Grow Your Cashflow Podcast

Pascal Wagner (00:00)
Most LPs are familiar with multifamily self storage or maybe even private debt funds, but very few understand the quiet workhorse of commercial real estate. And in this episode, I am joined by Jud Dunning, president of DWG Capital Partners, a firm managing over a hundred million dollars in assets across 10 states using the industrial triple net sale lease back model.

That's a mouthful. His team works with over 300 investors, including family offices, and focuses exclusively on acquiring these buildings for logistics and distribution facilities leased to American businesses. And in this episode, we will break down what a sale lease back actually is, why industrial tenants are willing to sell you ⁓ or Judd their building and then pay rent on it.

maybe how this strategy compares to traditional real estate and then what LPs need to understand before allocating capital to this niche. But I am very excited to have Judd on the show and with that, let's dive in. Welcome, Judd.

Judd Dunning DWGCP CEO (01:08)
Thank you so much, Pascal. Great to see you. Great to see you in Miami. Great to be on the show.

Pascal Wagner (01:12)
Yeah, I'm excited to have you here. a little bit of background. When I initially met Judd a couple of weeks ago, actually, at an event where he presented his kind of latest offering or deal that they're putting together to an investor group at a sick mansion in Miami. And, and so I got to know him personally there.

And also got to connect with another fund manager actually that also helps raise capital for your firm. And so it was cool to kind of have that ⁓ dynamic all there. Can you maybe talk a little bit more about just that type of event that you sponsor and why you do that?

Judd Dunning DWGCP CEO (01:51)
Yeah, great. You know, it's interesting because after 20 years in real estate, a couple of billion in transactions and going into this space to make our friends and family and colleagues wealthy versus Goldman Sachs and Chase Bank, you we've been doing it a long time. First two and a half years, we were just behind our desk. mean, COVID hit, we did our first investment in the middle of COVID on this particular platform of industrial sale lease backs. And so we just said, hey, we've got to get out there and meet.

the people that are investing with us. And through Zoom, we've all become very good friends. So we called it the Industrious Tour and we just did Northern California. It was great because there are heads of the people that are invested, heads of Microsoft, heads of Google, Indian people from all over the world. have every sector, every type of people. So we just got to finally get to that face to face level because we tried, you we do think like it's more time for our LPs to have time for God, nature and family.

And if you work from the heart, so we got to do that first series. And then we went to Miami, we did another one and we just did a new part. And so funny enough, a friend of mine, not that I wouldn't spend the money, but someone gave me an unlimited American flight pass. So I'm just saying, hey, I'll fly in anywhere and meet you. So I think it's really important to cross the tech border and meet the people. And it's just, it's been fantastically enjoyable for us.

Pascal Wagner (03:08)
That's awesome. Great to hear. So I want to dive straight into the heart of the episode, you know, just to give everyone an overview. First, I want to cover triple net leases as an asset class compared to maybe the other types of asset classes you can invest in as an LP. I want to talk about DWG's specific strategy and then, you know,

talk about the risks and what we should know as an investor as we're thinking about maybe evaluating deals in this asset class. And then we'll wrap up a little bit with ⁓ Judd's story. Judd, you talk us, give us that high level overview of what is a triple net sale lease back in simple terms?

Judd Dunning DWGCP CEO (03:49)
Great, yeah, let's break it down with Triple Net, right? There's gross rents where they just give you rent, you pay everything else. The structure, the taxes, the insurance, the management fees, everything come out netted out of a gross rent, right? Then you have a modified gross rent where you might be covering taxes, insurance, deferred, deferred basically, you might not have roof and structure and an absolute.

Pascal Wagner (04:09)
Give me, give me

examples of like who would fit in these different categories.

Judd Dunning DWGCP CEO (04:13)
Sure,

Gross rents would be a lot of like class A office building. They just pay you one rent number and you pay all your expenses. Another gross rent would be all multifamily almost, right? It's like all the expenses are handled by the multifamily operator. It could be mom and pop retail. It could be mom and pop office, but generally like class A office, you're gonna see a lot of like gross rents. they'll pay you a high rent, you pay everything else.

So that involves expenses and certain eccentricities and the movements. Every area has its common custom of those costs and expenses. It's not the same across the United States. So that does create a little risk because you never know what the operator is creating in the expense column before the net operating comes to the investor and then goes into the distribution. So gross rents are very common also in industrial as well, lots of types of industrial. So gross rents are...

they're multifamily across every aspect class. Modified gross could be everything with the roof and structure as an example, or maybe they don't pay the taxes. An ⁓ example that would be the same, it goes across every aspect class. Absolute triple net is everything covered. Gross rents, modified gross, and then triple net, and then absolute triple net. Absolute triple net is like nothing. No matter, call them the mailbox popper. So, ⁓ they send you a check,

They pay the taxes, they pay the insurance, they pay the utilities, they handle the deferred maintenance. There is no management fees that are outside of your GPLB relationship. Everything goes straight to the investor.

Pascal Wagner (05:47)
what falls into that last category? Like what would be an example there?

Judd Dunning DWGCP CEO (05:50)
Walgreens, you know, you're gonna get you know, almost any retail, right? You're get Burger King, Walgreens, any of the triple net asset classes, Davidas, for example, you know, medical office buildings. What else? A lot of office buildings will be triple net as well. But the main one that most people think of triple nets is like a retail mailbox or a Starbucks or Walgreens would be the investors first off.

Pascal Wagner (06:09)
What is, go for

And so the key difference is the company wanting to have complete control over the experience.

Judd Dunning DWGCP CEO (06:25)
I'd say absolute triple net is really more owner friendly than tenant friendly, but they have to fit in the box and the norm. So capital markets are what? Capital markets in the United States, everybody hears those terms, it used to be just debt and equity, Pascal, but capital markets is the intersection of expectations with how rents are paid, how debt is paid, where banks will finance lease standards in certain areas and asset class.

So the norm in capital markets usually dictates what the person, like a Walgreens person doesn't come in and say, I'd like to have gross rents. You you will see that those standards are pretty much set by the consumer in that free market capitalistic exchange of what is normative.

