Welcome to the Big Mike Fund Podcast! Ready to turn market volatility into opportunity? Join host Mike Zlotnik, the Big Mike, for an insightful conversation with Dave Van Horn, co-founder and board member of PPR Capital Management. With nearly 40 years in real estate, Dave has built a powerhouse private equity fund specializing in non-performing loans (NPLs), build-to-rent (BTR) properties, and niche investments like car washes. Recorded in late April 2025 amid tariff uncertainties, this episode dives into how PPR thrives in turbulent markets by staying nimble and diversified. Dave shares strategies for acquiring $400 million in NPLs annually, capitalizing on BTR’s housing shortage with projects in Knoxville and Austin, and leveraging car washes for tax-advantaged cash flow.
From aligning with best-in-class partners to focusing on company valuation, Dave’s insights offer a roadmap for investors to navigate high interest rates and economic shifts.
HIGHLIGHTS OF THE EPISODE
00:00 – Welcome to the BigMikeFund Podcast
00:26 – Guest introduction: Dave Van Horn
02:37 – Market volatility: Turning uncertainty into opportunity
04:49 – NPL strategy: Acquiring $400M in non-performing mortgages
06:59 – Securitization and flexibility in high-rate environments
11:05 – Build-to-rent: Capitalizing on the housing shortage
15:55 – BTR projects: Knoxville acquisition and Austin affordable housing
18:19 – Tariff impacts: Construction costs and labor considerations
27:59 – Competitive advantages: Best-in-class partners and unique designs
32:40 – PPR’s funds: Reliant Income Fund and car wash diversification
36:06 – Car wash investments: Tax advantages and the McDonald’s model
40:37 – Location strategy: Avoiding oversaturated markets like Florida
43:47 – How to connect with Dave and explore PPR’s opportunities
If you found this episode substantial and want to dig deeper into real estate, or maybe you want to discover better investment opportunities, be sure to check out www.tempofunding.com.
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Website: www.tempofunding.com
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CONNECT WITH THE GUEST
LinkedIn: https://www.linkedin.com/in/dave-van-horn/
Website: https://pprcapitalmgmt.com/
Full Transcript:
Mike Zlotnik: Welcome to the BigMikeFund Podcast. I’m the Big Mike, Mike Zlotnik, and today it is my pleasure and a privilege to welcome back my really good friend Dave Van Horn. Hey, Dave.
Dave Van Horn: Hey, Mike. How you doing?
Mike Zlotnik: Great to have you back, Dave is, co-founder and I guess you are a chairman now, still a chairman. I don’t know if executive or non-executive of PPR.
Dave Van Horn: Actually, I am the co-founder and board member. My partner John is executive chairman right now. I held that position for just over two years, and then, right now John’s taking the lead on that and, Yeah. No, it’s been good and things are going well. How about yourself?
Mike Zlotnik: Yeah, things are good. Thanks for, coming back and we will talk about, PPR. What’s going on? we are in, late April, 2025 and, the weather’s getting super nice. I don’t know how it is in, in, Pennsylvania, but New York is, A lot of cherry blossoming. Beautiful out here. I’m sure it’s beautiful.
Dave Van Horn: I just got back from Florida. I was in Florida from November to this past weekend, so I just came back, for the holiday and, yes, it’s pretty up here now, so it’s, warm enough for me to come back. So,
Mike Zlotnik: Yeah, the people ask what’s the best plan to come to Northeast, which is New York, Philadelphia, Boston. And the best time, honestly, is late spring and Christmas time, right? Most people will enjoy, Christmas festivities or super nice weather before it gets too hot. so it’s the best time of the year truly to visit northeast.
Dave Van Horn: I agree. I’m the type of guy that doesn’t like to sweat and I don’t like to freeze, so I’m more of a spring and, fall type guy myself.
But, yeah, no, it’s good to be back. Yeah.
Mike Zlotnik: So let’s, let’s talk about, what are you seeing on pprs upfront, right now, obviously, again, with the time of the recording, te so on te off how much, lots of uncertainty. So, there’s volatility out there and uncertainty and it’s also creating opportunity for some folks.
