Commercial Real Estate: Guest pitches private CRE across multifamily, self-storage, and mobile home parks with a focus on value-add, cash flow, and operator quality.
Mobile Home Parks: Emphasis on mom-and-pop-owned communities with below-market rents, operational turnarounds, and stable performance through cycles.
Self Storage: Discussed as a boring but resilient asset with value-add (expansions, RV/boat storage) and steady cash yields.
Midwest Multifamily: Bullish on supply-constrained markets like Chicago and Minneapolis driving organic rent growth due to limited new permits.
Grocery Anchored Retail: Preference for Kroger-anchored neighborhood centers and national tenants; sector resilience with favorable supply-demand and double-digit cash-on-cash in some deals.
Strategy & Structure: JV hybrid equity with downside protections and control rights; rigorous operator due diligence prioritizing execution, humility, and systems.
Risks & Lessons: Overleverage and weak operators exposed post-rate hikes; focus on conservative leverage (40–65%) and operational excellence.
Investor Fit: Accredited, long-term capital only; drawdown model, capital calls, and illiquidity highlighted as key considerations.
Transcript
This episode is sponsored by Interactive Brokers, and there's something that you need to think about. Where could quantum computing take your portfolio? Investment themes from Interactive Brokers helps you find out. Start with a trend like quantum computing or clean energy and instantly see which companies are most connected based on revenue, strategic focus, and product relevance. You can explore competitors, global exposure and business relationships across more than 500 themes built with AI powered insights from reflexivity. Investment themes turns complexity into clarity and helps you move from trend to trade with speed. Available now across IBKR desktop, mobile, and trader workstation. The best informed investors choose interactive brokers member SIPC. Check it out at ibkr.com/themes. >> The disciplined investor is all about you, your money, and the markets. Sit back and get ready for [music] this edition of the disciplined investor podcast. This episode [music] of The Disciplined Investor is sponsored by Horowits & Company. If you're looking [music] for a portfolio manager, look no further. Horowits & Company. From seed through harvest, [music] cultivating financial success. [music] >> Greenland, Iran, and Mexico. Oh my. Earning season. Yes, it's here. Markets are on fire. All systems go. Get your gold and silver, too. And our guest today, Benjamin Kale, managing partner of Wellings Capital. All this and much more on episode number 956 of the Disciplined Investor podcast [music] [music] and it's halfway through January already and you cannot [music] imagine the thoughts I'm having about what more can the markets take. I'm Andrew Horowitz and this is the Disciplined Investor podcast. Thanks so much for joining me this week and every week. And I got to tell you something, it is pretty impressive when you see that you can have things thrown at a market from potential war and oil issues to uh an entire geopolitical uh calamity to things like uh forcing certain companies to reduce their overall revenue due to the credit card situation. We'll talk about that. and uh even going after the the Fed chair with criminal indictments. I mean, it's unbelievable what's going on. But yet, even with all of that, as we saw in the beginning of the week, you market stayed resilient. Even with the some of the choppiness we've seen, I understand that. Uh even with some of the employment numbers, which we're going to talk about, uh things look pretty good. And if you look at really the core of the of the economics right now, something interesting is happening. And I think we need to get into that because when you look at the non-farm payrolls employment where we saw that 50,000 jobs were added in December, which was below economist expectations, right? The consensus was around uh range about 60 to 70,000 somewhere in that range came in under and it was a slowdown from the downwardly revised plus 56,000 in November. All right, one thing we got to look at and the unemployment rate on the other hand edged down from 4.6% which was then revised to 4.5 to 4.4%. And when we look at the totality of the employment situation and what's going on, we see that around 7 and a half million people are unemployed. Not much of a change. Yet, we're seeing a lot of people get really interestingly upset, concerned, flustered with the idea that our employment situation is really slowing and inflation rate is not coming down. I am one of them that has said that there is something going on in the economy that is very suspect. It doesn't mean it has to be bad, but from an economic standpoint and and when we're looking at this on how this engine is going to continue working or better said how this business the business of being the United States of America from a revenue and and an expense standpoint is going to balance itself. It's very concerning. You would not and I'm telling you I'm going to say it again. You would not buy this company if it was IPOing. While we all love the United States and we want it to succeed, the fact is our debt to GDP, which is basically our our same thing as debt to revenue, our expense factors, the management team that's running it, all these things. If you really think about it, put it into perspective and try to transform your concept of what the United States as a country is into the United States as a company that you'd be hardressed to buy that. A fundamental analyst would be hardpressed to give you a buy rating on this except for the potential of what will happen in the future. Now rolling this back getting back to our payrolls number total payroll growth for the year was uh a year in when we see this a year 12 months the 12-month period not the year 2025 12 months but it it's approximately the same uh about 584,000 average monthly gain of about 49,000 marking it one of the weakest years for hiring since 2020 and we know what happened there right 2020 of course it was the impact of the pandemic this is a huge huge differential, a drop from the 2 million jobs that were added in 2024, which averaged 168,000 monthly. Now, there's some revisions that came in. We'll talk about that and talk about some of the reasons for all this. October 25 revision down to -1 173 from 105 reflecting the federal government buyouts and shutdown effects. So, we got to take that with a grain of salt and say that's really maybe not exactly the right number. November 2025 revised down by 8,000 to only 56,000 that was that was added and then the combined October the November numbers there's about 76,000 fewer jobs than previously reported. So there is some hangover from the government shutdown and all that but there is some talk about what's going on in the economy right now actually is sneakily some of the AI some of the layoffs that going on quietly you hear this whole no fire no hire you know everything is just in stasis where we have just a stable environment of employment and don't forget also that employment is really important the more people that are employed the more people have money the more people have the more they spend, the more people that are employed, the more money is going into their 401ks on a regular basis. The more money that's going to the 401k is one of those mechanical mechanisms of the markets that we've talked about over the years that continues to provide for the market uh dollar cost averaging in, if you will. Now, let's look at a breakdown of where some of these gains were because I think this is sometimes we get into the nitty-gritty of this. I think it's important. Food services and drinking establishments added about 27,000. Healthc care 21,000. Social assistance 17,000. Warehouse clubs, general merchandise and food and beverage stores lost in the retail side. Little or no change in federal governments in the last unemployment number. Uh down 277,000 or about 9.2% since its January 2025 peak due to what? Well, we know Doge and various policydriven reductions and manufacturing, construction, professional business services also were not changed. But average hourly earnings rose by about.3% monthly, which is about 3.8% year-over-year, which is ahead of the inflation rate. The average work week edged down slightly. So this again this no higher no fire dynamic which was influenced by a lot of things like AI adoption and tariff uncertainty and federal workforce reductions and all these things about what's going on. So what was really interesting though what I found to be actually to a point of fascinating was the productivity numbers that we saw last week. That was really cool. We talked about that before. those productivity numbers are telling me something when in fact there is a desire to reduce headcount or maybe set a different way their productivity is allowing for a drop in headcount that's something to think about I really we need to watch this over time to see if this productivity number which is stellar is it because of what is it because of onshoring I don't necessarily think so I think that would actually bring it Is it because of the AI situation? Maybe. Is it because of just technology has done so well and companies have done so well because they've made themselves very lean and mean into this whole tariff environment that scared the be Jesus out of them. And what they did was they came back with a really good plan on how to make sure that they were as lean as could be. And then from there what they did was uh realized that wait a second these tariffs aren't so bad. We're not changing a thing. and the productivity, their margin expansion was good and their profitability has been very strong. Which brings us into what's going on in the next couple of three weeks. Want to dive a little bit deeper deeper into the quarter 4 that's about to happen. Uh earnings coming up in late January and early February. It's going to be a massive market mover. know that especially for the Mag 7, you know, the Microsoft, Apple and videos, if if we could even consider them the Magnificent 7 anymore, we see that over the week and next week, we're going to see many of the financials, the banks, some utilities as well as um some some um uh manufacturing, but the tech companies are going to be the big ones because those the ones that really provided much of the earnings over the last year or so. And these guys typically report later in the earning season. So here's a couple of dates to think about. Late in January and then we're going to see some of the fireworks really pick up late in January. We're talking, you know, like the 27th or 28th for the big ones like Microsoft and Tesla. And that's going to be a big issue of course because uh already Tesla is well beyond its skis only pretty much flying out there due to the robo taxi announcements. There's a carrot in front of everybody right now. Their car sales stink. Uh Microsoft, interesting. We'll see if their money expenditures are actually going to come back in some revenues. And then we have things like January 29th, huge day for Apple, right? Right at the end of the month. Then we slide into early February second or third. We got Meta, Amazon, uh February 3rd for Alphabet. Nvidia is going to wrap it up in a little later in the month. So that they're going to be somewhere around I think it's the 25th 26th of February. And why do why do these companies come later, right? Fiscal calendars probably vary a bit and let's be real, the whole market saves the big drama for the last because these reports can swing the whole NASDAQ and even the S&P 500. But this season, it feels a little extra charged with excitement. And I think the reason is because analysts are they're they're they're really penciling in some pretty significant gains for the tech sector. I think it's somewhere around about a 25% increase in EPS on a year-over-year basis driven what by of course AI demand and of course this the cloud spending that's going on and the continuation of capex for the data center buildouts are really an amazing part of this equation. However, that last part is what really everybody's looking at. The idea that can this capex expenditures in the hundreds of billions of dollars continue and if they can, for how long? Because this huge capital expenditures is is is something that we haven't seen before. And we're talking about record-breaking numbers, right? Consensus forecasts are looking at these big hyperscalers, the Amazons and Microsofts and Medas pushing towards about5 to600 billion dollars in total capex for 2026 alone up from a huge amount in 2025 and 75% or more of this the predominant amount is tied directly to AI buying GPUs building massive data centers securing the the power deals that we just saw something last week with with Meta right the tie up they did there uh and custom chips and companies like Amazon already signing you know 100 to$125 billion dollar in 2025 is going to be just a small piece of what they're going to be doing. Meta talking notably larger in their already huge spend that they'll be doing and Microsoft is ramping up and accelerating their demand uh or looking for accelerated demand and ramping it up and Alphabet we saw the news last week about Apple and what's going on there. So all this is going on and even open AI is in the mix through massive partnerships that could add up to a trillions or more. I don't know how much more. What's half a trillion? I don't know. We're going to see it soon even though all these hyperscalers are footing the bill. So the capex super cycle that we're seeing is what's powering the AI story and it's in why Nvidia's been killing it and why cloud growth is expanding and why they're seeing all this power hungry data centers. We know about this. We've talked about this. question is can