Mike Zlotnik - Tempo Funding

On Investment Advice: "At the end of the day the best risk mitigation strategy is prudent diversification."

Investing in real estate is often thought to be a great place to grow your wealth.  But often investors have other things going on and they don't want to deal with tenants, paperwork, searching out properties and all of the headaches that come with doing your own real estate investing.

What if there were a way to invest in real estate in other ways?  Investing in the loans other people have on real estate, or investing with a group and getting into large commercial properties with leases that run decades long?

Mike Zlotnik started Tempo Funding to help investors grow their money with real estate, without needing to get their hands dirty.  He shares his journey in the tech world to discovering the power of passive real estate investing, buying his first apartment in Brooklyn back in 2000, and growing into large-scale commercial projects like industrial facilities and open-air shopping centers. He explains Tempo Funding’s focus on marrying “money and opportunity,” helping individuals, often those who have exited businesses or cashed in on appreciated assets, find reliable income streams backed by real estate.

Listen as Mike explains his real estate investing strategies and how they may work for you.

Enjoy!

Visit Mike at: https://tempofunding.com/

https://www.instagram.com/tempofunding/

 

Podcast Overview:

00:00 "Triple Net Leasing Explained"

03:50 "Predictable Returns in CRE Investments"

08:17 "Long-Term Commercial Lease Structures"

10:46 Ground Leases and Property Ownership

13:36 Real Estate Tax Implications Simplified

19:31 Deploying Capital for Investments

21:29 Quarterly Distribution Expectations Explained

26:18 "Low Rates, Inflation, and Stimulus"

27:41 "Understanding Capitalization Rates"

32:22 Moore's Law and AI Progress

35:29 Interest Rates and Real Estate Trends

37:13 Industrial Investment: Focus on Longevity

40:49 "Branch Closures and Lease Management"

44:39 "From Tech Exec to Real Estate"

49:21 "Real Estate Value Through Leasing"

50:00 "Value-Add Real Estate Strategies"

54:07 "Strategic Capital for Specialists"

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Podcast Transcription:

Mike Zlotnik [00:00:00]:

I had a successful career, had some exits. I was doing well, but I was a little burned out. I spent almost 15 years in technology. I had great friends. I liked it. Technology. Felt like I wanted something that I really didn't have to work all the time, something that I can make investment decisions and the money could work for me. So I discovered real estate passively in year 2000, buying my first apartment in Brooklyn.

Mike Zlotnik [00:00:25]:

And then I continued to buy more and passively.

James Kademan [00:00:33]:

You have found Authentic Business Adventures, the business program that brings you the struggle stories and triumphant successes of business owners across the land. Downloadable audio episodes can be found in podcast link found at https//:drawincustomers.com We are locally underwritten by the Bank of Sun Prairie, Calls On Call Extraordinary Answering Service as well as the Bold Business Book. And today we're welcoming Slash, preparing to learn from Mike Zlotnick of Temple Funding. That's TF Management Group. Is that safe to say, Mike?

Mike Zlotnik [00:01:01]:

Yeah, yeah, but the easier way, people call me Big Mike. I am six four. So Big Mike.

James Kademan [00:01:05]:

Well, you can't tell on the screen, so. All right, that is a. That's a Big Mike. Big Mike, indeed. So, Big Mike, what is Tempo funding?

Mike Zlotnik [00:01:15]:

We are the best way to describe Tempo funding. We marry money and opportunity. We are a platform for folks with capital to invest, typically in real estate, kind of. I don't want to call myself exactly one trick pony, but I am mostly one trick pony. It's real estate. We have a team, we have organization that focuses real estate projects, industrial, open air shopping, multifamily, et cetera.

James Kademan [00:01:42]:

Okay.

Mike Zlotnik [00:01:42]:

And then we have folks with capital who sold businesses, they've sold highly appreciated stock, they sold bitcoin, whatever, they made their money and then now they're looking for steady, predictable income. And that's what we try to bring them. That's kind of what we do for many, many years.

James Kademan [00:02:01]:

You mentioned steady predictable income. And can you elaborate on that? Because sometimes in the real estate world that's not always the case.