Pascal Wagner (07:07)
So help me understand why would a business want to sell its property and lease it back, just generally?

Judd Dunning DWGCP CEO (07:14)
Okay, so jumping over to industrial sales, which us for us are absolute triple net. There's a reason that they're absolutely triple net for us too, because we're so focused on underwriting the business and creating this vehicle for them and empowering their business. So Pascal Wagner incorporated owns a hundred thousand square foot ⁓ industrial building where he manufactures Beats Pro, right? So just a product and he's been doing it for a long time.

And he bought the real estate originally thinking, I'm going to own real estate and I'm going to run a business. But his business starts doing really well and people want more beats pros. So he says, I need the money to get that money out of my, out of my real estate. I'm going to invest my real estate. I want to sell my real estate to someone. I want to lease back and I want to become the tenant, use that money and grow my business. Cause I can make more money in the business growth that I can in the real estate.

Pascal Wagner (08:08)
Is this general triple net leases or your model? I want to focus high level first of just triple. OK.

Judd Dunning DWGCP CEO (08:14)
High level, yeah, the

sale leaseback space is predominantly tripled across the United States. Yes, sir.

Pascal Wagner (08:20)
Okay. Fascinating. Okay. So they basically just realized like it's smarter for me to push my capital in my business than to own, have the capital in the real estate.

Judd Dunning DWGCP CEO (08:30)
Right, and they're driven by the tightness of the markets. Debt's been really high. Instead of going to their bank, they'll go ahead and divest their real estate, right? We're gonna give them, we're gonna put new debt on the property in our name, and we'll own the real estate. We're gonna give them equity. They're gonna pay down their debt. They're gonna eliminate the rent expense and lot of their other expenses. They're still gonna be triple net operators. gonna cover their own taxes, their own insurance, their own deferred maintenance, their own roof, their own structure.

their own accounting, they're going to give us one check and they're going to pay the rest. It doesn't even come to us. We don't see the taxes, we don't see the insurance, we don't see anything. It's just a clean exchange. But there's a reason for that because when we come into an American mid cap and small cap business and we take their real estate in a sale lease back, we don't want to run their business. We're really financing their growth. We're not in the business of managing all of their expenses. We're just really

We're like a financial vehicle to empower American business to grow.

Pascal Wagner (09:27)
So can you tell me a little bit about how does triple net lease compare to, let's say, other asset classes, like a self-storage or a multifamily? What are maybe some of the key components that differentiates triple net as opposed to any other asset class that ⁓ an LP could invest in?

Judd Dunning DWGCP CEO (09:48)
So triple the industrial sale lease backs or all sale lease backs? Because you can lease back office, you can lease back retail, which is also fairly normative. So would you say industrial sale lease backs or sale lease backs in general?

Pascal Wagner (10:03)
I want to talk about this at a high level first. We're going to talk about your strategy in a minute, right? But I want the...

Judd Dunning DWGCP CEO (10:06)
Okay, yeah, we're here for the

investor. We're here to be of service. So yeah, the sale lease backspace. Well, you know, if you come in and you empower a business to get 100 % of their value out of their property, 100 % of their value out of their property. So they go to their bank and they might get 65, 70%, right? And they still got to come up with the equity. So if they're going to get 100 %

cash out of the value of their real estate and we're going to take the guarantees or create the financing, right? We're usually getting a little bit above market rate versus going out and just buying in an investment sale, right? It's a different exchange. Like everything in American real estate is an exchange of risk and value. So when I come into a company and I say a lease back, I'm saying it's almost a joint venture. I'm saying, believe in your business. I believe I'm going to take your hundred thousand dollar rent.

and I'm going to pick it up 12 months at a million two. We're going to do a 10 year lease over $12 million. I'm going to put your rent into a vehicle. And for that, I'm going to get a little bit more value. So I might get a higher cap rate because I'm saying Pascal Wagner beats pro company. I believe in your sustainability. And you're going to say, well, thank you, sir. Instead of a six cap for selling this Walgreens, I might give you an eight and a half cap in the exchange of risk.

Pascal Wagner (11:25)
And say

cap, cap in layman's terms. Like you're going to get a 6%, an 8 % return on your money versus a 6 % return on

Judd Dunning DWGCP CEO (11:33)
Absolutely. The simplified measure of a cap rate for our investors is that you take the net operating income after expenses or absolute triple net or after average structure, you divide it through the value of the building as a measure of the building's ability to capitalize an investor coming in to capitalize debt. So a capitalization rate is the propensity of your income divided straight up.

To simplify, right, a 10 into 100 is a 10 cap. So let's just use $100,000 of net operating income divided upward into a million is a 10 cap. Now there's a general rule. There's a couple rules for a new investor. One is if it's a 33 % IRR, you might buy it because that means you're gonna double your money in three years, which is not normative. So you sprint as they say, shoot first, ask questions later.

So go for that deal, try to capture it, and then figure it out. On a cap rate, a 10 cap is a standard of that's a heck of a deal. Very hard to achieve a 10 cap. And think about where debt is. Debt in America, if I could just come here for a second, is about here, about 7 % on commercial property right now, generally. So you have a spread up here between the cap rate and the debt, which is the next level of why does the NOI capitalize the deal?

It also capitalizes the cash flow, capitalizes the debt. It's a great measurement. as close as you can get to a 10 cap is always the game. You're selling as close as you get to a one cap.

Pascal Wagner (13:01)
Can you, okay, cool. So can you help me understand like triple net as opposed to self storage? Like what is a key difference? A key difference is self storage, you're probably renting to a consumer and triple net you're renting to businesses. And so there's pros and cons to that. like, you like compare the asset class to other types of real estate that you'd be investing in?

Judd Dunning DWGCP CEO (13:27)
You know, interesting in self storage, right? Because self storage is driven by demand. A lot of people are cramped up in small apartments now because of inflation and housing issues. People can't buy houses. So demand in that space is awesome right now. It's a really interesting asset class. But you're running to mom and pops. So, you know, each one of those tenants, just like an apartment, is its own defined diversified risk. So you might have a hundred storage units.

