#354 - Don Tepman (@StripMallGuy) - Strip Malls, Creating Value, Leasing Strategy, X/Twitter, Charlie Munger

Chris Powers: Don, welcome to DFW. 

Don Tepman: Thanks for having me. It is truly a life highlight for me, Chris. I appreciate it a lot. 

Chris Powers: It's a life highlight for me. Don and I met about three years ago, and you called me. You were like, I just listened to your podcast, and I'm thinking about starting a Twitter account. 

Or you might have started it. 

Don Tepman: It was right after I started and, you know, started blowing up, and I didn't know what to do with it or what was going on. And then, like, you were kind enough to spend time with me and ask me what the goal was, why I'm doing it, and who the hell are you dealing with?

And so, yeah, that was really early on, for sure. 

Chris Powers: And there are very few people that I would go on a walk with through Central Park with no umbrella on to talk about real estate, but you definitely did that. 

Don Tepman: That was wild. Yeah, it was. It was about a year ago, with a storm and rain in the morning.

And it was like real estate therapy for us. We both opened up about what our challenges are and what we want to do. And yeah, it was. It was like two or three hours in the rain. We were at Central Park. We were in the zoo. You were like, let's go to the zoo. You're like, okay, we walked through the zoo together in the pouring rain.

I think we had an umbrella. I don't; I might not have had an umbrella, actually. I don't know.

Chris Powers: I wonder if we did. All right, let's go back and start. Tell me a little bit more about how you grew up. I know this part of your life, but I don't know as much about growing up. 

Don Tepman: Yeah. So I grew up in Cupertino, California.

My elementary school was literally right next to Apple's headquarters, so my time in Silicon Valley stayed local for college. My dad's an engineer, and my mom was a nurse who retired before I remember. And so, it was just a barrier suburb, a nerdy life growing up.

I took school seriously. I like baseball, and I stayed local for college. And yeah, Warren raised the Bay Area, so, yeah.

Chris Powers: How did you meet your mentor at 12?

Don Tepman: Wow. Okay. So, I have two mentors. One is my life mentor, who is in real estate and is like a father figure in a way. He's only 60 right now, and it's my first year of high school.

I was playing baseball, and our coach—I won't say his name—was a 30-year-old guy who was volunteering. And I didn't know that he owned real estate at all. And he became a mentor. And then after college, he's like, well, what do you want to do? What have you? And I didn't even know that he was in real estate or anything.

He is just a very humble guy. He's like, why don't you talk to this broker of mine? I'm like, well, what do you mean a broker? He's like; I call this guy. I went and met with this 32-year-old broker who did leasing, and he hired me on the spot. I'm like, I'm employed. He goes, yeah, you were referred by X and Y person.

I'm like, well, what do you mean? He's a prominent client of ours. Like, client of what? I am still determining what the guy does. And so, yeah, I started at 22 years old, knowing nothing about real estate, doing leasing. 

Chris Powers: Okay. And growing up in Cupertino, you grew up like from Apple. Did you think you would get into tech, or was that not even on the car like that?

Don Tepman: No, I mean, I was really entrepreneurial. I was into finance a lot. You know, during college, I helped everyone open their first web account and buy stocks, and it was like 98, 99. And so, yeah, most of my friends went into tech. You know, I stayed local. So after I graduated in 02, I went to Santa Clara.

I was single and moved to SF just by virtue of going out. I was meeting the folks who were building Web 2. 0 literally without knowing that. Everyone around me is in tech, and that's why I love New York better than the Bay Area. Everyone in New York is about real estate, and like the Bay Area, everyone's over here.

For example, if you're not in tech, I'm still trying to figure out what to talk to you about. 

Chris Powers: Yeah, when I visited you in New York, I think we were walking through the streets, and you were looking at this building filled with real estate companies. 

Don Tepman: It's my home, man. Blackstone's right there. And everyone's right there.

Chris Powers: All right. So you get out, you're 22, you have really no idea what you're going to do. And your mentor pushes you towards leasing strip centres.

Don Tepman: Yeah. I mean, he's like, why don't you meet with this broker who does well for himself and see if you like it? And so the guy was a power hitter broker.

He was not really a mentor in the sense that he wasn't going to sit me down and show me the business. It was more like here's a bunch of co-star phone numbers and names; call them, and let me know who wants to sell; see a Friday. But he was in the middle of considerable deals in Silicon Valley, shopping of sale centres left and right. The big Rolex gift of Gab knew everyone. So, I think the first year, I said nothing. I just sat in his meetings and the car with him, and he was closing deals, buying, selling, and leasing. And I just learned by watching him that he's really, really good. 

Chris Powers: Has anything changed about what you saw in retail? It was almost 20 years ago.

Has anything changed today? Or do the same dynamics that make a shopping centre work still exist today that exists? 

Don Tepman: It's the same thing. Parking is the backbone of suburban retail. Signage, co-tenancy, how do you create visibility? It's the same thing.

Everyone wants to get into retail now and likes vacancies to be low. So that's different, but you know, the same strategy I used for our first deal in 2006 is what I'm using now, despite the fact that we're buying in Dallas right now. It's the same thing. What's the strategy?

Look for inefficiencies on day one and address them. So, what's the NOI now, and what should it be? And so, you know, it's a vacant space where it shouldn't be, where I can divide it, where I can find a tenant that will work, or where there's that gap between what the market rent is.

And what a tenant is paying. So, in a strip mall world, 95 per cent of these things are owned by mom and pops and not by funds and stuff. And so that liquor store has that owner convinced that 4,000 is the rent. If it's 5,000, I will leave. Well, it's 8, 000, and everyone's paying 8, 000. That tenant and I both know that he'll pay 8,000 or her. So there's that gap between market rent and actual rent, which, as we see in retail more than any other asset class, I think, and just, it's addressing that it's like I want a tenant who can make it at market rent, no more, no less.

We invest in the buildings, but these folks have to pay market rent. It's fair for everybody. 

Chris Powers: How do you know if the tenant can pay the market rent or not? You know, because you know what similar businesses are doing in the area.

Don Tepman: Yeah. A viable tenant, like, a hair salon that's 2000 feet, like if everyone around them is paying eight grand a month, they can pay eight grand a month.

Otherwise, it could be a viable business, and really, they're taking way too much risk and working for the landlord. And so I want tenants to stop working for me. I want them to thrive. It's got to be a win-win. And so, if someone's making 1 000 a month profit because their rent is 1 000 too low, they really shouldn't be in business. It's a risk for them. 

Chris Powers: How much should rent be, in terms of the total, their total, as a percentage of revenue, like 10%?

Don Tepman: It depends on the business. So restaurants around 8 to 10. It depends, but it's not something that I dig much into. It's all about, okay, what's the rent?

What should it be? What can they pay comfortably, you know? And then, our team would like to talk to other tenants in the market and ask them what they're paying. Like literally walk in like a hundred like spaces and say, okay, what do you pay? Cause that, that rent number is not anywhere. And so there's a site out in Tracy, California, 10 years ago.

We looked at it, and the broker is a friend of mine, like, and goes on, like, if you raise the rent, these tenants will leave, like this owner really knows. And so I looked at it, and the average rent was 50 cents a foot in the centre, in Californian terminology. And I couldn't find rent anywhere in Tracy under a dollar a foot.

And I'm like, okay, like, what's wrong here? And so, in Chinese restaurants, liquor stores, et cetera, laundromats, every single tenant renewed. I got a couple of hugs in there. I give them all 10-year leases and five-year leases. And you know, like, we made lots of money, but they all had that owner fool that, Hey, if you raise my rent a dime, I'm going to leave. And it just wasn't fair to the owner. 

Chris Powers: Before we get too much into strip malls, which everybody is listening to, we are going to deconstruct the whole strip mall industry because you are funny. You have no hobbies; you're obsessed with them.

Don Tepman: I don't have any hobbies, but it's a touch. 

Chris Powers: All right. You had a second mentor. So you had one that introduced you to the business, but you had a second that taught you the business. So, let's talk about Danny. 

Don Tepman: Yeah. I'm going to cry in a bit, but so, Danny. When I would sell a deal, it was like I was 24 or 23. I'd market myself by sending postcards to everyone in the area.

Like, I just sold this. So this guy calls me on a postcard and says, Hey, I want to meet you. So I met this as if I was 24, he was 29 or 30, and he was very casual about everything. Hey, how's it going? And I buy strip centres all over the place. Okay, I need to find out who he was. And he goes, listen, If you see a deal, send them like if you see a deal sent to me first as your cold calling, I want to see all your deals.

I bought them, and I'll buy them. No problem. Okay. And I'm like, okay, well, let's see if this guy's real or not. So I was cold-calling owners, and they said they had a buyer. I say, yeah, I do. And I'm like, it's this guy, Danny. And so I call him, and he goes. Okay, within two minutes. Okay, address. Okay. I'll offer a million eight. I'm like a million eight. He goes, yeah, a million eight right now, you know, a million eight million nine, whatever I'm like, it's like I don't understand you, don't he go, no, just around like two million dollars offer. I'm like, okay, and I go, Danny. That's like a four-cap. He goes, It's not a four-cap.

I go, yeah, it is. I divide the income by the price. He goes, it's a 12 cap. I go, okay, this guy is nonsensical. But what he did was he'd plug in what the rent should be. He'd look at the price per foot and look at it that way, which is different from how anyone is taught. So we offered 2 million.

