversation with my investors
who yelled at me literally, justsaid Mike, you're such a smart
guy but you're also such anidiot.
Why didn't you see theseinterest rates rising so fast?
And I humbly acknowledged Ishould have thought better.
(24:58):
I should have really thoughtabout this.
I said, listen, the Fed keptZerb their interest rate policy
for almost 20 years.
The biggest hike they did fromzero to about two and a half in
whatever 18, 19.
And then they pushed it rightback down.
If you look at the president, itwas difficult to see market
changing that much.
It wasn't just me, it was theentire market who misunderstood,
(25:18):
misread Me too.
At the same time, I know peoplewho sat on their hands in 21,
22, and did nothing.
And because they were sellingdeals, they were clearing out,
they were liquidating.
So I bowed to them they're thewise men and I'm that idiot.
There's an expression foolslearn from their own mistakes
and the wise men learn from themistakes of fools.
So I'm the fool who now islearning from my own mistakes 21
(25:41):
, 22,.
We did do the deals and we'refighting now to make sure these
deals hang in there.
Not everything will survive.
I'm completely unhappy aboutsome of those situations, but we
are persevering.
We're talking to our investors.
We're very open, transparentabout it.
All we can do is do it withcomplete openness and
transparency.
But is it a mistake?
(26:02):
Looking back now, hindsight,sure it was a mistake.
What did I learn?
I didn't quite study enough ofmarket cycles.
So after that I read HowardMarks Mastering the Market Cycle
and tried to understand thatthere are cycles and you better
understand where you are in thecycle.
Speaker 2 (26:17):
Yeah, I think that we can all understand that
mentality in terms of what yousaw versus what happened.
No one has a crystal ball and Icertainly didn't see interest
rates rising as fast in as shorta time as actually happened.
Speaker 1 (26:33):
I have a good phrase for it.
I like the movie Fast andFurious.
So the fat hike.
Fast and Furious, it's not justthe absolute five and a quarter
percent, it's the speed it'sgoing from zero to that level.
You went up 40 and Furious.
It's not just the absolute fiveand a quarter percent, it's the
speed it's going from zero tothat level.
You went up 40, 50x.
That's the crazy part.
Speaker 2 (26:47):
Yeah, it's nuts.
You mentioned several booksduring the conversation.
Speaker 1 (26:52):
I'm curious about who you're reading now, who you're
paying attention to, so I amreading for the third time now,
Ray Dalio's how the Countries GoBroke.
Obviously, I've rereadPrinciples and many things go
back and reread.
So what I do with books is thisI don't consume volume of books
.
I sometimes will go again andagain until really it sinks in.
(27:14):
As I was listening to one ofRay Dalio's, it sunk to me one
of his principles If you're notworrying, you should be, and if
you're worrying, you should be,and if you're worrying, you
shouldn't.
Some of these concepts are ifyou're paying attention to
something and you're studying itand you're preparing, you're
probably okay, and if you arecompletely complacent and
ignoring it, you're not reallyunderstanding risks.
(27:34):
That book, Michael Dell's Winand Play Nice, something like
this.
It's a recent book.
Periodically I'm coming back toHoward Marks and really trying
to spend more time understandingrisk.
Risk is the most difficultthing to understand, so not only
before but often after.
Right, you do a deal and thenit works out or it doesn't work
(27:56):
out and if you judge based onthe results, maybe you didn't
see the risks.
You still don't know what itshould have been.
But it's a mix of books.
I love a couple of other booksI'll mention.
This is a good recreationalbook, but it's also about the
wisest investors of the worldRicher, wiser, happier.
That's a great book.
It actually studies people likeCharlie Munger and some other
(28:17):
greatest investors in the world.
There's a whole audible librarythat I go through.
I'll go listen to three,Because I've listened to this
book so many times.
I will go back and listen toone or two chapters and then
switch to another one.
You could continue to learn alot, but I do watch old movies
again and again as a joke to seeif anything different is going
to happen.
Speaker 2 (28:37):
It's interesting I have my favorite books that I
read every year.
I also have my favorite booksthat I read every year.
I also have my favorite moviesthat I see whenever they come on
, and in both cases I always seesomething new.
Even if I've read the bookthree times, I always find
something new.
And likewise in a movie.
If I'm paying attention andit's not just background you
always pick up on somethingright.
Speaker 1 (28:57):
Yeah, so the movies are purely entertaining because
it's visual, Books and all.
I consume content way betterlistening than reading.
So people love reading and likecertain data and charts.
Yeah, You're better bettervisual, but concepts audible.
Speaker 2 (29:10):
Yeah, and actually I cheat.
I have the audible playing inwhisper mode and I read it on my
Kindle.
So I'm a very active readerbecause I'm a rather slow reader
.
So I tend to be more active andI take notes and highlight.
Speaker 1 (29:22):
And, yeah, there are several books I read every
January, no matter what I thinkone thing that's completely
wrong about our educationalprocess is different people
learn differently, yeah, and ifyou know what works for you and
same thing for the kids,sometimes they just tell them
this is how you got to learn,but not every kid learns the
same way.
This is really important Now,in the age of AI.
(29:43):
I think there's going to be alot of learning without some of
the old doctrine and more ofsome of these AI systems.
Speaker 2 (29:55):
It's another discussion simply having
conversations with chat GPT andClaude.
I need you to teach me Pythonas if I'm a total and complete
beginner.
Let's start and I've beenhaving chat GPT, I'll have chat
GPT, teach it, and then I'llapply it in Claude and see if I
(30:16):
learned it.
And then I'll go back and forthand it's yeah, if I'm not
careful I'm going to get suckedback into the technology world.
But I'm not going to allow thatto happen.
It's more automation firststuff here that we pay a lot of
money.
Speaker 1 (30:27):
You're doing it for fun.
Speaker 2 (30:28):
It started as fun and now it's.