this continue and and the next couple of quarters are really going to be the play on that and that's going to be I think something for us all to hold our breath in. So mark your calendars because banks are going to continue for the next couple of weeks smattering of others over the next you know uh I would say 14 business days and late January through early February we're going to see all the fireworks from the MAG 7 and again the big issue that everybody's going to be focusing in on is whether the capex can continue. So that is in a nutshell where we are and where we're going. Let's take a break real quick. We're going to bring in our guest for this week. And I want to talk about the uh the uh the the benefits of interactive brokers. And one of the things that we know is that investing is seeing the bigger picture. But sometimes the connections aren't so obvious. That's why Interactive Brokers created connections. With connections, you could explore related stocks and ETFs, options, futures, and even forecast contracts all in one place. You get to discover the trends, compare companies, and uncover opportunities across 160 global markets. You know, the best informed investors choose Interactive Brokers. Interactive Brokers also is a member of SIPC. The risk of loss in online trading of stocks, options, and futures can be substantial. I want you to do me a favor. Learn more about this. Go to ibkr.com/connections. Now, our guest today is Benjamin Kale. And and I wanted to bring him in because it's something we don't do very often here is talk about what he focuses in on. He's the managing partner of Wellings Capital. He's responsible for the overall management of the firm, its investment offerings, including eight funds, and multiple sidecar entities. In his role, he helped shape the company's investment strategy and guides asset management initiatives. Now, since joining Wellings Capital as an intern in 2015, we have some questions about that. Uh some interesting stories there. He's played an instrumental role in the firm's growth, diving driving from a zero to over $215 million in investor equity under management, over $450 million of assets under management. So, let's welcome welcome him in right now to to the show. So, Ben, thanks for joining me. I appreciate it. How are you? >> I'm doing great. Andrew, thanks for having me. How are you? >> Good, thanks. I I think because you're new to the show and I wanted to give our audience a little bit of a taste of who you are. Uh, I want you to take me through where you started as a part-time intern making uh, just over uh, 10 bucks, 12 bucks an hour back in 2015 and how you became the managing partner. Give me that full run. >> Absolutely. So, I moved here to Virginia where I'm based back in 2012 for school. Got my real estate license when I was in college. Knew I wanted to do something in real estate. kind of grew up around it. And through that process, I met a guy named Paul who became my mentor back in 2014. And Paul asked me if I wanted to do an internship my senior year, January 2015. [clears throat] I was the first employee and him and a couple partners were doing multif family syndication and I didn't even know what that was. >> Okay. at the time, right? >> I didn't know anything about real estate, private equity. I did not come from that world. >> And that that really kicks things off and I started started that internship, working part-time, finishing my degree, graduated, moved on, and in November of 2024, ended up becoming the the managing partner. Paul moved to the kind of the founder role. he's still involved, but a number of things happened in that time frame. >> Sure. >> Um, but that's that's kind of uh the the long and short of it. >> So, you were post uh post financial crisis pre pandemic. >> Yep. So, you had the upswing of finally people saying, "Okay, maybe I'll go back into real estate again after being burned like crazy uh back in 2008, 2009 plus+, right?" >> And then you kind of picked up on the back side of that which was where people were starting to embrace it again. I would that sounds like the time period, right? >> Absolutely. >> And you and you grow grew this into, you know, obviously a big thing. Do you tell people let's just take a second and talk about um first of all the kind of things that you do like for example you know we talk a lot here on the show about by the way very very very very rarely do I ever have anybody on about real estate but I thought the timing was very important right now. Mhm. >> Um, so tell them what it is that you kind of look at from a real estate uh position, portfolio. Um, how you find what you have, you know, is it commercial, is it residential, is it, you know, what what are you doing with with with lending and and leverage and all that? And then we'll kind of get into the meat and potatoes of this. >> Sure. So what we do in commercial real estate, it might be a little different than what people are familiar with. So we started off as an owner operator. In 2019, we transitioned fully to not being an owner operator of the real estate and instead providing equity to the owner operators. And we would package up a number of deals. Maybe we're the majority of the equity, maybe we're not, but we'd package up a bunch of these deals. And it's primarily multif family apartments, self- storage facilities in secondary tertiary markets, and mobile home parks or trailer parks. That's the bulk of our portfolio today. And >> well, what's interesting about that, by the way, the last two in particular, >> I always see in the real estate world as >> I'm owning this today, but I'm actually going to just milk it for what is work worth getting some income from it, and then eventually sell it for a lot higher. >> The last two, >> is that is that how you see it? Also, self- storage in particular, self- storage is just a holding pattern for something bigger to come. >> It Yes. Typically, typically some of the self- storage deals we do are have a have a significant value ad component. Um, so maybe you can buy a facility that has some vacant land and then you can add additional units over time or maybe you can add additional outdoor boat storage or RV storage. Um, so that that sometimes is the case, but yeah, I mean it's it's a these are pretty boring asset types. Um, mo mobile home parks especially. >> Mhm. >> When you go back and you look at 2008, 910 and then even through the pandemic, it's very steady and there's a lot of publicly available data on that. And I think you go back 10, 15 years, mobile home parks or they're sometimes called manufactured home communities, they were kind of unloved by many investors, institutional investors, and even even midsize firms. That has completely changed over the last five, six, seven years. Um there's been a ton of consolidation in that asset type and you're seeing extremely low cap rates typically um for for for decent larger mobile home parks which is shows that there's a lot of interest in it from an investor standpoint because it's very safe. >> I mean investor standpoint basically you are going to own the land. You're going to throw a slab on there. You're going to bring roads in if they're if they're empty and put basic electrical hookups, maybe some kind of fuel, whether it's electrical or something else. And then basically the people plop their mobile home, which may may or may not be so mobile, right? I mean, some some of these are not actually mobile. >> It's a misnomer. It's a misnomer. Cost like five grand to move your home, >> right? But but some of them aren't necessarily Some are mobile and some are not as mobile, per se, but you still have the same basic >> slab on a piece of property, right? Yep. >> So, Yep. >> But, but again, but but the difference is where you have a community, if you're buying it and you're developing it, you pretty much buy the land, mark it up, sell it, construct it, and then walk away from it. >> So, our model, it's a little different than that. So, uh, one of our owner operator partners will source an existing deal. And so, we, and just for clarity, we don't do any development. all the stuff we invest in is is existing. And the typical scenario for mobile home parks because about 70% of the 40,000 mobile home parks in the US, 70% of them are still owned by a mom and pop owner, not a professional owner. So, the typical scenario is you have an owner who's aging. The kids don't want to deal with the property and the owner decides to sell and they don't want to work with a broker. It's they they're they just want to get the deal done quickly with cash. They don't want to go through this drawn out process and do a bunch of tours. So [clears throat] our owner operator partners will reach out directly to these owners and they will they will call they will send text messages they will send emails they will send physical mail they will do facts even and that's how they generate these these deals and they'll say we can close in you know x days in cash and you go into this this park or this this community and you'll typically find rents that are far below market. You'll typically find tenants that aren't paying their rent. You'll typically find infrastructure in disrepair, whether that's the roads or the common areas like a pool or a clubhouse, trees overhanging, and maybe there's some sewer water issues and and the move really is to um slowly over time raise the rents to market. You don't want to go in and do a huge adjustment. Mhm. >> Um there have been players in our space that have done that and that has >> um >> has not gone doesn't go well politically and um reputationally >> and and you just want to um and then also filling vacant lots. That's another huge one. So sometimes these mom and pops, they don't have the or care, they don't care or they don't have the money to bring in a new or used home and sell it to a tenant, >> right? >> Or sell it to a prospective tenant. That's huge value ad. So it's not uncommon to see year one cash on cash of 7% um or maybe higher for these for these mobile. >> By the way, these these these are non-lever deals. This is just cash down >> there. There is leverage eventually. So So maybe it's closed for cash >> just for sake of speed and then the owner operator will and that's a really good clarification. The owner operator will go to >> Fanny May or Freddy Mack um have really strong debt programs for for mobile home parks or maybe it's a regional community bank. Um it depends. And I would say in the range of 40 to 65% leverage is is what they end up at. >> So is it leverage or is it borrowed? Is the difference? >> So uh uh let's say the purchase price is 10 million let's just say. So of that purchase price say 4 million to 6.5 million would would be a loan >> and the rest would be um equity in the deal. So it's not a multiple leverage, it's a partial of the of the value leveraged. >> Yep. Yep. Exactly. >> So one of the things that you've done I think is um you mentioned the various ways you work with people where where you have you know owner operators etc. Um this is I guess what you're calling the JV hybrid strategy and JV hybrid equity and structure. >> Yes. >> Explain that to me. Yes. So, this this might sound like Chinese, but I I'll try to explain it the best way I can. So, when we're investing in these deals and and just this is just one point of reference, we have control. So, like a like a private equity firm would come in to and buy a company or a part of a company, they have certain control rights >> and that's that's what we do. We control when the property sells, refinances the budget. We control the the capital improvements and we often hold back the capital improvements any any major decisions even sometimes the management of the day-to-day. [clears throat] So JV hybrid we it's it's basically like the sponsor need let's say that let's again let's use this $10 million deal example. Um, let's say the loan is $5 million. >> Mhm. >> And then we would bring $3.5 million. So there's a need for $1.5 million and that would come from the owner operator's own money like their skin in the game >> and maybe friends and family >> um or closely held investors. That means and and and the JV hybrid structure means we have a return of capital priority upon a sale. So there's some downside protection. So let's say that property sells and and I'm just going to use just really broad terms. Let's just say it sells. It's purchased for 8 and a half mill or 10 million. Let's say it sells for8 million. There's a loss of $1.5 million. Mhm. >> Our investors Wellings, we wouldn't lose anything in that scenario. >> Right. You're the first paid. You're the first paid >> after the lender. Yeah. >> After the lender, >> and that's a um it's a unique structure because we're getting the same upside potential as the common equity in the deal. That one a.5 million. like our return is not capped but we have some downside protection. >> So the risk is on the operator >> on a s on on a on a qualifying event if you will. >> Yes. And how we pitch it to the operator is you know hey you know this structure won't mean anything. It doesn't matter unless you lose money and you're not planning on losing money on this property, right? you're putting in a million bucks or whatever of your own money. >> And you know, they of course they're all they're all going to they're all going to believe that and say that and we do too going into it, right? >> But if a worst case scenario happens, >> we at least have something to fall back on that's not going to result in maybe a total wipeout for our investors. And you have this um I I read about this um I think it's it's like a 20 27 26 27 step due diligence process for the owners and operators and properties and all that and there's a what what thing when you go into a property >> is kind of a red flag that would be like uh you know right off the bat uh >> I don't