And then he bought the deal. Okay, and then to thank him, I hired an aeroplane to take a photo because there were no drones back then. And so I got the thing, I got it all framed, and he went, okay. Thanks a lot. He goes, okay. I want to sell it. What do you mean?

Is it the property you bought? No, no, no. He goes, I want to sell it for 2 800, whatever it was. And I'm like, are you 2, 800? He goes, yeah, put it on the market right now. And I sold it for like 2, 800 or whatever. It was a huge profit. And I'm like, what is this guy doing? It's so easy for him. The guy never went to high school and didn't go to college.

He came from nothing. He sold shoes like sneakers at the flea market in San Jose as a 12-year-old. So he helped his family. He doesn't use a computer, doesn't really email, and has no staff and no office. But the guy is just a strip mall genius. It's like watching Steph Curry in practice. And he buys and sells and sees a property and says, OK, like it's four million, I can get it to eight right now.

Watching him is what made me stay in this business. I mean, he and I would talk for hours, during the week, on weekends, late at night about strip malls. It was wild. I was like 24 years old. I had a girlfriend. She's like, Danny again. I'm like, yeah, sorry.

But like both of us had this passion for this, this random niche. And we still talk every single day. He's in Dubai this week. He's under the radar. Can't Google him, but he's the real strip mall guy. 

Chris Powers: He's the real strip mall guy? Is he still doing strip malls?

Don Tepman: He's frustrated because it's a little harder now.

It takes more work. It's also like Silicon Valley is the lowest volume market in the country for strip malls. So as folks get older and he's done really, really well, like the extra effort for that extra deal is not worth it for him anymore. So, I think he's a little bit, I don't want to say stuck, but he's not sure kind of what to do now, but you know, like I was telling him, look, like I'm sure like there's an audience out there that would, that you can do consulting for, or like folks would meet with you, but Danny is a, the real strip mall guy, I would say.

Chris Powers: Okay. So Danny told you some things to do. Let's talk more about him. What are some things he told you early on? We're like, these are no no’s, like not to do these.

Don Tepman: Price per foot. So, like, like, you'd be like Don, that's 500 a foot. It's never really about cap rates on the buy; it's about price per foot, environmental reports, and parking ratios. Only take on a few debts. He really knows what he's good at and knows what he's not. And focuses on what's easy. It works to make that deal. And the number one thing is to concentrate on your downside risk. So, what's the worst thing that can happen? Is there a downside to what we talk about all the time?

It's like, okay, that deal. Here's the best guess in the area, but I spend more time on, okay, if I can't hit all my goals and this all goes wrong, what happens? And if I break even, then make the deal. 

Chris Powers: Okay, so what are the downsides that could happen? Obviously, tenants would like to go out of business.

Don Tepman: Yeah. Which is a manageable risk as long as you can underwrite the rent correctly. The rents are all about the rent. So, like, if you have a space that's 3 and you get 2, you're crushed. So, every space is underwritten differently. The elbow space might be a dollar rent, like end caps for dollar rent.

So, underwrite, will you release that space? Are the four handicapped spaces in front of it which will make people not want to visit that space as often as the one next door with a patio? So, it's underwriting the rents. Correctly. Otherwise, you're just going to be crushed quickly.

And it's how leasable is it? Is it too deep? Right? Is it 85 feet? You can't divide it. So, like all these little things that lead to how wrong this can go, the parking is enormous. 

Chris Powers: Okay, wait, 85 foot deep. Is that too deep or not deep enough? It's too deep. 

Don Tepman: So, 65 feet is great because I can divide it.

Chris Powers: Are you talking about wide or deep? 

Don Tepman: Deep. Everyone wants frontage. So it's like, it's like if I have 4,000 feet and I can't lease it if you divide things down to 1,200 feet, it's like a big secret in the business. That lease is the easiest, like all retail 1200-foot leases. So if I mess it up completely, but it's 65 feet, I'll spend the money, but it will lease.

Okay. If it's 85 feet, I can't divide it. I'm just like stuck. 

Chris Powers: The elbow is like the dirty word at strip malls. It's like a four-letter word, but there are five letters, but the elbow. What's the perfect tenant to go into an elbow?

Don Tepman: Dentist because they'll put a bunch of money in there and right, and they'll never leave.

But look, I mean, any tenant that goes into an elbow is perfect. Because if someone has a viable business and it's a good business person, they're going to avoid the elbow at all costs. So you're looking at the karate studios and the folks that don't put a bunch of money in its challenging space.

I underwrite it at zero. I get sold a centre. I'm like, that's the elbow. It shouldn't have been built. It should have been a parking lot in the back. It's a zero. And if it doesn't have a pencil, sorry. So, let someone else say, Oh my God, it's 2-dollar rent. I'm like, look, they will leave, and they'll sit vacant for nine years.

Chris Powers: When you say the elbow shouldn't have been bent or built, is that because things changed over time, or did we have bad design to begin with?

Don Tepman: Bad design. So a lot of centres built in the sixties were designed poorly, and now you can't make new ones. So we're just stuck with what we have. The architect sells the space that we can make here.

Why not build without thinking about well-being, at least? Parking ratios are so important now, and cities are hammering everyone on those that having that space just be open makes us more valuable. 

Chris Powers: Is the reality that people are still driving as much to retail centres as ever?

Are people Ubering now and getting dropped off? Or is it still the parking matter? 

Don Tepman: It matters a lot. Everyone's driving like this whole, like the force and urban area thing isn't really working. And yeah, everyone likes to get in their cars. I was on Beltline today, et cetera.

People are driving all over the place, and that has stayed the same. And you know, they're not even Ubering; they're literally just driving. And that's suburbs for you. 

Chris Powers: Do you like EV stations and EV charging stations in your parking lot?

Don Tepman: Not at all. There was, it's funny, like there was a 30-year-old guy in LA last week that called me, and he's buying a centre and goes, Hey, my upside is cause I always want to know, okay, day one, what's your upside, what's inefficient that you'll address and add value through your work.

And he goes, I can get. This EV company paid $3,000 a month. And I'm like, this is horrible. Because you have four restaurants, your parking ratio is 4.2 per thousand. It should be more than that for restaurants. And like you're getting rid of a third of your parking and like you're going to get crushed.

That three grand is going to be like a negative $15,000. And so, yeah, I mean, I don't think retailers want folks just hanging out in the parking lot for hours. You want people in and out there. So it works for the office. Retail, I can't; I've never had a tenant ask me to put one in. 

Chris Powers: What's the perfect ratio for restaurants? Six to one. 

Don Tepman: It's really like there's usually a space for every two and a half seats. It's very different. Agoura Hills, California, is like 10,000. Some of them are five. It's really everywhere; it's around seven or a thousand, but you know, like. Strips are built up like four or five per thousand.

Restaurants and cities really have an issue with restaurants, and they prevent you from excluding your leasing sometimes, as well as you want to. 

Chris Powers: Why? Cause you need the parking. 

Don Tepman: It's just a city thing that was made up a long time ago. And it isn't brilliant. I think San Jose, California, has a little Matt Mahan mayor there. They got rid of them recently.

Chris Powers: They got rid of restaurants?

Don Tepman: No parking ratios. Oh, like what? Restaurants would be breaking news on the four-pack. So, if it's under a park, like Starbucks, it is not going to go there, knowing that customers won't park or if they do, the business won't work.

Let the market decide. When you encourage parking ratios, you're also encouraging folks to drive more. So, in 25 years, most cities will get rid of these things. It's so obvious. It was just one of the things that's done because it's always been that way.

But. It kills your deals. You know, like, I can't, my Chick-fil-A post. 

Chris Powers: It's your famous post. It's funny because I have Chick-fil-A ever reaching out to you. Oh yeah. In call. They're like, quit tweeting about it. 

Don Tepman: No, I was on the call about a month ago with a guy Chick-fil-A 15 years on the real estate team.

He's like, they love that tweet. We get that all the time. Mean they, they get it. 

Chris Powers: Explain it. 

Don Tepman: So, one of the centres that we actually asset manage—a couple of them —Chick-fil-A wanted to make an offer, but there's a dentist behind it, and there's a yoga studio and a hair salon, and it's like it will crush those businesses because then all of a sudden imagine going to the dentist or the salon, and you can't really park anymore.

So here's this 100 million centre you. You add 2 million in value, but what have you lost? 10, 15 million, and so, I tweeted out to everyone that the guys know what he's doing. Like, this guy is not in the business. And I'm like, Chick-fil-A will probably agree with you.

If there needs to be more parking, it doesn't work. It's got to be standalone. I love Chick-fil-A. I love you guys.

Chris Powers: But they all stand alone. 

Don Tepman: No, there's a lot of them. They're like pads in front of strip centres. I mean, like own parcel, stand-alone, like no one else behind it.

It's a great tenant and a great brand. Some of them do 16, 18 million a location, but you know, it's all about stand-alone. 

Chris Powers: What makes a good restaurant, and what makes a bad restaurant? 

Don Tepman: Yep. A good restaurant is an operator who is there every day. And is a restauranteur more than a business person.

Ideally, really both, but you want the person who cares about the business to know if it tastes good or doesn't taste good. It shows up every day. Restaurants that could do better. It's the person that's like, Oh, I'm going to scale. I'm going to open three this year and nine next year. I don't even talk to them. It's like, sorry. Open one or two, make them work, learn a few things, open one or two more, and do it that way. So, the more involved someone is in the restaurant day-to-day, the better their odds of success are. 

Chris Powers: What about like types of food? For example, if somebody is frying everything and there's tons of grease and stuff, do you care? Or it's the types of food that don't matter.