Now if it falls below a certain number of occupancy, 80, right, then you might be in trouble. You're getting to a high vacancy. You might have issues paying your numbers, right? But in triple net, you're getting one payment, not 100 storage units. And it could be, by the way, there's a lot of triple net self storage. So the owner might go, hey, instead of you dealing all the headaches here, I'm gonna give you one check. I'm gonna master lease this to you and pay you. Then I'm gonna have the spread down here. And that's actually good for them.

because once they step in the middle, the storage units might be going more and more inexpensive and they'll be making more and more money. you you're not gonna, that's the difference between being a business operator and an investor. So, yeah, it's the same in apartments, right? I apartments are driven by very basic human need and you diversify risk by having a lot of different tenants, but you understand that, you know, people are really.

People can't buy homes the way they used to right now. America is very expensive. Markets are very high. Infections are being reset. There lot of variables there. So, triple net. You don't have to deal with the human issue. Quick sidebar. I've sold 15,000 units and I sold a lot of them during the crash because I'm also a broker. And there would be fires, murders, water floods. I mean, all the time you are fully exposed to the human experience of need.

crime and in triple net you just pick up the check and you pay your mortgage and you take your cash flow and you pay your taxes. So there's beauty in exchanging each of those but you can manipulate a lot of the variables a lot more if you have a hundred tenants. You can turn over tenants there's a lot more to change. There's a lot of upside once again to the exchange of your human labor.

Pascal Wagner (15:37)
Fascinating. if you were to go into the triple net space, like how do different triple nets, like if you're an investor investing in triple net retail versus triple net office versus triple net industrial, which is what you guys do, what are maybe some of the nuances of the asset class itself?

Judd Dunning DWGCP CEO (16:02)
Well, the first one is credit, right? Because you are relying on one person to pay a check to protect you and your family's money in the mortgage. So you buy a deal, you take your hard earned money or group of friends, and that is your equity, right? And then there's your debt. And that person's, you know, we have, I use a little rule in real estate, I never do a deal, you wouldn't do it in a handshake. Always leave a little on the table for the other guy and take the high road

no matter what. And that means pay your bills on time, take your taxes and take your insurance. So when you have a triple debt lease, you are depending fully upon the integrity of the covenant of a single payment, providing for your cash flow, providing the operator, business owner is right, providing for your debt payment, protecting your credit and protecting your family's wealth. So the first nuance is my dad said horse snips, you know, I said, dad, how'd you get so successful?

He's like horse sense, I'm like, God, I don't know what to do with that, Dad, you know? But the truth is you have to know, you have to have a sense for people and you have to be willing, even if you're a new investor, to ask questions. Do you have any bankruptcies? you have three referrals of people that you would like to share with me? How long have you been in business? How long have you in this location? Why wouldn't you leave this location now? How sticky is your relationship to this building? So, know, tenants, good example.

I was going to buy some of them the other day. It's a really huge example. And he said, hey man, know, this is my dad's worked his whole life and he hasn't, you this is everything worth it. They sat on there, they're worth about 10 million bucks this week. And he said, said, my dad, he just protected us. He said, something went wrong with his single tenant lease. He said, I think my dad would die. And I was like, okay. I said, I don't think it's a deal for you. I said, there's always inherent risk. He's like, what happens in bankruptcy court?

I'm gonna say that if you don't feel that comfort level and you know what you're doing, then don't put all your eggs in one basket in the triple nut space. That's the most important thing because you're putting it all on the back. know what saying? I trust you, Pascal, Wagner and your beats production line and forever.

Pascal Wagner (18:08)
Wow, fascinating. that's pretty much the difference is like you're betting on maybe a grocery store, you know, staying in business versus, you know, Beats Incorporated, or maybe a dental office. so like, the difference maybe is not like triple net is the strategy. And then, like, basically, depending on what

what type of asset class within that you do, that's all based on the type of business that you're underwriting.

Judd Dunning DWGCP CEO (18:36)
Yeah, absolutely. But that's taking the assumption, very important. The second thing the investor should think about is he should think about the land location, location, location. So we said credit, credit, credit. Tony Robbins has a saying, says, redundancy is master, redundancy is master, redundancy, my staff hates it. But it's credit, credit, credit, location, location, location. So you may not want that client

that triple net person, may cover it. It may be a land play. So your family has a million bucks and you put it in downtown Phoenix and this guy, maybe he makes it, maybe he does it. He only does 10 million a year. That's only one lawsuit away. It's not easy. It's easy to wipe out $10 million of sales, right? One bad season, someone's an alcoholic. Someone gets into a horrible divorce. We have a rule. I try to go for credit over 25 million bucks.

I have a saying, it's my own saying, it's like, you know, $25 million is a hard American candle to snuff because it takes a lot of energy for people to get their sales to 25 million and enter the reign in which private equity started to pay attention to them. So, but it's okay to go with a mom and a pop who's maybe making five, six million. Why? Because if they leave and rents for $3 and in six years rents for $7 and they leave a new

fix up that site, that single tenant site, and you lease it to somebody else, then suddenly you just made a few million dollars because of the location, location, location. So credit is a metric.

Pascal Wagner (20:05)
And

Understood. there's really two factors. And I know we talked a little bit of this about the way that you guys invest is like, maybe this is a good time to transition a little bit, but you specifically focus on industrial spaces by highways and roadways, which are all, I imagine, ⁓ based around that second part. So the first is

You're investing in a certain type of business and it sounds like a certain type of business size, 25 million in sales minimum. And then, you're also only looking at deals that are around specific areas, because you don't want to be too far away from the hotspots. Do I have that right?

Judd Dunning DWGCP CEO (20:42)
So I want to say a lot of the American founders started their company in a field down in Texas. So industrial might be in the middle of nowhere. Good example, we took a gamble on a company outside Houston in Sugarland. It was like $9 million in sales. But that was the right place, the right time to write cap rate, you know, close to a nine. And the yields were good and I got good debt.

