Can Landlords Keep Raising Rents? With Tim Wallen of MLG Capital, Real Finds Podcast #51 Transcript
Tim Wallen: You should be able to push rents. There’s a stat I like to point to: in the last twenty-four years, compounded cost growth for new construction is up 3.7 percent. Over that same time frame, compounded multifamily rent growth is only 3.2 percent. Even though we’ve had seventy percent rent growth in the last ten years, there were a lot of periods where you didn’t get rent growth because of what was happening in the marketplace. In general, long-term compounded rent growth is only 3.2 percent. Rents have not kept up with the reality of what it costs to produce new product.
Gordon Lamphere: Hi, I’m Gordon Lamphere, and welcome to the Real Finds Podcast, the podcast that interviews key entrepreneurs, activists, and researchers shaping real estate and, as a result, our world. On today’s podcast, we speak with Tim Wallen. Tim is CEO and principal of MLG Capital, which focuses its portfolio on Midwestern industrial, multifamily, and office assets. We discuss the power of cost segregation, tax strategies, the challenges of penciling workforce housing deals, and adapting deal strategy to disrupted markets. It’s well worth a listen. Tim, thanks for hopping on the podcast today.
Gordon Lamphere: Why real estate?
Tim Wallen: Big question. Big picture, real estate is a great diversification tool for investors, away from the public marketplace, with very little correlation to the S&P 500. We focus heavily on multifamily, which has exceptional income tax benefits. In my young days, I was a Price Waterhouse tax manager before joining MLG thirty-five years ago, and I did a lot of tax work for other real estate companies. So: great after-tax results and great diversification from public markets.
Cost Segregation and the Tax Case for Consistent Investing
Gordon Lamphere: What are those tax results?
Tim Wallen: It’s kind of crazy if you use all the tools available. We have twelve CPAs on staff and over nine hundred employees. The biggest thing most real estate guys miss is that they don’t do cost segregation studies. That’s the real juice that gives incredible after-tax benefits, and we always encourage real estate folks to use that tool.
Gordon Lamphere: How do you apply that in your practice?
Tim Wallen: When we buy a property, within thirty, sixty, ninety days of closing, we get an engineered study that analyzes all the elements of the property. If you turn to your right or left and see that light socket on the wall, that socket has a different life than the wall itself. So you break up your purchase price into different asset classes, but you need an engineered study to do it right, so the math supports your position if the IRS ever looks at it. I wouldn’t recommend doing it without a formal engineering study.
Gordon Lamphere: What’s the biggest benefit you get from cost segregation?
Tim Wallen: To the extent you move depreciation life: multifamily gives you a twenty-eight-year depreciation life and commercial property thirty-nine and a half years, and you get items down to five-, seven-, or fifteen-year property. A parking lot has a twenty-year life versus the building. Depreciating those items over five to seven years instead of twenty-eight or thirty-nine is a huge impact on after-tax cash flow.
One other thing a lot of investors miss in private real estate is that consistent, ongoing investment is critical to creating the maximum tax benefits, and there are hidden things most real estate guys don’t fully understand. A lot of guys want the buy-and-hold strategy. Buy and hold fails from an income tax perspective. Over time, you burn through your basis and start paying money to the government you wouldn’t necessarily have to. But ironically, if you sell a property and trigger passive capital gain income, that allows the use of passive ordinary losses. If we give somebody $500,000 of passive capital gain income, and they have $500,000 of passive ordinary losses sitting unused, those losses can now be used. Once that $500,000 of taxable income is on your return, the ordinary piece goes against retirement income, interest income, anything taxed at the highest rates, and the capital gain piece is taxed at capital gain rates. Today, the first $580,000 or so for married couples is taxed at only fifteen percent, or 18.8 with the Obamacare tax. So there are dynamic tax things you can do over a long period, but the art of capturing those benefits is consistent annual investment in private real estate over a long period of time.
Gordon Lamphere: So that goes along with your general strategy: you’re not a super-long-term buy-and-hold firm. You deploy, maximize, and move on.
Tim Wallen: We typically hold assets anywhere from three to ten years, with the bulk in a five-to-eight-year window. Some assets spin out in two to three years and some we hold ten. It depends on how quickly we accomplish our plans and on market conditions.