Don Tepman: No, I want an operator who's excellent at this. They have other locations that I can walk in. I can eat at. I can know that they know what they're doing. And it's like, I'll do deals with those guys all day long. If I don't like their food, it doesn't matter. Go on Yelp, four and a half stars. You're good, man. 

Chris Powers: Is that how you do due diligence on a restaurant? 

Don Tepman: Yelp is a huge part of our business. So if you go in and read 20 reviews, you'll know if Sam is good, the operator is, or what the problems are. And so we, part of our DD on deals, is a hair salon, whatever it is, you read all the reviews.

You'll learn things, look for patterns, and listen to what the customers say. It's busy at this time. It's dead here. There's a new owner. It just traded hands. That's a goldmine of data, Yelp. 

Chris Powers: Do you lease to start-ups like restaurants for the first time? 

Don Tepman: Very rarely, it's just hazardous for me.

If I can't walk into your business, I can talk to you about how things are going, etc. I think it's a lot more risky now. If there's a story about someone who's been a chef somewhere for a long time and has the Capitol, it makes sense to me.

I'll do it; there was a sushi restaurant, like in, it's like 05. We had this site that was old, whatever. The Greek restaurant went out, and this young Korean guy went in. The guy had one location in Morgan Hill, California. Whatever. It's like a thousand feet. It was like 3000 feet, and he was doing okay, whatever.

And the guy wanted to do all-you-can-eat. Sushi was all excited. His family was there. They were like, come on, come on. It was no TI, as is. Within the year, the guy was doing 500 grand a month in sales. He ended up buying the building. He bought Ferraris. So yeah, I love those stories for sure. But they're rare.

Chris Powers: If you had to think about the worst tenant mix you've ever seen, what would a, and maybe you can make it up, or you've actually seen it, what would make a terrible tenant mix? 

Don Tepman: Sure, so a kid's dentist next to a liquor store, or like that two shops and folks do it all the time like someone will have some yoghurt place that attracts kids and families, and they'll rent to a marijuana place next door all of a sudden. Those are the worst to see at all times. 

Chris Powers: And because they're desperate?

Don Tepman: A little bit. And I need to understand that, like, tenant mix is a thing. I mean, many strip mall owners are kids and grandkids of folks that did this 30, 40, 50 years ago. And, like, they need to realize how vital the co-tenancy aspect of this business is.

And so it's just a mistake. And it needs to be thinking through it more. 

Chris Powers: Well, then, how do you handle tenant restrictions or co-tenancy clauses? 

Don Tepman: It's a big deal to us. So every tenant these days wants an exclusive. You know, like a bagel, the guy wants someone other than someone that sells sandwiches next to them or, et cetera, like a bakery.

As an owner, I'm going to be really good about that because it's important to me to have an excellent local tenancy. But tenants understand that landlords may do that, so Starbucks, et cetera, will have exclusives. For example, they have coffee and tea for a while.

And then now, with Boba tea, I can't do a Boba store because technically, Boba tea is tea and what have you. So they won't let you do it. And so it's an integral part of our business. And all the times I won't lease the folks that everyone's like, Oh, that's wild.

That's because it's a good tenant, et cetera. But you know, if that business doesn't help the other companies or if it takes away, I'm just not going to. I'd really like to have it sit vacant. 

Chris Powers: And when you think of parking, you've talked about this a lot. So, tenants park a lot during the day versus the night.

A perfect tenant mix would be a dentist during the day because they're not open at night. I've never seen a dentist. It's like a midnight special. 

Don Tepman: Yeah, so, like, breakfast place that's busy with a place that's a sushi place for dinner, etc. Dry cleaners like drop-off only, not plants.

It's daytime, so you really have to think through, like ramen places do lots of volume. It's like, well, I can't have that them, and someone else is busy at night as well. For example, Boba Tea takes a ton of parking at night on a weekend. It'll crush the whole parking lot.

People drink tea at night, and they hang out. They hang out. It's like in Cupertino. Now, there are places where they hang out. It's like a hundred kids just hanging out around this bubble tea place. They crush it. And it's like good luck being the tenant next door who.

You know, sells ice cream, and you're like, okay, well, no one can park here or come here. So it's like one lousy lease kills your deal quickly. Retail is dangerous like that. Like one line in a lease and exclusive can wipe away your equity really fast. You know, like it's the puffer fish or whatever I say of real estate.

I think this really happened in office and industrial settings where one tenant kind of kills you. And in here, everyone's jumping in right now in the retail, but it's like, if you don't get co-tenancy and like how important each Tenant is what they do when they're busy like you can crush your value overnight.

Chris Powers: Do you do bars? 

Don Tepman: I'll do bars. I like bars. We're actually doing a renewal right now with a bar out in Pleasanton. Love bars. 

Chris Powers: Do you do percentage rent, or is it always flat? 

Don Tepman: It's too complicated, and when I sell it, I can't cap it out. So I'd instead get a bit more rent and let the tenant win if they crush it.

Chris Powers: So you never do plus?

Don Tepman: I can't, cap, because I sell all the time, and I don't hold forever. So, a buyer's not going to apply a cap rate to the sales numbers, and a lender lender certainly won't.

Chris Powers: We're going to talk about hold periods. A lot of people want to know that we're not there yet, though. To get a lot of these rents, you probably have to update centres and TI.

A lot like the; one of the reasons I love industrials is because all my tenants need like 3 dollars in TI; they need a friendly little office with painted carpet and lighting up front. And then a warehouse in the office. Well, we don't even go down to the office. The TIs have gotten insane in the office, but in retail, they do. There are a lot of tenants out there that ask for the moon, especially the speciality stuff. So, what do you think about TI and CapEx? 

Don Tepman: I love writing TI checks. So, as I get asked, Hey, that business has no credit. What are you doing? Their credit is their livelihood. They make 200 grand a year net, so if someone has a company that's four and a half stars on Yelp and has been there for eight or 10 years, crush it.

Like, if they want to come into my centre, the moment I sign a lease with them, the value goes way up. So, like, if they spent 200 grand for a dentist, whatever it is, a salon on like remodelling new bathrooms, I'll give them, I won't give it away here on the show, but I'll give them a nice check. Now I can get more rent for that.

So if you cap out that like incremental rent that you get and apply six caps, whatever it is, I'm actually making money. I'm on that TI allowance because I'm reselling within five years. Now, I'm not talking about a rent above market. It's going to be a market rate towards the higher end of the market, et cetera.

But you know, that's instant money for me. Like, we have a deal now where the tenant wants 400 000; I said fine, here's the rent at 400, 000, here's the rent at 100, 000 and so as long as I'm around market rent, that works, and like, they're investing in my building they get paid when they open, not in the beginning, so like, they spent the money leases started, Paying rent signs up.

Here's your check. It's a packed place, so it's definitely a tool to use as long as it's a viable tenant that will last a long time. And also, if they leave, if it's a restaurant tenant and they go, now I have infrastructure, I have a hood, I have a grease trap in there. So folks are like, where's the credit?

And you know, many owners want to refrain from investing in their buildings. We buy buildings that folks stopped investing in about 20 years ago, right? All the time. And so their rents are going to be artificially low. A lot of tenants would love to have a 100,000 check and pay more rent.

We had a Goodwill in California where, after 50 years, they were going to leave; they signed the lease somewhere else. I went in, and we're in contract. Close on it. So I met with the CEO in the East Bay, and I'm like, Hey, what's going on? He's like, listen, there's like 500 grand and stuff that we need. I'm like, I'll give you 500 grand.

It's like, what's the rent? I'm like, around what you're paying now, I capped it out. It's a goodwill non-profit. So they stayed, they've subleased, and now it's brand new, looking goodwill, and you know, we made 700 grand in a year or two on it and profit. And so it was a win-win, or it's like no one else, that owner didn't want to write a TI check, and he lost.

700 grand because he didn't want to write a freaking TI check. So it's counterintuitive. I'm glad people do it this way, But it's a big part of our business. 

Chris Powers: So what you're saying is I'd instead give you a little more TI. The rent's going to go up. And when you put that on a cap rate, I'm making money on that extra money that I'm giving.

Don Tepman: 100%. As long as I keep the rent within the market, it will appraise later on 100%. 

Chris Powers: Real quick. Let's keep going on TI's for a second. Do the tenants? They are showing you their plans because some of these buildouts can get expensive, so if I'm giving you even 400 grand, that's probably only some of the dollars it takes to build out the interior.

So you're just looking at their financials to see what they're capable of spending. Do you have them put money in escrow? Do they spend the first dollars? 

Don Tepman: No, not at all. They only get paid when they open. They get paid after they spend all the money already. Okay. And, we ended up paying them a third, 20 per cent of what they paid, half.

I also set the rent start date as a firm date. So, I met with them and said, okay, it's today, February 3rd. How long will it take you to get plans and open? He goes, okay, probably February, whatever. So July 1st. Well, look, I'm going to make it August 1st. That's your rent start date, and no matter what happens, if you open early, you win.

Okay. If it's late, don't call me. Okay. It's August 1st. They get really excited. They hurry up, they open. And you know, many deals die because of that period, such as how long it will take, etc. So when you give them that hard date, it motivates them to hurry up, get open, and be efficient.

So it's TIs, but it's also that extra free rent period. 

Chris Powers: Do you calculate deposits the same way for everybody, or is it based on credit? 

Don Tepman: Based on credit, I mean, we like tenants that we do deals with who are sought after. I'm excited to have them. I'm not worried about them failing, or else I won't make this deal.

