Unlocking Real Estate Success: Mike Zlotnik’s Journey from Moldova to Mastery

Kristen Knapp (00:00.618)
Welcome back to the Real Estate Pros podcast. I’m Kristen Knapp and I’m here with real estate fund manager, Mike Zlotnik, CEO of TF Management Group, LLC. Thank you so much for coming here, Mike.

Mike Zlotnik (00:13.198)
Thank you, Kristen, very much for having me.

Kristen Knapp (00:15.424)
And also we can call you Big Mike, that’s your nickname.

Mike Zlotnik (00:19.15)
Yes, she’s the nickname. I am 6’4″, so.

Kristen Knapp (00:20.014)
Big Mike, that’s easy to remember. We’ll do that. But thank you for coming here today. You have such an interesting background. Can you tell everybody just about your journey to where you’re at today?

Mike Zlotnik (00:34.734)
I’ll write a very short version of it. Like James Bond movie was from Russia with Love. I come originally from Moldova. was still Soviet Union when I left in 89. So I’m from Moldova with Love, right? So I came here. I’m U.S. educated. I’ve lived here, obviously U.S. citizen, U.S. patriot. I live in Brooklyn, New York with my family. I have a lovely wife, four monkeys and a cat, four kids and a real cat.

Mathematician by education, spent 15 years in technology, realized my passion was real estate. 2009, I switched to real estate full-time, kind of circumstantial. I had a successful career in technology, but really, I had a passion for real estate. So I started real estate full-time 2009. Now I look back, love it, and that’s my journey.

Kristen Knapp (01:27.416)
That’s awesome, I love that. So you are just the go-to guy for making deals and making all that happen in this landscape. So I would love to know, what does a great deal look like today?

Mike Zlotnik (01:41.528)
Sure, obviously this is a very changing life statement. A years ago, great deal was very different versus now. Today, truly, truly, you can appreciate fundamental underwriting, conservative thinking for deep value real estate. So today, the way I look at most of the commercial deals, they’re not different for residential. Of course, residential applies a little bit different rules, but on commercial ones.

You could buy at a capitalization rate meaningfully higher than the cost of money. years ago it was sort of the opposite. People paid very low cap rates. Now the market shifted drastically. The prices and valuations significantly discounted. So we’ve seen deals with the cap rate spread between the purchase cap rate before any improvements, before any additions in any value you can create of 200 basis points or more versus the cost of money.

That’s the beauty about it today. And then you can look at the other metrics like reconstruction cost. You’re buying at, know, let’s use an example. We did a in Q1 for 79,000 a door. Your reconstruction cost is approaching, let’s just call it 200,000 a door, 180 a door. So you’re buying at a steep discount to reconstruction cost. Then you look at the safety of the cash flow, what kind of leverage. And then you start looking through these very classic characteristics.

And another way to look at this is how much price is retreated from the peak of the market. Now, that’s all relative, right? But in a deal that we closed in Q1, whereby we bought multifamilies at 79,000 a door, and it traded at about 125,000 a door. It’s 35 % off the peak of 22, let’s just call it. So you look at multiple of these metrics, it’s no right or wrong. Did you get 30 % off or 35 % off? Materially, it’s less.

concerning because you’re buying at a positive spread, you have conservative leverage, you got cash flow from day one, which is another very important element that people forgot a couple of years ago, the cash flow was a secondary consideration. Today, you can get a deep value buy and the deal could be an income deal. As crazy as it sounds because you’re buying so deep today. So this is just an example of a deep buy in multi. We’re doing another deal right now in open air shopping where it’s being bought at a nine and a quarter cap rate.

Mike Zlotnik (04:03.054)
and it’s being financed at six and a half fixed rate debt. So it’s a 275 basis points, 2.75 % positive spread, which basically creates ton of cashflow. And that deal, the crazy part is only has 57 % leverage. So when you think about it, your downside protection becomes so high and you buy it so right that you have a lot of upside than you are protecting yourself. So that’s what I consider to be a deep buy and a.