I'm starting to see where wecan automate our business, so
it's spurring us to solvebottlenecks in our business with
this type of technology insteadof throwing human being at it,
which is what we used to do.
And yeah, so far, so good, sostill early.
Speaker 1 (30:47):
My only feedback would be you're a leader of your
business and it's another greatbook, so this is very important
.
So, as a leader of the business, you have to really think about
leadership and CEO.
Absolutely, trey Taylor.
A CEO does only three thingsPeople, culture, numbers.
That's another great book.
So whenever you have aninclination to go back to
programming, I would say find akid, I'm doing the PRD.
Speaker 2 (31:12):
and then I'm handing it off a project to a member of
our team that she's building theExcel prototype before we build
the software.
But yeah, no, I'm not the oneprogramming building the Excel
prototype before we build thesoftware.
But yeah, no, I'm not the oneprogramming.
I just want to know enough sothat when I have that
conversation with the kid inIndia or wherever he is, that
he's not snowing me and I canfigure out that he knows exactly
what he's talking about.
That's really where I want toget.
Speaker 1 (31:33):
That's your learning for the sake of being able to be
on the intelligent level ratherthan the baloney story.
Speaker 2 (31:41):
And instead of watching Netflix after dinner,
I'm doing this right.
So, in terms of how you operate, I'm curious how you define
success in your life.
Speaker 1 (31:54):
It's tough to be.
Some people measure net worth,some people measure I don't know
how much good you've done.
I've never been an exact fan ofthese precise measurements.
I've grown up around the family, so to me I just want to see
happy, successful kids.
At least this is a priority tome.
Of course I want to do good towhatever degree I can, but they
(32:15):
say charity starts at home.
Sometimes you really have tomake sure your kids are.
So to me, for kids, I'm justmaking sure they're good kids,
they're successful, they'reenjoying, they're productive.
I never curse, almost nevercurse.
If I hear any like, one of thekids will start sleeping
something.
I tell them listen, do you hearmom and dad curse?
I said people curse all thetime, and so I don't know if
(32:35):
this is a definition of success,but it's just like my first
duty as a parent to make surethe kids are good and successful
.
I don't measure success purelyin financial terms.
Once you feel you'refinancially independent or happy
, it's just a score right.
It's all about operating.
My success is operation in thegenius zone.
If I feel like I'm operating inthe genius zone, I feel great.
(32:58):
This is it, this is the winning, this is success.
Can I help other people.
While I'm doing this, can I behappy, Can I be productive, the
team of people around me Ialways think about people,
culture, numbers.
Can I impact and influenceother people in a positive
manner and make a positivedifference in their life?
And if I'm doing this, I feelsatisfaction.
(33:20):
I'm doing this.
I feel satisfaction Like I'mreally coaching other people,
helping them and they'resuccessful, and it's giving me
satisfaction.
I feel that's a positivedifference I'm making.
Speaker 2 (33:29):
Couldn't agree more Exactly.
All right, Mike, what do youenjoy doing I?
Speaker 1 (33:33):
walk a lot.
I like, I'm like.
I walk like a madman.
Every day I literally have ameeting booked every day to go
for a walk a specific hour.
Walking is the best exercise byfar.
My wife says go to the gym, Iget very bored.
I don't go to the gym, Iliterally walk.
I can walk for an hour and ahalf, can even sometimes more.
And the beauty about walkingyou can listen to books while
you're doing this.
You can listen to a podcast,you can do a lot of other things
(33:57):
.
So walking is I like it.
I steal from time to time, goback and play some chess on
chesscom and we travel quite abit.
My third girl is a professionalfigure skater on a synchronized
figure skating team and I'm onthe road competitions trainings.
So we spend time basicallybeing in her life and other kids
(34:18):
they also.
They have their own stuff.
So I don't know what else tosay.
There isn't that much time leftafter you get involved with all
that.
Speaker 2 (34:26):
It's funny.
My aunt and uncle decided notto have kids and I was having a
conversation with him at somepoint.
And what are your hobbies?
And I said see those two littlegirls running around your
backyard.
Those are my hobbies.
They consume every free momentof my life and as they get older
, less and less, which is howI'm happy for them, a little sad
(34:47):
for me and my wife.
And the other thing I couldn'tagree more with.
My wife always says I don'tcare.
And she does care, but she goesI don't care about your grades,
I care that you're a good kid.
And that's when we go to herhigh school and ask how she
doing.
What we want to hear back isshe's a great kid.
Yep, she got a B plus.
That's fine.
She doesn't have to be astraight A student, as long as
(35:07):
she's a good human being.
So, mike, if folks want tolearn more about you or Big Mike
, your podcast or Tempo family,what's the best way to get in
touch?
Speaker 1 (35:19):
Now it's going to get super easy and super cheesy.
So, BigMikeFfundcom, just likeit sounds.
If you misspell it and youforget the D at the end, you go
to bigmikefundcom.
I promise it's not a kinky site, it's a podcast site.
It's an entry point.
It's not on our corporatewebsite but once you go there
you can go to the corporatewebsite and you can look at our
(35:41):
deals.
But because of the podcast,bigmikefundcom, it's a good
entry point, easy to remember.
Speaker 2 (35:47):
All right, Mike.
Thank you so much for your timetoday.
It truly was a pleasure to havethis conversation.
I'm glad we met and I wish youcontinued success.
Thank you, this has been theReal Estate Underground.
Don't forget to rate, reviewand subscribe.
It helps us grow.
Until next time, undergrounders, remember, your real estate
journey begins with a simplestep forward.
(36:08):
Now get to it.
Bye for now.
you have to look for a great deal.
If you're not getting a greatdeal, don't transact.
Sit and wait and be morepatient.
If anything we learn from thedays of 21 and 22, patience is a
virtue.
