GI271: Real Estate Funds with Mike Zlotnik

GI271: Real Estate Funds with Mike Zlotnik

Mike Zlotnik is a former political refugee from the USSR who is now an American citizen and patriot. Mike has been a real estate fund manager since 2009; before that, he was a software executive who began investing in real estate in 2000. Mike manages various real estate funds today, including multiple growth and income-focused funds.

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Transcript:

Charles:
Welcome to another episode of the Global Investors Podcast. I’M your host, Charles Carillo. Today, we have Mike Zlotnik. He is a former political refugee from the USSR who is now an American citizen and patriot. Mike has been a real estate fund manager since 2009; before that, he was a software executive who began investing in real estate in 2000. Mike manages various real estate funds today, including multiple growth and income-focused funds. So thank you so much for coming on today, Mike, which I know people also call you in this space, big Mike by a your podcast as well, that you run.

Mike:
Thank You, Charles, for having me. I appreciate the opportunity to be here.

Charles:
So give us a little background on yourself both personally and professionally prior to getting involved with you know, your software engineer career and becoming a real estate investor for that first time, which is nearly 25 years ago now. Yeah,

Mike:
Time flies. <Laugh>, you’re having fun. Life life’s moved. Yeah, originally from the USSR and moved and lived in upstate New York, in Rochester, New York with my mom. She just passed away unfortunately. But educated in, in the us have a degree in mathematics. Went into the computer science and, and software. Spent almost 15 years in that field at a successful career. But discovered real estate in 2000 investing passively in New York City of all places, and became pretty obvious that it actually works. You don’t get much income in New York. The cash flow is terrible, but the depreciation has been healthy, well, had been healthy now with things a a little different. But they enjoyed that. And then 2009, I went real estate full time sort of semi coincidental, but I was burned out from a technology industry and really discovered it was my passion.

Mike:
I really love real estate. Nothing wrong with technology. That’s a great world. Just more of a find the job that you like or the, the career that you like. You have to work a day in your life. So it’s been a journey growing temple family of funds. And we’ve we started funding flips after 2008, if you remember, there was a market correction, and we funded a lot of short sale flips, and we went to hard money loans. Then we went into a number of commercial syndications and deals, and we continued to expand our horizons of commercial and residential loans, as well as a lot of interesting commercial equity and the commercial debt. And we continue to evolve with times. So that’s, that’s kind of the the adventure. But I do live in Brooklyn, New York now with my lovely wife. And I have four wonderful kids and a cat for monkeys and a cat

Charles:
<Laugh>. 2008 was quite the time I started investing in multifamily real estate in oh six and in oh eight. Even the private lenders that I had that were still in the game of some sort at that point, 2008, 2009, 2010 I mean, they weren’t really lending. I mean, they lend it, but it, it was like, I mean, if you’re lending less than half, you know, 50% or something, loan to value, I mean, it’s not really, I mean, it’s just, even at that time it was just, I mean, that doesn’t really help much, you know, with certain things. So it was how did you get involved with that? Like, how were you, what kind of projects were you doing? Was it was it, you said fixed and flip, so it’s many like one to four units. Were you guys doing anything else that you were lending on anything that could be resold? Is that what you were focusing on? Oh,

Mike:
We had the fortune of getting involved after the bottom of the, of the crisis. So we start lending effectively in 2009, and we really funded short sale flips. Originally, these were a, b, c transactional funding deals where folks locked up a deal on a short sale for 300,000 and flipped it immediately for three 50. We just provided flash funding, 1, 2, 3 day funding. After that, banks started to put on the flip restrictions. We went into the extended funding, 30 days, 60 days, 90 days. And leverage, of course, was a function with low leverage. So lending business has been a good business because of the conservative market conditions for lending for many, many years. Of course, it’s evolved over the years, but we are seeing now sort of resurrection of more conservative lending today. And interestingly enough as we saw this market correction with high long interest rates on the equity front, lenders tightened up a lot. Both bank lenders and private lenders have stepped in to substitute. So actually right now is a great time to be a lender because you can charge high interest rates and you can push lower, more conservative leverage loans forward. So from that perspective, it’s a very interesting time. Market goes in cycles and that’s, we saw a sort of a cycle of credit tightening then, and now it’s, again, bank credit tightening, but it’s an opportunity for private capital to replace where the bank money could be playing.

