Wayne Vandenburg on Smart Investing, Rising Rates & Surviving Market Cycles

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Show Summary

In this conversation, Wayne Vandenburg shares his extensive journey in the real estate industry, detailing his transition from a real estate agent to a successful commercial real estate investor. He discusses the intricacies of sponsorship in commercial real estate, the impact of interest rates on market cycles, and the current trends in the Texas real estate market. Wayne also highlights the unique dynamics of the Chicago and Washington D.C. markets, emphasizing the importance of understanding local conditions and the challenges posed by rising interest rates.

Resources and Links from this show:

• • • Investor Fuel Real Estate Mastermind
    • Investor Machine Real Estate Lead Generation
    • Mike on Facebook
    • Mike on Instagram
    • Mike on LinkedIn
    • Wayne Vandenburg’s Website

  Listen to the Audio Version of this Episode

  Investor Fuel Show Transcript:

  Wayne Vandenburg (00:00)
  Well, the bad news is we haven’t closed any deals of any magnitude in the last couple years. And the reason we haven’t is we got outbid. We were in the market. We were strong in the market, but we were being outbid. You know what the good news is? we didn’t do any deals.

  luckily,

  We didn’t win any of those deals because we would be underwater. I like to say there’s no distressed real estate. only distressed sellers. The real estate is what the real estate can do.

  Dylan Silver (00:27)
  Sellers, let me ask you about that

  Hey folks, welcome back to the show. Today’s guest, Wayne Vandenberg is in Frisco, Texas and is a commercial real estate investor in the multifamily space. Wayne, welcome to the show.

  Wayne Vandenburg (02:16)
  Glad to be here.

  Dylan Silver (02:19)
  Great to have you. I was mentioning to you before hopping on, had just come from Denton, which is neighbors, we’re neighbors effectively. But before we get into, you know, Texas real estate and then diving further into the commercial space, I do want to ask you about how you got into real estate. How did you get into real estate, Wayne?

  Wayne Vandenburg (02:38)
  Well, sort of in a basically through the back door. I was a real estate uh agent uh back in 1983 and I came across a property that was very interesting and I thought I would take it to some investors after I analyzed it and no one seemed to like the deal. And I tied it up as a broker as a Wayne Vandenberg trustee and

  was happen to be talking to some banker friends of mine and they said, well, if you talk to your accounting, your account or your accountants. And I said, no, I haven’t. They said, well, why don’t you talk to your accountants? I talked to my accountants who were with a firm that was later acquired by PWC Price Waterhouse. And they said, well, we love the deal. And this was back in the days where you got big depreciation and big

  big write-offs, you know, pre 1986. And I took it to them and they said, God, let’s do the deal. And I said, well, who’s going to be the sponsor? They said, well, you are. You found the deal. And I said, really? Wow. I’m going to be a sponsor. So I became, I became the general partner of the transaction. We did extremely well on that property and then opened the door to doing a lot of transactions and

  Dylan Silver (03:37)
  Okay. Okay. ⁓

  ⁓

  Wayne Vandenburg (04:00)
  You know, barely was the ink getting dry on one contract where we had another deal under contract. We had another deal under contract and we built a big, we built a pretty big company. And at one time we had, ⁓ we owned as many as

  85 properties and about 24,000 units at one particular time in, you know, in history. that was, you know, that was back in the mid nineties. And we went from, you know,

  Dylan Silver (04:17)
  Yeah.

  Wayne Vandenburg (04:27)
  doing a syndication with, you know, high net worth individuals, a few people to, being a sponsor for institutional investors, whether they were insurance companies or sovereign wealth funds, or they were, pension funds of major industrials or insurance companies or whatever, and built a, you know, strong business. And over that period of time, we,

  accumulated a lot of real estate.

  Dylan Silver (04:53)
  I want to ask you about moving into the commercial real estate space. You mentioned as a broker, you were the sponsor for that first deal. Prior to that, were you involved heavily in the commercial space as a broker?

  Wayne Vandenburg (05:54)
  No, I was, my, I went to college to be an architect. I found soon there, I was an athlete. I was on an athletic scholarship at the University of New Mexico. And I found myself very involved in athletics and I changed my major after my first year to education. And it wasn’t so much that I had planned to teach school as much as,

  I wanted to get into coaching and uh I became the assistant track coach at the University of New Mexico after I graduated for two years. And then when I was 24 years of age, I was appointed the head track and field coach at Texas El Paso. At that time it was called Texas Western. They had just won the NCAA championships in basketball beating Kentucky.

  Dylan Silver (06:22)
  Mm.