And then they got bought by a Denver class and they rolled them up multiple times. Next thing you know, they had a hundred million in sales and I had a low debt rate that was assumable. And we sold, we knocked down a park on the steel in the middle of nowhere because we knew there was a possibility, and this is our game, credit can improve. So in America, this is a great statistic, 85 % of businesses fail. The ones that don't become IBM. So the people that are just getting up and running.

It's hard for a lot of them to fail. you know, you have to respect and Americans, we're tough. We're tough people. So, you know, we'll take risks that are smart and intelligent. They don't have to be infill. The infill ones, infill meaning inside of a city, inside of a metro and good location, location, location. Those are going to have lower cap rates. They're going to be more competitive. So you're always balancing the distance from city. One other interesting point, why are industrial buildings outside the city?

because they need the trucks in the room and the land is cheaper. So they'll say, well, what's the cost of gas for 20 miles versus the cost of land? So that's why you buy industrial. We call it the not sexy asset class. Cause when you're leaving a city, see all that industrial buildings, like you can't even find a taco, you know, let's get out of here. That's where a lot of the great value lies.

Pascal Wagner (22:19)
Fascinating. OK, I would love to kind of take a moment and dive into your firm. So your firm has ⁓ over $100 million in assets across 10 different states. Can you talk to us a little bit about what the makeup of that is? Is that like 20 assets? What's the minimum and max size? Help us understand what your portfolio consists of.

Judd Dunning DWGCP CEO (22:44)
You bet. So the thing about buying industrial sale lease backs, which by the way is for the bold, get, find a good LP like me that doesn't like to sleep. Cause you, there's a lot to navigate. You have to figure out the credit. have to figure out the debt. have to figure out the business. have to put in the stability. And then we create it really simple. People get to call us the click of the mouse, office, the house, you know, invest through us. So I'm, have the honor of bringing the sophistication of sale lease backs to, you know,

high network democratized investors, which is a great pleasure to let them come along. Our space is driven often by a merger and acquisition. So somebody wants to buy a business to roll up that business and maybe add another business and grow a bigger business. America is endemic right now with just private equity roll up, Blackstone, BlackRock, Vanguard, State Street. Everybody's buying up and buying up and aggregating. So this particular time in history,

You know, we are usually buying something not because we're like, I want that site. I want it in this area. I want that number. We're buying it because that business is being bought by someone else or they're divesting their real estate to get bigger so they can try to be bought by somebody else. So we fit into the capitalistic structure of enabling, we say Americans backing Americans businesses. So I wish I could say, hey, I want to buy this deal in Miami.

But I might get a call and it's in Cleveland and I'm like, let's go. Because we believe in America and American businesses. our thesis is important. if you look at our portfolio, after the pandemic, a lot of distribution, logistics and property and population change shifted to what we call the magical Midwest, because you're by Chicago and Oklahoma and Texas and know, Chattanooga, everything. So if you're in the middle of the country, distributions and logistics.

Onshore is happening. There's a lot of onshore. Trump's really working on that. There's a lot of variables that are changing. Suddenly Columbus was one of the hottest markets in the nation. Suddenly South Bend was top 10. Suddenly Hudson, Michigan. So we're seeing activity in those areas. Those are areas that I own in and we're in the middle of buying. We're is this NAR's top five city for residential growth? Or we just were active in Montgomery, Alabama, which has the biggest high tech.

highest educated immigration of talent because of Facebook. All this change and distribution blew up. Nobody wants to go to my wife. Last night, the groceries came by delivery and I'm like, is that necessary? I'm sure everybody can relate. And I'm like, why are all these packages stacking up the door? No one's been talking to dad, you know? So everybody's really gone online. But another thing was happening was all of our manufacturing logistics

third party logistics all shifted to the center of the country. So we find ourselves investing heavily in the Midwest and the Southwest, but we also own assets in Spartanburg, assets in ⁓ South Bend, Indiana, Columbus, Austin, Phoenix, Longview, Texas, up north as well. We're buying something in Arkansas right now. We just did a deal in Wisconsin, which does prefab walls.

Austin does iron, airbags are being done by a car company in Phoenix, Paints are in South Carolina. So we're really, we're investing in we call essential consumer businesses without customer exposure. We're not, you know, we're not buying businesses that sell directly to the consumer. We're empowering American industry. So we're back to &A mergers. We're back by the change logistics in America. American industrial was very interesting. If I can deviate for one second.

One of the reasons I got into it was because I'm 59 on Tuesday. And I've been around for generations of real estate. And my biggest thing that I can tell you is, ugh, why didn't I buy that? Everybody's like, ugh, why did I buy that? My dad had like 30 properties in Highlands, North Carolina, and they're worth 120 million. all of the really country third generation people are like, man, I'm rich. And we moved, and we moved from Lonewood Springs, we moved from Moab.

We were always in the middle. My dad had a restless spirit and I've been in multiple asset classes. So what we did is we stepped to our thesis through COVID and we kept buying. And Morgan Houser said, get your thesis, just keep plotting through every economy and just keep America is, you know, rock and roll, keep going. And so we've been able to, with a practical thesis, we wait for emanating efforts to happen. People call us and we love buying businesses, you know, across America as opportunity.

calls us to do so.

Pascal Wagner (27:12)
I love that you brought up the thesis, it's something I-

and I think is fundamental to you being an investor. And I find that as a retail investor, as a new LP, you're not necessarily taught how to think or how to put together a strategy or how an investing strategy evolves. And so I love that you highlighted it. And I would love to double click there and maybe talk about

You know, you don't just wake up one day and say, you know what, I'm going to focus on industrial, you know, triple net lease backs in the Midwest, you know, and that comes from somewhere. Can you talk to us a little bit about maybe how that thesis came to be and maybe how that's evolved over time?

Judd Dunning DWGCP CEO (27:56)
Yeah, there's two routes to that question. The first one is when you went from Keller Williams commercial and I was in film for 20 years, so 18, 20, 20. So I've been in commercial for 20 years, 20 plus years, 22 years. And in Keller Williams, the first thing I was doing, I was doing malls across the United States where we'd have bonefish, kriller, Publix or Walgreens in them.