think we would do this one. >> Yeah. So, our due diligence process might be a little different from some firms in that our our most our due diligence is is centered around the owner operator or this we call them the sponsor or the operator. It's it's really the people. So, the thing about real estate that's different from other asset types is is yes, it's it's sticks and bricks. It's a physical asset, but the results of that investment in that property are really going to be driven by the people and the team running that property. >> Mhm. We say this, you could have the best property that, you know, the best mobile home park and in with the best upside potential and the best area neighborhood. But if the sponsor is mediocre and their systems and processes are mediocre and how they're doing things daytoday, that property could still end up sucking for everyone. Yeah, >> but on the other side, you could have a, you know, a so-s so property, um, so area, but if the sponsor team, the owner operator, if they're dialed in, that property could still generate an amazing return because it's really the details. So, that's that's we kind of we bet the the jockey more than the horse. >> Yeah. the jockey being the owner operator, the horse being the property. And yeah, the property matters. Yeah, we're going to we're going to look at it, but I think we're looking for a couple things in the first couple calls we have with our potential sponsored partners. Um, we're looking for openness and humility and yeah, willingness to to to share about mistakes and things they've learned. And >> that's a hard one. That's hard. >> Yeah. >> I mean, it's not hard because some people Well, some people may not want to admit, some people may just forget like they just literally forgot, you know, like let's not even wipe this from my memory. I can't even you know but that's that's a that's an interesting thing that that humility and and openness and to talk about mistakes. So the point there is that you want someone who is coachable if if I may put words in your mouth uh coachable and um can understand how to better themselves. Is that is that true? Yeah, because I think at at the end of the day, um, you know, we we've been on a lot of calls over the years and a lot of the the groups are putting their best foot forward. Of course, we would want to do the same. Um, and there's a there's a tendency to just tell us, Wellings, what we want to hear. >> A lot of people say that's what sales is, is just telling the other person what you think. they want to hear. And and I'm really cautious um when it comes to these things. I think the the best sponsors and we've we've invested with 24 of them over the years. Um the best sponsors that we've worked with, they're not salespeople. Like when when I say the best sponsors, I mean like the main guy, the the owner, the CEO. like I don't I don't want them to be this sponsor this like salesy promotional guy or gal. >> I want them to be um >> to know their business. >> I want them know be in the details, right? and and understand things or or have a very capable um person in that number two seat like the COOC or operations seat that that has real authority to call some shots and and the owner operator is not just going to dominate them. So, I think that's like that's something you can just kind of feel um on on on some of these calls and we're not getting intense or we're not interrogating. We're just we're just asking people to tell their story and say, you know, what what have you learned over the past couple years? What stick? >> The bottom line is because you're going to get all the financials anyway. >> Exactly. And those are easy to pick apart and figure it out and do some accounting and and and and send it out to kind of dig in and and and figure out like what's that line mean? Why is that over here? >> Why why do you see that big jump uh or drop over those two years in this particular sector or whatever it is? >> That's easy enough. That tells the story. There's no >> there's no nothing. There's no shouldn't Well, there shouldn't be in [laughter] there shouldn't be inference, right? you should be just here it is and make a decision financially using you know whatever multiples you're using and whatever breakdown which is important to you. So I I get that and then this is sort of the soft this is soft data. >> Yes. And that's and that it's part of our kind of screening process and you're not going to be able to tell everything of course about a person and you know a couple Zoom calls. Um, but we look for that at the beginning, like early signals and we we really try to pay attention to early signals and we really try not to ignore the gut check. And you know, there's there's different perspectives on, you know, trusting your gut, but more often than not when we've had a gut check or something that kind of doesn't feel quite right in the early stages, it is often um and and then we move forward with due diligence. something else will come up in due diligence that that causes the the deal to fall apart for one reason or another. Um, and so we're really trying not to ignore the gut. And you know, there's some some interesting data and resources out there about the the um, you know, the the role of of listening to your gut. >> Well, I think the big is also you're not just buying the company. If you're buying the company and you're taking it over and then basically the management and the the the founder if you will or the person in charge is leaving that's one thing but you're actually keeping them on right so it's own owner operated >> exactly exactly >> and you got to work with them obviously so that's important >> yes for many years you know it's a marriage um you know the we're typically in the deals for a minimum of three years and sometimes up to 10 years >> so let's talk about the structure for a second private equity private credit, you know, they're all out there and people are are are I'll tell you I went to I went to a an event down in Miami about a year ago. It was a financial event and they invited me to come down for some cocktails one night and I literally I'm not even kidding. I was down in Miami Beach and I'm standing there don't know in there's a particular area I was I didn't know a lot of people. They were kind of somewhere else and I I was like attacked. I was like you know it was everybody telling me that private equity private equity private equity has got to be in your thing. you got to do this or this. You got to do this for the future. It's the best thing for your clients. It's going to be in this. It's going to be in the 401k. I'm like, uh, enough. Can't take it. >> Right. I'm like, this is starting to now get me to a point that I'm turning the other side of it saying, what's the problem here? But anyway, >> let's talk about private equity. >> What is your structure? >> Yeah. So, we're not investing debt. So, we would not be classified as as private credit. Um we're investing in various types of equity. Um some of it's preferred equity >> which is kind of a blend between common regular equity and debt where you have a and and you know people who invest in stocks um might have some uh understanding of of that structure where you have kind of a fixed current pay and then you have a a pick payment in kind or acrruel and and then you have basically it's capped upside. Um so in our structures, you know, our prep is typically in the 7 to 10% current pay range and that's typically for stabilized deals that we're coming in to recapitalize and then maybe a 15% or so, maybe less, maybe a little bit more um coupon rate and that's capped. So, that's preferred equity. And then we'll do just JV equity or or JV hybrid equity like I mentioned a little bit ago. Um, and it's and we're 100% commercial real estate. We don't do anything outside of of commercial real estate. When I say commercial, our our investment criteria, what we're investing in today is multif family apartments, mobile home parks, small bay industrial, like multi-tenant industrial. Mhm. >> Um, industrial outdoor storage or iOS, which we we'd like to do more of, and we have not done anything yet. >> That that needs no that needs no >> uh upkeep or massively. >> Exactly. >> Here's your piece of land. Thank you. >> Yeah. And >> Oh, look at all the grass. Too bad. Throw your junk on it. >> Yes. and you have a high quality high you know credit tenant. Um typically just one and then and then the other would be like neighborhood shopping centers which we've done some of um >> those are probably the riskiest of all. >> You would think you would think >> just the turnover. I mean think listen some some idiot opens a restaurant in a place that a restaurant fails all the time. >> Yeah. you would think. Um I think the the type of retail that we're doing is is not so much um you know like local restaurant tenants or like nail salon tenants. It's more so like a example, we invested in one in um Atlanta or a suburb of Atlanta and it's it's anchored by a Kroger, like a grocery anchored >> place and and then you have like national tenants in there. um like a Hobby Lobby or like a you know maybe there's an out parcel and there's like a bank on the out parcel like a Chase and they're paying um and it's it's not like these I don't know how you describe them but maybe sketchier neighborhood places where it's like a revolving door. >> Yeah. with a smoke shop, >> with a uh with an Italian restaurant, >> a Chinese restaurant, a deli, and a shoe repair shop. >> Yeah, it's it's not >> You can see that strip mall, can't you? [laughter] >> 100%. Um there's there's quite a few of those. >> Um but I mean, honestly, yeah, retail's been been overall doing doing really well despite the headlines and I think everyone thought retail was was gonna die. Um, you know, like after COVID especially, people were like, "Oh, it's it's game over." But from what we're seeing, I mean, there there's a supply and demand imbalance. They're not building more of this stuff um in a lot of areas. and the the tenants are paying um like and and and we're we're getting we're getting our our cash on cash which is you know for it depends on the deal but um you know some of our deals are getting over 10% uh cash on cash. >> Yeah. >> Um without doing anything crazy. So let's talk about the other structure which is private equity where it requires first an accredited investor which we can go through that basically got to be worth a good amount of money or have a good income uh and prove that and uh this is not for someone who is fresh out of school with a lot of loans is making $15 an hour. That's probably not the investment for them. This is not the investment for them. >> No, would not recommend it. >> Well, you can't they'd be accredited, right? >> Exactly. >> Okay, so that's first of all. Second of all, uh the structure you have is let's say I'm just picking a number here. It could be anything here. Let's say that minimum investment for a particular share, if you will, is I'm again, this may not be the exact number. Let's just call it $100,000 for just lack of anything better to talk about. Okay. So, $100,000, but that money may not be due all up front, right? Yep, that's correct. So, we do draw down funds. Um, and sometimes we'll offer side cars. And when I say sidecard, I just mean an opportunity to invest in one deal within the fund where we don't want the fund to take down the whole deal for diversification purposes. Um sidecard 100% of the money would be would be um called or due basically upfront and it would all be invested. But for our funds, yeah, we we'll do a draw draw down structure. Um but today um you know investors typically aren't waiting super long um to get to get their money deployed. Um but it just depends on on how much capital's coming in and and then how many deals. I think the the benefit for investors is um and then also for us is that there's not there doesn't have to be cash drag, right? >> Basically, when we need the deal or when we have the deal um we can we can call the exact amount of money we need. >> So, let's talk about that. The capital calls, we call it a draw downs, there's a lot of different ways of saying the same thing, which is basically here's a deal uh when you come in on that $100,000, maybe owe $10,000 on it. Just saying. Uh, and then down the road, you guys get something that happens. You get a deal that's going to close. You need money to fund it. You send out a letter to your people, your your your people in the fund and say, "Look, we need 15,000. That's the amount from each of the people that we calculated out that's going to give us $14 million to buy this particular property, etc." Right? Okay. Let's go down the road a little bit. Now, we're uh down the road about a year >> and you didn't, let's just say, you didn't uh fund it yet because you've been looking for properties and you haven't found the right one. Now you find somebody that fits the bill about your criteria. They're good people. They're humble, right? They do all the job. It fits the it fits. >> And now you put out another um you know, whatever another 15,000. Somebody has $80,000 in the deal out of the hundred,000. You with me so far? >> Yep. >> Okay. That person calls up and says, you know, I got to tell you >> for reason ABC. Uh, I I I not only do I not not want to fund, but how do I get my money out of this thing? This is far before there is actually uh the out if you will, right? I'm talking about way before what happens in real life. >> Yeah. Well, yeah. There's there's what the the legal documents say. Um, and then there's there's what happens in in real life. So, what are the what are usually what are usually in private equity like this? What do the documents say? You're pretty much on the hook for the money, right? >> Yes, you are. And then let's say you don't fund um and let's just say, you know, we we have two funds. We