Charles:
Yeah, it’s interesting how lenders work like that. When it’s the worst of times is actually one of the best times to lend. And it’s kind of like counterintuitive, but I, it’s, it’s difficult for people that are lending in a box, like lenders in a box. ’cause Back when we were flipping properties oh eight, 2009, stuff like this it was, it had to be something that we knew it could be sold for FHA. It was like we went in there and did like an FHA inspection on it. ’cause That was really the only end game. You had properties we were buying ourselves the hold you could buy, you know, small, multi small commercial properties because there’d be no, you could, you could really steal ’em from the banks ’cause there was no funding available right. For those deals. But what we found was that just everything went to, if we had any question that it wasn’t gonna get FHA in the back end, like that first time home buyer that was gonna buy this, it was like, it’s gone. Like there’s no, there’s, there’s no, you know, we’re not taking any of that risk on that. And that was, that’s kind of how those years went, I think. And I imagine that’s what your people that you were funding, who they were selling the properties too.

Mike:
Yeah. Exit. And mine always has been a key question upfront. So for sure, a lot of these deals were either flipped to cash buyers mm-Hmm. <Affirmative> because discounts were so large, they were cash buyers. Or if you are, if you were operating at the low end of spectrum. And yes, FHA was the most attractive product a hundred percent even to closing costs. So it did exist. It did exist. And I remember those loans been so many years ago, but we, we, we definitely thought about if we’re originating a loan and it’s gonna be 90 day hold, yeah, how are we gonna get repaid? And it, it had to be a a obviously a flip to a called retail buyer. A lot of them were using FHA. Correct.

Charles:
So you mentioned before about how you, when you left software, you found out that real estate kind was your true love. What was, what were some of the things, there’s so many things you can invest into, but why was real estate something that drew you in that maybe you want to make this a full-time career?

Mike:
Well, real estate is very, very powerful from the point of view. You could be passive, truly passive, versus a lot of other investments are active or semi-active. And, and I, I did like the, the passive components just from an investing side, for a lot of investors who write a check, what do they want? I mean, they, they go through, look through the fancy underwriting and other criteria, but at the end of the day, it’s cashflow and appreciation, right? It’s, it’s, it’s those two things that most investors care about. Real estate obviously has all kinds of tax benefits, depreciation, amortization, all the fun stuff, many other benefits on the AP front. Why I went into this on the AP front is because a lot of decisions are very, very logical. I am, as a mathematician, I’m also a chess master. So being a very logical person, you could look at deals in a systematic and organized manner, and you can analyze and you can see what’s gonna happen, predictability.

Mike:
So you don’t have, you know, nothing is guaranteed in life. There’s risk in everything. But real estate investments in general, in comparison to, for example, stock markets have significantly higher predictability. So the outcome is, is mathematically you could project what’s gonna happen even today even with difficult underwriting and uncertainty, where the interest rate’s gonna go. You could still do sensitivity analysis and look at things today and say, Hey, here’s a range of what possible outcomes can things work in, in a conservative outcome. And if they, they, they can, then you can consider writing a check. So really just the, the key that appeal to me is predictability. You can analyze, you can understand like the scenarios. Of course, markets move up and down. There’s cyclicality, there’s, you know, black swan events. A lot of things that do happen that, that, that don’t always happen. But normally under, under the normal market conditions, real estate is very predictable.

Charles:
That’s true. Very true. So can you give us an overview kind of what your Mike currently, what your, your firm’s fund offerings are? Kind of what your strategy is behind your business? Because it’s a little different from other groups out there that are raising funds and buying income producing properties.