So let’s, let’s talk about what, what are you seeing? Our new deal flow. What are you seeing on existing investments? We’ll cover both the notes business, the built to built around business. I think you’re involved with the car washes too, right? You, you, yeah. We’re, we have a little
Dave Van Horn: bit of a, a couple things.
not too many things, but a few things. And, you are correct. you know, sometimes volatility can be a good thing. You know, we’ve been. We were spoiled there for a long period of time. We were in a cycle that was very consistent, I would say. and sometimes volatility creates opportunity and, I’m a believer of that now.
You know, I don’t mind some uncertainty, although we have quite a bit right now. but I think at some point it’ll shake out and level off. I know our, economist and CIO for example. Has, you know, a forecast of where he thinks some of that will land. And, you know, will it land between 10 and 20%?
The tariffs could be, that’s kind of where a lot of it’s feeling like. but it’ll be, you know, yet to see. we tend to be conservative in a lot of these areas. Like we, same way with like rate reductions. You know, there was, you know, some of the market is calling for, you know, four rate cuts. the Fed was leaning towards two.
That could change, right? That could be, it could go to zero, zero rate cuts till someone gets fired, right? Or someone is, asked to leave by 26, right? So there is a, a lot of that going on, and I think the way we position ourselves is like, none of that’s gonna happen. So it, that it doesn’t matter, and that if things like that do happen, it’s more like ice opening on the cake.
Do you follow that, Mike? Like even in our acquisitions the last year or so, we act like things are in the current environment. We don’t act like rates are coming down or anything. Like we don’t base anything on that. We base things like they’re going to stay more of the, you know, more of the same. about two thirds of the book, our book of business is NPLS non-performing.
Mortgages, one to four family residential nationwide. you know, we’re in 48 states. We do have a top 10 states. A lot of it revolves around where’s the population. but that being said, you know, we purchased right around 400 million in the last year. We anticipated to be similar in 25. We’re not, you know, seeing anything that’s giving us signals that it would be anything different.
One of the biggest leading economic indicators for that business is unemployment. if unemployment ticks up, which it could, we don’t see a dramatic uptick. You know, if it went to four and a half to five, or even five and a half, it’s not gonna dramatically impact our business. Now, if it went up, you know, six and a half or, or, or more, then it would start to, be a different story.
Unemployment, will just create more distress, more delinquent assets, and eventually there is a time lag to the distress space, but it would just create more distressed product at cheaper prices if it were to go, you know, off the rails. So for us it’s really just, you know, knowing what’s going on and adjusting.
So I’ll give you an example. you know, if pri if assets are abundant and cheaper, we’re in buying mode. If, if real estate values are high and there’s not high unemployment or anything, then we’re more of a seller at that point, right? We’ve actually, done some very good liquidations, a couple good recent sales couple securitizations, ’cause the timing was right for some of that.
Now, some of that we do hedge our bets based, you know, especially on the securitization side, you’re trying to get the best interest rates. So sometimes interest rates impact what we do. We’re not forced to do that. You know, we can hold the assets as performing assets. In fact, we saw that last year where our RPL book of Business, which is re-performing mortgages, was up around 50%.
And in a normal market, that’s about 30% of the portfolio, we got up to about 50%. It was because we were waiting for the rates to come down a little bit, and they did, and we were able to lock in favorable, favorable securitization terms. Right. So. You do have flexibility. You know, it’s just like if you owned, you know, multifamily and you’re collecting rent, the only time you have an issue is if you were forced to sell, so to speak, as opposed to, Hey, we’re just gonna cash flow a while till the, till the rates get better, or whatever.
That till the terms get better, or total cap rates get better, whatever the story is. you have that flexibility. And, and we’re fortunate too, that we’re not a one trick pony anymore. We have other verticals where we could deploy capital, and then we just adjust accordingly, that kind of thing. So it’s, we have a little bit more flexibility today than in the old days where, when you only have one vertical, you’re at the whims of the market conditions for that vertical.
Right.