  Wayne Vandenburg (06:45)
  and I was appointed, they were on a role and they had really good football teams and I was appointed the head track coach and I was in track and field at the university until 1972 and then I went into the professional ranks and did some very interesting professional sports ventures. We bought a minor league baseball team, we did professional volleyball with Barry Gordy and

  Dylan Silver (07:11)
  Wow.

  Wayne Vandenburg (07:15)
  Peter Rubrov, the commissioner of baseball, David Wolber, the Hollywood producer, and many big people out of the entertainment industry. And then we did professional track and field. We were the advent to professional track and field. And then in 1978, I had a friend that I was having more more fun than I could afford in the professional sports arena, and I decided to get back to reality.

  And I had a friend that was in the real estate business and he, he always got in love with the deal. And after he captured the deal, he sort of, you know, went on to the next deal and one was always in trouble. So I came in to be a troubleshooter and solve problems. And in 1983, I said, you know, I might as well do this for myself. If I’m going to solve somebody else’s problems, I might as well solve my

  Dylan Silver (07:54)
  Yep.

  Might as well do it for… What were your events in track and field when you were in school?

  Wayne Vandenburg (08:13)
  Both hurdles

  in the height in high jump and long jump. was was I uh I a good regional athlete. I was a good conference athlete in a very good conference, but on the national level I was not uh I was not competitive on the national level. You know I was good in the region, you know, the mountain region, the southwest. I could always you know score in three events or four events in the conference championships, but on a national scope I didn’t have it. Coaching

  Dylan Silver (08:33)
  Yeah.

  Were you 200, were you 400, what distance hurdles were you?

  Wayne Vandenburg (08:47)
  Uh,

  the, well, at that time you weren’t running metric, you were running yards. So 120 yards and, then the 440 yard intermediate hurdles. But basically nationally, you were only running 330 yards until the national championships. You’d run 440 yards and then the high jump and the long jump.

  Dylan Silver (08:53)
  Okay.

  The longer hurdle distances are absolutely brutal. I marvel and think uh many people who compete athletically aren’t aware just how difficult that is. but ⁓ at at one point in time, I I briefly did the one season of Winter Track and got exposed to just how ⁓ amazing that whole world can be. I never did any shorter distances, but I felt like I was

  naturally more inclined to longer distances genetically, but not in the hurdles, long longer distances, mile, and then I ran 5Ks. But uh I do want to pivot back and ask you about the idea of sponsoring these deals you know. When we talk about commercial real estate, these deals have sponsors. Break down that term for folks who may not be aware of what a sponsor is.

  Wayne Vandenburg (10:26)
  Well, sponsors,

  you know, basically the guy who puts the deal together acts as a general partner, you know, gets the financing and is responsible for the affairs of the uh of the partnership. Even if you have a one one partner, let’s just call it the let’s just use as an example, the Honeywell Master Pension Trust or Delta Airlines Master Pension Trust or city of Boston’s.

  you know, public employees, pension fund or whatever. You partner with that group. And, you know typically your ⁓ you may be the principle of that partnership, but typically you have other key investors within your sponsorship vehicle, you know, that are, you know, top employees or executives with the firm or whatever. And it’s a, you know, it’s a collective effort.

  because you know the kind of transactions that you work on are typically high, 60 to 100 million, 150 million, 200 million dollar acquisitions. And you you know finance anywhere from 50 to 65 % of the purchase price and it requires you know 50 to 35 % of…

  Dylan Silver (11:26)
  Yeah.

  Wayne Vandenburg (11:40)
  of the capitalization of the transaction are is is 35 you know, it’s 35% significant amount of money. $200 million deal is, call it 70 70 million of equity. That’s a lot of equity.

  Dylan Silver (11:55)
  It’s a lot of equity. I want to ask you a granular question. When we talk about putting uh these deals together, the the commercial space, to my knowledge, and correct me if I’m wrong, tends to have an exit strategy around five years when you’re looking at commercial residential apartment complexes, when people are doing things like syndications.

  Wayne Vandenburg (12:12)
  Well, it’s

  it’s basically what the market is is, what the investors want. It’s not so much what you want as the sponsor. You know I remember years ago, I talked to a guy that was the president of CB Richard Ellis. And in the early formation when CB Commercial, which was really

  Coldwell Banker commercial. Coldwell Banker was owned by Sears at that time and it had a residential and commercial platform. And when they sold they sold off Coldwell Banker’s residential platform, they were left with a platform in commercial and some investors bought it and they wanted to keep the goodwill of Coldwell Banker so they named it CB Commercial but they had to get rid of the CB at some point in time.