Mike:
Sure. So we are capital partners. The best way to describe what we do our strength is sort of marrying money and opportunity. We are not active operators. So we run, we run fund funds that invest into other deals. We do loan money directly. We do invest in some projects directly, but we don’t wanna operate assets. So as a lender that I’m perfectly happy to loan because we’re not the owner. Somebody else is operating the asset. And if we wanna be in the equity, we do wanna have partners who operate the assets. So that’s kind of our high level allocation. The term that, that you might hear sometimes called fund of funds. We’re not the classic fund of funds because we don’t necessarily invest only in other funds. We do some investments in other funds and then other syndications. So I think the audience is familiar with one-off multifamily syndications.

Mike:
We do write check in that strategy. What we do, our biggest strength and and benefit is we are programmatic investors. We lar we write, we write larger checks. We can step on sponsor toes a little bit more, as for more so what our value is, we enhance returns for our investors through our relationships. And as a lender, of course, that that’s direct relationship. And we love lending. In today’s environment, as I said, it’s a great time to be a lender and you ask what funds we operate. So we currently have two open funds that, that raise Capital Tempo Income Fund and Tempo Advantage Fund, tempo Income Fund. We’ve had for multiple years, it’s a more conservative income focused fund. It does a lot of hard money lending. It does first lien loans. We do some more creative financ what is known secondary lien mass financing, obviously at a much high interest rates on a projects where we feel highly comfortable not being in the first position, but we underwrite them conservatively.

Mike:
So lending is what we do in the fund. Plus we do income oriented equity strategies, which is not easy to do in this environment where we have high cost of debt, but they do exist in certain sub-sectors. So we’ve seen deals in the industrial space, triple net leases, a number, number of other strategies. We’ve also seen open air shopping plazas that, that asset class trait, that cap rates substantially higher than multifamily and storage. So deals exist in primary debt, secondary debt, preferred equity, and common equity. So Tempo Income Fund is more conservative, a little bit more focused on first lien. And, and, and Conserv very conservative equity and tempo Advantage Fund is a little more opportunistic. This fund we launched earlier this year with a simple objective to provide rescue and recovery capital as well as gap capital and some new deals.

Mike:
So as you know, what has happened in the last few years, right? The market with higher for longer interest rates took it on the chin in a big way. Many deals are completely no good. They, they are in terrible shape. They’re, they’re, they, they, it’s a, it’s a transfer to the bank or distressed sale, right? But there are plenty of deals that are decent. In other words, they are more steady, steady markets. They didn’t fluctuate as much, particularly Midwest versus Sunbelt. And they’re also the significant value add that’s being executed, but they’re short on liquidity simply because higher debt service that wasn’t budgeted or cap rates expired, et cetera. So liquidity is, is justified by the underwriting and the equity behind the steel equity cushion on these deals. Either because the equity has been created through forced depreciation or with bought right, or a mix of both.

Mike:
So the, the, the deals that justify rescue and recover capital provide very, very attractive returns to investors. And that’s what Template Advantage Fund is doing. We’re also doing some new loans in the form of gap funding, interestingly enough, new deals, new ground up constructions. We did a loan in San Antonio where they were just short a little bit of money. They raised equity, but not enough, and they needed to close. It’s one of the situations where when the equity raising is tough and the bank’s lending less, they are in a position they can’t execute the business plan, they can’t close even though the project makes sense. So we did a bridge loan for a little bit of money six to nine months bridge. It’s secondary loan, not primary. So the Temple Advantage Fund is basically playing in the secondary debt space s debt, but it’s, it’s lending at the rates of 20%, 18% points, sometimes other, other benefits. So it’s, it’s a more attractive risk on just risk adjusted basis. We see it’s a great opportunity but it, you know, it’s a risk profile a little bit higher, and the target returns are higher to investors on the conservative side, that’s where the income fund operates. Does this make sense?