This is how you, know, there no guarantees in life, right? But you have an asymmetric return profile where your downside is very small. mean, things could go wrong, right, theoretically. But your upside is very, very significant because you can also lease up units, you can improve rents. On that deal, we’re buying with 84 % occupancy. On top of all that, it’s 84 % occupancy and 9.25 cap rate based on 84 % occupancy. All these things, just basic math.

points to a strong deal.

Kristen Knapp (05:03.214)
And I love your philosophy of precision over volume. If you want to talk a little bit more about that.

Mike Zlotnik (05:11.886)
Sure, yeah, years ago people just did momentum buying and they just bought a deal and then the next deal and the next deal and then they bought more than they can chew, they overpaid and that was the reality of the world. Unfortunately, a lot of people were in that situation. Today it’s just, you can’t buy in volume and get great deals. So you have to find a motivated sell situation. Every deal has got to have a story why the seller is forced to sell or needs to sell. It’s either low maturity, their ownership.

partnership having issues, bank is putting pressure because they don’t have liquidity to pay. Whatever the reason, it’s gotta be good story and then you’re not trying to run volume. I mean, for us it’s one deal a quarter, maybe for somebody else who has a big, big, operation. By the way, our deals are not small. So one a quarter and some of these deals are thousand-dollar deals, right? They’re significant deals, but it’s a precision, big type of high quality deal.

You could do the same thing in smaller deals. We’ve looked at significantly smaller deals. So we’re not looking for volume. We’re just looking at every deal. It has to pencil out. Even the conversations we’re having with other sponsors who are bringing us deals, I ask them, why is it a great deal? mean, tell me the story why it’s a great deal. You gotta be so passionate about it. You gotta be salivating that you’re getting, in real estate, one person’s problem and another person’s opportunity. And you’re not trying to be a vulture, but…

you know, you’re trying to buy right and now is the time where you could get the and by the way, read one comment comes to mind. I’ve had this conversation so many times. People bring us ground up deals versus these existing deals and I look at every ground up deal and I tell them, can you get a discount on construction? Are they gonna build it for you for 50 % off? Like, no, you can get a discount on the land but land is 8 % of the total price. So you basically have a speculating on ground up that.

When you build it, you’ll get your target rents and people will pay the price you want. Or you can get it at a deep discount today and don’t speculate, literally invest at an asymmetric return profile.

Kristen Knapp (07:19.724)
Wow, you’re so knowledgeable on that. I learned a lot through that. Thank you. That’s awesome. And I think it’s really important. I think that’s probably a big reason why your company is so successful is having the precision within those deals that you do. I know in your book, it’s all about choosing smart real estate funds. What’s a key factor that a lot of people overlook?

Mike Zlotnik (07:26.049)
It was too kind.

Mike Zlotnik (07:45.422)
Yeah, that’s a book from multiple years ago, right? We’re working on the new book, and the new book has a lot of new interesting ideas. Yeah, those 10 factors were multiple. I would say that every time you invest into anything, whether it’s a syndication or a fund, the thought process and decision process, I’m going to start with the most important factor, by far, in any investment decisions.

you’re who before how, You’re investing whether you’re picking a jockey before the horse. So especially if you’re investing in a fund, you are investing in the fund managers. So you really have to get to know and trust fund managers. And the difference between a fund and a syndication, one of these funds, you are investing in existing portfolios, so can actually do a little bit of the diligence of what’s in the fund today.

But fundamentally, you’re investing in the managers because all the future transactions, all the new acquisitions will be future events and you can’t even review them. You don’t know what they’re gonna look like. With the syndication, one of the beauties, you can actually look at what does it, know, location, purchase price, what kind of financing it gets. You can look at a lot of underwriting of a deal-specific type of review. So you’re always starting with both.