We don't go too crazy on deposits. I only do a few start-ups, so it's not a big deal, and it's not risky to lease to a sushi restaurant that crushes it. Everyone goes every single weekend, and now they're opening a second location. It's like the guy's going to retain his business.

But in real estate, it's like I'm not worried about his deposit, his extra month of rent, or anything else. 

Chris Powers: Okay, on the exterior, what are places that people just like waste money on the exterior that don't matter? Like if you're buying, let's say, something that's 20, 30 years outdated, and you're going to have to put. Again, this is a generic question because it depends on where, but when you immediately are like, here are the places you should spend money on the exterior and here are the places you should not.

Don Tepman: Yeah. So stucco is your friend. It's cheap. It looks great. Tenants love it. It's quick. I've done that a lot of times. Lighting is huge signage. So, if you go from box signs to individual channel letters, it just looks like a different centre, literally. And so, that's big, and I can't force the tenant to, like, like, redo their signage.

We help with that sometimes. And so it's stucco signage. Landscaping is vast, and anything can create visibility for it, like a new monument sign, a higher monument sign, or a better one. So it's all about visibility, and parking is enormous. We bought a centre in San Diego, and now we're adding 19 spaces in the lot because we're reconfiguring and adding compact spaces.

So stucco, lighting, landscape, parking.

Chris Powers: But you can force them into signage in a new lease. You can't just force somebody that's already there to change their sign. 

Don Tepman: I don't think it's right to ask him to do that. It is per our lease. Yeah, any like new leases, they definitely do themselves, but it takes a lot of work to buy a centre.

It's like I'm your new buyer, and good luck spending it's like 15, 20 grand for those things. So, like us, it's in our TI, like the CapEx budget. 

Chris Powers: Own a sign?

Don Tepman: It's big business. 

Chris Powers: Do you like drive-thrus that are attached to the end cap? Do you care? 

Don Tepman: Right now, drive-thrus are the hottest part of all retail.

It's wild how many drive-thrus, where the tenants are paying 90 grand and 80 grand, which is a lot five years ago, 10 years ago, we're doing deals now at like 160, 180. It is a little bit of breaking news. A lot of those owners who are sitting on these things drive-through tenants are paying; some of them are paying like 350.

Chris Powers: Do you have to build the drive or leave it alone, as it is already there? 

Don Tepman: We don't really build ground up, but it's like, so what, on built to suits, I don't want to go into an area of retail that I'm not an expert in, because, like, we don't do those, but it's like, on our existing ones there are leases that we've owned them for a while, and now it's like 80 per cent more rent, double the rent, and they pay them.

It's all a function of sales, and after COVID, everyone likes drive-thru now. Folks got comfortable with it, and it's unbelievable what those things are selling for right now, leasing for and selling for drive-thru, baby.

Chris Powers: It's a drive-thru world now. Okay, let's talk about the hold period.

So, you like to buy it, get it all fixed up, get your leases done, create the value, and then you're out. That's like, to the retweet world, you're, they take that like offensively. Did Dan teach you this?

Don Tepman: So Dan taught me what's wrong with it and told me to fix it.

Right. So once I fix it at that point, if I get a deal to an eight cap and I can sell it at a five cap, that's a big profit right there. Suppose rates go up, which, wow, it's happening now. And you're back at a seven-cap or an eight-cap world. I've lost All my equity as a GP; all our hard work is gone. Our investors also have, let's say, whatever profit.

If you go back to all of our deals, in which we've sold 28 or 29 deals, and apply 50 per cent LTV, our net after fees, to our LPs, like 23 per cent net IRR with low debt, people are happy with that number. I haven't had much pushback on that. And so if I held some of these things longer, you take market risk.

You're literally at the mercy of interest rates. And they go, okay, well, Don, why don't you just refi and cash out? So, say I get paid, I refi, and there's more debt on the property now. The LP saw that I made some money. Now, the market changes, and you know, we're back to being up 5 per cent now, not up to 3%.

And everyone knows that I know they do. And so I want to be in the same boat as my LPs. I want to win when they win. And our numbers have been good. We're buying right now. And look, I mean, what I love to buy and hold, I mean, like Charlie Munger, he screamed at me literally at his house about it's not a business if you can't just buy and hold forever.

But it's like, look, he forgot more than I know, but it's also been 40 years of rates coming down, Chris. And if rates go up in the next 40 years or stay flat, that one's like buying whole is less attractive, and private equity doesn't buy and hold. They get in; they wait for the value to go up.

They change things around and sell. So if I were a fee-based model a little bit more, or I had that kind of scale, then maybe I'd buy stabilized stuff and hold, but then you're making your point or like two points a year on the assets, which is, it's a good way of doing it.

Like everyone else, I'm looking for good deals, adding value, and then showing our LPs, here's a value that we unlocked, and here you go, rather than, okay, like now it's stabilized its cash flow. Look, a bunch of my LPs would instead hold.

Right. And they're happy because our returns are good, but they're like, yeah, Don, it's your choice. But if you can one day find a way to hold forever and cash flow, because you know, I'm getting most deals over 10 caps stabilized. So, yield on cost, and so I wouldn't mind doing that and holding. Buying and selling is exhausting, but it's like how to create a win-win for me.

It's not a very lucrative scenario for me if we buy and hold, and I get a point and a half or 2 points or whatever on 5 million average deals. I need the scale. And it's the same amount of work for a deal—5 million as 500 million or 50 million. And so that's something that I'm looking at all the time.

But right now, it looks like if it isn't broken, don't fix it. Open our ideas, though, man.

Chris Powers: Well, we'll chalk it up as never say never; maybe one day you will start holding. You're going to sell so many 5 million deals for 10. Then you're going to be like, I need a place for this, cash to sit.

It's a good problem. But you did mention one thing. You said it takes as long to do a 5 million as a 50 million. You're an intelligent guy. It would be the most people when you say that you're like, I'm going up to 50 million, but you just said it, and you're like, I'm going to stick to what I know. Why do you stick to the smaller deals? 

Don Tepman: Look, I love this business. No, I know it's going to blast. Look, I fell in love with an asset class that has 5 million deals on average. And it's like I love the passion of these mom-and-pop tenants. I love the puzzle piece of each deal and solving it.

You know, I liked to find out that we bought a Blockbuster video, and then it went vacant. I went in there, and we ended up making it into a Chipotle Panda Express. All these jobs were created, and it's a lovely building now. I like knowing that we did that. That's a win for me. And so, if I buy the Whole Foods Centre that was stabilized, you could stare at it, whatever it is.

I really like this business and this niche a lot. I mean, I wake up every day, and I like what I do. And if I bought a bunch of big deals that were stabilized, I'd just be doing something more lucrative. I totally agree with that. But then, what's the bottom line? That's a whole other conversation.

It's like, I like what I do. I wake up every day loving this business, loving these deals, loving to impact communities, turning these things around, and moving on. You know, I flew into Dallas today to buy a centre. That's beat up, has vacancies, and has problems. We're going to create jobs. We're going to turn around.

It's going to be great, you know. The same thing right now that we're doing in Crown Point, Indiana, one of the best-growing cities in the country right now. I love that area. The old centre, 40 years old, looks terrible. Wait till you see it, which is a year from now. I get excited about Tucson. We just bought a deal in Tucson that's been the same owner for 40 years.

Looks terrible. We're going to get that thing turned around. It's going to look beautiful. And so, like, I light up about every single one of these deals. I love making these communities better. We make money. So I've got, of course, LP friends that make 10, 20 million a year. It's amazing.

It's great. I do well enough that I'm happy and my family's happy. And it's like, why do I make more money? And then what? I don't know.

Chris Powers: I love it. That's a fantastic answer. It goes back to you're not willing to stop doing what you love doing for money. I don't ever see a lot of people that sell out, chase the dollar, and get rid of it.

What they started doing that love and then they don't love it. 

Don Tepman: I see my mentor right now. He's having a hard time because it takes more effort now than it is. You can't buy in one market, and there's no volume anymore. And so he can't. I don't know how he's feeling right now, but he misses this business, and I see what happens when someone's not doing what they love anymore. Yup. It's like an athlete retiring or something, you know.

Chris Powers: You've mentioned Dallas. We don't have to talk about the Dallas deal if you want. You still need to buy it; you're just looking at it. But you mentioned Tucson, Indiana, and East Bay.

Do all the same demographics, and what do you do to study an area? Is it the same market-to-market? You've now gone nationwide. You started your career in the East Bay, where you just knew it. People listening to this who aren't in real estate don't realize they know their markets better than real estate professionals know their markets because they're there.

They know who's, what side of the street to be on. They know what new developments are coming on. And so when you go into whatever you said, Indiana, what was it called? 

Don Tepman: Crown Point, like the building, has two hospitals and schools right now; it's just booming. And one of my followers actually showed me that deal.

It's wild as if it came because of Twitter. 

Chris Powers: We're going to talk about that. We're the whole Twitter future of SMG. We're going to get to, but what matters to you? What's the playbook for each city that you're like? Okay, I'm going to land in Dallas. Here's what I'm going to look for while I'm here to make sure that Google Earth is checked out in real life. What'd you do today? 

Don Tepman: Yeah. So I spent six hours walking today. I walked up and down Beltline for six straight hours. It's hot. 

Chris Powers: You're the best. And you're in heaven, too. 

Don Tepman: No, I loved it. It was wild. On the phone a little bit, but I was talking to the cop in the area and the, anyone that I could talk to and like, what's vacant?