  Dylan Silver (12:44)
  Hmm.

  Wayne Vandenburg (13:06)
  And then it became CB Richard Ellis. They merged with a British firm called Richard Ellis. So anyhow, I was talking to the president of CB Richard Ellis at the time. And he said, Wayne, this guy’s name was Ray Word, a great guy, great executive. He said, Wayne, I’m going to quit telling people, my clients, what they need. And I’m going to listen to what they want. I’m going to give them what they want.

  Dylan Silver (13:11)
  Hmm.

  Wayne Vandenburg (13:33)
  And most investors want flexibility in some way or form. And although they may own a piece of real estate, seven years, 10 years, 15 years, 20 years, whatever, they want to look at a near term horizon. So they typically say today’s trend or the trend had been five years. And now it’s probably people, you know, because of the less

  Dylan Silver (13:50)
  Thank

  Wayne Vandenburg (13:57)
  of an ability to predict, if you could ever predict the future capital markets. You know the If you look at the five year and the seven year and the 10 year injuries, say there’s not a whole lot of difference between you know the five year and the 10 year treasury, you know 30 basis points, maybe 40 basis points, depending on any given day. And even the rate reductions don’t seem to do much with you know the treasury markets today.

  Dylan Silver (14:06)
  Yeah.

  Wayne Vandenburg (14:23)
  They’ll help the consumer, but they’re not really doing much for the treasury market, quite frankly, for the commercial guys. They tend to lean towards five to seven years. And what you want to do is you want to take advantage of, you know, I don’t want to lock into a 10-year term because I’ve always got this feeling that rates need to come down. I mean, they truly need to come down to put a, you know, really stimulate the economy and help the, you know, the consumer.

  Dylan Silver (14:23)
  Right.

  Wayne Vandenburg (14:50)
  You know you know, the consumer, you know the home building industry, you know residential housing. I mean, this is this is like air, like oxygen. This is like sunlight. This is a community.

  Dylan Silver (14:51)
  Yeah.

  Red and butter.

  I want to ask you about that

  specifically. know this is a little bit off topic because we’re talking about the commercial space, but right now we’re hearing you know interest rates are potentially coming down. I believe they did come down, but people will often say things like, well, in the 80s, the interest rates were high. You have been around for a full cycle in real estate. We’re talking 30, 40 years in the real estate space.

  Wayne Vandenburg (15:18)
  you

  Dylan Silver (16:12)
  When people refer back to the 80s as well, interest rates were high, is that a fair comparison or is that totally different?

  Wayne Vandenburg (16:19)
  Well, it just depends on the cycle, but let me give give you let me you an actual example. We did a Wall Street private placement. In other words, we securitized a portfolio of assets that today would be worth eight or $900 million, maybe a billion dollars, a portfolio of 23 23 properties. And Donaldson, Lufkin, Generet, which later became Credit Suisse.

  securitize the platform and our partner in this securitization, the debt was 65 % and the equity was ourselves and the real estate advisor of for the Honeywell Master Pension Trust. And that Master Pension Trust, they put in the equity, our interest rate on our debt.

  was 9.495 % on a 30-year amortization. So it had principal and interest at 9.495%. We paid out monthly 12 % minimum on the equity. That’s how that’s how good the markets were. Even in spite of the fact that you were paying

  a debt coupon with interest and principle reduction of probably 10 and a quarter percent to 10 and a half percent was your cost of debt. Think about that.

  Dylan Silver (17:53)
  So would it be fair to

  say that yes, you had higher rates, interest rates were high, higher than they are today. However, the relative strength of the market effectively negated the potentially harmful impact of higher rates, which is not happening as much today.

  Wayne Vandenburg (18:08)
  High interest rates. Yeah.

  That’s right. And that tells you where we’ve gone. You know Listen, bricks and mortar are something that’s forever for all practical purposes. And hard assets are great assets for one to own. But you’ve got to be very careful. You know you can’t bet the farm you know real estate where it’s affected affected dramatically. By uh

  Dylan Silver (18:32)
  Yeah.

  Wayne Vandenburg (18:33)
  by interest rates and movement in the interest rates. And that’s what’s happened. You know in in 2000, rates were down to 2.75%, 3%, so forth. And people were buying cap rates, you know commensurate real estate at you know 3%, 3.25%. And all of a sudden today, the market, I mean, the real market for real estate today, you you know hear all of this nonsense. You know and you have brokers telling,

  sellers what they want to hear or owners what they want to hear. I mean the real cost to capital is you know cap rates should be five and a half to six percent. I mean they should be and I’m talking about high quality assets. I mean that’s what they should be.