have an income fund and a growth fund. Let's say it's the income fund. Um if if the person who has only partially funded their commitment decides not to keep funding when there are capital calls um we can do things like withhold their distributions um from the fund. we can um buy them out at a significant discount. Um like they lose they lose some of their um they get sign significantly diluted in some cases. Um and there's there's a number of pun more punitive things that can be done. Thankfully uh that's not something that we have had to do. Um, we we try to understand what's going on with the investor and we try to do a lot of work upfront getting to know the investor and maybe you know you kind of heard kind of about humility and things like that. Like we're very we're pretty relationally driven. Um, we have about a thousand investors across our different vehicles and we we try to vet people upfront and make sure they're actually understanding of the fact that this is not a liquid investment opportunity. Um, if you need your money, like don't invest. This is it. It's you can't we can't just go and um you know for a closed end fund like our growth fund, we can't just go and sell properties to to get people their money back. Um it's just not how it works. But we do try, you know, we we try to make accommodations for people >> if someone needs to get out like maybe like I've I've personally bought um people's interests. Um so have other team members. Um, and >> what is a significant discount? Is it 50%, is it 40%. >> That I've bought people >> theoretically. I'm just saying I mean what what is the like in the industry? What are they is somebody that's not really nice in this Listen, I don't I don't want to fund this thing anymore. I just don't want to do this. I don't give for whatever the reason is, right? I mean, talk what kind of what kind of haircut are we talking about? >> I don't know. I I don't know off the top of my head what our legal documents say, but I would say it's generally in the range of 15 to 25%. >> Right. Right. That's typ if if the liquidity is allowed. Of course. >> Mhm. >> Yeah. No, I get it. I'm just wondering because people um you know need to know this I think when they go into this and that's the point you're making that if you don't if you're going into this thinking that's a regular investment that has some liquidity to it and they could possibly get out, it's really a whole different animal. That's the point. This is a long term. >> Yeah, it's a longterm thing. And you know, it's it's funny cuz you mentioned um you're at a conference and all of these private credit, private equity folks are kind of coming to you um because you're an RAIA, right? And they're probably like, "Yeah, we want access to his clients." Um, and I think what we've seen with like because we we have a couple RAAS that have brought their clients to us to invest, not because we sought them out, but just from relationships and it's a very it's a very rare RAIA these days. I think it might be changing a little bit. It's like, yes, you know, I'm I'm pumped about commercial real estate and offering that to my clients. Yeah. like it's just it's kind of it's it's pretty far outside the box because of these these things that you're saying right now where it's it's yeah it's not liquid. Okay, that's a huge difference from an ETF >> or whatever else that you know most RAS are are dealing with. >> And I think over the next five years I think I think it'll be good to change for the RA community. I I've heard different things and I think there's more interest, but um it's going to be slow. >> I do wonder I do wonder how all of this is going to play into the idea that, you know, the big boys are trying to get private equity, private credit, um and whatever else you want to call it, how you want to describe it, long-term investments that are illquid into 401ks. >> Yep. >> Now, obviously, they'll make a great case like the crypto guys did, you know, trying their best. Why? Cuz it's good for them. The more they could do, the more they get on the top. I mean, let's let's be honest. >> So, I I don't know. It just seems like, you know, you could run a foul. Uh you got a guy in a 401k that retires, let's say, and needs his money and then all of a sudden you're in this private credit. Now, they'll have to create some kind of mirror fund that is almost private credit because you can't have in a 401k a capital call structure, >> right? You just can't have that. Um, so there's going to be have something else with and and the fee structure for 401k is probably not going to hold under uh the current um pension rules, you know, with the I don't know what do you guys do? Do you guys do a 2 and 20? >> No, we'll typically do anywhere from a one to one and a half asset management fee and then we'll have a a hurdle. Um so like a 8% hurdle I would say is typically >> the the case and then after we achieve 8% >> per year >> um and that's that's um cumulative it's not um it's not like staying on its own each year then it's an 8020 or 7525 >> in in favor of the investor you >> in favor of the investor. >> Yeah. I just want to I just want to make it clear. >> No, that's that's that's a good good clarification. Yeah. No, it's that that's a pretty standard in our world of real estate private equity. That's pretty standard fee arrangements. You'll see some sponsors do some or some some firms do some kind of wild fee structures and uh you know with multiple layers to the waterfall. It's like, okay, it's an eight and an 8020 up to a 15% return and then from a 15 it's it goes to 50/50, >> right? >> You know, and it and there's different layers and um and I get it. >> But let me ask you this. You're talking you're talking about um the the um 8% which also gives you impetus to get this thing invested because you're not going to make 8% that's sitting in cash. >> Um yes. I mean like I guess the the preferred return that hurdle clock starts when we it doesn't start until we um actually deploy the money that we call right. So yeah, we want to we want to get it deployed, but we're not losing anything by like on the welling side by not having it deployed. Does that make sense? I mean, we're not getting a management fee, >> right? >> But yeah, >> so um let's talk talk about where we are here in 2026 in January, uh outlook for next year. You like that interest rates are coming down. You like that Trump is pushing the the whole idea of making it more affordable. That's better for your cap rates a little bit, right? It's better for your profitability. It's better for uh values of the underlying property to begin with. Uh making deregulation, what am I missing >> for 2026? Well, [clears throat] the probably the biggest thing that's that's going to impact commercial real estate this year and next year and and I'm going to use commercial real estate generally. I'm I'm going to probably more so focus on multif family apartments. >> Mhm. >> Because it's it's one of the largest asset types by you know total transaction volume is is supply. So when the interest rate environment started shifting in 2022 and into 2023, um the cost for a construction loan more than doubled. >> And on top of that, the the cost of materials, cost of labor dramatically increased over that time frame, you know, even going back a little bit before then. And what has happened is it does not make financial sense to develop new multif family in many parts of the country, >> right? >> It just flat out does not make any financial sense. And basically multif family along with self storage and other asset types, it's just a supply and demand thing. Uh and it and it can be, you know, city by city and then submarket by submarket, neighborhood by neighborhood within the city. And I'll I'll use an example. Um right now, so we've actually invested a decent amount um not a huge amount, but you know, decent amount in Chicago >> workforce housing. And people are like, "Oh my gosh, that sounds scary." >> Yeah, no kidding. Horrifying. >> What are you thinking? [laughter] Um, and but you know, we're not in it's not in the the worst neighborhoods, but it's not the best neighborhoods. Anyways, Chicago has and if you go back and just look like Chicago multif family supply like on Google, um, there has not been much supply coming online the last couple of years. I mean, maybe even going back four, five years. And people are like, "Oh, you know, it's a it's a blue state. It's not friendly, whatever for business." But the reality is it's still a massive metro area. And you have uh Chicago now in the top five organic rent growth uh markets in the country. Wow. like it's it's it's um it's up there with like a New York and a San Francisco um for year-over-year rent growth. And it's not it's not like forced rent growth from doing upgrades. It's just like the market the market's just increasing. >> And it's really simple. It's just the the supply numbers for the population dropped off. >> And same thing in a city like Minneapolis. We actually just invested in a multif family deal in um in Bloomington uh where the near kind of near where the mall America is and similar story. There's not much supply. I think um last year it was I think Q2 of last year in in Minneapolis St. Paul, it's it's a metro area of 2.3 million people and there was two multif family permits pulled for the entire metro area. >> Wow. Wow. >> In in the in that particular quarter and it just doesn't make any financial sense. the the the only deals that are getting done are some kind of government um like tax credit deal like where there's some kind of incentive from the the local government and and that's that's not isolated. So there there's there's things like that that you know we think it's compelling. Um, and anyways, I could go on, but I think supply and demand is is probably the biggest thing. And and there's certain cities, metro areas that are being impacted differently, like the Southeast. >> Mhm. >> Tons of supply. Wow. >> Dallas, Fort Worth, Houston, Austin, San Antonio, Charlotte, Nashville, Atlanta, these these cities got, you know, everyone's like, "These are the growing areas." It's like, "Yeah, they are." But everyone started building there and that has hit rents. So you see negative rent growth in a lot of these markets the last couple years. So I think in the next couple years in general rent you know there there will be more market rent growth um as supply new supply is getting absorbed and um things kind of get work their way through the system. Um, and I think I think what what people are realizing cuz it has been kind of a a winter season in general for commercial real estate the last couple years. And I think what people are realizing is that and and and I'll say this like from 20 maybe 11 12 through 2022 >> Mhm. You could be a very mediocre operator in commercial real estate and still do amazingly well because the market was so good for so long. And you you would you wouldn't even know if someone was a was a good operator or not because they would they would buy a deal and then start doing upgrades and renovations and then literally 18 months later sell it for double what they paid for it. It was like a musical chairs scenario and then the music stopped when the interest rate environment shifted and a lot of people got exposed. It's like that famous Warren Buffett quote, it's only when the tide goes out that you see who's been swimming naked. Y >> and we definitely saw that and now the real operators are kind of showing themselves and the not so great operators are also showing themselves. And I think it's um it's always it's in times like this, I think it's just the the day-to-day operations on the ground, systems, processes, hiring, firing of the people. That's that's the make or break. That's the differentiator. And I think there's going to be hopefully with with limited partner investors and on the GP side like what Wellings does and others other other firms there's more awareness of that and there's more understanding of that because there's been there's been a lot of really bad situations um in in our space where where investors have lost >> everything. Yeah. um you know they they >> Yeah. And and it was mostly related to >> leverage. That's always the case. It's always the case. Too much leverage and bad operations. Let's be honest. >> Mhm. >> We're going to have to cut it right there. I want to thank you, Ben from Wellings Capital. We have more information on the disciplined investor under the show notes page for episode number 956. Uh Ben, I wish you the best of luck and I wish you um you know, also do great things in your endeavors. Thanks for joining us today. Thanks so much, Andrew. >> Thanks. >> There you go. A lot to learn about real estate, commercial real estate, private equity, private credit, all the things that are involved with that, understanding what's happening with draw downs, capital calls, and uh the reality of the long-term investment nature of these. It is only for accredited invest accredited investors. So, that's something you need to know about. Uh and if you don't know if you are or not, just look it up and you'll find out if you are. It's a high net worth or a high income. Uh, and again, it is something that has to sit for a while, these kinds of investments. But I thought it'd be interesting in a time like this when there's a lot of talk about changing the rules about the housing market and interest rates to have somebody on in this field because we all own something or have something to do with real estate out there. And I thought that [music] was kind of interesting. Thanks for joining me this week. I'll see you again next week right here on the Discipline Investor podcast. This podcast is [music] intended forformational purposes only and does not constitute personalized investment advice. Investing involves risk, including the possible loss of principle and past performance is not indicative of future results. The views and opinions expressed are those of the host and any guests and may not necessarily reflect those of Horowits and Company Inc., an investment adviser registered with the US Securities and Exchange Commission. Registration with the SEC does not imply a certain level of training or skill. Advisory services are only offered to a client or prospective clients where Horowits a company is properly registered or is excluded from registration requirements. [music] Any mention of thirdparty companies, products or services, is provided forformational purposes only and does not constitute an endorsement. Hypothetical scenarios or forward-looking statements are for illustrated purposes and should not be viewed as guarantees. Content is intended for US residents only and may not be applicable in other jurisdictions. Listeners should consult a qualified financial advisor before making any investment decisions. 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TDI Podcast: Private Equity Insights (#956)