Where the Market Is: Supply, Starts, and the Cycle
Gordon Lamphere: Multifamily seems to be in an interesting spot. What are you seeing generally, and for context, what regions are you primarily invested in?
Tim Wallen: We have a broad geographic platform, which makes us unique. We’ve been averaging about a billion a year in acquisitions, and even through this cycle, when people have a hard time raising capital, we’ve maintained that pace. We’re acquiring in about eighteen to twenty states, and we basically stay away from the coasts. We stay in the central part of the country, where we find better valuations. I’ve been in this industry almost forty years, and right now we’re in a market of excess supply versus demand, with more deliveries than have been absorbed. I believe that’s a short-term condition. Most markets will absorb it, with exceptions where they’ve overbuilt and it’ll take longer. Meanwhile, new construction starts are coming to a screeching halt. Construction costs are way up, interest rates are way up, and the combination makes the math of new construction very difficult, and capital very hard to raise.
I equate this to the early nineties. We came out of the Resolution Trust days after the savings and loan crisis of the late eighties. The market was way overbuilt because of the tax laws under Reagan; people were building for income tax reasons, not economic reasons. Then you had a nice period from about 1989 through 1994 with very little in the way of deliveries relative to long-term demand. Ballpark, you need about 400,000 multifamily units per year to meet household formation, and annual starts were in the 100,000 to 200,000 range for multiple years. Similar scenario coming out of the Great Recession, from mid-2008 through about 2013, starts back down to that range. We’re on our way down again. The most recent first quarter was about 80,000 starts, a 300,000 annual pace, down from five to six hundred thousand annual starts in 2021 and 2022, which delivered in 2023 and 2024, with some residual now. Last quarter starts were around 60,000, a 240,000 annual pace, and I wouldn’t be surprised if that dips to 50, 40, or 30 thousand units a quarter. So we’re coming out of the delivery cycle, and it’s going to flip back the other way. It’s always fun on the other side of the cycle.
Why the Middle of the Country
Gordon Lamphere: Why do you get better valuations in the middle of the country?
Tim Wallen: We do a lot in the Sun Belt too. We have big operations in Texas; we’re the fourth largest property manager in Dallas. But in general, the middle of the country doesn’t deliver as much supply versus demand. When you have a go-go market like Dallas, Phoenix, or Florida, you get the yin and yang of supply and demand. Monster demand growth happened: companies moved from California to Texas for lower taxes and a lower-cost environment for employees. Developers try to stay ahead of that, and sometimes get too far ahead, which is what happened in 2021 and 2022. It was also artificially impacted by unsustainably low interest rates. The math got too easy. Borrow at three and a half percent and sell at a four cap and you’re done. Today you’re borrowing at seven and a half or eight, and cap rates are up to five and a half, five and three-quarters, six, and the math doesn’t look so good. The Midwest hasn’t had that supply side, and we’re able to buy in the Midwest at five and a half to six caps, a reasonable valuation versus interest rates. In Dallas, you’re still seeing high-fours, low-fives cap rates, so you effectively have negative leverage on the buy side. That doesn’t mean we won’t buy there. We’re buying soft NOIs in the Sun Belt right now: occupancies are soft, concessions are up, rents are flat, real estate taxes are up because communities got aggressive, insurance ran through the roof. You’re capitalizing soft NOIs at much more attractive cap rates than we’ve had recently. I think you’ll see a snap-back in Sun Belt NOI, but it’ll take a couple of years. Supply deliveries need to slow dramatically and let the market absorb what was delivered over the last three years.
The Workforce Housing Tenant Got Crushed
Gordon Lamphere: Within Sun Belt multifamily, what’s resilient, and what’s more likely headed toward distress?
Tim Wallen: Pre-COVID, pre-inflation, multiple strategies worked well, including value-add on Class C and B workforce housing, because tenants could afford higher rents for an improved unit. What happened this cycle is the workforce housing tenant got crushed. The rampant speed of interest rate increases, and the inflation that followed, really hurt them. Their salaries haven’t kept up. So in workforce housing, you’re seeing people move in together or move back home because they can’t afford it. Less demand, softer occupancy, growing concessions. You still have the lingering eviction problem, since court systems aren’t back to pre-COVID normal for tenants who aren’t paying. So right now we’re staying away from workforce housing, and any we have in the portfolio, we’re polishing up for sale to redeploy into newer product.