Mike Zlotnik: Yeah. Yeah. Appreciate lot, lot, lots of great nuggets. diversification is a, is a key point. I mean, on the verticals, which we’ll talk about in a second, and it’s interesting how you describe, you adjust, if the interest rates go lower, you can securitize. If interest rates go higher, you can buy better.
the uncertainty of the. Unemployment in the economy. Obviously we don’t wanna see a severe recession, but a light recession is not, not a major problem. In fact, by some, you know, speculation, Trump may be trying to cause a, a, a mild recession to either force j Powell, hand cut rates, or, To slow things down.
Again, it’s, it’s, it’s the technique that’s being used that can cause inflation, right? Slow slowing growth and accelerating inflation is the risk. But in general, uncertainty is what’s creating, you know, difficult times to make the business investment decisions. And as a result, you have slowing economy.
but the thought process, if you ask Trump, of course he’s not trying to cause officially every recession, but unofficially in my view, maybe he’s just trying to slow things down a little bit so that, the Fed would, would be, in the mood to cut and, and really the level of current interest rates, it, it, it, it’s, it’s a fundamental question.
we, we had a drastic shift. We, we, we are gonna live, this is a higher, for longer or higher for good. Interest rate environment and I’ll, I’ll just add one comment. these higher interest rates have become the norm for the last couple of years, obviously, and adjustments from here up or down is not gonna be as drastic as it was when the rates were at zero.
So that change, the impact of the change should not be as, as severe in, in, in either scenario. So, Any other quick comments on this? And then let’s continue with, built around space.
Dave Van Horn: Yeah. You know, you mentioned interest rates. you know, if they come down to any degree, it’s beneficial to us. Well, everyone,
Mike Zlotnik: real estate, right?
Right. So lower rates means better, better valuations.
Dave Van Horn: And we’re a private equity fund that’s real estate backed. So, you know, real estate’s a hedge against inflation, right? So. All of these things we’re talking about tend to be beneficial in our world, whereas not everyone else will fare just as well, especially in traditional markets and things like that.
Right? That’s where you’re seeing a lot of impact. but on the real estate side and, with the assets we have and the terms we have, we’re pretty well positioned. You know, we have long-term financing on most of our holdings and things like that. so we’re pretty well positioned. You know, we have pretty favorable terms.
If rates come down, we just get more favorable than we already are. it, you know, can impact our cost of capital and things like that. But, you know, we’re pretty, we’re we’re pretty well positioned right now. We’re pretty optimistic overall actually.
Mike Zlotnik: Yeah. Gotcha. So, built to our space, built around, B two R.
what are you seeing? What, what are the opportunities Of course. Of course the financing has gone up. Building new assets is is harder. Now it’s just more expensive to build with inflationary pressures unless you’re getting some kind of reduction in cost due to not enough construction starts. Right. I I, I’ve had this discussion with other folks.
’cause essentially you have, higher cost of financing versus, you know, when the rates were lower. So to build you have to pay a lot more debt service. And then the outcome still uncertain what people will, will pay for these assets either on a sale or, or, or, to rent. And then the, the second variable is what it costs you to build.
and building is a function of supply, demand of projects, right? If a lot of people looking for labor for job ton of, folks, you know, you have a little bit of softening labor costs, but if, if you have any kind of tariff, the cost of material, anything that comes through the, through the, you know, over the ocean or through the border, it’s gonna be a little more expensive.
I mean, depending on the, on the extra level of tariffs. So how are you looking at that whole space? both the cost of capital, cost of labor, cost of material, and then ultimately the finished product.
Dave Van Horn: You’re saying a lot, Mike, so there’s, well, I’ll start with this. A lot depends on where you’re at, what you’re doing and who you’re doing it with.
And then it also depends on where you’re positioning yourself into the BTR asset class. and I will start by saying that we do like that asset class. We are, going into that class. We, you know, we actually just did an acquisition in Knoxville. we like the asset class. We know what we like is the, the economic data around it.