Charles:
Yes, it does. That’s a safer position in the capital stack.

Charles:
Do you have money sitting in the stock market? And you’re worried about it or worse. You have money sitting at the bank, not keeping up with inflation. My name is Charles Carillo, founder and managing partner of Harborside Partners. And since 2006, I’ve been investing my money and my family’s money into income producing properties. These are real assets, real properties with real addresses that produce real cash flow. At Harborside Partners, we provide passive investors who love real estate with a turnkey investing solution. If you want to put your money to work in real estate, but can’t find deals, don’t have the time to get funding in. The last thing that productive people want to do is manage real estate. We find the deals. We fund the deals and we manage the tenants, the termites and the properties. Partner with us at investwithharborside.com. That’s investwithharborside.com. Go to investwithharborside.com. If you love real estate, you like the idea of passive income and believe that income producing properties will appreciate over time. Go to investwithharborside.com. That’s investwithharborside.com.

Charles:
Do you mind explaining a little bit about that? ’cause We’ve had, I had someone on a couple months back that was preferred equity and they were assisting builders that just pulled cos going into m debt, permanent financing, and making up that difference for the new, the new loan. With a preferred equity piece. Can you explain how Mezzan financing works and kind of maybe how the similarities to it and maybe differences between that and preferred equity that we hear where, and kind of how that lines up in the capital stack for listeners that might not know, they might just be thinking there’s a debt piece and there’s an equity piece, and these are much more strategic strategies.

Mike:
Yeah, Charles, great question. So there’s a lot of similarity between mass debt, secondary debt, and preferred equity. It’s just what you call it, right? We prefer to be in that space for multiple reasons, but you could, we could play in a preferred equity and sometimes primary lender will not allow secondary lender. So we’ve come up with creative ways to still be a lender. But at the same time, there are deals where only option becomes injection of preferred equity, but it’s, it, it’s the capital that, that comes in in between, it covers the gap. That’s another term. Gap funding again, more conservative forced lending, harder to raise common equity. What is a solution? Well, a solution is to bring in preferred equity. I’ll give you an example. We are working on a new equity deal today where it’s a significant mixed use super Walmart anchored retail, and then this 140 345 apartments above that, right?

Mike:
It’s a, it’s a significant asset. And there is a preferred equity Japanese conglomerates coming in and they, they wanna play equity, they wanna get returns a little bit more commensurate with the equity profile, but at the same time, they don’t wanna take common equity. So they’re coming in with a 12% preferred equity. I looked at the deal, I said, we are lending the money at 20%. These guys are coming in at 12%. We’ll take that money. It’s, it is a very, call ’em solve preferred equity. So the preferred equity concept is to bridge the gap on the capital stack for investors in preferred equity or people who participate in that. The risk level is, is, is meaningfully lower and how much relative to the total equity. So if you think about this, I’ve seen these, these scenarios, you could have, let’s just say total, you need $20 million.

Mike:
I’ve seen $10 million preferred equity, $10 million common equity. Sometimes I’ve seen preferred equity, 7 million, preferred common equity being 13 million. So the ratios could be two to 1 50 50. They vary. Sometimes it’s in the reverse direction. When, when preferred equity was graph aggressive, they would low, they would provide 60% of the money, and the common equity will only put up 40% of the equity money. So it is a mix. There’s no right or wrong, it’s just the capital that comes in typically with seniority of the cash flows, seniority over return of capital. And we like that. And as a lender, the reason we like more mass debt than the preferred equity, it’s preferred equity. If the, if the deal is not going great sponsor or the operator can suspend distributions on preferred equity payments, they can also there’s no finite date. So our preference is to be a lender with a term maturity. And what happens in one term maturity. We have number of remedies if we don’t get paid. So from our perspective, being a lender is a little bit more attractive simply because it basically gives us more optionality. Also interest payments and contractually guaranteed payments. Preferred equity payments, I generally speaking, are up to the manager of the project. Does this make, makes, makes

Charles:
Sense?