The institutional buyer has taken a big pause on multifamily, and that’s going to change. When rates ran up, it hurt the bond market, and a lot of institutional bond portfolios took a big whack, which threw their asset allocation models off. They couldn’t deploy new money into stocks, private real estate, or private equity because they had to put money into bonds. We all heard about large institutions making material redemptions from large institutional funds, with a lot of requests not even met. So our term right now is, we’ve got to beat the herd. Blackstone recently bought AIR Communities and took a public REIT private, so there’s no doubt the institutions are coming back, and they’re probably getting closer to having their allocation models in order. For the last eighteen months, we haven’t had institutional competition on the buy side for well-located Class A assets, so we’ve gotten some really interesting cap rate buys on Class A product in great locations. We’re very focused on 2000-and-newer inventory in great locations, institutional-grade product, because when the market snaps back and we get better NOI growth as the excess supply is absorbed, we think the institutional money will be back on the buy side and improve our cap rates on exit.
Industrial: Older, Smaller, Lower Rents
Gordon Lamphere: We’ve been growing our management portfolio and working with investors to find industrial assets in Chicagoland, and Illinois, Wisconsin, and Indiana have been robust. Your portfolio has industrial too. Where is it, and is it similar to the multifamily footprint?
Tim Wallen: We have about five million square feet of commercial assets, almost all industrial, a little retail, and one office building, mainly in the upper Midwest: Ohio, Illinois, Wisconsin, Minnesota. We try to do portfolio buys as much as possible, but it’s a hard asset class to buy. There’s a lot of competition, though less now. We’ve probably seen a solid hundred to a hundred and fifty basis points of cap rate movement in industrial, so it’s been good to be a buyer, but it’s still hard. I like buying older stuff with lower rental rates. It’s very hard to replace, and if you want new space, you pay for newer product with rents maybe seventy percent higher. A lot of that existing product is owned by the local business community, so it’s hard to get hold of. I don’t like to play in the big institutional industrial space. Too much capital’s there, and it’s too easy to slap up a new distribution building. Communities are easy on zoning for industrial, so it’s easy to get caught in excess supply. Southeastern Wisconsin has something like five million square feet of vacant industrial right now, because a lot was built for folks who want to be just north of the border in what’s effectively a northern Chicago market.
Gordon Lamphere: Drive around Pleasant Prairie, Kenosha, and Racine and there’s a lot of vacancy. What’s struck me is the extremely large big-box model of the last ten years, some of it not very divisible. For the Class B and C industrial you’re buying, what’s the ideal property?
Tim Wallen: Ideally, an older flex building with minimal office. They tend to get too much office in them, and you can’t rebuild that stuff; it’s too expensive. The demand is there for that product. We bought a large portfolio in Ohio with rents all in the three-and-a-half to four-dollar range, and when you move rents fifty, seventy-five, eighty cents a foot, there’s nowhere else they can go. You just have to have the nerve to hold firm on the rate, and generally you can get it with no TI.
Gordon Lamphere: Are you primarily buying portfolios or one-off properties?
Tim Wallen: Mainly portfolios, but we’ve done smaller one-off deals, especially where we already have product in the area. If we have a portfolio in a market and buy a couple of smaller buildings, we roll them together and operate them as a portfolio.
Gordon Lamphere: On reducing TI, which we work at tenaciously because every dollar matters even when you amortize it over five, seven, or ten years, where do you find TI dollars skyrocket?
Tim Wallen: It becomes a credit decision. The more you invest in a space for a tenant, the more term and the better credit you want. It becomes a banking decision as the dollars go up. I’m not afraid to spend the money if the credit backs it up. Once you’re past modest wall movement, paint, and flooring and into significant investment, there’d better be credit and term to justify it.
Non-Traditional Uses and Buying Vacancy
Gordon Lamphere: Increasingly we see flex uses coming into industrial parks, and I know flex means something different in LA, New York, or Miami, but here it’s uses that aren’t traditionally industrial: a church, a gym, a children’s bounce house, a brewery. It’s been a difficult point for some owners. How do you handle them?