Speaker 2 (00:12):
So the big question is this how do real estate
investors who don't have a tonof free time, don't have access
to off-market deals and didn'tstart life on third base, how do
we conservatively grow our realestate business to support our
families, finally leave thecorporate rat race and build a
legacy?
That is the question.
In this podcast, we'll give youthe answers.
(00:33):
I'm Ed Matthews and this isReal Estate Underground.
Greetings and salutations.
Real Estate Undergrounders.
It is Ed Matthews with the RealEstate Underground.
Thank you is Ed Matthews withthe Real Estate Underground.
Thank you so much for joiningus today.
I'd like to thank you all forall of your follows and your
comments and your texts to theshow.
Keep them coming, because thatreally helps us.
(00:55):
It helps us grow and it givesme direction on the types of
subjects and guests that you'relooking for.
So keep that stuff coming andthank you again.
Today I have Mike Zlotnick, bigMike from Tempo, family Funds
and Syndications.
Mike and I were just talkingabout our kids and having
high-end athletes for children,and what that means is we no
(01:16):
longer have our own weekends,but we can talk about that later
, mike thanks.
Thanks for joining us.
Welcome to the show.
Thank you so much for having me, absolutely so for those folks
who haven't discovered you yet,why don't you tell us a little
bit about you and Tempo family?
Speaker 1 (01:31):
Sure.
So I live in Brooklyn, New York, with four monkeys and a cat
for human monkeys and my wife,and so we have four kids and a
real cat.
I'm a real estate junkie.
I just love real estate.
I'm passionate about this.
I actually spent 15 years as atechnology executive and then I
discovered 2000 Real Estate.
I invested passively for nineyears and then became a
(01:52):
full-time real estateprofessional fund manager in
2009.
Look back, it's my genius zone.
I love it.
So I'm very passionate aboutreal estate.
We focus heavily today oncommercial real estate deals.
I know you do a lot ofmultifamily, so we do a lot of
multifamily.
We love that asset class, butwe do also other strategies
open-air shopping, industrialstorage.
(02:15):
We're also lenders.
We have some niche strategies.
Commercial real estate is whatwe day in and day out, and
that's it.
Speaker 2 (02:22):
Awesome, yeah.
When I discovered you onLinkedIn, it was particularly
interesting.
It was the blend of assetclasses that you pay attention
to.
Obviously, these days,especially living here in the
Northeast not a lot of reallygood deals that you see out on
CoStar or elsewhere that theyreally pencil.
There are pocket deals that Isee that are getting close.
(02:42):
For instance, at Clark Streetwe haven't bought a deal in over
a year and I don't know whatthat says.
I think that says that we'rereally picky, but it may say
something else, who knows.
I'm curious about what you'reseeing in the marketplace in the
asset classes that you follow.
Speaker 1 (02:59):
Yeah.
So appreciate the clarity andrespect your patience and not
transacting or trying totransact for the sake of
transacting.
We have the same way.
It's not about the volume, it'snot about the quantity, it's
about the quality.
So today we're looking for deepvalue deals or no deals.
We either are a lender, whichwe continue to do, or we got to
(03:21):
get into a very predictable orvery deep value deal.
So what does it mean?
This year we only did one dealin multifamily.
We're a little different fromthe traditional operators.
We're actually capital partnerthat's the best way to describe
it.
We marry money and opportunity.
We are not direct operators.
So what that means is we seekthese jockeys, these people who
(03:44):
run these horses, these deals,jockey ahead of the horse.
We basically seek guys andgirls like you who are deep
specialists in your strategy,vertical integration, whatever
market.
You know what's a great deal inyour market, how to get it, how
to market.
It's hard to find great deals,but they exist.
The industry is most certainlysignificantly impacted by the
(04:07):
higher, for longer, interestrates.
All other things being equal,there's financial pressure on
many owners.
They financed with floatingrate debt, they had rate caps
expire, they had a maturity clip, whatever you want to call it.
Yeah, there's a motivation.
So if there's motivation, thereare deals.
Now they're not happening ingreat value.
Everybody's holding on,surviving until 25, surviving
(04:28):
until 26.
People are just holding on.
If they can hold on, they thinkmiracles are going to happen.
Maybe they will, maybe theywon't.
Nonetheless, when you'retransacting today, you got to
see a great deal in my book, orno deal, that's it.
That's the philosophy.
Then you go into underwritingand you got to look at the
different metrics.
I'm happy to give you somedetails of what's a great deal
(04:49):
to us today.
What's your buy box look liketoday?
So I'll give you some veryspecific metrics.
Some people are going to look atme like I'm insane and then I
hear this all day long Peoplebuy.
I had a conversation.
We just looked at a deal inTampa.
That's trading.
Let's call it mid-fives caprate.
Nothing special, nothingexciting.
You have almost no spreadbetween the cap rate and the
mortgage rate.
(05:10):
Those are not great deals.
There may be interesting dealsif you believe in the market
growth over the next five years.
All that stuff.
Deep value deal to me today iswhat we did in early part of the
year, in Q1.
9% cap rate on purchase nearAnn Arbor, michigan, 7%
financing.
It's a floating rate but it'sfixed for three years.
Basically, you have 200 basispoints or 2% positive spread
(05:35):
between the cap rate you'rebuying and then the cost of
financing.
That's a margin of safety.
Going back to Warren Buffett,charlie or Benjamin Graham right
, you want a margin of safety,200 basis points.
I think 1.5% would be minimal,2% or better you're doing pretty
good, we do the exact samething.
Speaker 2 (05:53):
That's our first metric.
Speaker 1 (05:55):
Number two right, I go relative to reconstruction
cost.
So people talk to medevelopment all day long.
I look at the development.
I say I can't get a discount onit.
I can't get a discount on it.
I can't get a deep value.
It's cost to build, what itcosts to build.
Maybe construction costs couldbe a little down, with labor
being a little softer.
You could argue that, but youcan't really fundamentally do it
cheaper.
So on an existing, you can geta steep discount to
(06:18):
reconstruction cost.