  Dylan Silver (19:14)
  Yeah.

  When we talk about this whole idea of, you know rising rates, comparing it to previous markets, Um but then also buying a commercial real estate, one of the things that I’ve heard from other people in this space, in your space, in the commercial residential real estate space, buying apartment complexes and the like, is that when you’re a smaller syndication,

  you can’t really afford a bad deal versus if you’re an international conglomerate and you can afford, you know hey, this deal isn’t making money right now. We can hold this, this one can lose money because we have other winners. It’s a totally different process because when you can afford to lose versus when you’re just starting out and this may be one of your first deals and you’ve got investors who are bought into you, it’s a totally different dynamic.

  Wayne Vandenburg (20:03)
  Well, yes, listen, no deal can afford to be, you know, you don’t buy anything to be on the losing end of a transaction. Okay. But that happens, you know, and it happens when you get, you know, when you get, ⁓ when you compromise your principles and it’s easy to, you know, to say here, God, we’ve never compromised our principles. Of course we have, you know, we, haven’t intentionally done it, but we’ve compromised our principles. You know, the old adage.

  If it’s too good to be true, it’s too good to be true. Yeah. And, and, and, you know, today you’ve just, you’ve, you gotta hold, you gotta hold your, your spot. I mean, we were a big, big buyer and the last several years, I mean, we’ve been basically shut out of the market because it’s been overly competitive and we have felt people

  Dylan Silver (20:33)
  Probably is. Yeah.

  Right.

  Wayne Vandenburg (20:57)
  made bad choices. And you know, we say you want the good news or the bad news.

  Well, the bad news is we haven’t closed any deals of any magnitude in the last couple years. And the reason we haven’t is we got outbid. We were in the market. We were strong in the market, but we were being outbid. You know what the good news is? We don’t we didn’t we didn’t do any deals.

  Dylan Silver (21:21)
  You’re not holding on to those now.

  Wayne Vandenburg (21:25)
  So when people ask us, we’ll be in a buyer’s, you know, an interview call with a seller on a property. He said, well, how many assets have you bought? How many assets have you bought in the last couple of years? And I said, well, we’ve been active, but we haven’t. Well, you haven’t been active. No, we’ve been very active, but we’ve had many of these phone calls. But listen, our price is our price. You know, we’re we we’re as far into this as we think we can. And luckily,

  Dylan Silver (21:26)
  Yeah.

  Wayne Vandenburg (21:52)
  We didn’t win any of those deals because we would be underwater. I like to say there’s no distressed real estate. There’s only distressed sellers. The real estate is what the real estate can do.

  Dylan Silver (22:00)
  Sellers, let me ask you about that

  Wayne Vandenburg (22:03)
  Yeah.

  Dylan Silver (22:04)
  Because when we’re talking, I come from the background of single family residential distress, right? So people entering probate foreclosure, divorce, death, you know, any type of distress, financial, physical, emotional that could cause someone to sell. When we’re talking about the commercial space, I’ve heard, and you’re not the first person, probably won’t be the last to tell me that.

  Somewhere around 2020, people were buying overmarket for commercial property or maybe before COVID, right? And uh now five years later, this is coming back to bite a lot of people. If we if we look at just Texas specifically, are we about to see a wave or is this already happening of of of uh apartment complexes that are underwater that are needing to sell because they haven’t?

  hit the predictions that they set out to hit five years ago.

  Wayne Vandenburg (22:59)
  Well, here’s a good way to look at it. Okay nobody in their right mind would be selling real estate today. If they didn’t have to. Because it’s not a good market for on the it’s a good market on the buy side. Because anybody who’s selling, there’s a reason they’re selling. Okay. But as an owner, if you’re putting the book, listen, there’s exceptions to every rule. Okay.

  Dylan Silver (23:27)
  Yeah.

  Wayne Vandenburg (23:27)
  Generally

  speaking, and I’m talking about 75 % to 80 % of the properties that are on the market, they’re on the market for a specific reason. They need liquidity. Their partners are not going to fund any more deficits. A loan is coming due. They borrowed in they borrowed in 2000. They had a very soft interest rate. Let’s call it 3.5%.

  Today, the rate’s 5.5%. They can’t get the same proceeds. There’s been no growth. You’ve had to give concessions. There’s big vacancies because too much supply in the market. You know everybody, Listen, we we invest in primarily four markets. Okay We invest in Chicago’s emit, at this point in time. I mean, we’ll invest anywhere where we like the dynamics. But specifically, Chicago, Washington, the MSA of Chicago.

  the MSA of Washington, D.C., the state of Florida, the state of Texas. Now there’s other great places. We’ve got great experience in all those markets. We’re comfortable with them. We understand the dynamics. And Washington, D.C. and Chicago are fabulous. Not good. Fabulous. They’re one of the few places in the country where you can point to great occupancies and and and rent growth. And Chicago especially. Great rent growth.