Mike:
Make sense, sense? Yeah. And I’ll let one, one more point the, these other things. Why we like that we have a lot of investors in our funds that use sell directed I RRA investments. When they invest in a fund that loans money, it has no UBIT risk. I dunno if you ever heard of the UBIT risk, it’s unrelated business income tax. So for an IRA, money invest in equity, it is a, has a risk of a ubit. When you invest in debt, there is no UBIT risk by definition. That’s why we like debt. Now, the drawback is we can’t, we can’t get any depreciation. That’s one negative of being a lender. You get income and you can’t use the depreciation to offset interest income. So, so the, the source of from a tax taxation perspective, it might have some disadvantages if you’re, if you’re using cash, but advantages, if you’re using IRA, it, it, it, it’s, it’s, it’s, there’s no perfect world. It’s a trade off. Sometimes preferred equity makes sense. Sometimes MEDA makes better sense, but conceptually it’s the middle of the risk here in the, on the capital stack. Does this make sense?

Charles:
Yeah, it makes perfect sense. Yeah. Mezzanine as listeners can understand, that means metal middle as in mezze is like Italian means middle too. So that’s kind of how they got it. But it’s people can understand that. But I always think that preferred equity mezzanine financing, this is really where this smart money plays. And I think it’s like you have a lot of family money goes in there because you’re getting, you’re getting part of the deal. You’re not getting low returns of being senior debt, but you’re also getting your money out much faster than common equity. And that’s, that’s kind of how I see it. <Laugh>

Mike:
The words, the wise, the words of the wise. I, I concur with you a hundred percent. I I have this phrase, when we do these mass loans and preferred equity, you’re getting equity-like returns without equity-like risk. And, and I mean this with all due respect to common equity, we, we play in the common equity too. But think about this. When we loaning the money at 20%, a couple of points, sometimes we get even a small equity kicker. It is, it feels like equity, like returns. Now equity, if it does really well, can get to IR of 30%, right? But we don’t wanna take that risk. That’s why it’s, it’s, it’s equity-like returns without equity-like risk. That and, and you getting in this environment where there is a very significant shortage and a big need for this type of capital, you can, I don’t wanna call it dictate the terms. We are not, we don’t loan to own. We we’re trying to make sure that we, the project are successful. But these rates of 20% are absolutely the norm today. Before pref equity conversations, they were 12, 14%. And some lenders are still coming in and some of these shops and they’re still deploying money at 12 to 14. We can do it at 20. That’s why it feels like a great really, really smart money today.

Charles:
What can you explain what you said when you said kicker? ’cause That was something that just I don’t think I’ve really discussed on here. Why with preferred equity they’re gonna get paid usually a set rate monthly or quarterly, and then they’re gonna get possibly if the deal is successful. Sunstar, can you explain a little bit more in depth how that works?

Mike:
Sure. So preferred equity would get your preferred rate of return. And just to be clear, preferred rate of return are necessarily all paid in cash immediately. Like give you an example. Today we are loaning 20% money. We require 11% current pay, nine deferred. But also we require an equity kicker in the form of an additional promote. So usually the capital stack works that you have to repay preferred equity with their preferred return. You have to repay common equity with their preferred return, right? EE every dollar above that essentially becomes a profit on a, on a project. After pre payments and return of capital, you can get a piece of that offsite. So equity kickers simply means you get a piece of the promote, as they call it, on a project or, or performance fees. It, it’s all a function of negotiation. There’s no right or wrong.

Mike:
You’re not getting a big fat piece on on that you can get, so I’ve seen equity kickers or promote pieces vary from anywhere from a few percentage points all the way to 30% on a project. Usually you’re not gonna get a bigger piece. There’s no right or wrong. When we do these loans, for example we ask for small equity kicker. ’cause Most of our return is coming in the form of preferred return. So if, if we were charging, for example, preferred rate of, let’s call it 14% would be asking for a bigger equity kicker. But if we asking 20% preferred return, our equity kicker, we ask for like 5%. It’s not a big number.