What's not? Why is it vacant? How long has it been vacant? Who's coming into our parking lot? How long are they parking? Is it employees? Are they parking in the back? Who's busy? Who's not? You know, I went in and asked the tenant some questions and quickly realized a lot that we had just learned about their business.

You ask straight up, how's it going? Is this site better than the one in Fort Worth? And it just pauses, let them talk. They tell you a lot. I love listening to it. There was a property we bought in Brentwood, California, off an auction and auction. Com about 10 years ago.

It's our best-ever deal. And I went and just had lunch at Togo's. How's it going? Whatever it is. And is this tour of one of your better stores in the area possible? He goes, Oh, it's three in the whole chain. And I'm like, Holy smokes. Because that whole deal was about if Togo's wasn't leaving, and like the pizza guy next door wasn't going, it's a total grand slam.

But if they do, it's tough. I went next door to the pizza guy and talked to them. It's the best store in the whole chain. So, I knew that the folks bidding out of LA and around California didn't go there, and they didn't spend the time. And that was a million-dollar piece of information that I got. I think we made 2 3 million on that deal and just leased it up.

Did little. And so I noticed things like, there is a left turn. 

Chris Powers: Why does that matter? 

Don Tepman: Access more like how easy is it for the customer to get here? And, like, I walk up and down the street and see based on the angle. Can you see the building? Well, from here, if not, why is there a tree there? Do I have control over that tree?

Can I trim it? Can I replace it? Right. That wall has no signage. Why is it that no sign is there is visible? Is that a city code thing? Is it not? So it's like, you know. Just walk up and down, and just things will, like, come to me as far as what's, what's wrong with it, what's inefficient. Like, I noticed that the end caps have been vacant, for I don't want to give it away too much, but yeah, like, there are things that I'll pick up in person for sure.

My team was here six weeks ago and spent a week checking all the boxes, but I will only buy a deal if I Spend time there as well. Plus, I love doing it. 

Chris Powers: You get here and hug the building, pet it, high-five the tree, walk the drive-thru, and everything. 

Do you like murals in your buildings? 

Don Tepman: Not really. Yeah. I wouldn't say I like the tract a little bit. So yeah, I'm not a massive fan of murals.

Chris Powers: Murals may not be for all buildings, but if you see one on a building, you think they're trying; they're overcompensating for something. 

Don Tepman: I see few in Silicon Valley. Is that big in Texas murals? Is that like, do you guys have? 

Chris Powers: I don't know. You walk through all these kinds of New districts. And it's all about having these really arty, artful little buildings.

Don Tepman: Yeah, like only a few, not too many murals in my 40 deals that we bought. 

Chris Powers: You still need to do something. Well, I'll tell you what you should do.

My mentor does this shout-out to a Mimco out of El Paso, but we do it now, too. They put their company logo. You're probably watching this on YouTube. It's this big, and they'll put it in the corner of every building. So it's a Mimco-owned building, which owns millions of square feet of shopping centres.

And so, okay. You know, if you're going into a shopping centre owned by Mimco. So we started doing that. So, the Fort logo is on every building that we own. It would help if you had, whether it's the town centre or the strip mall face on the corner, you're building such a brand. I genuinely believe that tenants would flock to buildings that they knew were owned by you. I'll send you something after this. 

Don Tepman: Yeah, we're going to get in the hotel or have you and then and like nationals also knowing that like they'll have the garbage will be clean, and I'll maintain it the right way, and I'll get the right co-tenancy or whatever.

Chris Powers: And people will know he's going to co-tenant it, right?

They're going to know you're going to treat him right. They're going to see what you stand for. 

Don Tepman: I keep thinking of the people on Twitter who are negative, though. Oh, you're doing a terrible thing, you're for America, like come by, but you know, it's like there's a good and a bad, but it's like, it's an interesting concept for sure. 

Chris Powers: Okay, so what's something about an area? How do I ask this? The average retail person or people would think this is a good area, but then you see something, and you're like, if these things are in the area, it's immediate, no matter what else is there.

Don Tepman: I don't think in terms of area at all in real estate, so brokers are always like, what demographic do you want? What traffic counts? I'm like, guys, a good deal is a good deal. I need to find out where it is. If you sell me a deal that I can get from a 3 million value to a 7 million value, I don't care where it is, and I don't know why anybody does, right?

So, folks create all these rules for themselves. Is there a Starbucks within a mile? Is there, so it's really limiting, like our best deals are like middle, like Tracy, California, just like old centres and like in Fairfield, California, and just like random cities that no one's heard of with demographics that don't check many boxes, but it's like if you're going to sell me a good real estate deal, I'm not going to create rules why I shouldn't buy it.

So it's about that deal. Is it inefficient? If it's worth 2 million, I can get it for a million, 2, or what have you. So why skip it? I don't love the city or our best-located deal, Maine and Maine Silicon Valley. It's like an 11 at IRR, which is our worst deal. 

Chris Powers: Why? It’s expensive?

Don Tepman: I mean, that one we just held for a long time.

So, IRR gets hit when you hold it for too long, which is why it would have been fine otherwise. But it just shows you that demographics are grades across from the top mall in California per square foot by Santana Row, which is why federal realty is one of their best assets.

Like we're right there on Stevens Creek Boulevard, but it's like. It doesn't mean that you'll hit a home run because all those boxes are checked, right? Buy it right. It doesn't matter where it is. And to me, the most significant career mistake I made was I thought, oh, I know Silicon Valley stay in Santa Clara County, San Mateo County, Alameda.

But no, retail is retail. You know, I can look at a deal in Tracy or Crown Point or anywhere in the country and within minutes say, you know what, based on this price per foot in this aerial, it's worth digging into further. And then it's all about the rents and the exit cap rate for that market. 

Chris Powers: I know the answer to this, but I'm just going to ask it anyway.

Why does price per foot matter so much if you can achieve a particular market rent? 

Don Tepman: Price per foot is a cheat code for rents above or below market. So, without diving in and doing all my study, if everything in the area sells for 400 a foot, Okay? And I'm it's the same cap rate as this property at 200 feet.

It tells you something right there. So, I give that away, but that's what you start with, ultimately. 

Chris Powers: You heard it here on the Fort pocket only on the career-changing advice. So, if you have never listened to the price per foot, subscribe to my—no, I'm kidding.

Okay, leasing. Are you just calling the local leasing broker and saying, Hey, pal, just bought something Crown Point? I need you to start leasing this for me. 

Don Tepman: No, sir. We do leasing in-house, even though.

Chris Powers: In every city?

Don Tepman: 100%. I started as a leasing broker. That's the backbone of everything we do. The way that leasing works for 1200-square-foot spaces is, And I love the brokers.

I was a broker. I cannot ask a broker to work that deal and spend hours and hours canvassing for a 5,000 commission. That's five or 6%, whatever it is. So that game is suitable. If you have small shop spaces for lease, you put up signs and put them on the listing services, corrects, etc.

And you wait, and you do like 20, 30 of those, and hopefully, you do a deal every month or two. Right. And so, cause we're IRR driven, I cannot wait for a year or six months, whatever it is, for that broker to lease it, which they eventually will, so if my team lands in Crown Point And spends four days canvassing and giving out 300 flyers.

I'm going to at least that space in a couple of months versus a year for a broker with a sign. 

Chris Powers: So Crown Point, Indiana, you buy the deal. What's going on? You send your SWAT team in. And you're like, Hey, you are going to stay in town until those spaces.

Don Tepman: No, you, it's about canvassing. It's about meeting with 300 tenants over the week.

Chris Powers: And shout out to Beth Azor, the canvassing queen. 

Don Tepman: Yeah, Beth actually did a call for free with Andrew and my team last week. It was like two hours with the guy, and they didn't charge us. So, definitely shout out to Beth. And so he's all fired up. And so if we go in there, like. First of all, tenants need to be used to owners coming in and saying, Hey, I want to like to recruit you.

So they love us walking in. They know the building. It's like, Hey, we're the Starbucks centre over here. Whatever it is. Oh, great. Are you guys expanding? Are you guys moving? When's your lease up kind of deal? And so we're proactive. I'm using Resquared now, which is a service I just found out about.

Chris Powers: What's that? 

Don Tepman: It's wild. They actually announced it last week. They, I don't know how they do this. They're like, why, why c backed and say that you want, like, you know, nail salon for your centre. So, last month, whatever it is, like, two months ago, I wanted a hair salon, whatever it is. So, it says it will email within 40 miles of your centre or 30 miles of every single hair salon.

Out of 280, 230 opened them, 13 responded, and 2 showed up. So they've somehow gone through social media. I don't even know how they really do it, but it's like it. Kimco's doing it that way right now as well to supplement. So, we're proactive about leasing. However, it's a passive industry when it's a small shop.

And you know, I can't wait for the call. I have to get the tenant canvas. Who are we after? What specific names are we after? So, like these four-and-a-half-star places that are salons and gyms, talk to every single one of them and get an answer. If it's no, I don't really care.

Talk to everyone. That's what it does. So, again, a week in Crown Point or Tucson or El Cajon or whatever it is increases the odds of us leasing dramatically versus just time. 

Chris Powers: You've said four and a half stars, like, ten times. What if we're, like, 4. 1 star? 

Don Tepman: Four and a half on Yelp?