Summary
Transcript
This episode is sponsored by Interactive Brokers, and there's something that you need to think about. Where could quantum computing take your portfolio? Investment themes from Interactive Brokers helps you find out. Start with a trend like quantum computing or clean energy and instantly see which companies are most connected based on revenue, strategic focus, and product relevance. You can explore competitors, global exposure and business relationships across more than 500 themes built with AI powered insights from reflexivity. Investment themes turns complexity into clarity and helps you move from trend to trade with speed. Available now across IBKR desktop, mobile, and trader workstation. The best informed investors choose interactive brokers member SIPC. Check it out at ibkr.com/themes. >> The disciplined investor is all about you, your money, and the markets. Sit back and get ready for [music] this edition of the disciplined investor podcast. This episode [music] of The Disciplined Investor is sponsored by Horowits & Company. If you're looking [music] for a portfolio manager, look no further. Horowits & Company. From seed through harvest, [music] cultivating financial success. [music] >> Greenland, Iran, and Mexico. Oh my. Earning season. Yes, it's here. Markets are on fire. All systems go. Get your gold and silver, too. And our guest today, Benjamin Kale, managing partner of Wellings Capital. All this and much more on episode number 956 of the Disciplined Investor podcast [music] [music] and it's halfway through January already and you cannot [music] imagine the thoughts I'm having about what more can the markets take. I'm Andrew Horowitz and this is the Disciplined Investor podcast. Thanks so much for joining me this week and every week. And I got to tell you something, it is pretty impressive when you see that you can have things thrown at a market from potential war and oil issues to uh an entire geopolitical uh calamity to things like uh forcing certain companies to reduce their overall revenue due to the credit card situation. We'll talk about that. and uh even going after the the Fed chair with criminal indictments. I mean, it's unbelievable what's going on. But yet, even with all of that, as we saw in the beginning of the week, you market stayed resilient. Even with the some of the choppiness we've seen, I understand that. Uh even with some of the employment numbers, which we're going to talk about, uh things look pretty good. And if you look at really the core of the of the economics right now, something interesting is happening. And I think we need to get into that because when you look at the non-farm payrolls employment where we saw that 50,000 jobs were added in December, which was below economist expectations, right? The consensus was around uh range about 60 to 70,000 somewhere in that range came in under and it was a slowdown from the downwardly revised plus 56,000 in November. All right, one thing we got to look at and the unemployment rate on the other hand edged down from 4.6% which was then revised to 4.5 to 4.4%. And when we look at the totality of the employment situation and what's going on, we see that around 7 and a half million people are unemployed. Not much of a change. Yet, we're seeing a lot of people get really interestingly upset, concerned, flustered with the idea that our employment situation is really slowing and inflation rate is not coming down. I am one of them that has said that there is something going on in the economy that is very suspect. It doesn't mean it has to be bad, but from an economic standpoint and and when we're looking at this on how this engine is going to continue working or better said how this business the business of being the United States of America from a revenue and and an expense standpoint is going to balance itself. It's very concerning. You would not and I'm telling you I'm going to say it again. You would not buy this company if it was IPOing. While we all love the United States and we want it to succeed, the fact is our debt to GDP, which is basically our our same thing as debt to revenue, our expense factors, the management team that's running it, all these things. If you really think about it, put it into perspective and try to transform your concept of what the United States as a country is into the United States as a company that you'd be hardressed to buy that. A fundamental analyst would be hardpressed to give you a buy rating on this except for the potential of what will happen in the future. Now rolling this back getting back to our payrolls number total payroll growth for the year was uh a year in when we see this a year 12 months the 12-month period not the year 2025 12 months but it it's approximately the same uh about 584,000 average monthly gain of about 49,000 marking it one of the weakest years for hiring since 2020 and we know what happened there right 2020 of course it was the impact of the pandemic this is a huge huge differential, a drop from the 2 million jobs that were added in 2024, which averaged 168,000 monthly. Now, there's some revisions that came in. We'll talk about that and talk about some of the reasons for all this. October 25 revision down to -1 173 from 105 reflecting the federal government buyouts and shutdown effects. So, we got to take that with a grain of salt and say that's really maybe not exactly the right number. November 2025 revised down by 8,000 to only 56,000 that was that was added and then the combined October the November numbers there's about 76,000 fewer jobs than previously reported. So there is some hangover from the government shutdown and all that but there is some talk about what's going on in the economy right now actually is sneakily some of the AI some of the layoffs that going on quietly you hear this whole no fire no hire you know everything is just in stasis where we have just a stable environment of employment and don't forget also that employment is really important the more people that are employed the more people have money the more people have the more they spend, the more people that are employed, the more money is going into their 401ks on a regular basis. The more money that's going to the 401k is one of those mechanical mechanisms of the markets that we've talked about over the years that continues to provide for the market uh dollar cost averaging in, if you will. Now, let's look at a breakdown of where some of these gains were because I think this is sometimes we get into the nitty-gritty of this. I think it's important. Food services and drinking establishments added about 27,000. Healthc care 21,000. Social assistance 17,000. Warehouse clubs, general merchandise and food and beverage stores lost in the retail side. Little or no change in federal governments in the last unemployment number. Uh down 277,000 or about 9.2% since its January 2025 peak due to what? Well, we know Doge and various policydriven reductions and manufacturing, construction, professional business services also were not changed. But average hourly earnings rose by about.3% monthly, which is about 3.8% year-over-year, which is ahead of the inflation rate. The average work week edged down slightly. So this again this no higher no fire dynamic which was influenced by a lot of things like AI adoption and tariff uncertainty and federal workforce reductions and all these things about what's going on. So what was really interesting though what I found to be actually to a point of fascinating was the productivity numbers that we saw last week. That was really cool. We talked about that before. those productivity numbers are telling me something when in fact there is a desire to reduce headcount or maybe set a different way their productivity is allowing for a drop in headcount that's something to think about I really we need to watch this over time to see if this productivity number which is stellar is it because of what is it because of onshoring I don't necessarily think so I think that would actually bring it Is it because of the AI situation? Maybe. Is it because of just technology has done so well and companies have done so well because they've made themselves very lean and mean into this whole tariff environment that scared the be Jesus out of them. And what they did was they came back with a really good plan on how to make sure that they were as lean as could be. And then from there what they did was uh realized that wait a second these tariffs aren't so bad. We're not changing a thing. and the productivity, their margin expansion was good and their profitability has been very strong. Which brings us into what's going on in the next couple of three weeks. Want to dive a little bit deeper deeper into the quarter 4 that's about to happen. Uh earnings coming up in late January and early February. It's going to be a massive market mover. know that especially for the Mag 7, you know, the Microsoft, Apple and videos, if if we could even consider them the Magnificent 7 anymore, we see that over the week and next week, we're going to see many of the financials, the banks, some utilities as well as um some some um uh manufacturing, but the tech companies are going to be the big ones because those the ones that really provided much of the earnings over the last year or so. And these guys typically report later in the earning season. So here's a couple of dates to think about. Late in January and then we're going to see some of the fireworks really pick up late in January. We're talking, you know, like the 27th or 28th for the big ones like Microsoft and Tesla. And that's going to be a big issue of course because uh already Tesla is well beyond its skis only pretty much flying out there due to the robo taxi announcements. There's a carrot in front of everybody right now. Their car sales stink. Uh Microsoft, interesting. We'll see if their money expenditures are actually going to come back in some revenues. And then we have things like January 29th, huge day for Apple, right? Right at the end of the month. Then we slide into early February second or third. We got Meta, Amazon, uh February 3rd for Alphabet. Nvidia is going to wrap it up in a little later in the month. So that they're going to be somewhere around I think it's the 25th 26th of February. And why do why do these companies come later, right? Fiscal calendars probably vary a bit and let's be real, the whole market saves the big drama for the last because these reports can swing the whole NASDAQ and even the S&P 500. But this season, it feels a little extra charged with excitement. And I think the reason is because analysts are they're they're they're really penciling in some pretty significant gains for the tech sector. I think it's somewhere around about a 25% increase in EPS on a year-over-year basis driven what by of course AI demand and of course this the cloud spending that's going on and the continuation of capex for the data center buildouts are really an amazing part of this equation. However, that last part is what really everybody's looking at. The idea that can this capex expenditures in the hundreds of billions of dollars continue and if they can, for how long? Because this huge capital expenditures is is is something that we haven't seen before. And we're talking about record-breaking numbers, right? Consensus forecasts are looking at these big hyperscalers, the Amazons and Microsofts and Medas pushing towards about5 to600 billion dollars in total capex for 2026 alone up from a huge amount in 2025 and 75% or more of this the predominant amount is tied directly to AI buying GPUs building massive data centers securing the the power deals that we just saw something last week with with Meta right the tie up they did there uh and custom chips and companies like Amazon already signing you know 100 to$125 billion dollar in 2025 is going to be just a small piece of what they're going to be doing. Meta talking notably larger in their already huge spend that they'll be doing and Microsoft is ramping up and accelerating their demand uh or looking for accelerated demand and ramping it up and Alphabet we saw the news last week about Apple and what's going on there. So all this is going on and even open AI is in the mix through massive partnerships that could add up to a trillions or more. I don't know how much more. What's half a trillion? I don't know. We're going to see it soon even though all these hyperscalers are footing the bill. So the capex super cycle that we're seeing is what's powering the AI story and it's in why Nvidia's been killing it and why cloud growth is expanding and why they're seeing all this power hungry data centers. We know about this. We've talked about this. question is can this continue and and the next couple of quarters are really going to be the play on that and that's going to be I think