And then a developer would get the tenant. And then I called a bunch of people in Israel and I had like three different lunettes and had different names. I was new, didn't know. I needed to work. And people called, I'd bait and switch them and I'd put the address of my dad's, all my dad's properties and switch it over and go, oh, but I have this. And this developer busted me and goes, what are you doing? Sell my properties, you know? And I flew in and I'm working for that developer.

but I was putting together syndications of investors. I was breaking the blue sky laws. I think I'm way beyond the law at this point. But I didn't know I was doing. I was like, this is amazing, let's invest. Well, that's why I used to do movies. I used to bring together, had like Mickey Rourke and RuPaul signing it, like worst part of their career, it was a long time ago. So it translated, my family's fourth generation of real estate, just to clear everybody up. I kind of did this for a few years.

And so I was bringing people together and I was immediately looking at the IRRs, the cap rates and the spread on development. And I just, was lucky. I had a great mentor. I understand the fundamentals that we could go anywhere in the United States, put in the right debt, on the right property, build with the right tenant and create the right outcomes that people would want to invest. And I did like seven or eight my first year and I was working the year out 150 people. And then they're like, what are you doing here? We sell houses at Keller. And so it's very good to me. And then I started doing it across the nation.

So I was doing like swaths of Wendy's and Home Depot's and Walgreens and malls. And then some guys at Newmark found me before the merger and they swept me up. There was the Guardian merger and they took me in and we started calling, the market started crashing. We started calling on CMBS loans and everybody's loans were failing in 2007 and eight. So this guy said, you're gonna come work for us and you're gonna call loans. And I called some guy and I got $180 million assignment. I was like the new kid on.

And suddenly I was going into banks and I was working on, you know, 20 assets at a time for Citibank and somewhere in Philly. There was one in Philly, Pascal, where I was going to fly in and there was a murder curfew. I mean, I did every type of asset across the United States and the banks loved us because we're like, these banks are people. They're not the bad inside of our economy. There's people behind banks, right? Every business comes out of the person originally. So we were serving the banks.

and we're solving all these problems. And the nefarious activity I saw in borrowers during when the money in the dark paper was going, it was crazy. I would come in, I'd bifurcate the debt in the stacks, I would sell the note for the FDIC, I would come in and I would recap the owner, I would foreclose, I would put deals in for receivership. So capital markets ended up letting me understand every asset class across the United States.

And then Newmark went into the merger, we got very big and I left at 50. I gave myself a 50 % raise, which I think is appropriate. And we kept doing the same thing. I sold Sony Studios for a couple hundred million and we won our Deal of the Year award here at Los Angeles Business Journal. So we got back Credence and Credibility post-institutional link. And now I was like, well, what's next? So I served a very big corporation and I know somebody who was studying other Greek business plans in their basement, who was smarter than me.

And I helped save them and some rescue capital very quickly. Because I also, we're doing a billion dollars debt and equity still right now. I still have a brokerage firm as well as a principal firm. got a bunch of wonderful people work for me. And that person said, that was amazing. said, I'm going to share with you what we do. So they've gotten bigger and bigger and bigger and bigger. And one of my best friends has become a luminary in this field. And I selected a sub.

a subclass that I would not be too hard on them, because we're 50,000 to 250,000, small to mid cap, and now they're doing the big deals in America. So we just chose an asset class that I really love, last piece. So the thesis was an evolution of triple net nationwide, agnostic, love America, power people. And I've been a lot of JVs. I've star made a lot of people bringing in the money for others before I pivoted to my own world.

And I just, one day I was like, why don't we just make our friends? Why don't we take all this to our friends? And when I started doing that, it was a lot of fun. It was just a lot of fun. And that's how our thesis evolved. And since then, funny thing people don't realize is once you start, when you become an agent, you don't know if you're going to succeed. When you become a broker, you don't know. When you become an institutional guy, you don't know. When leave the institutions, when you syndicate, you don't know. Started, you know, back in my office just calling people.

But you do, we are like sharks. Once you start, have 15, 20 people. You have to swim as a leader. And so you keep moving. And the necessitation of taking on responsibility of care. So you care for your clients, you care for your staff. And then you're like, well, I'm the patriarch of this vehicle. And then the refinement of excellence happens because you have to take care of the investors and take care of the staff. And you lead this American.

family, the headwinds of real estate, which has been a little tumultuous, but we've done seven deals since November, so we're very happy.

Pascal Wagner (33:21)
Can you talk to us a little bit about the political landscape and what you see? Maybe not like what side you're on, but more around. There is a ⁓ seismic shift happening in the United States with Trump, the Trump administration bringing manufacturing on shore. And I imagine that you have a front row seat to that. you, can you tell us?

what you see happening, what you see happening over the next three years based on what's already happened. Give us some insight into what's going down because yeah.

Judd Dunning DWGCP CEO (33:56)
But the

caveat of caveats here, Judd Dunning is not a consultant, you're an accountant and you're a tax attorney, no kidding. I'm pretty comfortable actually. if you look at the Fed, let's start with the Fed, right? So the Fed, if you look at their discernible pattern over the years, you can actually discern that we have that in our decks, which is they reduced the rates 190 basis points over 21 months from a peak when they start heading the other direction.

During the Gulf War, the dot com and the 9-11 crisis is when they had to, they also decreased rates as fast as they increased rates to take care of the economies and banks. So the Fed is discernible, but I call this TRS, Trump Resistance Syndrome, because regardless of whether money is not blue or red, it is green. you have to take a position from a place of neutrality.

So I have to quantify, well, what does that mean? Because it's higher for longer, we've been hearing, right? And so I'm gonna take 33%, I'm gonna apply it to 21, I'm gonna say, okay, 190 basis points, 200 basis points, lower debt rates, I'm gonna use 36 months. So I'll use three years. So you have to make a decision. You can't just let the ephemeral.