  Dylan Silver (24:34)
  Yeah.

  Hmph.

  We are coming up on time here. do want to ask you about Chicago specifically. I’m surprised to hear this. A lot of times we hear maybe some negative news coming out of some major metros about how difficult it is to own property. You talk about rent growth. Is there something specific that’s driving rent growth in Chicago versus other places in the country where you’re seeing rent stabilize or even go down?

  Wayne Vandenburg (25:17)
  Well, you know, other than other than the city lacks for leadership and it has you know suffered for lack of leadership for for recent periods dramatically, ⁓ it’s one of the great cities in the world. It’s the third largest city in America. It’s the third largest MSA in America. It’s got you know corporate titans there. It’s uh you know

  To me, it’s the best city in America, with if it had especially if it had positive leadership. But there’s no new construction. That’s what drives the prosperity, no new construction. And if you today went to Chicago and said, I’m gonna buy that piece of property, I wanna build I wanna build here, you know what it takes you to get out of the ground? Probably seven years.

  Dylan Silver (25:49)
  Hmm.

  wow.

  ⁓ man.

  Wayne Vandenburg (26:07)
  Yeah.

  Yeah, exactly. So if you don’t have a project, pardon me. No, no, no commercial. Yeah. For commercial it takes, it takes you forever permitting, getting, yeah. Going through the, you know, the urban planning through your Alderman, you know, fighting town halls, you know, and so forth. It takes you five to seven years to get it out of the.

  Dylan Silver (26:10)
  Is that for a single family as well?

  Is that for single family as well? Okay.

  seven years.

  There

  it is. So yeah, you’ve got no new construction. Yeah.

  Wayne Vandenburg (26:35)
  And expensive. And expensive.

  Everything’s union labor. Nothing against the unions. It’s obviously more expensive. Yeah, cost of construction. And rents don’t justify new construction. So if you’ve got something, you’ve got value. So we’re buying 35 % under replacement cost.

  Dylan Silver (26:43)
  Yes, Ryan.

  It’s a pretty penny. Yeah, I I. I understand about the union.

  Wayne Vandenburg (27:03)
  I mean, the market is fabulous. The same thing with DC. We’re working on a you know massive deal in Washington, DC. And it’s Northern Virginia, You know anything around the MSA. MSA of uh DC is fabulous. And then of course, where do you want to be? You want to be in Texas and you want to be in Florida. Great leadership, great tax advantages, pro-business.

  Dylan Silver (27:28)
  Yep.

  Wayne Vandenburg (27:32)
  And especially Texas, there’s no geographical boundaries in Texas, only when you get to the Gulf, the Gulf of America, might add, the Gulf of America, might add. That’s right. you don’t have any lakes. Yeah, you don’t have any oceans. You don’t have any lakes. I mean, you don’t have any mountains. You know, you don’t have anything that’s going to stop your ability to go. and you know, the metro markets and the major cities of those are all overbuilt.

  Dylan Silver (27:39)
  Train. you go. I could continue to talk to you.

  Wayne Vandenburg (28:01)
  But the thing is, they will get occupied because of the growth factor. It’s just, it’s gonna take a year or two. That’s it.

  Dylan Silver (28:02)
  Yeah.

  Mm-hmm. Mm-hmm.

  Yeah, yeah, I could continue to talk to you about Texas real estate and even Florida, which parts of Florida I’m a big Florida fan really of all things Florida and of course, licensed in Texas, but we are coming up on on time here, Wayne. How can folks find you? Where can folks reach out to you?

  Wayne Vandenburg (28:27)
  Well, our website is VDB like Van Den Berg V D B Victor David Bravo group spelled the French way G R O U P E group spelled with a little E at the end of groupe.com. That’s our website and

  Our operating business is basically VDB Asset Management. And so that’s ⁓ W. Vandenberg or any of the senior officers, first initial, last name, you’ll see it on the website at vdb-am.com. But all that information should be.

  Dylan Silver (29:10)
  Wayne, thank you.

  Wayne Vandenburg (29:12)
  Pardon me. Thank you for the day. know, I appreciate it. Thank you. Have a good day.

  Dylan Silver (29:13)
  Wayne, thank you so much for coming on the show here today. Thank you for coming on.