something for us all to hold our breath in. So mark your calendars because banks are going to continue for the next couple of weeks smattering of others over the next you know uh I would say 14 business days and late January through early February we're going to see all the fireworks from the MAG 7 and again the big issue that everybody's going to be focusing in on is whether the capex can continue. So that is in a nutshell where we are and where we're going. Let's take a break real quick. We're going to bring in our guest for this week. And I want to talk about the uh the uh the the benefits of interactive brokers. And one of the things that we know is that investing is seeing the bigger picture. But sometimes the connections aren't so obvious. That's why Interactive Brokers created connections. With connections, you could explore related stocks and ETFs, options, futures, and even forecast contracts all in one place. You get to discover the trends, compare companies, and uncover opportunities across 160 global markets. You know, the best informed investors choose Interactive Brokers. Interactive Brokers also is a member of SIPC. The risk of loss in online trading of stocks, options, and futures can be substantial. I want you to do me a favor. Learn more about this. Go to ibkr.com/connections. Now, our guest today is Benjamin Kale. And and I wanted to bring him in because it's something we don't do very often here is talk about what he focuses in on. He's the managing partner of Wellings Capital. He's responsible for the overall management of the firm, its investment offerings, including eight funds, and multiple sidecar entities. In his role, he helped shape the company's investment strategy and guides asset management initiatives. Now, since joining Wellings Capital as an intern in 2015, we have some questions about that. Uh some interesting stories there. He's played an instrumental role in the firm's growth, diving driving from a zero to over $215 million in investor equity under management, over $450 million of assets under management. So, let's welcome welcome him in right now to to the show. So, Ben, thanks for joining me. I appreciate it. How are you? >> I'm doing great. Andrew, thanks for having me. How are you? >> Good, thanks. I I think because you're new to the show and I wanted to give our audience a little bit of a taste of who you are. Uh, I want you to take me through where you started as a part-time intern making uh, just over uh, 10 bucks, 12 bucks an hour back in 2015 and how you became the managing partner. Give me that full run. >> Absolutely. So, I moved here to Virginia where I'm based back in 2012 for school. Got my real estate license when I was in college. Knew I wanted to do something in real estate. kind of grew up around it. And through that process, I met a guy named Paul who became my mentor back in 2014. And Paul asked me if I wanted to do an internship my senior year, January 2015. [clears throat] I was the first employee and him and a couple partners were doing multif family syndication and I didn't even know what that was. >> Okay. at the time, right? >> I didn't know anything about real estate, private equity. I did not come from that world. >> And that that really kicks things off and I started started that internship, working part-time, finishing my degree, graduated, moved on, and in November of 2024, ended up becoming the the managing partner. Paul moved to the kind of the founder role. he's still involved, but a number of things happened in that time frame. >> Sure. >> Um, but that's that's kind of uh the the long and short of it. >> So, you were post uh post financial crisis pre pandemic. >> Yep. So, you had the upswing of finally people saying, "Okay, maybe I'll go back into real estate again after being burned like crazy uh back in 2008, 2009 plus+, right?" >> And then you kind of picked up on the back side of that which was where people were starting to embrace it again. I would that sounds like the time period, right? >> Absolutely. >> And you and you grow grew this into, you know, obviously a big thing. Do you tell people let's just take a second and talk about um first of all the kind of things that you do like for example you know we talk a lot here on the show about by the way very very very very rarely do I ever have anybody on about real estate but I thought the timing was very important right now. Mhm. >> Um, so tell them what it is that you kind of look at from a real estate uh position, portfolio. Um, how you find what you have, you know, is it commercial, is it residential, is it, you know, what what are you doing with with with lending and and leverage and all that? And then we'll kind of get into the meat and potatoes of this. >> Sure. So what we do in commercial real estate, it might be a little different than what people are familiar with. So we started off as an owner operator. In 2019, we transitioned fully to not being an owner operator of the real estate and instead providing equity to the owner operators. And we would package up a number of deals. Maybe we're the majority of the equity, maybe we're not, but we'd package up a bunch of these deals. And it's primarily multif family apartments, self- storage facilities in secondary tertiary markets, and mobile home parks or trailer parks. That's the bulk of our portfolio today. And >> well, what's interesting about that, by the way, the last two in particular, >> I always see in the real estate world as >> I'm owning this today, but I'm actually going to just milk it for what is work worth getting some income from it, and then eventually sell it for a lot higher. >> The last two, >> is that is that how you see it? Also, self- storage in particular, self- storage is just a holding pattern for something bigger to come. >> It Yes. Typically, typically some of the self- storage deals we do are have a have a significant value ad component. Um, so maybe you can buy a facility that has some vacant land and then you can add additional units over time or maybe you can add additional outdoor boat storage or RV storage. Um, so that that sometimes is the case, but yeah, I mean it's it's a these are pretty boring asset types. Um, mo mobile home parks especially. >> Mhm. >> When you go back and you look at 2008, 910 and then even through the pandemic, it's very steady and there's a lot of publicly available data on that. And I think you go back 10, 15 years, mobile home parks or they're sometimes called manufactured home communities, they were kind of unloved by many investors, institutional investors, and even even midsize firms. That has completely changed over the last five, six, seven years. Um there's been a ton of consolidation in that asset type and you're seeing extremely low cap rates typically um for for for decent larger mobile home parks which is shows that there's a lot of interest in it from an investor standpoint because it's very safe. >> I mean investor standpoint basically you are going to own the land. You're going to throw a slab on there. You're going to bring roads in if they're if they're empty and put basic electrical hookups, maybe some kind of fuel, whether it's electrical or something else. And then basically the people plop their mobile home, which may may or may not be so mobile, right? I mean, some some of these are not actually mobile. >> It's a misnomer. It's a misnomer. Cost like five grand to move your home, >> right? But but some of them aren't necessarily Some are mobile and some are not as mobile, per se, but you still have the same basic >> slab on a piece of property, right? Yep. >> So, Yep. >> But, but again, but but the difference is where you have a community, if you're buying it and you're developing it, you pretty much buy the land, mark it up, sell it, construct it, and then walk away from it. >> So, our model, it's a little different than that. So, uh, one of our owner operator partners will source an existing deal. And so, we, and just for clarity, we don't do any development. all the stuff we invest in is is existing. And the typical scenario for mobile home parks because about 70% of the 40,000 mobile home parks in the US, 70% of them are still owned by a mom and pop owner, not a professional owner. So, the typical scenario is you have an owner who's aging. The kids don't want to deal with the property and the owner decides to sell and they don't want to work with a broker. It's they they're they just want to get the deal done quickly with cash. They don't want to go through this drawn out process and do a bunch of tours. So [clears throat] our owner operator partners will reach out directly to these owners and they will they will call they will send text messages they will send emails they will send physical mail they will do facts even and that's how they generate these these deals and they'll say we can close in you know x days in cash and you go into this this park or this this community and you'll typically find rents that are far below market. You'll typically find tenants that aren't paying their rent. You'll typically find infrastructure in disrepair, whether that's the roads or the common areas like a pool or a clubhouse, trees overhanging, and maybe there's some sewer water issues and and the move really is to um slowly over time raise the rents to market. You don't want to go in and do a huge adjustment. Mhm. >> Um there have been players in our space that have done that and that has >> um >> has not gone doesn't go well politically and um reputationally >> and and you just want to um and then also filling vacant lots. That's another huge one. So sometimes these mom and pops, they don't have the or care, they don't care or they don't have the money to bring in a new or used home and sell it to a tenant, >> right? >> Or sell it to a prospective tenant. That's huge value ad. So it's not uncommon to see year one cash on cash of 7% um or maybe higher for these for these mobile. >> By the way, these these these are non-lever deals. This is just cash down >> there. There is leverage eventually. So So maybe it's closed for cash >> just for sake of speed and then the owner operator will and that's a really good clarification. The owner operator will go to >> Fanny May or Freddy Mack um have really strong debt programs for for mobile home parks or maybe it's a regional community bank. Um it depends. And I would say in the range of 40 to 65% leverage is is what they end up at. >> So is it leverage or is it borrowed? Is the difference? >> So uh uh let's say the purchase price is 10 million let's just say. So of that purchase price say 4 million to 6.5 million would would be a loan >> and the rest would be um equity in the deal. So it's not a multiple leverage, it's a partial of the of the value leveraged. >> Yep. Yep. Exactly. >> So one of the things that you've done I think is um you mentioned the various ways you work with people where where you have you know owner operators etc. Um this is I guess what you're calling the JV hybrid strategy and JV hybrid equity and structure. >> Yes. >> Explain that to me. Yes. So, this this might sound like Chinese, but I I'll try to explain it the best way I can. So, when we're investing in these deals and and just this is just one point of reference, we have control. So, like a like a private equity firm would come in to and buy a company or a part of a company, they have certain control rights >> and that's that's what we do. We control when the property sells, refinances the budget. We control the the capital improvements and we often hold back the capital improvements any any major decisions even sometimes the management of the day-to-day. [clears throat] So JV hybrid we it's it's basically like the sponsor need let's say that let's again let's use this $10 million deal example. Um, let's say the loan is $5 million. >> Mhm. >> And then we would bring $3.5 million. So there's a need for $1.5 million and that would come from the owner operator's own money like their skin in the game >> and maybe friends and family >> um or closely held investors. That means and and and the JV hybrid structure means we have a return of capital priority upon a sale. So there's some downside protection. So let's say that property sells and and I'm just going to use just really broad terms. Let's just say it sells. It's purchased for 8 and a half mill or 10 million. Let's say it sells for8 million. There's a loss of $1.5 million. Mhm. >> Our investors Wellings, we wouldn't lose anything in that scenario. >> Right. You're the first paid. You're the first paid >> after the lender. Yeah. >> After the lender, >> and that's a um it's a unique structure because we're getting the same upside potential as the common equity in the deal. That one a.5 million. like our return is not capped but we have some downside protection. >> So the risk is on the operator >> on a s on on a on a qualifying event if you will. >> Yes. And how we pitch it to the operator is you know hey you know this structure won't mean anything. It doesn't matter unless you lose money and you're not planning on losing money on this property, right? you're putting in a million bucks or whatever of your own money. >> And you know, they of course they're all they're all going to they're all going to believe that and say that and we do too going into it, right? >> But if a worst case scenario happens, >> we at least have something to fall back on that's not going to result in maybe a total wipeout for our investors. And you have this um I I read about this um I think it's it's like a 20 27 26 27 step due diligence process for the owners and operators and properties and all that and there's a what what thing when you go into a property >> is kind of a red flag that would be like uh you know right off the bat uh >> I don't think we would do this one. >> Yeah. So, our due diligence process might be a little different from some firms in that our