In that example, we bought at79,000 a door.
Reconstruction cost is about200 a door.
Then you have to discount forthe condition and age.
I go look back at the peak ofthe market.
How much of a discount are wegetting today of the 2022
pricing?
Why?
Because it's a metric, it's acomparison.
What I do know is that themarkets have generally adjusted
(06:43):
between 20% and 40%.
Anecdotally and mathematically,20 to 40% is the right range On
that particular asset.
That thing traded at 125 a door.
We bought 79 a door.
It's about 35% off right, oneof the challenges I don't really
know exactly what the market istoday.
Transaction volume is low andcops are minimal.
So to get it, I want to get adiscount on the basis, but I
(07:04):
can't always establish themarket.
So I want to get a discount onthe as-is basis, but I can't
always establish the market so Ican compare to what I traded at
and then feel pretty good aboutthat discount.
These are just three reallyimportant metrics, the different
metrics.
Of course, on top of this canyou add value through energy
efficient improvements and getsome utility company
reimbursements.
Can you do, obviously, yourstandard unit renovations.
(07:25):
And what is your average renttoday On that property?
Every rent is $1,150 a door.
What's the market?
And then you could argue andyou got to look at the comps.
But you got to have a prettydecent step up from there.
This is the classicunderwriting model.
You still go back and you pushrents.
How much we like to look ataffordability Like this is
suburbs of Detroit, it's fairlyaffordable.
(07:46):
Now if you go to some othermarkets, affordability is on the
edge.
And then you could still argueyou could charge $1,500 a door.
But what happens withaffordability?
Can people actually pay $1,500in that area for these
apartments, for this type of aproduct?
But the first three are themost important ones.
Speaker 2 (08:04):
Indeed, I couldn't agree more.
Yeah, I learned this from afriend of mine I met on Twitter.
We used to be a little moreaggressive when the market was
ascending.
Looking back on it, it workedout, but it was pretty risky.
We would go as low as 1.5.
And I was talking to thatfriend and he was like what are
you doing?
You should be at minimum.
(08:27):
He was saying 1.9, andpreferably 2.0 in terms of
spread between cap and your debtcost, and I started doing the
math and thought, yeah, I got tostop being a little bit of a
cowboy.
Speaker 1 (08:34):
I just look at a self-storage deal and I know
your audience is mostlymultifamily.
But I look at a self-storagedeal in Houston Class A
properties and they're buyingthem at 5 cap and financing 5.75
cap.
Thank you, have a nice day.
You have to look for a greatdeal.
If you're not getting a greatdeal, don't transact.
Sit and wait and be morepatient.
If anything, we'll learn fromthe days of 21 and 22.
(08:55):
Patience is a virtue.
Speaker 2 (08:59):
Couldn't agree more.
It's us old guys that are goingto be.
We're going to survive this.
So talk to me about the otherasset classes.
You mentioned self-storage.
I'm not invested in any dealsthat had a general or limited
partner basis, but it's alwaysbeen intriguing to me because
you look at like traditionalmultifamily performance year
over year is, depending on whoyou talk to, right around 13%,
(09:22):
and I'm going back decades.
Right when you look atself-storage, that average is
around% and for me that's reallyattractive.
And then a friend of mine,brian Tully, has gotten me
really interested in flexindustrial and those returns are
pretty attractive as well.
(09:42):
I'm just curious, from yourperspective, those other asset
classes, is that where yourfocus is now, or are you more of
a?
I'm going to take what themarket gives me and evaluate it
one by one.
Speaker 1 (09:54):
Yeah, these are great questions.
Let me start because we'remarrying money and opportunity.
We are capital partners, we areflexible, so we are
opportunistic.
Number one.
Number two we're not big fansof storage because the cap rates
are still low.
I've looked for years withstorage.
We still have some oldpositions many years ago, but
beyond that I can't find a greatdeal of storage today because
the cap rates are too low.
(10:14):
Where we are finding reallyinteresting opportunities in
industrial, there's a flexindustrial and there's also a
single tenant, triple netindustrial.
We love those type of deals.
The entire underwriting comesdown to underwriting of a tenant
.
You have a 20, 25-year lease.
You have a high-credit, qualitytenant.
You have triple net, absolutetriple net.
You have annual 2% to 3% annualrent escalation clauses and I
(10:37):
compare it to multi and I saywhat's the average around the
country?
Rent escalation clause,non-escalation clause, it's the
average annual increase.
Right, you try 2% to 4%, but ingeneral 2% to 3% is about what
the US.
Speaker 2 (10:53):
It's a good solid core holding right.
Speaker 1 (10:56):
Exactly In industrial .
2% to 3% is absolute additionto NOI.
There's no additional cost.
The roof goes, the parking lotgoes, the fence goes, insurance
is up, it's all triple net, it'sall paid by the tenant.
That's why we like industrial.
We're looking at industrial nowbecause it's so predictable.
We also love open-air shopping.
It's been a huge contrarianplay years ago.
(11:18):
We are on that eighth deal inthat strategy and I can tell you
every single one of them hasdone well.
Multifamily has done therollercoaster thing through the
peak of 22.
Open-air shopping has been nosupply.
Multifamily got overbuilt inmany markets.
In open-air shopping there'sbeen fear of building Amazon, in
(11:39):
fact, and you have very limitedsupply.
So we've seen prettysignificant rent growth, healthy
.
Most of those deals have beenfinanced with long-term debt.
Today really like open-airshopping if you can get a deep
value and they traded muchhigher cap rates.
So you're talking aboutindustrial deals.
We're looking at between 8 and9 cap rates.
Open-air shopping.
We just did a deal in San Diego, downtown San Diego, purchased
(11:59):
at 9.25 cap One purchase with84% occupancy and financed with
6.5% fixed rate for 10 years.
Prepayment penalty burns offafter 5.