Tim Wallen: When we buy industrial, we try to buy vacancy. We bought a big industrial deal in Minneapolis a year and a half ago that was seventeen percent occupied; now we’re at seventy-seven. So if some of your space is a less industrial use, it’s okay. You just can’t have too much of it, because it’ll impact your cap rate on exit. Watch the magnitude, or be willing to hold longer. We have a couple of shopping centers where the fitness craze hit, and it gets hard to sell because the cap rates people want to pay aren’t great. Then you look at your cash-on-cash holding it and say, I’m better off holding this than selling at that cap rate. A lot of the retail centers where we have fitness, we’re holding longer. You get to twelve or thirteen percent cash-on-cash and ask, why would I sell that at an eight and a half or nine cap? I know their numbers are good, the membership numbers are good, and the buying market isn’t acknowledging that, so we take the risk and hold. Non-conventional uses have an impact on cap rates, and if you do too much of it, you have to be ready to hold.
Gordon Lamphere: We’ve owned a building for a while with a veterinary clinic, a vape shop, all the worst uses in one building, and it’s been incredibly profitable. Individuals reached out to buy it for a steal, and we said no, it’s printing cash. When you buy vacancy, is the value that you’re buying for cents on the dollar, or that the space isn’t screwed up already?
Tim Wallen: We’re not afraid of reconfiguring space, but the price needs to reflect that reality. It’s a value play. We’re looking to pay a price per square foot significantly below what we can sell for, with enough delta for negative carry during lease-up, anticipated TI, and a spread when we sell. With all commercial assets, we buy with a strategy to grow NOI, and once we’ve achieved it, we tend to sell. For industrial, our typical hold is two to five years; multifamily is six to eight. Retail is a must-sell upon fixing, and office is an absolute must-sell after you steal it on the buy side. If you don’t pay hardly anything for office, you can’t make the numbers work or take the risk.
Gordon Lamphere: Why two to five years for industrial versus longer for multifamily?
Tim Wallen: If you’re playing in flex, you have a product with potentially material TIs, and the marketplace doesn’t properly capitalize that business risk. So we think you’re better off exiting, taking the capital, and buying something else, rather than holding and taking the risk of the turn and another batch of TIs. There are exceptions. We have an evergreen fund with a fair amount of industrial. Sometimes the space is already cut up into three-, five-, and ten-thousand-square-foot bays, the expense of cutting it up is already there, and you’re going to lease it that way like an apartment complex. You’re not blowing out bays to create a twenty-five-thousand-square-foot space, because there’s enough demand and limited supply for the smaller bays. But with bigger product, a mix of fifteen, thirty, forty, sixty thousand, users tell you they don’t want the sixty, they want thirty or forty, and that gets expensive. So our philosophy is lease it up and sell if there’s TI risk. If there isn’t much TI risk, you can hold.
Office: A Permanently Broken Formula
Gordon Lamphere: You mentioned the only way to do office is buying at incredibly low prices. I’m working with buyers and sellers who are nervous about buying office or selling for very low prices, and we haven’t had a meeting of the minds because expectations are so far off. What are you finding?
Tim Wallen: Historically, office has been a screwed-up asset class for all thirty-five years I’ve been in the business. It has a perpetual, systemic problem of excess supply versus demand. I call it the CEO problem: CEOs build brand-new buildings because they want the cool, sexy new building, even though there’s plenty of space in town they could fix up. That systemic problem is never going away. Then you throw COVID and work from home on top, which took another swath of demand away. I do think there’s some recovery. Amazon is telling employees to come back. There’s something real about culture and education. The irony is that the young professional who wants the work-from-home option is the one who most needs the professional development and learning from fellow workers. It’s the youth getting hurt by work from home. Guys like me with thirty-five years in the business have our relationships and can operate remotely. Even so, two and a half years ago I made all employees come back to the office, because that’s not the company we’re going to have. But there hasn’t been enough shift back to overcome the demand problem. As leases turn, and commercial leases run five to ten years, people want to give back space, and often they don’t want to live through a rehab, so they move.