Charles:
And it’s also taking that on the backend allows the deal actually to be successful. Because if you’re really bleeding that deal, correct, everybody wants to deal the work out or like, you know, we want everybody to get paid. But I saw like an offering for preferred equity that was seven and five. So they’re gonna get 12, but they’re getting seven upfront and then they’re gonna get their kicker a five on the end for whatever the specific deal was. So you don’t like bleed the deal in the beginning, however you are getting, you know what I mean? It allows the deal to be successful. And and then afterwards, once you have that liquidity event, you could then split funds as, as need be with, you know, everything else. Everybody down the line.

Mike:
Yeah, exactly. And that, that one comment, seven and five. So compare and contrast, people do seven and five. We do 11 and nine. This is for the funds, of course, for, for, for example, for 10 point vantage fund. But we give our investors 80% of effectively of all that. So now investors target return is around 60. We, it’s, it’s an eight pref, 2% management fee and 80 20 split. This is, this is how the fund functions, literally how it functions. And I I get allergic reaction to sometimes, sometimes sponsors offerings when they start talking about seven and five, they’re in full control. It’s really those terms. And I mean this with all due respect are really for the mom and pop investors, not institutional investors. We’re not large institutional, but we are still institutional. We are professionals. So as when the market was good and healthy everybody marketing these seven and five preferred returns fixed upside.

Mike:
But there was still risk. If you’re, if you’re participating in preferred equity or mass debt in this environment, return targets have to be meaningfully higher, not at 12%. As I said, we are loaning a 20, we passing to investors 16. And that’s the market. I mean, why would you wanna earn 12% return in preferred equity or or mass debt when you can do it in primary debt? In primary debt? We’re loaning money today from Temple Income Fund at 14%, used to be 12 now 14. And I say how we do it, well, we don’t have a large we money problem. More competitive lenders might be loaning 10 11. We deploy the capital that we manage and our borrowers don’t mind paying a little more because of the predictability, reliability of relationship with ’em. So if you can earn 12 to 14% primary debt, why would you wanna earn that in preferred equity? It has to be higher. 16%, you know, re returns have to be commensurated with the risk. That’s the bottom line.

Charles:
That’s exactly, exactly correct. One thing, Mike, you spoke about earlier and when we were talking about how you’re getting started in real estate, you were talking and you touched on the investment cycles and I wanna kind of, if you can drill down a little bit more into that and can you break down the four stages of the real estate investment cycle and kind of where we are today?

Mike:
Sure. So four stages of every investment cycle is typically well let, let’s start with recovery. So recovery after. And the goal is full cycle. So recovery, then you have expansion, then you have a hyper supply, and then you have recession and then again back to recovery and, and goes around and around. So these are the four stages. Different assets are in different parts of the cycle. There’s no right or wrong. So we’ve seen commercial real estate, many commercial assets because of a higher, for longer interest rates. Multifamily is one example. Storage number of other asset classes. I’m not even talking about office, office is absolutely in deep recession, covid destroyed that asset class, right? It’s a fundamental breakage of the, of the strategy. Now of course every property is local, plenty of class, a new office construction that are doing just fine.

Mike:
But in general that that asset class is in deep recession. Multifamily is in deep recession at this point, not as bad as office, but it’s in recession simply driven by the higher for longer interest rates, storage, all, all local, but plenty of of deals that have been oversupplied. An oversupplied problem is fundamental. If you have a storage facility built next to your facility and it’s, it’s it’s annihilating pricing, the storage wars, the rates are competing brutally just to get the occupancy. So certain asset classes and they’re really at all local. But we see general commercial, many sub-asset classes are in a recession. You have some asset classes that are sort of in hyper supply beginning to move down. We’ve seen some of this stuff happening in residential, although residential has been hugely resilient to the fact that people just don’t wanna move.