So you're locked in into a verystrong spread.
You have a lease up on thatproperty.
It was a very motivated sellersituation.
That's a great deal.
And then you have essentiallyStarbucks ADVs Cheesecake
(12:24):
Factory.
The difference betweenIndustrial open-air shopping,
multi and storage is thisIndustrial and retail open-air
shopping, long leases,predictable long leases.
Right, you go multi, typicallyone year.
Sometimes you have a two-yearlease, but typically it's a
(12:45):
one-year lease.
Storage is month to month.
When times are good, you pushup your rents.
When times are not good, youhave a problem Storage wars.
If you oversupply the marketboy, that's a big problem for
the storage industry.
So that's a layer of land ofsome of these strategies.
We do a bunch of other things.
We do recreational land.
(13:06):
Literally, we loan money onpeople who buy land recreational
and then they sell it or sell afinance on their website for
guys and girls to run their dirtbike or shoot their guns.
It's funny how it works, but wedo that.
We do a number of other things.
I'm not saying there's anyright strategy or wrong, but it
changes and if we seek betteropportunity in a given market, a
(13:26):
given strategy, we can considerwhat we love about multifamily.
Now it's deeply discounted.
We just got to find the rightjockey and the right great horse
and we're happy to write acheck.
I mean, from that perspectiveit's a game of patience.
And the other really bigbenefit to multifamily what I
love today bonus depreciation isback 100%.
(13:46):
It costs sex way better thanindustrial.
It costs sex way better thanopen area and the only thing
that's better is mobile homeparks.
They say that you couldbasically the whole thing.
There's no foundation walls.
You could cost seg better.
So multifamily is still a greatbuy today.
It's just got to find a deal.
Speaker 2 (14:02):
Yeah, no, it's exactly why the government put
it back in place, because themultifamily market has cooled so
significantly due to theinterest rates.
It's also probably why thepresident is pounding on the Fed
right now to drop rates,because that and home building
is a gas engine for the overalleconomy Supply problem.
Speaker 1 (14:22):
We can talk for two hours, but I'll give you a very
quick economic theory.
Right, when you hike interestrates, you kill demand, but the
problem is you kill supply too,and to incentivize supply you
need lower cost of financing.
Speaker 2 (14:32):
And we're already at a deficit because 2008, 9, 10
took out the general contractorclass, basically halved it and
those people most of them didn'tcome back.
And there are a whole lot ofpeople who used to build
apartment buildings and housingsingle-family houses who now own
(14:53):
Starbucks and are real estateinvestors instead and buy land
and don't develop.
It's literally in our town, thebiggest, probably one of the
biggest in the state builders.
He hasn't built a house in 10years.
Speaker 1 (15:09):
You need low interest rates, obviously close to
financing.
You've got to give them sometax incentives and other
incentives.
Northeast has been interestingIf you actually look at historic
data and I looked upstate NewYork and I have some family
upstate New York girlfriendshave been super healthy in
Midwest and Northeast for thereasons of limited supply.
People are building Florida,they're building Texas, they
build places where it wasattractive to build.
(15:30):
Here we have very limitedsupply.
Speaker 2 (15:32):
Yeah, and that makes sense because the population in
that Sunbelt to Texas, out toArizona, that population has
exploded.
Speaker 1 (15:39):
Affordability is another big issue when
affordability gets out ofcontrol.
Speaker 2 (15:42):
Yeah, so storage, open air multifamily, obviously.
What other asset classes areintriguing to you?
Speaker 1 (15:52):
I'm not a big fan.
I'll just tell you what this isa whole theory.
But I really have a box and adon't buy box, so my buy box is
really no new construction ingeneral.
But we're talking about being abridge lender.
We've done some bridge lendingwith a cross collateral,
additional collateral.
I don't mind being a lender,let them build and if they put
up with collateral and they havea problem, okay, we have
collateral.
(16:13):
Hospitality not a huge fan,although it's done relatively
well.
In the post-COVID world.
I am concerned sooner or laterwe will get into a recession
cycle and hospitality might justslow down.
Right, I'm not a big fan ofwhat is operating business
masked as real estate Peopletalk about.
They love Airbnb hospitality.
It is an operating business.
(16:34):
It's real estate, but it'soperating business.
Then you go into people talkabout senior living or
independent living or full care,senior living facilities,
heavily operating business.
I don't know the business.
It depends very much not onreal estate but on ability to
operate.
Storage is a little bit of thatoperating business.
It's real estate but it's alsoheavily operating.
(16:55):
That's why I'm not crazy aboutstorage and the cap rates are
too damn low to make itinteresting.
Office don't really like officefor the fundamental problems.
Right, people redevelop, theytry to redevelop, but it's hard,
from what I talk toredeveloping an office building
into anything else and againdevelop and redevelop and I
would rather stay out of it.
So what I know is a buy boxdeep value, multifamily deep
(17:15):
value, open-end shopping,industrial and debt mass debt
recovery, debt on existingmultifamily assets.
So from that perspective, giveme a good project.
If you need some liquidity andwe can come in the right
position, we'll look at that.
Speaker 2 (17:30):
Yeah, right on.
So it's interesting, right.
You're clearly out ahead ofprogress, right?
Because manufacturing, forinstance, is moving pretty
rapidly back into the US.
At least components of it isripe for that.
Speaker 1 (17:45):
There's additional incentives for domestic
manufacturing will continue tobe, and that's what we love,
especially industrialmanufacturing, not industrial
distribution.
Data centers Data centers arebeyond cool, but it's a hot
trend and they cost a fortune tobuild, and AI is growing at a
rapid pace.
The problem is you need tobuild brand new.
(18:07):
It's built to suit, it's veryexpensive and people are dumping
money and we can't even competeon the scale they're building.
We are a tiny fish in ahumongous pond, so we try to
play in the opportunities wherewe can actually be a reasonable
size player and avoid these $500million projects.