So my viewpoint is there are tenants to be had if you have a building fixed up really nice with great amenities, a turnkey solution, and a great location. Tenants are willing to move because they want a new layout, a new strategy, hotel-type desks for people who want to work remotely. There’s demand to fill space. But I would never buy anything but a reasonably vacant office building at a dirt-cheap price in a great location. You really have to be at the point where the equity has already lost its money, you’re dealing with the lender, and it’s a short sale. I don’t see a bid-ask spread that solves it for the guy who bought before COVID. Most non-Class A, second-generation office is going to be systemically sixty to seventy percent occupied at best, everyone fighting for tenants, and turn costs will absolutely crush you. Nothing but negative cash flow. The question becomes whether you give the keys back, and whether you have recourse debt. It’s a permanent problem that was never going away before COVID and just got worse. But can you buy something for thirty bucks a foot, move tenants in with ten-year leases, be all in at seventy-five with turn costs and repositioning, and sell for a hundred or a hundred and ten? Possible. But it takes the right location, because your cap rate is going to stink on the sale. The office formula is completely broken, with a permanent, systemic demand problem.
Gordon Lamphere: Where are the easiest fixes? For us, entry point is one challenge, and the buildings we have that are profitable all have low entry points. But the biggest thing is TI dollars. It’s really expensive to do an office deal in Chicagoland today, sixty to a hundred dollars a foot, which doesn’t make sense unless you have a high-credit tenant. What are you seeing?
Tim Wallen: It’s crazy. Ultimately it’s driven by tenant needs. It’s a wounded-duck, walking-dead situation for office owners. In Minneapolis, we just did an eighteen-thousand-square-foot tenant deal at about forty-five to fifty bucks a foot, but we got a ten-year lease, because it’s hard to make the math work without term. We’re really not looking at much. It would have to be an absolute steal. With an owner, I don’t think you’ll ever bridge the bid-ask spread. You’re stuck with the lender willing to take a short sale, or the transaction doesn’t happen.
Where the Opportunity Is in 2025
Gordon Lamphere: Our most successful office deals have been buildings that were debt-free before COVID that we could invest in, or distressed post-COVID buys where the entry point was right. Going into 2025, where are the biggest opportunities for deploying capital?
Tim Wallen: Of all the asset classes, Class B and A multifamily outside of workforce housing is the best opportunity right now. You’re buying softer NOIs because operations are soft. A lot of communities got aggressive on real estate taxes, and now you can go back and negotiate. On operating budgets, we manage about forty-five thousand units, and we’re starting to see reductions in bids from service contractors, because there’s enough softness that they’re less busy and willing to reduce prices to win business. When the lack of deliveries kicks in, you’ll see concessions drift away and occupancies rise, and once occupancies rise, you should be able to push rents. There’s a stat I like to point to, and it’s important to go back to the year 2000: in the last twenty-four years, compounded cost growth for new construction is up 3.7 percent, and compounded multifamily rent growth is only 3.2 percent. Even with seventy percent rent growth in the last ten years, there were periods with no rent growth. So rents haven’t kept up with what it costs to produce new product, and there’s a big delta between existing inventory rents and what it takes to build new. As the market tightens, it’ll be interesting how rents move, and the Class B and A tenant can afford to pay it, whereas the workforce housing tenant cannot.
Gordon Lamphere: Can you explain the delta between prices and rent growth, past and present?
Tim Wallen: Percentage-wise, across A, B, and C, you’ve seen similar rent growth. But right now demand for workforce housing is really weak, because people moved back home or in together or got evicted, so there are fewer renters with the ability to pay. On the other product, rents are relatively flat right now, flat to three percent depending on location. I think that snaps back once we absorb the excess deliveries of the last twenty-four months. Three or four years out, I think it’s a really interesting environment: rents snap back, higher occupancy, lower concessions, fewer delinquencies, and then you push rents, and institutional money is fully back, so cap rates and demand for multifamily will be real.
Bottom line, multifamily did its job in this cycle, and so did industrial. Retail too, but that’s a separate discussion. We had a big inflation pop, bonds took a direct mathematical hit, but in multifamily and industrial we could push rents up. NOI growth offset the effect of higher cap rates, so the inflation hedge was real. That’s a main reason institutions and other investors should have private real estate in their portfolio: the ability to move rents with inflation. Industrial has three-to-five-year leases or shorter, multifamily twelve-month leases, so as costs rise, you push rents and make up some of the value loss from higher cap rates through higher NOI.
Why Tim Likes Retail
Gordon Lamphere: Why do you like retail? There are a lot of doomers out there.