Jackie ahead of the horse, then you start looking if it’s a fund, what do they have in the fund? And if it’s a new fund, what is the investment philosophy strategy? How much experience does the manager have in this field? Do they have history, et cetera, et cetera? When you do syndication, of course, I look at it a lot more of why is it a great deal? And who is the operator? Do they have capacity to execute? they vertically integrated in that market? Do they know?

how to execute this value at plan, are they conservatively budgeted and financed. So fund has ton of other elements. Of course you could look at the fees, you could look at the portfolio composition, you could look at the fund strategy. So they’re a little different for fund versus syndication. Today honestly I have to say, in my personal opinion, we’ve heavily gravitated to individual deals because I actually want to see what’s really happening.

Mike Zlotnik (10:04.138)
not only as a capital partner and a raiser on a deal, it’s a lot easier also for investors to grasp a one-off deal than a fund. The fund’s advantage, primary advantage of a fund versus syndication is typically diversification. The reason people go into funds is because they want to write one check and not bother, and there’s nothing wrong with that. But the course is also that you’re not

necessarily diversifying in time although the fund may be able to diversify over time over the life of the fund, right? There’s a little bit of that element. But if you can direct it, write a check into deal one, two, three, four, five over time, different strategies, you can accomplish what a fund does for you with a little bit more precision per se.

Kristen Knapp (10:51.446)
I love that. And I know something that kind of sets your business apart is your deal structures are very strong and they serve the interests of various investors. Is that right?

Mike Zlotnik (11:02.188)
Yeah, I appreciate that comment. We’ve done this in the past. We continue to do this. It’s most definitely very, very relevant. There are different folks with different needs. And we work closely with investors who just want passive income and less risk. Let’s just call it they want to be in a safer position in whatever they do. And then there are investors who are more interested in higher upside.

They want to play in a higher risk position, but they also want greater tax benefits and greater economic upside. So we’ve done this separation of, let’s just call them, and common equity. One of the simplest ways to compare and contrast is you could be in the equity part of the deal. You could choose, by the way, to be in the debt side of the deal. You could be a lender. You could say, hey, I want to be in a private credit. And in some deals, it’s exactly that. We have syndications where we loan money in the nest of sc-

participate in just taking the lowest risk profile being firstly in position. Some folks want to be a little more yield, a little bit more flexible, but they still want to be a lender. So it’s a secondary lien or a MEZ debt. And then if you go in the equity space, you could be in a PREF equity. You can get a deep value buy and be in a PREF equity position. So you’re very downside protected because it’s a greater position, but you don’t want to take the common equity.

risk and there plenty of investors that are pretty happy with the coupon, they’re pretty happy with the overall upside potential. So just to give you an example for comparison sake, so pre-equity deal we did in Q1 called Waverly on the Lake, we got institutional pre-equity and they basically required 8 % preferential distribution and then we got 8 % in common.

actually all payable because the deal is so deep buy. So you can pay to pref, can pay to common. Then they have seniority of return of capital. They get no depreciation benefits in pref equity and then they get an upside to 18 % return. Right, so their risk profile is not that bad. They have common equity behind them. They get 8 % yield and they get 18 % upside and they’re done. On the common equity, we got our 8 % yield and then we get

Mike Zlotnik (13:23.658)
unlimited upside and then we get 100 % of all the depreciation. So for the common equity on that deal with Trump passing big beautiful bill and getting 100 % bonus depreciation back, we’re going to get 2X for every dollar invested, so through the bonus. You invest 100K, you get $200,000 first year loss. That’s pretty interesting, right? And you get your equity upside, you can wind up, if the deal goes well, you can make 25%, even higher return, right?

It depends on how the deal works. But that’s what we love to structure these deals with this type of difference. Now the risk profile, of course, in common equity is high and people need to go there with a full understanding. You’re taking all the tax benefits, but you’re taking more risk. If the deal goes the wrong way, you’re in the first-loss position, per se. So it’s a trade-off. For some people, they love it. A lot of real estate professionals just want to be in the common equity and get the tax benefits.

and a lot of doctors and dentists and passive income investors, yeah, I’ll be in the prefect equity, I want to take less risk.