Speaker 2 (18:24):
Yeah, played because you can't compete.
There's just there Our asset.
Net asset value is theirrounding error, exactly.
So, in terms of the deals thatyou're seeing coming across your
desk, is it?
If I'm hearing you right, it'sa lot of retail open air and a
lot of industrial and a wholelot less of the other asset
(18:47):
classes right now?
Speaker 1 (18:48):
Yes, what we are is again we are a capital partner.
We have strong relationships,opportunities.
So people talk I got to gothrough a thousand deals to
select five.
We don't look at a hundreddeals to select five.
We look at 10 to select five.
And the reason it's like thisis because we get pre-screened
deals that are either close tobeing under contract.
(19:10):
So what we see is we maintainopen communications with our
closed relationship partners andwe try to understand what's
coming up and in some cases weeven use this technique.
This is a very powerful andvery simple technique.
Some folks already fundedclosed deals but they need
liquidity for the next deal.
We will come back and we'lllook at the existing deal that
(19:30):
they recently funded and closedand say okay, we'll step in,
we'll buy out your position or aportion of the position if we
like the deal.
So we are opportunistic.
We're not trying to nickel anddime and come up with crazy
discounted offer, but if theygot into a great deal from the
start, this backfill concept Ireally love it.
(19:54):
As an investor, you don't haveto fund a new deal.
You could pick up a recentlyclosed deal.
You can analyze, you could seehow it's doing and if it's doing
well and somebody needsliquidity.
You could do it that way.
So it's not a heavy volume.
But we are talking to a lot ofour relationship partner
sponsors and trying tounderstand what they have coming
up, and these discussions arewhat I would say.
Very recently, things havegotten a little bit last volume
wise.
In other words, people are notseeing the one big beautiful
bill pass.
(20:15):
Depreciation is back, peopleexpecting interest rates, maybe
a little more bidding activity,but we're sitting waiting for
these strong deals and if theydon't happen, it's okay.
Speaker 2 (20:25):
Yeah, it's going to be fine Because there are other
asset classes, and Iwholeheartedly agree with your
approach.
Okay, so let's get into thelightning round the final five.
I'm curious about leaders likeyou who have done very well and,
from a financial perspective,things are taken care of right.
You're not struggling to payyour mortgage, if you even have
(20:48):
one.
Car payments are either handledor non-existent.
Car payments are either handledor non-existent.
The kids' college educationsare either they're lining up to
get major scholarships, likeyour kids, or professional
athletes, like your kids, orthere's a college fund sitting
there waiting for them toutilize, and you get out of bed
on Monday morning and you gocharging headfirst into your
office, and so to me, that'spurpose, and so I'm curious what
(21:13):
?
Speaker 1 (21:13):
gets you out of bed on Monday morning.
So I have a whole simple theory.
I just like to operate in thegenius zone.
I love what I do, so to me,it's not work.
And what is genius zone?
It's something you're good at,something you really love and
something that makes you money.
It's that simple.
I spent 15 years in technologyand I was making very good money
.
I was very good at this, but Iwasn't motivated.
(21:34):
I love real estate.
I'm a deal junkie.
I love looking at deals.
I'm a chess master.
So to me, all this analysis isjust fun, right.
I don't know what else I woulddo.
I'd go bored, right.
That's what gets me out of bed.
I just enjoy what I do.
I don't it.
It's almost like some peopleare motivated by a huge payday.
It's almost like this it's 40X,the book for disciplines of
(21:55):
execution you put in the inputs,the outputs will work out.
So I just love getting thedeals done, putting it into the
right framework, and then magichappens years down the road.
Speaker 2 (22:07):
Yeah, I think if you do a lot of the right things in
terms of your due diligence, interms of picking the right
partners and all your process,the money follows right.
It's not a matter of gettingout of bed and saying, okay, I'm
going to make a million dollarsthis quarter.
It's not a matter of gettingout of bed and saying, okay, I'm
going to make a million dollarsthis quarter.
It's I'm going to go do threedeals that need this criteria
and when I find them and I willfind them when I find them we're
(22:28):
going to attack.
I'm also curious about thementors you've had along the way
.
You and I actually have verysimilar backgrounds as
recovering technologists, so I'mcurious about the mentors
you've had over the years andwhat's the best advice you've
ever?
Speaker 1 (22:46):
received and who gave it to you?
Yeah, it's a great question.
And a lot of my mentors I callthem book offers, right.
So I read a lot of books and Iactually listen to a lot of
books.
So I love Howard Marks, marketCycles, obviously, warren
Buffett, benjamin Graham, rayDaly a huge fan right, follow a
lot of his theories.
And I do have some old friendsfrom technology world that were
(23:06):
sort of mentors.
I literally reconnected one ofthem out of Austin.
There's been so manyconversations and advice given.
I don't have a single onethat's been so transformational.
It's just more of.
I think the biggest thing thatI've learned from all my mentors
is a learner's mindset.
By far what I can tell you isbeing humble.
(23:28):
Humility and a learner'smindset will get you through
everything in life.
Indeed and honestly, one of myfavorite books is John Maxwell.
Sometimes you Win, sometimesyou Learn Right.
So just constantly.
Back to chess.
I literally am writing a newbook right now.
Part of the one of the chaptersin the book, one of the
(23:48):
descriptions that I'm talkingabout investing is like chess
you learn in investing like youlearn in chess.
How do you do that?
I'm a chess master.
I spent years practicing.
I analyze my own games andgames of the world-leading chess
players.
You look at what they did, howthey did it and understand the
purpose, and you understand theerrors and your own errors.
Same thing happens in investing.
(24:10):
We're not perfect.
We're going to make mistakesand as long as I learn my lesson
, I am happy.
Speaker 2 (24:15):
Couldn't agree more.