Tim Wallen: It’s simple supply and demand of inventory. For the last fourteen years, we’ve seen incredibly low deliveries of new construction. Lenders weren’t lending, the math was tough, equity was hard to raise, and everyone worried about the internet’s impact on retail. What everyone learned, in my view, is that bricks and clicks matter. Companies with a bricks-and-clicks strategy are doing very well, and just clicks or just bricks doesn’t cut it. There’s a reason Amazon bought Whole Foods, and they’re also solving last-mile delivery. On the supply side, limited growth. On the demand side, population growth of about six-tenths of a percent a year, roughly two million people, and they need to buy stuff. More people buying, healthy retailers. Now, retailers’ needs have been changing, so there’s a high cost as tenants move and reconfigure, but the demand is there. So we don’t buy stabilized retail. We buy retail in a great location with vacancy at a good price per foot, where we’re confident we can fix the space, lease it up, give it a cosmetic facelift, and reposition the center, or solve the leasing problem through re-tenanting. Outside of malls, power centers and strip centers are about ninety-six percent occupied nationwide, which is nuts. People are afraid of the asset class, but deliveries stay limited, the rents you need for new construction are stupid high, and there’s probably a 2x differential between new construction rents and existing centers. It’s a decent asset class to own, but location matters a ton. Industrial and multifamily can get away with the fringes; retail can’t. Demographics matter a lot.
The Final Four
Gordon Lamphere: We’re getting to the last mile of the podcast: the Final Four. First, one of my favorites: where do you see real estate going ten years from now?
Tim Wallen: My biggest fear as a real estate investor is government policy. Every major problem in our industry has been caused by some government policy. Go back to the Reagan years and the passive loss rules of 1986, when I was at Price Waterhouse. They should have changed the rules prospectively, not retroactively, because all those deals were done for income tax purposes. People were writing checks to fund negative cash flow because the tax benefits made it worthwhile. When the government took away the benefits, they said, I’m not writing the check, and you got monster supply and a ripple through the lending industry and the RTC days. The Great Recession of 2008 and 2009 doesn’t happen if the late 1990s policies hadn’t said, Gordon, you can buy four or five homes without a job, and if you have the down payment, we’ll lend. The no-doc, low-doc era created excess single-family demand and pulled people out of multifamily, which is why multifamily rents were relatively flat from 2000 to 2010, and why it’s important to go back to 2000 to look at rent growth.
If the government stays out of our way, the real estate industry is fairly disciplined. When things get soft, lenders stop lending, and nobody wants a bad deal or wants to write checks. We self-regulate to a degree. Who wants to put up an office building right now? Even in multifamily, it’s hard to have the guts to spend $300,000 a unit to build new when product built four years ago at $210 or $220 a unit can be bought on the street for that today. So if the government’s out of the way, multifamily, industrial, and retail are all great asset classes. I don’t expect to do much office; it’d have to be an extreme opportunity. It’s all about the balance of supply and demand. There’s momentum to bring jobs back to the United States, which is great for industrial and good for office. We have policy to grow population through immigration, which is demand for retail and multifamily. Multifamily, industrial, and retail all look healthy over the next ten years. It’s going to be a great time to be an investor. And the inflation bumps in costs are permanent. Costs aren’t going back down.
Gordon Lamphere: Costs aren’t going back down, and neither is time. A large cadre of our listeners are under thirty-five, transitioning from other professions or starting in real estate. If you could step back and give advice, what would it be?
Tim Wallen: As a young person starting out, identify the guys doing it right, who have success, and go work there and learn. And frankly, don’t be afraid to stay, because if you’re talented, most real estate guys understand the need to include talent in the promote and profit-sharing structures. We give sixty-five percent of all our promotes and profit sharing to the team. I own a hundred percent of the company, but I share sixty-five percent of promotes and annual operating profits with the team. Not every shop does that, and not every shop has good succession plans. Identify good firms, work for them, learn from people who know what they’re doing, then make the call: do they have a fair environment for me? Once you’ve learned the business, your skills are transportable, whether raising your own capital and setting up your own shop, or staying with a great company with a great structure. I wouldn’t go off on your own too quickly, because you don’t know what you don’t know. With everything I know now, there are a lot of mistakes I could have avoided. We’ve made a lot of mistakes over thirty-five years, and I share all of them with my team. Go find a company and grab that knowledge and wisdom. Why go through the pain yourself when you can learn from somebody else’s?
Gordon Lamphere: One way to avoid the pain is learning from someone else through books. I’m a voracious reader, at least by audiobook. Can you recommend one book?