our most our due diligence is is centered around the owner operator or this we call them the sponsor or the operator. It's it's really the people. So, the thing about real estate that's different from other asset types is is yes, it's it's sticks and bricks. It's a physical asset, but the results of that investment in that property are really going to be driven by the people and the team running that property. >> Mhm. We say this, you could have the best property that, you know, the best mobile home park and in with the best upside potential and the best area neighborhood. But if the sponsor is mediocre and their systems and processes are mediocre and how they're doing things daytoday, that property could still end up sucking for everyone. Yeah, >> but on the other side, you could have a, you know, a so-s so property, um, so area, but if the sponsor team, the owner operator, if they're dialed in, that property could still generate an amazing return because it's really the details. So, that's that's we kind of we bet the the jockey more than the horse. >> Yeah. the jockey being the owner operator, the horse being the property. And yeah, the property matters. Yeah, we're going to we're going to look at it, but I think we're looking for a couple things in the first couple calls we have with our potential sponsored partners. Um, we're looking for openness and humility and yeah, willingness to to to share about mistakes and things they've learned. And >> that's a hard one. That's hard. >> Yeah. >> I mean, it's not hard because some people Well, some people may not want to admit, some people may just forget like they just literally forgot, you know, like let's not even wipe this from my memory. I can't even you know but that's that's a that's an interesting thing that that humility and and openness and to talk about mistakes. So the point there is that you want someone who is coachable if if I may put words in your mouth uh coachable and um can understand how to better themselves. Is that is that true? Yeah, because I think at at the end of the day, um, you know, we we've been on a lot of calls over the years and a lot of the the groups are putting their best foot forward. Of course, we would want to do the same. Um, and there's a there's a tendency to just tell us, Wellings, what we want to hear. >> A lot of people say that's what sales is, is just telling the other person what you think. they want to hear. And and I'm really cautious um when it comes to these things. I think the the best sponsors and we've we've invested with 24 of them over the years. Um the best sponsors that we've worked with, they're not salespeople. Like when when I say the best sponsors, I mean like the main guy, the the owner, the CEO. like I don't I don't want them to be this sponsor this like salesy promotional guy or gal. >> I want them to be um >> to know their business. >> I want them know be in the details, right? and and understand things or or have a very capable um person in that number two seat like the COOC or operations seat that that has real authority to call some shots and and the owner operator is not just going to dominate them. So, I think that's like that's something you can just kind of feel um on on on some of these calls and we're not getting intense or we're not interrogating. We're just we're just asking people to tell their story and say, you know, what what have you learned over the past couple years? What stick? >> The bottom line is because you're going to get all the financials anyway. >> Exactly. And those are easy to pick apart and figure it out and do some accounting and and and and send it out to kind of dig in and and and figure out like what's that line mean? Why is that over here? >> Why why do you see that big jump uh or drop over those two years in this particular sector or whatever it is? >> That's easy enough. That tells the story. There's no >> there's no nothing. There's no shouldn't Well, there shouldn't be in [laughter] there shouldn't be inference, right? you should be just here it is and make a decision financially using you know whatever multiples you're using and whatever breakdown which is important to you. So I I get that and then this is sort of the soft this is soft data. >> Yes. And that's and that it's part of our kind of screening process and you're not going to be able to tell everything of course about a person and you know a couple Zoom calls. Um, but we look for that at the beginning, like early signals and we we really try to pay attention to early signals and we really try not to ignore the gut check. And you know, there's there's different perspectives on, you know, trusting your gut, but more often than not when we've had a gut check or something that kind of doesn't feel quite right in the early stages, it is often um and and then we move forward with due diligence. something else will come up in due diligence that that causes the the deal to fall apart for one reason or another. Um, and so we're really trying not to ignore the gut. And you know, there's some some interesting data and resources out there about the the um, you know, the the role of of listening to your gut. >> Well, I think the big is also you're not just buying the company. If you're buying the company and you're taking it over and then basically the management and the the the founder if you will or the person in charge is leaving that's one thing but you're actually keeping them on right so it's own owner operated >> exactly exactly >> and you got to work with them obviously so that's important >> yes for many years you know it's a marriage um you know the we're typically in the deals for a minimum of three years and sometimes up to 10 years >> so let's talk about the structure for a second private equity private credit, you know, they're all out there and people are are are I'll tell you I went to I went to a an event down in Miami about a year ago. It was a financial event and they invited me to come down for some cocktails one night and I literally I'm not even kidding. I was down in Miami Beach and I'm standing there don't know in there's a particular area I was I didn't know a lot of people. They were kind of somewhere else and I I was like attacked. I was like you know it was everybody telling me that private equity private equity private equity has got to be in your thing. you got to do this or this. You got to do this for the future. It's the best thing for your clients. It's going to be in this. It's going to be in the 401k. I'm like, uh, enough. Can't take it. >> Right. I'm like, this is starting to now get me to a point that I'm turning the other side of it saying, what's the problem here? But anyway, >> let's talk about private equity. >> What is your structure? >> Yeah. So, we're not investing debt. So, we would not be classified as as private credit. Um we're investing in various types of equity. Um some of it's preferred equity >> which is kind of a blend between common regular equity and debt where you have a and and you know people who invest in stocks um might have some uh understanding of of that structure where you have kind of a fixed current pay and then you have a a pick payment in kind or acrruel and and then you have basically it's capped upside. Um so in our structures, you know, our prep is typically in the 7 to 10% current pay range and that's typically for stabilized deals that we're coming in to recapitalize and then maybe a 15% or so, maybe less, maybe a little bit more um coupon rate and that's capped. So, that's preferred equity. And then we'll do just JV equity or or JV hybrid equity like I mentioned a little bit ago. Um, and it's and we're 100% commercial real estate. We don't do anything outside of of commercial real estate. When I say commercial, our our investment criteria, what we're investing in today is multif family apartments, mobile home parks, small bay industrial, like multi-tenant industrial. Mhm. >> Um, industrial outdoor storage or iOS, which we we'd like to do more of, and we have not done anything yet. >> That that needs no that needs no >> uh upkeep or massively. >> Exactly. >> Here's your piece of land. Thank you. >> Yeah. And >> Oh, look at all the grass. Too bad. Throw your junk on it. >> Yes. and you have a high quality high you know credit tenant. Um typically just one and then and then the other would be like neighborhood shopping centers which we've done some of um >> those are probably the riskiest of all. >> You would think you would think >> just the turnover. I mean think listen some some idiot opens a restaurant in a place that a restaurant fails all the time. >> Yeah. you would think. Um I think the the type of retail that we're doing is is not so much um you know like local restaurant tenants or like nail salon tenants. It's more so like a example, we invested in one in um Atlanta or a suburb of Atlanta and it's it's anchored by a Kroger, like a grocery anchored >> place and and then you have like national tenants in there. um like a Hobby Lobby or like a you know maybe there's an out parcel and there's like a bank on the out parcel like a Chase and they're paying um and it's it's not like these I don't know how you describe them but maybe sketchier neighborhood places where it's like a revolving door. >> Yeah. with a smoke shop, >> with a uh with an Italian restaurant, >> a Chinese restaurant, a deli, and a shoe repair shop. >> Yeah, it's it's not >> You can see that strip mall, can't you? [laughter] >> 100%. Um there's there's quite a few of those. >> Um but I mean, honestly, yeah, retail's been been overall doing doing really well despite the headlines and I think everyone thought retail was was gonna die. Um, you know, like after COVID especially, people were like, "Oh, it's it's game over." But from what we're seeing, I mean, there there's a supply and demand imbalance. They're not building more of this stuff um in a lot of areas. and the the tenants are paying um like and and and we're we're getting we're getting our our cash on cash which is you know for it depends on the deal but um you know some of our deals are getting over 10% uh cash on cash. >> Yeah. >> Um without doing anything crazy. So let's talk about the other structure which is private equity where it requires first an accredited investor which we can go through that basically got to be worth a good amount of money or have a good income uh and prove that and uh this is not for someone who is fresh out of school with a lot of loans is making $15 an hour. That's probably not the investment for them. This is not the investment for them. >> No, would not recommend it. >> Well, you can't they'd be accredited, right? >> Exactly. >> Okay, so that's first of all. Second of all, uh the structure you have is let's say I'm just picking a number here. It could be anything here. Let's say that minimum investment for a particular share, if you will, is I'm again, this may not be the exact number. Let's just call it $100,000 for just lack of anything better to talk about. Okay. So, $100,000, but that money may not be due all up front, right? Yep, that's correct. So, we do draw down funds. Um, and sometimes we'll offer side cars. And when I say sidecard, I just mean an opportunity to invest in one deal within the fund where we don't want the fund to take down the whole deal for diversification purposes. Um sidecard 100% of the money would be would be um called or due basically upfront and it would all be invested. But for our funds, yeah, we we'll do a draw draw down structure. Um but today um you know investors typically aren't waiting super long um to get to get their money deployed. Um but it just depends on on how much capital's coming in and and then how many deals. I think the the benefit for investors is um and then also for us is that there's not there doesn't have to be cash drag, right? >> Basically, when we need the deal or when we have the deal um we can we can call the exact amount of money we need. >> So, let's talk about that. The capital calls, we call it a draw downs, there's a lot of different ways of saying the same thing, which is basically here's a deal uh when you come in on that $100,000, maybe owe $10,000 on it. Just saying. Uh, and then down the road, you guys get something that happens. You get a deal that's going to close. You need money to fund it. You send out a letter to your people, your your your people in the fund and say, "Look, we need 15,000. That's the amount from each of the people that we calculated out that's going to give us $14 million to buy this particular property, etc." Right? Okay. Let's go down the road a little bit. Now, we're uh down the road about a year >> and you didn't, let's just say, you didn't uh fund it yet because you've been looking for properties and you haven't found the right one. Now you find somebody that fits the bill about your criteria. They're good people. They're humble, right? They do all the job. It fits the it fits. >> And now you put out another um you know, whatever another 15,000. Somebody has $80,000 in the deal out of the hundred,000. You with me so far? >> Yep. >> Okay. That person calls up and says, you know, I got to tell you >> for reason ABC. Uh, I I I not only do I not not want to fund, but how do I get my money out of this thing? This is far before there is actually uh the out if you will, right? I'm talking about way before what happens in real life. >> Yeah. Well, yeah. There's there's what the the legal documents say. Um, and then there's there's what happens in in real life. So, what are the what are usually what are usually in private equity like this? What do the documents say? You're pretty much on the hook for the money, right? >> Yes, you are. And then let's say you don't fund um and let's just say, you know, we we have two funds. We have an income fund and a growth fund. Let's say it's the income fund. Um if if the person who has only partially funded