Kristen Knapp (14:30.414)
Absolutely, and that’s probably a good place to start if maybe it’s your first time or you’re just dipping your toes in it.

Mike Zlotnik (14:37.358)
Yeah, I mean it’s kind of like if you’re a first time investor, of course, you may gravitate to more conservative lower risk. But at the same time, there are different strokes for different folks. They’re first time investors who are perfectly comfortable with little more risk. So I wouldn’t perfectly say that because you’re a first time investor, you’ve to be in the pre-equity. I would say, hey, if you’re a first time investor and you need some tax benefits and you’re comfortable with a deep value buy in common equity, that’s OK too.

So it’s a personal set of circumstances, your own goals, your own risk tolerance. It’s also kind of an age thing, right? Some people are younger, they are, they kind of don’t mind a little more risk. They don’t mind, and if you are retiring and you don’t want to take that risk and you are already playing with the money that you need to preserve, yeah, I mean, you want to take less risk.

Kristen Knapp (15:30.626)
Yeah, and I’d love to hear more about you were talking about the recent bill that was passed. I would love to hear just your take on it in general and kind of explaining more of what’s going on there and how, I mean, you mentioned a little bit about the upside, but I would love to just hear more about that.

Mike Zlotnik (15:46.062)
give you a really short version because it’s a big, I don’t know, beautiful, maybe it’s not as beautiful, but it’s a big bill. And I literally got some guidance from our CPA article today. It’s 50 pages, I’m not kidding you. I looked it up and he told me, go to page 41 to see what’s the biggest impact issues for real estate. So we’re still trying to dissect that I don’t claim to be a specialist, I’m not a CPA, I don’t play on a TV, and 50 pages from a CPA form.

with the explanation of all these benefits, you need a lot of time to even understand this. But for real estate, the simplest and the most important benefit is the 100 % bonus was restored and made permanent. So what does it mean? It means for these items, typically in commercial real estate, you can run a course seg and take your short sort of life cycle schedule, your five year, your seven.

Kristen Knapp (16:20.866)
Absolutely.

Mike Zlotnik (16:45.166)
I think up to 15 years, you could depreciate on one year. So what it does, it accelerates all that and gives you massive tax benefits. There are some other pretty interesting provisions on opportunity zones. been some extension of that. There’s been a number of other extensions. But the direct biggest impact, I think it’s going to cause many investors and sidelines that are taking action looking to

acquire commercial real estate, especially now when the valuations are depressed. Now we don’t know that. There’s still going to be vultures and people are going to look for great deals, but it’s going to feel like a massive tailwind. And the other thing that probably will be really good tailwind, again, crystal ball discussion. I don’t know what’s going to happen. But sooner or later, we’re going to get these interest rate cuts too that’s been sort of delayed.

Jay Powell and Trump are going at it. At the end of the day, Jay Powell’s term is maturing. Sooner later, Trump is going to get his way. And we’re going to see some rate cuts. Probably, Powell will start. And then, whoever Trump will appoint next is probably going to really accelerate those. So it feels like from multiple things I heard in a red, we’re going to have yield curve steepening.

the Fed funds rate influences the lower end of the yield curve, those rates are to come down meaningfully over the next, let’s call them, you know, year and a half. They may not start super fast because Powell is sort of a little bit offended by Trump. Nonetheless, he’s still going to probably do some of it. And then we’re going to see re-acceleration and that’ll be significant tailwind. So without spending a ton of time on all other provisions and extensions and there’s a provision for REITs.

20 percent QBI and other things that are just extended. A lot of it is kind of been around and it existed. But the reason 100 percent bonus depreciation is so important, it was phasing out and it was at 40 percent now. 100 versus 40 percent, it’s two and half X delta. So that’s a big difference, huge incentive. People are motivated now to act and I feel that that’s going to give us some relief.

Mike Zlotnik (19:09.77)
tailwind.

Kristen Knapp (19:11.406)
Yeah, that’s awesome. I mean, you break that down so well. And the reason you’re so well spoken on all this is because you have your own podcast as well, which I would love for you to talk about so we can have some people interested in that as well.