We like the fact that there’s a big shortage of housing regardless of tariffs. And if you’re a long-term investor. we don’t see this housing shortage going away anytime soon, especially in the affordable housing space. And then when you look at the demographics of who is utilizing build to rent, whether it’s the boomers or the younger people, waiting to get their first, home or ownership, a lot of this is renting by choice, which is a relatively new category for people to get their arms around.
You know, some people want the freedom, like, you know, I have a 30 5-year-old son. He thinks a 30 year mortgage is insanity. He thinks you’re an endur dentured servant. Like, why would you even think about that? Like, it doesn’t even enter his radar. He, he prefers his freedom over. Why would I want to be locked into one location like that?
You guys are crazy. You older people, you know, that’s the way his view is. So I’m sure I’m not saying everybody thinks like him. But, there’s also a big gap between owning and renting. that’s pretty significant, and the cost of ownership has dramatically increased. Just like rents, rents have, you know, continued to rise too.
Now they have leveled off in some markets like Austin or something like that. You know, we just finished a new build in Austin, 101 units, but it’s affordable housing. And what’s different about that is our end buyer is, is gonna be institutional. It’s really for the tax abatements and things like that. So it depends on what it is.
It’s hard to paint broad strokes and say, you know, I don’t wanna invest in multifamily in Austin, for example, because it’s overbuilt. Yeah. But it’s not overbuilt with affordable, it’s not overbuilt with abatement, you know? So it depends on what it is right now, what I like about some of the BTR space that, you know, our company likes about it, is that, As you build them, you know, it depends. Are you in the construction phase? Are you buying them at co like at certificate of occupancy? or are you buying them, to hold long term? And the hold long term is a lot of cases it’s an institutional buyer that it could be an insurance company, a pension fund that wants to hold the asset for 15 years or 20 years.
PPR positions themselves more on the front end. Whether it was the construction end or at the c you know, at co. now the, the deal we recently did in Knoxville, I think it’s like 250 ish units. it had two phases and the first phase was already built. The clubhouses amenities already done. We actually came in and, you know, took that, took the builder out of there, and then we’re buying them at CEO in phase two.
So we’re doing like a hybrid, for example, but the risk is reduced dramatically. Now, we only intend to hold at most two to three years until that property fully stabilizes, fully occupant occupancy. Phase one is already at just about full occupancy, so once you stabilize that type of asset, then it’s ripe for an institutional buyer to come in and take it out for the long-term hold.
PPPs cost of capital is too expensive for us to be a long-term hold investor in a project like that. So hopefully some of that makes sense. But there’s some things I like about it, and I’ll give you an example. One is in our Austin project, you can’t really lease out the units till the building’s done ’cause it’s really one big building, 101 units, right?
and you kind of need the CO on the building pretty much before you can do anything with it. What’s nice about Build to Rent is you can lease them as they’re being built. The other thing that we were able to do in our particular case is we were able to lock in the price of the asset. So if there’s any increase in cost on construction side, the developers actually eating that.
So it’s not a risk to us per se. Now, I guess it could be. Overall, it could be a risk if they got to a point he couldn’t afford to do it or something, but he kind of knows what his costs are. I think they’ve already acquired a lot of the supplies they need. So it, it, a lot of that, you know, factors into some of this stuff.
But, even on the construction cost, you know, it’s yet to be determined. You know, a lot of it’s around lumber. Canadian lumber could be impacted, for example, but the US has capacity to replace that. So that’s not the same as tariffs on cars, for example. So yes, construction costs could go up. Maybe it goes up 10%.
but we, we don’t see that going to, you know, you know, it’s not like costs are gonna go up 50% or anything. Labor costs is another interesting thing to, to get your arms around. How much will that be impacted? There is a significant number of undocumented folks in construction. It’s estimated around one, I think one and a half million folks could be as much as 10 or 15% of the construction workforce, could be in the undocumented sector.
I, I don’t know it’s yet to be determined, the impact that some of that. so yes, I’m in agreement with you. We, we are well aware of costs could go up. But you know, that’s what, that’s where we come in. We’re capital, right? So we’re able to take advantage of some of these situations, where sometimes there is a developer who’s not a bad developer, he just has financing constraints, and then we can come in and be of assistance, right?