Like, they're going to crush it. It doesn't matter. Like, Yelp gets us; that's part of it, right? So, if someone's four and a half stars on Yelp and they want to, You know, and they want my building. I'm going to make it work. I'm just going to find a way to free rent TIs; whatever it is like, I will make a deal with you because, like, you'll never leave, you'll crush it, and you'll help my centre.

Chris Powers: But 4. 1, like I'm being honest, what if it was like 3. 9 and you're like, no, we'll wait for a four and a half.

Don Tepman: 3.9 I'll do. Four or five, I light up. Four and a half, I can't believe this here. Oh my God, here's an accessible building.

Chris Powers: Oh my gosh. The Taekwondo five stars. Every kid's a black belt.

The spaces are getting smaller. What's the most significant space that you even have in a centre that you can think of? 

Don Tepman: Oh man, if I see a rent roll with a bunch of 4, it's too big. 

Chris Powers: What's the sweet spot? 

Don Tepman: The average space has hit about 2 400 feet or something right now on average nationally.

It's shrunk from 1,200 feet to about 1,200 1,500 feet because the overall number is manageable for them.

Chris Powers: So, 2,500 feet would be 40 feet wide, 40 feet of storefront, and 60 feet deep, which you said is the best. 

Don Tepman: Yes, exactly. But you know, it's going to be just a more significant overall number than the overall budget for the tenant.

There are a lot more tenants who can pay the rent based on three grand and six grand, just like your pool is much smaller. And eight grand is a whole other world.

Chris Powers: We're in the same business. I'm leasing to industrial people. You're leasing retail, but we have 10. Our average tenant size is less than 5,000 feet in the industrial space.

It's the same, but you're saying the same things all in dollars. They're less sensitive to the dollar per foot when all in. We'll have leases where we're increasing rent by 50 cents or a dollar each year, which could be 10 to 12 per cent of the rental rate. But all in dollars, it's like 150 bucks. That's the backbone. 

Don Tepman: Yeah, that's the backbone. 100%. So I like centres with small spaces, they lease. 

Chris Powers: Real quick, how are you? We talked about leasing, your canvassing strategy, which works in every market, and the new YC start-up ReSquared, which we'll plug into the show notes.

Don Tepman: They're a sponsor now, by the way, like the first sponsor officially. I'm actually using their product now for our team. So we've teamed up, and they're giving me national. I'm going to do stuff with them at ICSE. I might come in as an investor here. So yeah, they're, I'm fired up about.

What they're doing and like him goes on board. CBR uses them as well. And so, it's interesting cause it's, it's, it's so bull's eye as far as what I do. 

Chris Powers: Yeah. Right. Have you used density? 

Don Tepman: Still waiting.

Chris Powers: I had Andrew Fair on the podcast, and he was doing some exciting stuff with retail.

Okay. Real quick. Because you're not holding them as long, you're probably not as worried about it, or maybe you are, but how have you thought about increased cam taxes and insurance? 

Don Tepman: Yeah, I think about it a lot. If we're buying a centre and the rents are low, et cetera, but the nets are high for whatever reason, higher than our neighbours, we looked at it a lot.

It's all about the overall number. I would like to know if I will buy a deal in Florida. I just, I'm, we're trying; it's just that insurance thing. When it goes from 1. 20 to 3. 50, it's a big deal. I mean, in California, where if it's 50 cents and it goes and it doubles to, like, a dollar, it's not going to kill us but, like, definitely some pockets.

We recently looked at a deal in New Orleans and loved it, but the risk is too high. So, we definitely look at nets at 100 per cent for the overall number and impact. 

Chris Powers: All right. Let's talk about just the strip mall guy. First off, we mentioned it at the beginning, but I want to take this part seriously because people miss the point of what's actually happening here.

You probably wake up every day, and you're like, why does everybody not get what's happening? Obviously, to you, but you'll talk; you probably have some friends who are like, why are you on social media? Okay, so you started this account, and you saw some people tweeting about stuff. You didn't actually agree with it.

So you're like, I'll start this quick, anonymous account and respond to it. And then I'm going to vanish back into my account. And all of a sudden, you woke up a few weeks later, and you had thousands of followers.

Don Tepman: Like a week later, it was a week later. Yeah. 

Chris Powers: We don't have to go through the whole story.

The spoiler alert is fast-forward three or four years. You now have hundreds of thousands of followers and real deals written about you a lot. You're very well known on the internet. But the first thing is, what would you tell people? Because when I liked it, you made strip malls relaxed.

My message to everybody is that you can literally make anything cool. I could have made class B industrial cool, but it's the most tedious part of real estate in the world. My answer to people is that if you talk about something and it's attached to a personality, you can make anything cool.

As you could talk about painting rocks, people would be interested in it. 

Don Tepman: I mean, all this happened by accident, and you know, I wouldn't believe that social media can impact my business or my life so much if it didn't just happen to me literally without planning it. And so I fell into this, and what's missing is what a business tool it is.

And it's helping me be a better GP in so many ways, Chris. It's changed our recruiting like five years ago if I put out an open, like a job opening, some people interested, whatever, but you know, I'm just some guy with a small team who buys strip malls, like I'm not going to get some Ivy league person that's.

And so now, with the brand, I have some of the REITs, and there are MBAs, et cetera, with experience who reach out all the time and want to work for me and find deals. 

Chris Powers: Talk about deal finding.

Don Tepman: Yeah. Finding deals is the hardest part of the real estate world. And because it's so hard, a lot of folks make up, and they have other strategies to make money that let them avoid finding.

The great deal, because really great deals don't scale. And so you can't find 50 great deals a year. It just doesn't happen. So, when I was focused on the Bay area, if some buyer called me out of Texas or Florida and there was a billionaire, I didn't care who it was. I don't care what they owned.

I'm never going to call them again for a great deal as if they're not going to be at the top of my mind. I have my local people like it's just, it's just sorry. Right. And so, as we expanded, I was insecure about calling a broker in Texas and saying, Hey, I'm this buyer. They say, well, what do you own?

The first question is, what do you own? It's like, well, I'm in Texas. No, and they get bored. They're nice enough about it. But you know, how do you get brokers nationally to think about you? Right. So, what changed everything for me? First of all, on Twitter, you need to know who's listening.

It's a big dark room that you're shouting into. And so it was about a year ago now. And there's a listing in Philadelphia for sale in the market. So I called the broker. I'm like, Hey, I'm interested. He's okay. Here's a package. I go, what's the deal with it? And he says, listen, like, just what's your email address?

Fine, and I said, by the way, this is super random, but have you heard of the strip mall guy? He goes, yeah, I love strip mall guy. I'm like, oh, well, that's my account. He goes, oh my God, I have three offers. Three, eight, we'll get you the deal. Three, two will be too low. It gives me the whole deal. Right.

And I was like, holy smokes. Right. And so next door, there's a site for Leith Identical, so I needed those lease comps badly. So, I call that broker, and I say, Hey, by the way, I want lease comps. He goes I can't really give it to you, whatever. And I'm like, look, I want to buy next door.

He goes, I go, by the way. Have you ever heard of the Count's Trip Mall guy? And he goes, yeah, totally, why? I'm like, That's my account. He's like, okay, I'm getting 1. 80 dollars here. He sent me the entire rental, and I'm like, I'm like, what just happened? How does this broker in a Philadelphia suburb know about our brand?

Because I didn't know this was happening nationwide, posting and tweeting all these folks is like calling them every single day. It's scaled top of mind nationally for Strip mall brokerage, which I didn't think was a thing.

I had my accident, so you know, and also it's helping us in other ways. But it's tough because, with social media, all the things that really help you come up unexpectedly. Things happen that you can't plan for, so it just has to happen later. If you don't see the apple in that tree, you won't really climb it.

So, for example, there's a deal that we're about to close on recently, and we ordered a survey. It is just wild. The survey comes back, and we are six inches, like the building six inches on the other property. Thank you. Next door. I'm like, okay, well, like, can't get title insurance. Never get a loan on it.

We're done. We're all bummed out, So my team kind of link looks into the ownership, and it's some really wealthy family. Good luck. Okay, who are you going to call even after a day? I'm googling, and I'm like, the last name of the family Matches the previous name of this young guy who's followed me on social media.

And I'm like, there's no way it's the same person. So he works at a firm where I met his boss through social media as well. So I call him, I go, Hey, by the way, this kid, he goes, yeah, that kid's grandpa did this and that. And I'm like, you're not going to believe the story, like buying this deal right now, et cetera.

The next day, we're on a call with the guy; he calls his grandpa the following morning. We have an encroachment easement draft out, and he will get it signed that Wednesday. So that was like a million-dollar briefcase in the way handed to me because a lot of owners, not the right thing to do, would have said, sorry, buddy.

Call that seller and be like, Hey, you're stuck. Here's a haircut. I'll buy it and then resell it. So, I never would have planned that. So, like all these things come about, the more your audience grows. And so I just, it's so underrated. My way of giving back is trying to convince folks, tell them what I've been through, help them, and support them. Michael Fuseby was at DLA, our lawyer for big law. I was like, Michael, get on Twitter, get on Twitter, spent a year and a half on it, he's left, he's doing, like, the guy's got his law firm now, hiring people, he's crushing it, so it's, like, he saw the light.

Almost nobody does, so I'm on this mission to figure out why I like changing that. So, did you get the deal done? Yeah, we closed. It's a fantastic little deal. We're going to rehab it, create jobs, bring in some tenants, and lease a vacancy. And you know, we bought that with the social media account.