God's real estate is pretty definable industry, right? mean, almost everything is ultimately like you do your best to the numbers, then you plan for about a certain variation. Everybody lost a lot of their confidence during COVID because it was an anomaly. But America chugged right back. America, we work so hard and we better ourselves and we overspend and we consume and we crash. We do it again, we do it again. But real estate keeps doing this. Health insurance keeps doing this, right?

⁓ There's so many different variables that just don't adjust downward. America just keeps chugging forward. So look at the Fed. I think the new inflationary standards probably going to push to three in time. You know, we're focused so much on trying to normalize inflation in tune, these pre-COVID era, pre-globalistic society. I don't know what's going to happen there. Inflation is so high, movement is so high, wages are moving too, to a certain degree. So it is a different landscape. So I would say...

First thing I'd say is look for interest rates in commercial and your houses to drop about 200 basis points, but give it about three years. It's going to take some time. It could happen quickly, but the pressure is so high. And why do I say it's Trump resistance? Moody's came out, they downgraded work. Like, thank you for helping. And then the Fed came out and said, I don't think this week, I'm not affected by politics. It's like, really, it's like this, show right now, your show is not about me. It's about helping people, right?

That's the most important thing. So I think that we have to our eye on like, what do people need to focus on? That's, you you should be able to refinance in a couple years. So that's the first thing. That's where I think rates are gonna go. Secondly, multifamily is fragile because we are hitting what I call the inflationary ceiling. It's driven by individuals and families and people. Eventually people will move out of the cities. Austin rent gross have gone negative. They went negative in Los Angeles. You can leave.

these metropolitan areas for lesser areas. So with multifamily should be wary of assumptions, but very bullish on the sector because people are driven by need to multifamily. It is the intersection of the apartments and life. Most people, you know, the average American couple makes less than $65,000 and there's only 3.8 million people in the top, you know, 1%. It's like, there's definitely discrepancy in the country.

So multi-premium retail. Retail is warming up. People have returned to life with a passion. So I think that they like to engage. So look for Amazon exposure. Know your tenants. Know the competition. Be hyper aware more than you used to be. But retail is starting to make a comeback. It's moved into like second asset class. Office, still decimated. Look for the location of the office.

Owners, users definitely need to get into the middle. The small stuff is moving, mid-level stuff is tough space. Class A office is doing pretty good. Leasing is heating up. Last week, Cushman Wakefield, JAL, Newmark, Eastill, and CBRE all came out for the first time and said, America's coming back. And right after we did that with our team, because that's kind of my microcosm,

I've had like 15 listings go into, on the brokerage side, go into contracts. Like we're definitely moving back. So pay attention. Industrial, industrial is cool, man. It's, like it because it's such a fun, it's one, it's triple net, but I have fallen in love with the American worker and we are starting to buy some businesses because of that. I love Ohio. I mean, you meet these people, sit by a machine, a lot of them are zen. They're just patriotic, good people. They know how to sit still. They care.

So I was in Italy recently and I was like, this is amazing. It my first big trip to Italy. And I said, well, why is this not better than California? It's as beautiful as California. And I looked it up and the GDP was 38.6 % of the American GDP per worker. So we are really driven, powerful people and industrial, American industrial, if not undercut by globalism.

bad tariffs and bad policy and restrictive policies, which we're now in a limited government cycle. We will be back in a Keynesian higher government cycle in the future. But right now we're unleashing American Industrial and it's gone from the fourth asset class to right there matching yields with multifamily and here. But what's new? 10 years ago, Industrial was like 20 % vacancy, 10 gaps.

It went down to 5.5 in class A industrial right before the fed raise. So people are clumping, know, industrial in the kind of the downturn. That's not it at all. It was, it popped up, did really well. A lot of stability there. It's going to have a lot of road for industrial ahead. So multifamily too. know America's great. Just, I would say this, there's also, it is a great time to look for distress. There are real people I'm saving. I'm a distressed assets veteran.

I'm probably saving people who are losing, you know, hundreds of millions of dollars in equity right now. There is distress too. So pay attention to distress in the meantime, but if you're going to buy, buy now. Replacement costs are low. rates are higher. Try to get good situations. Don't worry about the interest rates. They're going to come down later. Put some extra reserves in, get to tomorrow, refinance, some great cashflow in three to five years. It doesn't happen to happen tonight.

and keep moving.

Pascal Wagner (40:29)
Are you seeing, with this great on-shoring, are you seeing basically the demand for all of these warehouse facilities going up and that's what's driving these rates higher? there, what is that demand or the, yeah.

Judd Dunning DWGCP CEO (40:42)
It's consumer demand.

It's actually product demand for American productivity. You know, there's a lot of changes in the market. They immediately get to, you know, if you have something, you can't get it to the consumer. It has to get there. You know, it to get there fast. It has to be made fast. has to adapt fast. Our cutting American edge is our technology over other countries, right, in a great legal system backed by a tough workforce. You know, we're tough people. So...

⁓ Yeah, demand and we're hyper consumeristic. America is hyper consumeristic, right? So yeah, all the demands there, there's a lot. And as I said before, there's a lot of accretion, a lot of aggregation, a lot of efficiency. There is a shadow side though, Pascal. The shadow side is that as mom and pops get swallowed up, so does soul. But P is not a problem. There's a lot of soulful people in private equity empowering the country, making our lives better.

But there are also some aggregations that are starting to like cheapen certain things and take advantage of things. So, you know, we have a But the Midwest is also driven by, we have great infrastructure in America and we have great trade policies and we're going through some hints right now for the short term. Also, I went to several seminars on this. We're buying into a company with Hellfire Missile Skins and

electronic components right now. The military is doing really well as well. That's definitely hard infrastructure. The government's actually creating value. You it's not just burning, it's creating value. electronic components, a lot of things are coming from China. China's true inflation, there's a book that three Chinas, they're in trouble. You you can only mask the problem for so long. So I think the long game is going to continue to be better for us, especially now that I think we're getting a lot of

a lot of globalistic countries out of the pockets of China where it might make sense for them, not for the consumer.