Mike Zlotnik (19:25.006)
Kristen, you’re too kind. Yeah, it’s a podcast with a cheesy name. Yeah, people call me Big Mike and I’m a fund manager, so it’s Big Mike Fund podcast and people can find it at bigmikefund.com. And if you misspell it and you forget the dear day and then you just go to bigmikefund.com, I promise it’s not a kinky site.

Kristen Knapp (19:26.274)
I’m

Kristen Knapp (19:33.806)
Here we go.

Kristen Knapp (19:45.71)
That’s funny. That’s awesome. And then where else can people find you? Are you on social media? Do you have a website for your business?

Mike Zlotnik (19:56.654)
Yeah, yeah, so you could actually get that website. It’s a great entry point, bigmicfund.com. You can click from there to our corporate site. You can listen to the podcast. I just like to put it, if you’re bored, you got nothing else to listen to. That’s the podcast. And we’re working on the new version of the podcast. That podcast, I interview folks like you, wonderful, great folks who have a lot of ideas to add. It’s mostly all around real estate, although I’ve had

guests who are just great economists and they talk about things outside of real estate. But our corporate site is tempofunding.com. From the word temporary, TMPO, tempofunding.com. Yeah, but go to bigmicfund.com, start listening. We have a YouTube channel, we got social media. You hear my conversations, but the next version we were looking to add, honestly, you’re the first person I’m mentioning to.

but I’ve been listening to the All In Podcast. don’t know, for those of you who have seen that podcast, brilliant podcast, and I’m very obviously inspired by those folks. So we’re thinking to do something similar, bringing in maybe three, four permanent leaders of the space. And instead of a one-on-one discussion, it’ll be maybe four voices. And we’ll see. I mean, I don’t know exactly, but we’re brainstorming who to bring in and…

Kristen Knapp (20:56.878)
Yeah.

Mike Zlotnik (21:22.666)
how to make those discussions exciting and how short to keep it. Because honestly, conversations can go on for an hour and a half and get a little too long, but they’re great discussions.

Kristen Knapp (21:35.372)
Yeah, I mean that sounds great. I would listen to that for sure.

Mike Zlotnik (21:40.302)
We’ll see. for now, we do have great episodes at bigmikefund.com. And then if we have a new version of it, we will certainly promote it the same way. it’s a journey. It’s an evolution. It’s kind of like if you’re having fun, you’re doing it. I just said this for all the audience. This is very important. It’s important to me. And I think it should be important to everyone. Every time you encounter anything in life, any task, any opportunity,

opportunity, anything. I think of this, are you your genius zone dealing with it or working on it? And what the hell is a genius zone? People talk about three things. Something that you’re really good at, something you’re very happy to do, you’re very engaged, so you love it, right? And then it’s got to be also economically profitable or feasible or successful. So the combination of those three things, you’re very good at,

you make good money and you love doing it is what puts you in a genius zone. So everything else should be, it could still be great, but if you don’t make money and you’re good at this, you really enjoy it, it’s called a hobby, right? So people have a lot of hobbies, but they don’t make any money and just spend money doing them. So the moment you can get also your success factor before you know you are now in your genius zone and you are suddenly…

in an extra gear. that’s my feedback to anyone. Always think, can I be in the genius zone? If you are, work is not work, it’s fun. You’re really enjoying it and you’re making money and as you’re doing this, you’re gaining more and more experience and expertise. So that’s it.

Kristen Knapp (23:25.752)
I love it. Well, thank you so much for sharing so much and explaining some of the current events going on. This has been awesome. So everyone go to bigmikefund.com and yeah, hit the subscribe button if you like this podcast. But thank you so much, Mike. This has been awesome.

Mike Zlotnik (23:41.272)
Thank you, Chris, and I you.

Kristen Knapp (23:44.472)
good one.

Mike Zlotnik (23:47.054)
Thank you, Kristen.