their commitment decides not to keep funding when there are capital calls um we can do things like withhold their distributions um from the fund. we can um buy them out at a significant discount. Um like they lose they lose some of their um they get sign significantly diluted in some cases. Um and there's there's a number of pun more punitive things that can be done. Thankfully uh that's not something that we have had to do. Um, we we try to understand what's going on with the investor and we try to do a lot of work upfront getting to know the investor and maybe you know you kind of heard kind of about humility and things like that. Like we're very we're pretty relationally driven. Um, we have about a thousand investors across our different vehicles and we we try to vet people upfront and make sure they're actually understanding of the fact that this is not a liquid investment opportunity. Um, if you need your money, like don't invest. This is it. It's you can't we can't just go and um you know for a closed end fund like our growth fund, we can't just go and sell properties to to get people their money back. Um it's just not how it works. But we do try, you know, we we try to make accommodations for people >> if someone needs to get out like maybe like I've I've personally bought um people's interests. Um so have other team members. Um, and >> what is a significant discount? Is it 50%, is it 40%. >> That I've bought people >> theoretically. I'm just saying I mean what what is the like in the industry? What are they is somebody that's not really nice in this Listen, I don't I don't want to fund this thing anymore. I just don't want to do this. I don't give for whatever the reason is, right? I mean, talk what kind of what kind of haircut are we talking about? >> I don't know. I I don't know off the top of my head what our legal documents say, but I would say it's generally in the range of 15 to 25%. >> Right. Right. That's typ if if the liquidity is allowed. Of course. >> Mhm. >> Yeah. No, I get it. I'm just wondering because people um you know need to know this I think when they go into this and that's the point you're making that if you don't if you're going into this thinking that's a regular investment that has some liquidity to it and they could possibly get out, it's really a whole different animal. That's the point. This is a long term. >> Yeah, it's a longterm thing. And you know, it's it's funny cuz you mentioned um you're at a conference and all of these private credit, private equity folks are kind of coming to you um because you're an RAIA, right? And they're probably like, "Yeah, we want access to his clients." Um, and I think what we've seen with like because we we have a couple RAAS that have brought their clients to us to invest, not because we sought them out, but just from relationships and it's a very it's a very rare RAIA these days. I think it might be changing a little bit. It's like, yes, you know, I'm I'm pumped about commercial real estate and offering that to my clients. Yeah. like it's just it's kind of it's it's pretty far outside the box because of these these things that you're saying right now where it's it's yeah it's not liquid. Okay, that's a huge difference from an ETF >> or whatever else that you know most RAS are are dealing with. >> And I think over the next five years I think I think it'll be good to change for the RA community. I I've heard different things and I think there's more interest, but um it's going to be slow. >> I do wonder I do wonder how all of this is going to play into the idea that, you know, the big boys are trying to get private equity, private credit, um and whatever else you want to call it, how you want to describe it, long-term investments that are illquid into 401ks. >> Yep. >> Now, obviously, they'll make a great case like the crypto guys did, you know, trying their best. Why? Cuz it's good for them. The more they could do, the more they get on the top. I mean, let's let's be honest. >> So, I I don't know. It just seems like, you know, you could run a foul. Uh you got a guy in a 401k that retires, let's say, and needs his money and then all of a sudden you're in this private credit. Now, they'll have to create some kind of mirror fund that is almost private credit because you can't have in a 401k a capital call structure, >> right? You just can't have that. Um, so there's going to be have something else with and and the fee structure for 401k is probably not going to hold under uh the current um pension rules, you know, with the I don't know what do you guys do? Do you guys do a 2 and 20? >> No, we'll typically do anywhere from a one to one and a half asset management fee and then we'll have a a hurdle. Um so like a 8% hurdle I would say is typically >> the the case and then after we achieve 8% >> per year >> um and that's that's um cumulative it's not um it's not like staying on its own each year then it's an 8020 or 7525 >> in in favor of the investor you >> in favor of the investor. >> Yeah. I just want to I just want to make it clear. >> No, that's that's that's a good good clarification. Yeah. No, it's that that's a pretty standard in our world of real estate private equity. That's pretty standard fee arrangements. You'll see some sponsors do some or some some firms do some kind of wild fee structures and uh you know with multiple layers to the waterfall. It's like, okay, it's an eight and an 8020 up to a 15% return and then from a 15 it's it goes to 50/50, >> right? >> You know, and it and there's different layers and um and I get it. >> But let me ask you this. You're talking you're talking about um the the um 8% which also gives you impetus to get this thing invested because you're not going to make 8% that's sitting in cash. >> Um yes. I mean like I guess the the preferred return that hurdle clock starts when we it doesn't start until we um actually deploy the money that we call right. So yeah, we want to we want to get it deployed, but we're not losing anything by like on the welling side by not having it deployed. Does that make sense? I mean, we're not getting a management fee, >> right? >> But yeah, >> so um let's talk talk about where we are here in 2026 in January, uh outlook for next year. You like that interest rates are coming down. You like that Trump is pushing the the whole idea of making it more affordable. That's better for your cap rates a little bit, right? It's better for your profitability. It's better for uh values of the underlying property to begin with. Uh making deregulation, what am I missing >> for 2026? Well, [clears throat] the probably the biggest thing that's that's going to impact commercial real estate this year and next year and and I'm going to use commercial real estate generally. I'm I'm going to probably more so focus on multif family apartments. >> Mhm. >> Because it's it's one of the largest asset types by you know total transaction volume is is supply. So when the interest rate environment started shifting in 2022 and into 2023, um the cost for a construction loan more than doubled. >> And on top of that, the the cost of materials, cost of labor dramatically increased over that time frame, you know, even going back a little bit before then. And what has happened is it does not make financial sense to develop new multif family in many parts of the country, >> right? >> It just flat out does not make any financial sense. And basically multif family along with self storage and other asset types, it's just a supply and demand thing. Uh and it and it can be, you know, city by city and then submarket by submarket, neighborhood by neighborhood within the city. And I'll I'll use an example. Um right now, so we've actually invested a decent amount um not a huge amount, but you know, decent amount in Chicago >> workforce housing. And people are like, "Oh my gosh, that sounds scary." >> Yeah, no kidding. Horrifying. >> What are you thinking? [laughter] Um, and but you know, we're not in it's not in the the worst neighborhoods, but it's not the best neighborhoods. Anyways, Chicago has and if you go back and just look like Chicago multif family supply like on Google, um, there has not been much supply coming online the last couple of years. I mean, maybe even going back four, five years. And people are like, "Oh, you know, it's a it's a blue state. It's not friendly, whatever for business." But the reality is it's still a massive metro area. And you have uh Chicago now in the top five organic rent growth uh markets in the country. Wow. like it's it's it's um it's up there with like a New York and a San Francisco um for year-over-year rent growth. And it's not it's not like forced rent growth from doing upgrades. It's just like the market the market's just increasing. >> And it's really simple. It's just the the supply numbers for the population dropped off. >> And same thing in a city like Minneapolis. We actually just invested in a multif family deal in um in Bloomington uh where the near kind of near where the mall America is and similar story. There's not much supply. I think um last year it was I think Q2 of last year in in Minneapolis St. Paul, it's it's a metro area of 2.3 million people and there was two multif family permits pulled for the entire metro area. >> Wow. Wow. >> In in the in that particular quarter and it just doesn't make any financial sense. the the the only deals that are getting done are some kind of government um like tax credit deal like where there's some kind of incentive from the the local government and and that's that's not isolated. So there there's there's things like that that you know we think it's compelling. Um, and anyways, I could go on, but I think supply and demand is is probably the biggest thing. And and there's certain cities, metro areas that are being impacted differently, like the Southeast. >> Mhm. >> Tons of supply. Wow. >> Dallas, Fort Worth, Houston, Austin, San Antonio, Charlotte, Nashville, Atlanta, these these cities got, you know, everyone's like, "These are the growing areas." It's like, "Yeah, they are." But everyone started building there and that has hit rents. So you see negative rent growth in a lot of these markets the last couple years. So I think in the next couple years in general rent you know there there will be more market rent growth um as supply new supply is getting absorbed and um things kind of get work their way through the system. Um, and I think I think what what people are realizing cuz it has been kind of a a winter season in general for commercial real estate the last couple years. And I think what people are realizing is that and and and I'll say this like from 20 maybe 11 12 through 2022 >> Mhm. You could be a very mediocre operator in commercial real estate and still do amazingly well because the market was so good for so long. And you you would you wouldn't even know if someone was a was a good operator or not because they would they would buy a deal and then start doing upgrades and renovations and then literally 18 months later sell it for double what they paid for it. It was like a musical chairs scenario and then the music stopped when the interest rate environment shifted and a lot of people got exposed. It's like that famous Warren Buffett quote, it's only when the tide goes out that you see who's been swimming naked. Y >> and we definitely saw that and now the real operators are kind of showing themselves and the not so great operators are also showing themselves. And I think it's um it's always it's in times like this, I think it's just the the day-to-day operations on the ground, systems, processes, hiring, firing of the people. That's that's the make or break. That's the differentiator. And I think there's going to be hopefully with with limited partner investors and on the GP side like what Wellings does and others other other firms there's more awareness of that and there's more understanding of that because there's been there's been a lot of really bad situations um in in our space where where investors have lost >> everything. Yeah. um you know they they >> Yeah. And and it was mostly related to >> leverage. That's always the case. It's always the case. Too much leverage and bad operations. Let's be honest. >> Mhm. >> We're going to have to cut it right there. I want to thank you, Ben from Wellings Capital. We have more information on the disciplined investor under the show notes page for episode number 956. Uh Ben, I wish you the best of luck and I wish you um you know, also do great things in your endeavors. Thanks for joining us today. Thanks so much, Andrew. >> Thanks. >> There you go. A lot to learn about real estate, commercial real estate, private equity, private credit, all the things that are involved with that, understanding what's happening with draw downs, capital calls, and uh the reality of the long-term investment nature of these. It is only for accredited invest accredited investors. So, that's something you need to know about. Uh and if you don't know if you are or not, just look it up and you'll find out if you are. It's a high net worth or a high income. Uh, and again, it is something that has to sit for a while, these kinds of investments. But I thought it'd be interesting in a time like this when there's a lot of talk about changing the rules about the housing market and interest rates to have somebody on in this field because we all own something or have something to do with real estate out there. And I thought that [music] was kind of interesting. Thanks for joining me this week. I'll see you again next week right here on the Discipline Investor podcast. This podcast is [music] intended forformational purposes only and does not constitute personalized investment advice. Investing involves risk, including the possible loss of principle and past performance is not indicative of future results. 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