Tim Wallen: I’ll go off script, because I’m a big believer in organizational structure and corporate governance. A lot of companies go away because they don’t do good succession planning or retain talent. I’d recommend Mission Drift by Peter Greer. It’s written for nonprofits: how do you avoid mission drift? Think about Ivy League schools that once had strong beliefs in free speech and faith, and today, if you don’t believe what one segment believes, you’re ostracized. Great organizations have drifted from their original mission. Inside our company, we think about board structure and strategy that emphasize maintaining culture and talent, a culture that pours into people, has empathy for fellow employees, and serves one another. One of the biggest messages of the book is to forget board term limits. You want people indefinitely committed until you want them off or they retire. There’s no reason to push talent out the door. Nonprofits commonly have term limits after four or five years, and people are afraid of long-term commitment, but I’m a big believer in no board limits. We set up our succession planning with a board structure meant to keep the operating folks in balance, well educated on our strategy, our industry, and how to keep core talent. How do you structure the organization to be multigenerational? I’ve worked very hard to do that here.
Gordon Lamphere: How do you apply that in practice?
Tim Wallen: The guys who run the company truly run the company. I have zero day-to-day responsibilities. I come to work and do what I want, working on things that create value, and get to be a coach. The operating guys are the board of the company. They have authority, including allocating that sixty-five percent promote share across the team based on who earns it, with caps so no person gets over a certain amount, which forces the promote deep into the organization. Then we have an independent voting trustee structure of non-employees, generally ex-MLGers who understand our business, with a few independents sprinkled in. Their job is to keep the board accountable on long-term things like talent retention. What are you doing to retain talent, to make them want to be here thirty years, when the trend is to learn and jump to the next company? Are you maintaining buy-side discipline? Gordon, you invest, and buy-side discipline is critical. Are they being strategic about focus? Are they doing the research to stay abreast of the industry? It’s accountability for the executive team, and a lot of it is talent retention, because without your talent, what organization do you have? Most companies try to give the company to their kids or a buddy, and the next generation may not have the talent or the respect of the talent that’s there, so the talent departs and the company goes away. Look at most real estate companies: they come and go as the next generation doesn’t have the ability to run them.
Gordon Lamphere: We could do a whole separate podcast on that; it’s a constant issue plaguing the industry. The next question is the whole reason for the podcast. The men and women in the arena tend to know who we should be listening to. Who should the next guest be?
Tim Wallen: There are so many talented people. I’d focus on two groups. On the development side, because a lot of guys want to be developers and should hear what that world looks like: Jim Schloemer of Continental Properties, based here in Wisconsin, a long-term real estate guy who understands the space well. On the investment side, somebody from Northwestern Mutual. They have a strong investment group with a long history of great performance, and some of their real estate leadership would be an interesting group to talk to.
Gordon Lamphere: I’d love to reach out. One last thing before we let you go: if somebody wants to reach you, what’s the best way?
Tim Wallen: mlgcapital.com, M as in Mary, L as in Larry, G as in Gary, or email me at [email protected]. More than happy to chat, and I appreciate the time today, Gordon.
Gordon Lamphere: Tim, thank you so much, and we’ll have to have you on in the future. Thanks again to Tim. We appreciate his insights. If you enjoyed the podcast, please give us a like, a five-star rating, and a review. Your comments, subscriptions, and interactions truly matter and help us continue to provide quality guests. You can find us on YouTube, Spotify, or wherever you get your podcasts. I’m Gordon Lamphere with the Real Finds Podcast. Thank you for listening.
Van Vlissingen and Co. has been the Midwest’s oldest commercial real estate brokerage, development, and management firm since 1879, and today is independently ranked the #1 commercial real estate agency in Chicagoland, home to the #1 independently ranked agent, Gordon Lamphere, and the region’s #1 ranked commercial property management team. If you own, manage, or invest in energy-adjacent, mixed-use, or transit-oriented property across Lake County, the North Shore, the Northwest and O’Hare corridors, DuPage and the I-88 corridor, Will County, or southern Wisconsin’s Pleasant Prairie, Kenosha, and Racine markets, contact Van Vlissingen and Co. at 📞 847-634-2300 or 🌐 vvco.com. For a market-wide view of where these dynamics sit today, see our State of the Chicagoland Commercial Real Estate Market for Q3 2026.