And that actually leads me tomy next question, because I
agree that we learn far morefrom our mistakes than we do
from our successes, and so I'mcurious about a professional
decision you've made over theyears that you look back now and
go, wow, I'd love to have thatback, and what'd you do about it
?
Speaker 1 (24:34):
Because of my humility, I am not proud of this
, but we did a bunch of deals in21, 22.
It is what it is, and thesewere multifamily deals.
I go back and I had aconversation with my investors
who yelled at me literally, justsaid Mike, you're such a smart
guy but you're also such anidiot.
Why didn't you see theseinterest rates rising so fast?
And I humbly acknowledged Ishould have thought better.
(24:58):
I should have really thoughtabout this.
I said, listen, the Fed keptZerb their interest rate policy
for almost 20 years.
The biggest hike they did fromzero to about two and a half in
whatever 18, 19.
And then they pushed it rightback down.
If you look at the president, itwas difficult to see market
changing that much.
It wasn't just me, it was theentire market who misunderstood,
(25:18):
misread Me too.
At the same time, I know peoplewho sat on their hands in 21,
22, and did nothing.
And because they were sellingdeals, they were clearing out,
they were liquidating.
So I bowed to them they're thewise men and I'm that idiot.
There's an expression foolslearn from their own mistakes
and the wise men learn from themistakes of fools.
So I'm the fool who now islearning from my own mistakes 21
(25:41):
, 22,.
We did do the deals and we'refighting now to make sure these
deals hang in there.
Not everything will survive.
I'm completely unhappy aboutsome of those situations, but we
are persevering.
We're talking to our investors.
We're very open, transparentabout it.
All we can do is do it withcomplete openness and
transparency.
But is it a mistake?
(26:02):
Looking back now, hindsight,sure it was a mistake.
What did I learn?
I didn't quite study enough ofmarket cycles.
So after that I read HowardMarks Mastering the Market Cycle
and tried to understand thatthere are cycles and you better
understand where you are in thecycle.
Speaker 2 (26:17):
Yeah, I think that we can all understand that
mentality in terms of what yousaw versus what happened.
No one has a crystal ball and Icertainly didn't see interest
rates rising as fast in as shorta time as actually happened.
Speaker 1 (26:33):
I have a good phrase for it.
I like the movie Fast andFurious.
So the fat hike.
Fast and Furious, it's not justthe absolute five and a quarter
percent, it's the speed it'sgoing from zero to that level.
You went up 40 and Furious.
It's not just the absolute fiveand a quarter percent, it's the
speed it's going from zero tothat level.
You went up 40, 50x.
That's the crazy part.
Speaker 2 (26:47):
Yeah, it's nuts.
You mentioned several booksduring the conversation.
Speaker 1 (26:52):
I'm curious about who you're reading now, who you're
paying attention to, so I amreading for the third time now,
Ray Dalio's how the Countries GoBroke.
Obviously, I've rereadPrinciples and many things go
back and reread.
So what I do with books is thisI don't consume volume of books
.
I sometimes will go again andagain until really it sinks in.
(27:14):
As I was listening to one ofRay Dalio's, it sunk to me one
of his principles If you're notworrying, you should be, and if
you're worrying, you should be,and if you're worrying, you
shouldn't.
Some of these concepts are ifyou're paying attention to
something and you're studying itand you're preparing, you're
probably okay, and if you arecompletely complacent and
ignoring it, you're not reallyunderstanding risks.
(27:34):
That book, Michael Dell's Winand Play Nice, something like
this.
It's a recent book.
Periodically I'm coming back toHoward Marks and really trying
to spend more time understandingrisk.
Risk is the most difficultthing to understand, so not only
before but often after.
Right, you do a deal and thenit works out or it doesn't work
(27:56):
out and if you judge based onthe results, maybe you didn't
see the risks.
You still don't know what itshould have been.
But it's a mix of books.
I love a couple of other booksI'll mention.
This is a good recreationalbook, but it's also about the
wisest investors of the worldRicher, wiser, happier.
That's a great book.
It actually studies people likeCharlie Munger and some other
(28:17):
greatest investors in the world.
There's a whole audible librarythat I go through.
I'll go listen to three,Because I've listened to this
book so many times.
I will go back and listen toone or two chapters and then
switch to another one.
You could continue to learn alot, but I do watch old movies
again and again as a joke to seeif anything different is going
to happen.
Speaker 2 (28:37):
It's interesting I have my favorite books that I
read every year.
I also have my favorite booksthat I read every year.
I also have my favorite moviesthat I see whenever they come on
, and in both cases I always seesomething new.
Even if I've read the bookthree times, I always find
something new.
And likewise in a movie.
If I'm paying attention andit's not just background you
always pick up on somethingright.
Speaker 1 (28:57):
Yeah, so the movies are purely entertaining because
it's visual, Books and all.
I consume content way betterlistening than reading.
So people love reading and likecertain data and charts.
Yeah, You're better bettervisual, but concepts audible.
Speaker 2 (29:10):
Yeah, and actually I cheat.
I have the audible playing inwhisper mode and I read it on my
Kindle.
So I'm a very active readerbecause I'm a rather slow reader
.
So I tend to be more active andI take notes and highlight.
Speaker 1 (29:22):
And, yeah, there are several books I read every
January, no matter what I thinkone thing that's completely
wrong about our educationalprocess is different people
learn differently, yeah, and ifyou know what works for you and
same thing for the kids,sometimes they just tell them
this is how you got to learn,but not every kid learns the
same way.
This is really important Now,in the age of AI.
(29:43):
I think there's going to be alot of learning without some of
the old doctrine and more ofsome of these AI systems.
Speaker 2 (29:55):
It's another discussion simply having
conversations with chat GPT andClaude.
I need you to teach me Pythonas if I'm a total and complete
beginner.
Let's start and I've beenhaving chat GPT, I'll have chat
GPT, teach it, and then I'llapply it in Claude and see if I
(30:16):
learned it.