Mike:
Supply is very limited, but certain parts, certain regions of Florida and Texas are beginning to oversupply of product and then generally no oversupply. So it depends. There’s no right or wrong. It, it’s, it’s, it’s local really. Then you go into some really interesting other asset classes. Industrial is pretty solid across the board, of course, you know, it depends on where you are. We love open air shopping. Open air shopping seems to be doing really, really well because supply new products has been very limited for many, many years. And very few new plazas built old malls. Yeah, they’ve been losing steam and converted to storage, et cetera, et cetera. Pickable, quarts but open air shopping grid locations have done really well. That asset class feels like it’s still in some kind of a expansion part. And we might see recovery soon with interest rates going down.

Mike:
Right? We, we are recording this in in mid August for Scott, likely in September 10 year treasury yield is already showing significant move down. So give it enough time, the interest rates are gonna come down and might, we might see recovery. So again, those are the four asset classes. It depends on where the property is at pri but generally speaking, a lot of things in commercial real estate is in, is in a recession simply because of the high for longer debt service, not the interest rates. I’m sorry, I for long the interest rates,

Charles:
You were mentioning retail ’cause you were talking about that deal you guys were doing earlier, a mixed use deal. And retail’s an interesting asset class. They haven’t really built more in the la built a lot of it in the last 10 years and it’s a, yeah, it’s a very interesting, people always thought it was gonna be dead. Amazon’s gonna killer and it didn’t get built. And now they, you know, it’s something that when I talk to brokers that deal with it, they’re like, it’s extremely low vacancy rates on these properties.

Mike:
Exactly. And I’ll tell you this, we’ve been investing in open air shopping for many years very, very successfully exactly for the reason everybody was, was afraid of the Amazon effect. E e-commerce. And these assets have been trading at much higher cap rates. So cash flows are better, returns are better, et cetera, et cetera. But something interesting has happened as multifamily got beat. Now a lot of money shifted and retail is more competitive now it’s more money. Yeah, it’s a trend. People are following the trend, but you gotta be a contrarian investor when, when the trend is at the peak. I’m not saying there’s anything wrong with the, we still love that asset class, but people, there’s more bidding worse in, in the open air shopping and better deals than multifamily. What’s really fascinating is it’s harder to raise capital, it’s harder to find deals, but the, the better opportunities now are likely to be in the asset classes that have been beaten off significantly.

Mike:
So from that perspective if you’re looking for contrarian deals, that’s why we love this deal because it’s got 345 doors multifamily, that’s got significant discount, right? And it’s fairly new, new built. So also risk profile really depends on you know, it’s a 40-year-old property class C or is this newly built class, let’s call it b maybe b plus new, new, new build. And interestingly enough when you look at retail, you really have to look at the current mix of tenants. When you have a super Walmart occupying 90% of your retail space with a 11-year-old lease remaining on, on the, on the on the contract, you have crazy downside protection, effectively super high quality credit tenant and, and predictability of, of this type of investment is very, very high. They have it’s triple net lease rent escalation clauses. So that’s why we love it because it’s very, very predictable. Now, multifamily. Now you could get great deals on that deal, just for comparison sake. It cost about 400,000 per door to build, and they’re buying it for about 990,000 per door on multifamily front. So things like this, right? You, you, you know, you got a deal, you know, it’s, it’s not necessarily guaranteed returns. There’s still uncertainty, some risk, but you, you can, you can get pretty comfortable today with a deal that looks, you know, very, very solid on many fronts.

Charles:
Yeah. And having an anchor tenant like that is it’s, it’s similar to having, you know, buying almost treasuries. I mean, it is a very solid it’s a very solid anchor talent to have at your property. Mike. Oh, as, as kind of as we’re finishing up here, I just had you know, you’ve been investing many decades in real estate. You see a lot of deals. What, what are some common mistakes maybe you see real estate investors make? And these could be maybe passive investors or active investors, but, you know, what are some common things you see? And then, and then we’ll wrap it up with your information.