Pascal Wagner (42:28)
Thank you for, ⁓ thank you for indulging me on that, ⁓ that tangent. ⁓ so I'd love, I'd love to kind of pull us, pull us back to if we are an LP and we, ⁓ you know, triple nets are interesting to us. ⁓ this specific asset class, maybe even, ⁓ thinking about working with, ⁓ DWG capital partners. ⁓ if you're new to this space, what are maybe some of the common, things that LPs get wrong?

⁓ about this asset collapse.

Judd Dunning DWGCP CEO (42:57)
Hmm. Well, and I say this not to bar people wrenching it, but you don't want to do this one alone. It's so time consuming. You have to underwrite businesses with CPAs. You to do forensics, you to do background checks, you got do property checks. You got to find the best of debt, you got to find the arms, you got to go raise the capital. I mean, there's a lot involved. So I think sometimes it's like knowing the questions to ask and knowing when and the questions to...

find other people that trust that LP. Like sometimes, understand the assets, let's get the yields, then find some people, you know, there's some other, I think I just interviewed on another show, invest clearly, they just back, they do referrals to LPs, right? You guys are like, think one of the best channeling light states, you're an amazing corporation, honored to be here. But I think there's ways to vet people, do two things like,

figure out your yields, vet the sponsor and talk to other people. Like that's the best thing you can do. Like your best due diligence in the LP space in high network democratized technocratic society is find people that have succeeded with the sponsor and vet that. You have a right to call whoever you want. Tear down the walls and make sure that person's high integrity. And also, hey, know, find a detective. Call me if you need, let's turn you on to one.

and say, hey, I want to run a background check. I'm going to 100,000 in it. Somebody says, spend 1,500 bucks. Make sure, because there are a lot of scared, like, we're hiring a new IR person, and there must be like 800 people have applied. I hired another person in our firm. are 800, there are a lot of people in the market that are scrambling right now. There are a lot of hustlers in the market, the crypto space. I mean, I know somebody who's been

ripped off five times and keeps going back to that space. I'm American real estate man. I do believe in venture. Real estate is tangible. You've got rent, you've got payment, you've got a market. You might have reserves for a while, but it's a hard and tangible asset. But still, you have to check in. And it's okay if a sponsor's had a problem. It's okay if you're investing average. Average millionaire goes broke a couple of times, you know they say? And so it's okay if they've had a problem, but how do they handle it?

Pascal Wagner (45:07)
Maybe let me frame it in this way. What types of deals in your asset class would you not invest in that other operators are picking up?

Judd Dunning DWGCP CEO (45:16)
Oh yeah,

definitively I'm sorry for some of my friends, but definitively office. I mean, office is tough. would not, you know, well, you gotta say.

Pascal Wagner (45:24)
Even with office

being at all time lows, you think it's still risky to be in?

Judd Dunning DWGCP CEO (45:29)
Yeah,

that's what I was about to say. was about to say if the basis is right, and you have the tenant in hand, run, walk to a good office. That's, that's true. Office is just complicated. You want to be careful. would say tertiary class B office in the middle is still hurting. You know, you got to be careful. need maturity. need some of the, sorry, but I like your show because I can really talk about theory. But what we should have done, COVID hit, is we should have actually created

of a billion dollar office mezzanine fund for 7 % money between 60 % and 85%. And we should have saved our office owners when our government shut down office. And it's interesting, we took care of rent troopers and we took care of the, we're all just a common man in America, nobody's better than anybody else. And we really abandoned the office owners in America. It's something I still haven't made peace with. Because I'm like, why didn't you just have a mezzanine fund and say,

Sorry your vacancy is down because we shut you down. You can borrow us some money for it. I would have pitched in personally on my tax one for that. But office is coming back. So you gotta be careful in office. But right location, right area, et cetera. What would not invest in? That's a great question. Office I'd be the most careful in. I think self-storage in iOS is getting very interesting. But self-storage is getting hyper hot.

⁓ iOS is all about location, indoor, outdoor storage. That's a very interesting space. We may diversify a little bit into that. Multifamily, know, multifamily right now, I would say if you can find good fundamentals on development, are still, multifamily is still sub five on a national level. You know, it's like four, seven, nine across the nation. Once again, investing isn't simple. It's about a mixture of psychology, economics, history.

capital markets, there's so much to it. So I guess the answer is that a 10 capita 33 IRR, Pascal, I'll take it.

Pascal Wagner (47:19)
Yeah. Give me what kind of investor is best suited for maybe triple nets. mean, is it a high cash flowing? There's usually not ⁓ a value add component because you're leasing back, right? So maybe there's a bunch of risk that's gone. Is there a lot of tax depreciation? How does that compare? Talk to us about that.

Judd Dunning DWGCP CEO (47:40)
Yeah, well, Tribble Nets in the average space, you might buy a site, if you do an add value on Tribble Nets, that the lease is expiring, so you're gonna probably take leasing risks to re-lease the space. just, Tribble Net can be add value, if it's at the end of lease, and it's a good location location location, or you've got a good tenant, credit tenant, credit tenant, if you've got a plan, or you want to demolish the site and build multi-family, you can land-bank by using Tribble Nets.

So don't forget that. like, of the day, my dad only bought lands and he waited, you know, cause he had a little bit duckets to do so. But if you can, you can use Triplenet to land, cover land and eventually build on it. For example, Ventura, some of these old office buildings that have these little dinky tarot card readers and they die. And suddenly there's a 88 units on that site. I'm doing a deal like that right now. That person played the lawn games, but Triplenets are a great way to land bank.

to protect your assets. You've got, let's say Walgreens here and you've got Distressed Assets, higher risk here and then Triple Nets, Walgreens, Burger Kings, Home Depot's, DeVita's, the whole House of Blues, anything that could be Triple Net in box here, it's gonna give you over debt. Right now, debt's like six and a half. So if you're buying something at a seven,

There's not a lot of spread there. So you're to have patient capital. You need tax to any protection. Get out and you can refinance it later. Take your money and move it in the American dream and do a 1031. Right. So let your value go up for a while. Take some money out. Go buy something else. Keep your money moving. Kick your depreciation down the road. There's a lot of reasons to buy base triplet net. The most boring one is add value through future, retentive rebuilding, et cetera. But triplet nets themselves tend to be an asset preservation play.