We would be out of Crown Point. There are sites that we're winning on the market, and there are good deals. But those brokers, If they don't know us like I have other folks in that market that follow me, that know us, that will call them and vouch for us. So, the brand's winning deals right now. And so I mean, it's not that hard to tweet every day, and the ROI is just off the charts, but people don't, they don't see it.

Chris Powers: You said, or I was going through. In the letter you sent me, you just said you'd talked to about 1250 brokers in Q1 versus 120 in Q4 at 22. So, in a year, year and a half, you've 10x your volume. 

Don Tepman: Brokers like taking our calls, and now they reach out to us.

Chris Powers: Talk about your funnel. Like how do deals work their way? How'd you get to Beltline, or how do you work a deal? 

Don Tepman: I don't know. That's on that Beltline now. So we created this community, obviously. And I like to try to be positive and helpful and give secrets and tips. And so it resonates with brokers and folks that are interested in this.

When folks DM me or email me, et cetera, I'll send a deal either to Marie on the West Coast, mostly, or Jacob Lightman on the East Coast, James Martin, etc., etc. And then they'll look at it. If they like it, they'll send it to me. We'll talk about it. And so, yeah, brokers reach out every single day.

And so that broker in Texas, et cetera, now is calling us. I love it when they call my cell phone. Like, call me all day long. And so it's like. You know, not a lot of great deals out there right now, but it's like, if there are five superb deals in a quarter that trade it in the country, my odds of buying one or two of them and stripping my world are much higher now than there were three years ago.

So, you know, imagine in five years. So after they DM us, as it goes to email, it goes into our sales force. I sent it out. An email every single month leads to more brokers thinking of us when that email and so it's definitely become a deal flow top of the funnel, which is why I'm doing all of this, right?

You know, I'm an introvert. You see, I'm not comfortable in the spotlight. I want the anonymous thing. It's funny because it's bringing us deals, and that's how I make a living. But I can't. The one part of this business that makes me the most afraid is how to find that next deal.

How do you guarantee it? Right. It's like we'll be 2 million or 9 million. And this helps tremendously. 

Chris Powers: I will give you credit. When we were in New York, I was up there. It was like the end of last year. You might recall you were in a slump. You last found a deal in, like, three or four months.

Interest rates were rising, and you were like, you could tell how passionate you were about feeling that, that deal. And it's funny. The deal businesses. You always know there's more coming when it rains, it pours, but when they're not coming, it can sometimes feel like I'm never going to see one again.

Don Tepman: And when it comes, it's like, Oh, that's so easy. It's easy. And so, yeah, look, I'm like, finding deals is easy. Finding great deals is very, very hard. And so my frustration is if I don't see a deal that hits our numbers for two, three months in a row, I know it'll come, but it's like we are a fund which is deploying, I will always buy a good deal.

I don't care about how much pressure having to deploy comes with. I will not deploy. It is what it is. I'd much rather deploy three-quarters of the fund than buy some bad deals. Because you know, in five years, I'm going to regret purchasing those deals. And so I put pressure on myself to buy good deals, and those are really hard to find.

And sometimes you can't predict. All I can control is how many brokers our team talks to every single day, period. I tell them every day, how many brokers? 20. You're good. You're fine. 

Chris Powers: And real quick. Are you even trying to go directly to the seller, or are you trying to do every deal through a broker?

Don Tepman: We did that in the Bay Area for years. That's changed so much, you know, like I had an employee doing that full time for, for a while. And then, for a year and a year or something, he didn't find one person because there is more information out there right now, and folks are cold-calling those BoVs.

You know, every owner's got six BoVs from and. When the market was going up from like all the years, I was that BOV that said 4 million last year, maybe it was 5 million. So when you brought that owner of a 5 million dollar offer, he's like, Oh wow, it was 4 million last year, 5 million.

I'll sell it to you. Now, it's the opposite. That BOV at 5 million is now 4. You know, you make them offer it forward to, like, my BOV says, five. And so that's totally flipped, for sure. Okay. 

Chris Powers: Let's discuss the market for just a little bit. Retail is not dead, despite what we have been hearing for years. 

Don Tepman: I like the narrative of retails that it helps me a lot and like people are getting wind that it hasn't been dead for a long time, but you guys know it's, it's, it's very much thriving right now.

Chris Powers: They're not really building these neighbourhood centres like they used to. Not at all. Is that because of cost? Is it because of regulation? Is it because these areas have become so dense that any available land you're doing a much more dense product than a strip centre? Like, why aren't we building this?

Don Tepman: Look, the average strip centre is probably worth about 200 a foot nationwide, 250 a foot. Okay. And it costs, let's say, an average three 50, 400 to build. So there you go. You also don't have the scale when you're building 15,000 feet; you don't have the scale of a hundred thousand square feet. So it's just more expensive per foot to build.

So, yeah, they've knocked a lot of them down and turned them into apartments, etc. And so, like you, really, there is almost no new retail supply these days. And so you have Starbucks telling Wall Street, we're going to open 3000 stores by 2030, Chipotle, etc. It's like I still question where they are going to go.

Right. And so right now, nationwide, we have a 4 per cent vacancy rate. If you look at the location vacancy rate, which is not really a stab, but I think it's like 0. 2%, like every corner kind of in America, like if you have good space, it's gone. And so it's tight right now. So, folks are jumping in, and they think it's easy.

There are funds, raising money, and getting in. I want to understand what the goal is because it's a tricky business. What are you doing? 4 million deals. How do you deploy a 300 million fund? What are you going to do? A hundred deals a year. Every nail salon renewal is tough. It takes time. A lot of times, there are language barriers, and they need to help to understand your 38-page lease.

And it's a space that's doing well. But it's a dangerous space where if you don't really understand it and know it, you can get burned really, really bad. There are so many ways that you could lose your equity. Dry cleaners kill half our deals. I take it so seriously.

And it's like folks say, oh, phase one's clean. I go, well, that was washed and dried. Have they ever had dry cleaning? Well, the phase one's clean. I don't care. Ask your environmental lawyer what they think. He goes, well, wash and dry, which could have meant that they did dry cleaner 20 years ago. Order of phase 2, okay?

We had a site that was a carpet cleaning place. Phase 1 said okay. Versus no, sometimes they use PCE chemicals to clean those. Right? We tested it, and it was about 50 times the legal limit. We would have lost all our equity. Other people probably bought it. So, Retail's hot, yes, but folks are jumping in like crazy, and without that leasing background and knowledge and the operating person as an executive, I'm not really sure why it makes sense.

Chris Powers: Do you have Starbucks in your centres?

Don Tepman: We have over the years, but currently, we don't. We manage a couple of centres that do have Starbucks, and we love Starbucks, so I do not. Yeah, they're a great tenant. Starbucks is like the anchor of the strip mall world, so I've done a bunch of deals with them.

Chris Powers: But, like, if a coffee shop came to you, you wouldn't be like, well, there's a Starbucks down the road.

Like, do you really know if, again, four and a half stars? 

Don Tepman: Back to Yelp, yeah. I mean, like. Some of those coffee places absolutely crush it. It's a faster deal. Less, less legal expenses. I'll get better terms. And so, yeah, I love nationals, but I love mom and pops as much. And I'll do, I'll do either. 

Chris Powers: Why have tenant move-outs been down 20 per cent since 2021? 

Don Tepman: Are they? Cause where are they going to go? Right. 

Chris Powers: Because there is no vacancy.

Don Tepman: And so, plus, if you're a restaurant and you're not doing so well, you can sell your business. Someone will buy it rather than do the TI's. And so, look, I mean, I think tenants need to be more wildly thriving. 

They're doing fine. But a Tenant who was making maybe 80 a year is now making 30 a year and has no other option. So tenants are getting struck on renewals right now because owners know where they're going to go. And so that's something that I really watch out for; the nets are going up for sure.

Rents are also high, so you really have to be careful how much you squeeze these tenants. 

Chris Powers: And banks are still lending on this stuff. You're probably borrowing from community or regional banks. 

Don Tepman: Yeah. Life goes as well; we're like, 55 per cent LTV is my maxim, and you know, I still want a 45 per cent LTV.

It was because banks liked our deals. We buy out cash, obviously, and finance later, but it's like, yeah, it hasn't been an issue. It's all different lenders, though. It's always different lenders because all of them have the things that they like or don't like, et cetera.

Chris Powers: So you're like Moses, all cash upfront. He gets all the cash up front, does the whole remodel, gets it all leased, and then refuses it out at the end. 

Don Tepman: He's held forever, right? 

Chris Powers: Yeah, he's held for excellent. That's where you all are different. But as far as the cash up front, all cash offers are just capex. 

Don Tepman: You have to; I want to win deals, like a big re-sold us a deal a year ago and being cashed off or maybe difference I can close in 1421 days. If I really, really have to. We won the contract because of that. 

Chris Powers: You're not doing any power centres. 

Don Tepman: Not what I do. 

Chris Powers: No interest in that. What about. That's what we've been talking about.

I'm not saying it's a class B product, but it's more like neighbourhood services, things that you would do, like a luxury retail strip centre in a super high-end neighbourhood where the tenants are high-street, or going over to Highland Park in Dallas. 

Don Tepman: Yeah. We bought a deal like that very recently.

If there's value there, I will rarely see good deals in those areas. You have folks who will overpay for that stuff, like generational stuff. We bought one off-market two weeks ago in the zip code with the highest earnings in the country. And it was off-market, and it was like, Holy smokes on X, Y street.

We jumped in because, you know, deals are selling doubles at a price per foot in the area. And so, but usually, finding those deals takes a lot of work. 