And then I'll go back and forthand it's yeah, if I'm not
careful I'm going to get suckedback into the technology world.
But I'm not going to allow thatto happen.
It's more automation firststuff here that we pay a lot of
money.
Speaker 1 (30:27):
You're doing it for fun.
Speaker 2 (30:28):
It started as fun and now it's.
I'm starting to see where wecan automate our business, so
it's spurring us to solvebottlenecks in our business with
this type of technology insteadof throwing human being at it,
which is what we used to do.
And yeah, so far, so good, sostill early.
Speaker 1 (30:47):
My only feedback would be you're a leader of your
business and it's another greatbook, so this is very important
.
So, as a leader of the business, you have to really think about
leadership and CEO.
Absolutely, trey Taylor.
A CEO does only three thingsPeople, culture, numbers.
That's another great book.
So whenever you have aninclination to go back to
programming, I would say find akid, I'm doing the PRD.
Speaker 2 (31:12):
and then I'm handing it off a project to a member of
our team that she's building theExcel prototype before we build
the software.
But yeah, no, I'm not the oneprogramming building the Excel
prototype before we build thesoftware.
But yeah, no, I'm not the oneprogramming.
I just want to know enough sothat when I have that
conversation with the kid inIndia or wherever he is, that
he's not snowing me and I canfigure out that he knows exactly
what he's talking about.
That's really where I want toget.
Speaker 1 (31:33):
That's your learning for the sake of being able to be
on the intelligent level ratherthan the baloney story.
Speaker 2 (31:41):
And instead of watching Netflix after dinner,
I'm doing this right.
So, in terms of how you operate, I'm curious how you define
success in your life.
Speaker 1 (31:54):
It's tough to be.
Some people measure net worth,some people measure I don't know
how much good you've done.
I've never been an exact fan ofthese precise measurements.
I've grown up around the family, so to me I just want to see
happy, successful kids.
At least this is a priority tome.
Of course I want to do good towhatever degree I can, but they
(32:15):
say charity starts at home.
Sometimes you really have tomake sure your kids are.
So to me, for kids, I'm justmaking sure they're good kids,
they're successful, they'reenjoying, they're productive.
I never curse, almost nevercurse.
If I hear any like, one of thekids will start sleeping
something.
I tell them listen, do you hearmom and dad curse?
I said people curse all thetime, and so I don't know if
(32:35):
this is a definition of success,but it's just like my first
duty as a parent to make surethe kids are good and successful
.
I don't measure success purelyin financial terms.
Once you feel you'refinancially independent or happy
, it's just a score right.
It's all about operating.
My success is operation in thegenius zone.
If I feel like I'm operating inthe genius zone, I feel great.
(32:58):
This is it, this is the winning, this is success.
Can I help other people.
While I'm doing this, can I behappy, Can I be productive, the
team of people around me Ialways think about people,
culture, numbers.
Can I impact and influenceother people in a positive
manner and make a positivedifference in their life?
And if I'm doing this, I feelsatisfaction.
(33:20):
I'm doing this.
I feel satisfaction Like I'mreally coaching other people,
helping them and they'resuccessful, and it's giving me
satisfaction.
I feel that's a positivedifference I'm making.
Speaker 2 (33:29):
Couldn't agree more Exactly.
All right, Mike, what do youenjoy doing I?
Speaker 1 (33:33):
walk a lot.
I like, I'm like.
I walk like a madman.
Every day I literally have ameeting booked every day to go
for a walk a specific hour.
Walking is the best exercise byfar.
My wife says go to the gym, Iget very bored.
I don't go to the gym, Iliterally walk.
I can walk for an hour and ahalf, can even sometimes more.
And the beauty about walkingyou can listen to books while
you're doing this.
You can listen to a podcast,you can do a lot of other things
(33:57):
.
So walking is I like it.
I steal from time to time, goback and play some chess on
chesscom and we travel quite abit.
My third girl is a professionalfigure skater on a synchronized
figure skating team and I'm onthe road competitions trainings.
So we spend time basicallybeing in her life and other kids
(34:18):
they also.
They have their own stuff.
So I don't know what else tosay.
There isn't that much time leftafter you get involved with all
that.
Speaker 2 (34:26):
It's funny.
My aunt and uncle decided notto have kids and I was having a
conversation with him at somepoint.
And what are your hobbies?
And I said see those two littlegirls running around your
backyard.
Those are my hobbies.
They consume every free momentof my life and as they get older
, less and less, which is howI'm happy for them, a little sad
(34:47):
for me and my wife.
And the other thing I couldn'tagree more with.
My wife always says I don'tcare.
And she does care, but she goesI don't care about your grades,
I care that you're a good kid.
And that's when we go to herhigh school and ask how she
doing.
What we want to hear back isshe's a great kid.
Yep, she got a B plus.
That's fine.
She doesn't have to be astraight A student, as long as
(35:07):
she's a good human being.
So, mike, if folks want tolearn more about you or Big Mike
, your podcast or Tempo family,what's the best way to get in
touch?
Speaker 1 (35:19):
Now it's going to get super easy and super cheesy.
So, BigMikeFfundcom, just likeit sounds.
If you misspell it and youforget the D at the end, you go
to bigmikefundcom.
I promise it's not a kinky site, it's a podcast site.
It's an entry point.
It's not on our corporatewebsite but once you go there
you can go to the corporatewebsite and you can look at our
(35:41):
deals.
But because of the podcast,bigmikefundcom, it's a good
entry point, easy to remember.
Speaker 2 (35:47):
All right, Mike.
Thank you so much for your timetoday.
It truly was a pleasure to havethis conversation.
I'm glad we met and I wish youcontinued success.
Thank you, this has been theReal Estate Underground.
Don't forget to rate, reviewand subscribe.
It helps us grow.
Until next time, undergrounders, remember, your real estate
journey begins with a simplestep forward.
(36:08):
Now get to it.
Bye for now.
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