What we do is right here and then let's say here's the add value bucket. I'm going to get apartment units, Pascal. There's the guy is death, divorce. I have the four D's, death, divorce, debt and dissolution. So the economy may be tight, my fellow investors, but the four D's of DWG are these, death, divorce, dissolution and debt. So these things are always moving in any economy.

and somebody might have played their cards wrong and bought a few too many Jimmy Choo shoes. So if you pay attention, you if you've got good brokers looking for you, cetera, they drive 85 % of the market. I am one and I highly respect them, you know, pay them, take them well. It's great to be principal and take care of my own people. So, so if you find those, those deals that, you know, the triple net really makes things great. But if you get that multifamily deal up here and somebody has died and there's a moment or they just weren't paying attention or they're too tired to turn it over.

Then a smart guy said, wow, is, know, expenses are 55%. They should be 32. You know, they're not collecting rubs. They're not adding another 30 % to rents. And you've got a good LP or you've got a nice deal. Go after that deal, get a 22, 23, go into development, get a 28, 30 % return. know, development, you might get high 20, 30 % returns, but you're taking the risk. You're building it or you're...

Partners building it. You've got to take risks while you're building it. You don't know what the future is, it's, development's amazing. Multi-family add value, retail add value. You've got a big mall. There's the nail person left in Starbucks once in, let me just simplify it, right? Or Macy's left and you should run. Macy's left and you break it into a bunch of pieces and you turn it into something, know, there's all these ways to add value. Mostly it's just vacancy and turnover and retail. Great space, office, tenants are under market, roll them over. A lot of work right here.

A of work. Adding value is work. Development is work. Triple nets are, what's that? In risk. Triple nets, pretty safe. So they're like the bond of your stock market, of a creo. But our space is kind of fun. We're the nearly add value bucket. So what does that mean? It's a triple net deal, but we're backing a business with a little bit of intelligent risk, right? So we're gonna get a little better deal, right? And then,

Pascal Wagner (51:21)
And risk. And risk.

Judd Dunning DWGCP CEO (51:43)
We are aware that they have this ability to expand and grow and that we believe in them. So now we're going to get, you know, maybe an eight and a half cap, or you might get a five cap over here or a high sevens cap, nine cap, debts, six, seven, five. Well, now you're not just breaking even. Now you're making seven to eight cashflow a month. You're preferential. might, you might make, let me break this down. So an IRR or ROI, we'll kind of blend them together. Your return on investment a year.

What's a simple metric? Simple metric is if you take a hundred dollars, people want to make a hundred dollars in five years, right? That's a 20 % ROI. IRR means a lot more variables in time, dig into it with your partners. But if you want, if something makes a hundred percent, a hundred dollars is made in three years, it's 33%, run the walk. That's development risk, that's add value risk, okay? 10 cap, run the walk, right?

But the rest of us have to play here and not in the God realm of yields. So here you have, you you might be breaking even making like three or 4 % but you're safe in your oil greens and your dad's money's safe. And you just feel good about that. You're just gonna wait the inflationary escalations are gonna make more money over time. You're gonna pay down the mortgage over time. You're making, you know, 7 % in five years and you're happy and you're safe. That's cool. Our space is we create value by making that tenant a bond.

of value and then we're able to give people like 20 IRR deals plus where they could double their capital in five years, a 2X MoIC over five years, multiple investment capital. And then here's the last part that's really fun in our space for me is tack on the taxes. Trump just put through the big, beautiful bill. A hundred percent cost segregation is back. What does that mean? It's a democratic bill actually that compresses your depreciation into your first

X amount of years closer to the front. So cost accelerated, cost degradated, accelerated appreciation. So I go out and I buy Pascal Wagner Beats Pro Incorporated and he has $10 million in machinery when I close on it. So I get to take that, I get to go to the cost of every segregated item, write it off as new over this period of time in a shorter period of time. And that year,

I put in 4 million, but my tax write-off through cost-segregated depreciation, cost-segregated accelerated depreciation, is 3.2 million dollars. So I invested 4 million, but I've got like 3 million dollars in tax write-offs, so you really get to take advantage of that. So you do get a little more cash flow, you get added value. So anyway, I hope I didn't get too long in the tooth there, but it's a pretty fun set.

Pascal Wagner (54:06)
crazy.

Yeah, so a combination of all three. Joe, this has been incredible to have you on the show telling us a little bit more about TripleNet leases, schooling us about the asset class, what we should know. Where can people learn more about you, TWG Capital Partners, and follow you?

Judd Dunning DWGCP CEO (54:37)
Yeah, thank you so much. The easiest thing to do is we're spending our time on deals and dinners, then we have internal mailing and I talk about the economy there and I do videos. Just dwgcapitalpartners.com, dwgcapitalpartners.com, dwgcapitalpartners.com. And just go there and log in and when you click on, it'll tell us that somebody's joined and then we'll verify you, we'll call you.

We'll send you some stuff. We'll start to get our stuff, you know, occasionally when it's out to market, get first looks. And I'll end with this is, you know, the great part of this network community, know, 400 people and we're gonna, we bought a hundred million, we're gonna do it four or five more times. And it is an honor and a pleasure to be here.

Pascal Wagner (55:19)
Hell yeah, I love that. And if you're listening and you want to access more deals like Judds, I put together a simple resource to help you find and access those types of deals. And you can get those at the passive investing starter kit.com. And again, here on the passive income playbook part of the best ever CRE show.

We drop new episodes every Thursday, so be sure to tune in each week for more conversations like this that help you grow as an LP. If you enjoyed today's episode, please subscribe, leave us a review, reach out to us on LinkedIn, say hi, and it really helps us get to know who we're talking to. Thank you for tuning in, and I will see you next week for another episode of the Passive Income Playbook.