Chris Powers: What's a market that you hope to do a deal in that you've never done a deal in, or do you even care about that? You want a good deal.

Don Tepman: You know, it's really deal-driven. You see, I wouldn't mind being in Florida. Texas will likely happen soon, but it's all about finding me a good deal, no matter where it is.

Chris Powers: You lease all your stuff. Do you manage all right now? 

Don Tepman: Yeah, we do. And so retail is a little bit different. Like they don't call you for toilet leaks, et cetera. It's a triple net. And so we usually hire the last handyman. It's the same garbage company, sweeper, et cetera. Like it's not that intensive we're, this fund right now. Just bought our 7th centre. Once we hit maybe 12, 13, or 14, perhaps some will do it locally, but it works for now.

Chris Powers: All right. Well, let's end with a good story. So we were at reconvene this year. And you came up to me, you're like, Man, I got to tell you something. I was like, what? You're like, you're never going to believe. What I'm about to say to you, like, all right, what, like, you're never going to believe it. I was like, tell me.

And you show me this picture, and it's you sitting in Charlie Munger's living room. 

Don Tepman: I couldn't believe it. I still can't believe it. So yeah, powerful social media, man. So I idolize, obviously, Charlie Munger and his ways of looking at the world, keeping it simple, and specializing in what doesn't complicate all these things.

And so I went on Twitter about a year ago now, and I said, Hey, everyone's super random, but if anyone can get me a meeting with Charlie Munger, please make it happen to me. One of my followers happened to know Charlie's right-hand man really well, and it was like, Oh, Don, I didn't realise that you wanted to meet Charlie.

I was like; I didn't know you knew him. You know what? We never asked, so I don't invite friends randomly if they know Charlie Munger. Apparently, Charlie loves strip malls. Okay, and he loves real estate and buys or buys a lot of real estate, and so someone on his team I chatted with for about 10 minutes.

He goes this is great. Charlie will love this. What will you do again? Whatever. And so the guy was in New York a week later. We met up. He spent about three hours talking about real estate. 

And so he goes, listen, next time you're in LA, reach out; Charlie would like, love to meet you. I told him we met and that you are passionate about strip malls. And he really wants to meet you. I'm like, this is wild, but it can't be real. I thought that had not actually happened. So I landed in LA, actually San Diego, on that deal that we bought. Reconvene was the next day with Moses.

And so I land at three o'clock, and I go, Hey man, I'm in the area. Like this, is Charlie around? And then, so then our lady goes, Okay, Charlie, we'll see you at his house at 8:30. And it's like, it's like, it was like five 30 PM in San Diego. I like, I'm like, holy smokes. I drive to L.A. through traffic and get to this kind of normal-looking street.

I'm like, okay, I'm just going to park the car and go in. There's like a minivan up front. I'm like, this is, this cannot be happening. And so that guy showed up and met me. We walked in, and you know, it was like walking in and seeing Babe Ruth sitting in a chair. I really couldn't believe it.

It was so you buy these strip malls and have a seat. It was all fired up, but his house was like those owners I'd meet with when I was 25 who had a lot of real estate but had these homes that they had just never updated since the sixties. And so, it felt comfortable because I met with folks like him in real estate a lot.

After a minute, I wasn't; the aura went away a little bit, and it was like, okay, two people talking finance and real estate. It was like finance therapy. He was forthright, asked me questions, and wanted to know a lot about how my property fund was set up and fee structures.

Do I buy, do I rent? He was no-holds-barred and asked me a lot of questions and thought about them. And then, after about an hour, that guy called me and said, Hey, ask Charlie how he's doing. I'm like, Charlie's like, Oh, tell him we're great. All right, and I was like, And then at the end, it's funny. And like classic monger, he's like, all right, I'm done.

I'm tired. And he just, like, there was no handshake. There was nothing, but I was offered water out of his fridge, which I still have until this day. I didn't open it. I want Charlie Monger's water. So it's surreal, but it's funny. Because, you know, so I waited a while, and you know, I was so excited to post about it on Twitter, and I was like, okay.

And when I did, it went from like. This thing where it's like, okay, excellent too, like, wait a minute, strip mall guys making this up, and it went viral in the wrong way that this guy can't be honest because I have the photo, which I'm not going to post. It was in his living room with his stuff behind it.

So it went from this joyous thing to Twitter being Twitter, which is the dark side of it. It went to, like, he can't be telling the truth, which would really, really hurt and bother. 

Chris Powers: It wouldn't be Twitter without that. Do you remember? Yeah. Like a question he asked you or something.

He said that you're like, man, I've never heard that. Or that was super thoughtful, or only Charlie would ask that. Or is there something you came away with? 

Don Tepman: Yeah, no. He was like, he goes if you can't buy and hold, you don't have a viable business. He says, when you leave here, call your LPs and tell him you're changing your documents to buy and hold.

I'm like, Charlie, I can't really do that. And out of the hour and a half, two hours, probably half an hour, how do you make this thing so you can buy and hold it forever? Because that's how you really create wealth. And so that's something that I've obviously heard before, but coming from him, it obviously like he's right.

So, I had to find a way of making it work, but I appreciated how blunt he was. He was forthright, like, that's wrong. Do this. Don't do that. He was like, Don, I go non-refundable day one. When I buy, why don't you? I said, well, dry cleaners. Oh, good point. You're right.

I don't, things are terrible. He really understood the business. He was worried about tenants and them getting squeezed by landlords and how that's going to look in 5, 10 years, et cetera. He loved dentists for whatever reason. He spoke about how they, like, just like a physically demanding job, he, life as a dentist, he works so hard, he stands on his feet all day. It's laborious, and he enjoyed talking shop with someone who had, like, a niche knowledge about something that he was passionate about.

Chris Powers: Did he have any suggestions on how to set up something to hold forever besides a REIT or your typical? Did he have anything unique to say about thinking about it this way? 

Don Tepman: I don't think he was there to solve my problems. Like, he was there to point them out and say, work on that.

And I should have asked him how to solve it. I just felt like it wasn't, but he definitely Poked holes in it and, be like in a different LPs, but it's like, again, I mean, look, look, Chris, 40 years of rates going down is going to have impact private equity, right? They get in, they get out.

There is a system. But when you have an average deal size of 4 million, it's very different, and it's like Charlie doesn't invest in things. I mean, he knows way more than I ever will. But his real estate is not 4 million; it's 6. It's just harder to scale that way.

Chris Powers: Why does he like multifamily so much? They say that?

Don Tepman: I don't know, but it's been published that he bought more apartment buildings in California than anyone else in 2021. And so you know, he goes out there, I heard, or he saw an insurance bill. I heard that they would before more of their properties and literally called the insurance company, like the number, and asked why this bill was so high.

It gets really involved. He's hands-on. I didn't know that he had such a passion and love for real estate and was so good at it. 

Chris Powers: He designs it, too. He doesn't really do student housing buildings, and I heard there are no windows or something. 

Don Tepman: I don't know about that part of it.

Chris Powers: Twitter gets really mad about that, too.

Don Tepman: No comment, then. 

Chris Powers: All right, well, let's end it on this. You've treated this strip mall guy thing with a lot of humility. You stayed private for a long time. It's only recently that people have known the man behind the mask, even though I've had the pleasure of doing that for a long time. And I never said anything; I always kept it a secret.

Do you have a strategy for it? You mentioned you might get in this deal. You know, there's been—I wouldn't say I like the word influencer, but we'll use it for the context—you've seen it in other industries. And now I think what's being proven is, Oh, you can have them in the real estate world.

You can have them in the oil and gas world. You can; how do you think this plays out? Obviously, you want it. You want to buy strip centres, make great deals, and give your return to investors. That's the priority. It would be hard not to say there's this other thing building, whether you ever do anything with it or not. It's up to you, but you're getting approached by a lot of people.

How do you see it playing out? Or do you just not let your mind go there? 

Don Tepman: Yeah, I mean, look, I don't; it feels like someone else is being discussed, not me. When people like say, Hey, straight mall guy, whatever. And they want a selfie. Like, I feel like they're talking about somebody else. I'm not comfortable with it.

I never will. I've been tense this whole interview. I'm not usually like this. I visited Kyle Matthews the other day at their office. And I was like, but I have to do it because growing the brand is going to bring me more deals. My career oxygen is the next deal because I love doing it.

And it's like, I want to have all the deals like my mentor is a little bit. And so what's behind it is to make that brand bigger. I had Jeff Belau show up on stage last week with me at the gala. 

Chris Powers: How was it?

Don Tepman: Oh my God, the gala was crazy. It was surreal, you know; we had a lot of fun just celebrating this real estate Twitter. 

Chris Powers: How many people came in? 

Don Tepman: 200 people. 

Chris Powers: 200 people came in. You got them dressed for a black tie event. 

Don Tepman: We had a red carpet. The real deal was there. The editor-in-chief of Commercial Observer was doing red-carpet interviews.

We had BizNab there, as well as Bonner, their editor-in-chief. I wanted the national real estate media to see what this community is about. They were blown away. Again, it's about branding and making more folks hear about the strip mall guy, which leads to us having more credibility with the brokers.

It's all about the brokers, which leads to deal flow, which is my career oxygen, literally. 

Chris Powers: Boom. If you're a broker in the retail space, have a strip mall, and are listening to this, send it to my man, Don Tepman. 

Don Tepman: I love it. 

Chris Powers: Don, thanks for joining me. 

Don Tepman: Thank you so much. Such an honour. 

Chris Powers: This is awesome.