Mike Zlotnik [00:02:08]:

Yeah, so today the world's changed quite a bit and we really gravitated towards predictability. I literally have an article that I wrote and a video comparing high IRRs versus predictability. Wide majority of people, especially with monetary event where they've got significant lump sum, they're looking for predictability. So what is predictability? So normally it means the assets themselves have a great engine, how they generate predictable income. Take an example, triple net industrial. This is just a simple way to explain. It's right before the call we were talking about made in China versus made in America. Well, there's a renaissance now to build in America.

Mike Zlotnik [00:02:50]:

Made in America and industrial production in America is welcome. So quite often there are companies that manufacture here and the real estate underneath it gets sold by the owner of the business. They sell the real estate, lease back and stay in that property. So where does predictability come from? Well, that business has been there for 60 years. They sell real estate, they use capital for further investment or to pay their parent company and then it's a mission critical property. And to make long story short, they're there, they have a 20, 25 year lease and it's triple net, meaning that all the expenses, taxes, insurance, everything else is covered by the tenant. So as a landlord you collect rent and every year it goes up between 2 to 3%. So you have high predictability of outcome simply because it's contractually guaranteed with a credit quality tenant with long term lease, with rent escalation clauses, with triple net structure.

Mike Zlotnik [00:03:50]:

So you're collecting this, you're an equity investor, but you're collecting it like a bond. You get your coupon today, this year. So what does that coupon look like? For example, year one you could start with 7%, maybe even higher. And year two goes up, and year three, it goes up. So it begins to look like a predictable investment because it's so contractually built to be predictable. So you know, initial cash flow, you know, year two cash flow, year three, year four, year five. And then that increased NOI drives forced appreciation. Because in commercial real estate, the price of the asset is a function of net operating income.

Mike Zlotnik [00:04:24]:

You hear these fancy terms, cap rates. All the cap rates describe is what do you pay per dollar of income. The lower the cap rate, the higher the price per dollar of income. So as interest rates obviously impact cap rates, but in general, the structure itself grows. Niy, if interest rates don't do anything, they stay flat. You're still growing the value of the asset because the NOI is growing. That's a predictable structure. You see these structures in real estate quite a bit.

Mike Zlotnik [00:04:50]:

And I'll shut up for a second, let you chime in more questions because I can talk on this probably for hours.

James Kademan [00:04:55]:

No, that's awesome. That's awesome. It's interesting you mentioned real estate that's essentially large scale commercial. It sounds like you're talking manufacturing. Yes, this isn't just the small mom.

Mike Zlotnik [00:05:06]:

And pop house, it is a manufacturing facility quite often gets bought for $25 million. There are of course bigger projects, but the sweet spot is anywhere from, you know, 10, 15, 20, 25, 30, $30 million small manufacturing. I'm not talking about AI data centers that are getting built for a billion dollars, not, not for that.

James Kademan [00:05:29]:

Okay. I guess, I think as you're talking here, I'm thinking south of me on the north way north of Chicago is Belvedere, Illinois, which has a car manufacturing plant that I think since I've been driving to and from Chicago every once in a while, I want to say that thing has changed hands four or five times. And that thing, that property, I don't know if it's necessarily one building, but that complex, it's probably the size of a small city. Sorry, it sounds like you're getting into stuff that big.

Mike Zlotnik [00:06:04]:

Not that big, but an example, we do have an asset in New Castle, Indiana, again, Midwest. And it's a, you know, it's called $25 million asset. It is a multi acre property and it produces stainless steel and it's been in that business and that location over 60 years. So that kind of a facility. All right, not a small city, but for that local town, it's a significant manufacturer and industrial facility.

James Kademan [00:06:32]:

Oh, I bet it's huge. And for something like that. Do you. I mentioned the equipment goes with the building. Just because it took so much to get that equipment in there, it's like an old pool table. To get it out is a big deal.

Mike Zlotnik [00:06:45]:

They end not moving so effectively you own real estate as an investor, but they've made so many tenant improvements themselves over the years for their own business, plus all the equipment, everything else. They're going to stay there, they're going to continue to.