Mike:
Sure. So bright and shiny objects, that’s the most <laugh>, easiest way to describe, but yeah. But it really starts with even knowing your investment mandate. We are in the same boat as many investors. Why? Because we run funds that invest. We have a goal, we have mandate, we, we have underwriting criteria. We, we know what we are looking for. When is a deal in front of us? We first questions we ask, does it even fit into what we are trying to do? Does it fit the income fund? We, we, we have other funds. We have some closed end closed funds that no longer raise capital, so we have can’t put them there, right? So we basically try to understand does it fit investment objectives from a risk return perspective? From the cashflow perspective, too many people don’t even have that. They, they, they don’t build the investment mandate their plan, and as deals come in front of them, they kind of go look at them.

Mike:
And that’s where the bright and shiny object syndrome kicks in because somebody sells them well. So a brilliant salesperson comes in with very well marketed deal and they, they don’t even know how to underwrite, right? It’s that, that’s so errors that I see not really knowing how to underwrite, not knowing how to do due diligence not having a mandate of what they’re trying to invest. And yeah. And then obviously responding to the things that the market brings to. And the, the, the, the corresponding benefit of the reverse side is you can actually build predictable income focused portfolio. Or if you want to be in a growth with tax benefits, you could, we could focus on that. But you have to understand your risk profile. So as long as you know where you are going, what you wanna achieve, your goals are pretty clear, your risk tolerance is pretty clear. You could, you could build a very successful passive portfolio even with volatility of things going up and down. And you have to understand the difference between debt, primary debt, secondary debt, and there are opportunities to do really well with a lot of predictability and avoid mistakes when, when you you, you understand your goals <laugh> your mandate. Yes, yes. Does this make sense?

Charles:
Yeah. Thank you very much. A lot of great information there. So Mike, thank you so much for coming on today. How can our listeners learn more about you, your podcast, your funds, everything about Big Mike,

Mike:
It’s very cheesy, but it works, right? So Big Mike, right? People call him Big Mike. I’m a fund manager, so big mike fund.com, that easy. It’s not a corporate site, it’s just a a lending site. It talks a little bit about me, some of the stuff things I do, but we have a corporate link from there. So big mike fund.com. And if you misspell it, if you just just heard me and you didn’t hear the d at the end, just heard big mike fund.com. I promise it’s not a Site

Charles:
<Laugh>. Well, thank you so much for coming on today, Mike. Looking forward to connecting with you in the future here, and I’ll put all your links into the show notes.

Mike:
Thank You, Charles.

Charles:
Hi guys! It’s Charles from the Global Investors Podcast. I hope you enjoyed the show. If you’re interested in get involved with real estate, but you don’t know where to begin, set up a free 30 minute strategy call with me at schedulecharles.com. That’s schedulecharles.com. Thank you.

Announcer:
Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation, and are subject to all applicable laws. Please consult an appropriate tax legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Syndication Superstar, LLC, exclusively.

Links and Contact Information Mentioned In The Episode:

About Mike Zlotnik

Currently CEO of TF Management Group LLC, Mike has been a real estate fund manager since 2009. Mike is a retired software executive who began investing in real estate in 2000.

Mike manages various real estate funds today, including multiple growth and income-focused funds.

Mike is known as “Big Mike” in real estate circles due to his stature. Still, more importantly, he is known for his personal integrity and keen understanding of the financial aspects of successful real estate investing.

Notably, Mike is a former political refugee from the USSR who is now an American citizen and a patriot. He lives in Brooklyn, NY, with his wife and four children.

Mike holds a Bachelor’s degree in Mathematics from Binghamton University. He is a member of multiple real estate and investor mastermind groups, such as Collective Genius, Freedom Founders, and CA Investors (Private). Mike is the author of the book “How to Choose a Smart Real Estate Investment Fund,” available on Amazon.com. He also has a Podcast, “Big Mike Fund,” that can be found at BigMikeFund.com or on iTunes.

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