So. We do like the space, we like some of the geographies that we, you know, the trick to BTR in some ways, I don’t mean to say trick, but it’s, you wanna be fairly close to the MSA and you don’t wanna be too far out in the sticks. And I think the, how do you find land that’s affordable enough to make the projects work?
And you know, that’s something, our due diligence team, that’s their job. That’s what they do. They have to find these projects in these. You know, markets, they do like some of the Midwest, we are in about a little over half a dozen states, that we acquire multi and BTR in. And they’re very targeted areas.
They’re based on a lot of demographic data and a lot of, you know, economic data, to pick out these geographies and these partners to be with. ’cause you know, one of the other things that’s a little difficult is BTR hasn’t been around forever. So it’s not like I could, it’s not like multifamily where I could say, Hey, I want to go work with, you know, a, a partner that’s been around for 30 years.
’cause BTR in a way wasn’t really around that long, although we do own a project in Kansas City that was built in, I’d say the late seventies or early eighties that were townhouses. They were like apartment complex that were townhouses very similar to BTR. And that was one of the things that actually excited us about BTR.
We like the fact that they have garages. People tend to fill them up with their stuff and they move less frequently. and in fact, our Knoxville property gets a rent premium if the backyard’s fenced in because people like their pets and things like that. So when people move into a house, they don’t necessarily look to find a house as quickly.
So the turnover rate’s a little lower. And the fact that it’s new construction, it’s still under builder warranty and things like that. And if someone moves out in the next year to three years. A lot of times it’s just like a punch list. It’s not like a major renovation when you have regular rental property.
And I know that, ’cause I used to be a property manager and years ago I owned a painting company and I used to do apartment turnovers. I worked in construction for 22 years. Right. So I know what’s involved with some of that. And there’s a lot of advantages in the build to rent space around these areas of turn lower turnover, lower maintenance costs you do have on onsite management and maintenance.
these are nice communities, nice homes, and it’s a predetermined, market value for them. Now, they do tend to have a sale price lower than retail, but the developer knows that going in, but he also has a known exit, you know, at which is in this case PPR Capital, right? So.
Mike Zlotnik: So there’s a lot of, again, a lot of wisdom.
do you prefer to build from ground up or you prefer, to buy a certificate of occupancy? ’cause most what I heard from you, you, you, your place to get to a stabilization point, whether you build ground up and then lease up and then, or you just buy it as co and literally just, just stabilize and then.
Sell to a, long-term hold player. You,
Dave Van Horn: you are correct, Mike. we tend to be a short duration investor in a lot of cases. Like our, you know, I didn’t mention our Austin project. That’s an affordable housing development. We’re actually doing a second one there that’s coming up. We’re in and out of that project in, in a two year timeframe.
How much multifamily can you be in and out of, make a nice yield and be in and out of in two years? It’s not that many syndications do that, right? Syndications are actually tied up even longer right now. You know, they used to be this, very quick in the last several years, and then they, then there are three to five years now it’s five to seven years.
You know, you might be in a syndication 10 years with very, constrained yields going forward. and that’s another reason we like build to rent. We, it’s, for us it’s like, similar to multi, but with some distinct advantages. Now you could argue you’re taking on construction risk and that’s fair.
That’s a fair argument.
Mike Zlotnik: What you just described is one of the big benefits of, new, development or a, a, a, there’s another equivalent to that is you, you can do a very heavy value add if property is a vacant, right? You could literally do the work, you can do heavy construction, and you have to be very comfortable, but you have no tenants.
One of the benefits is if you have, if you have, empty property, you, you, you, you don’t have to worry about, how many tenants renew, how fast you have to go when folks move out to schedule work. So you basically, at this point, are in the business of execution on the construction site, right? And then you have an empty property to lease up.
You’re really in the marketing business, how to present the property best. So it’s a niche, it’s a very niche, market. You’re not dealing with existing assets. You, you don’t get a big discount from real heavily motivated seller on existing property. You may get a discount on land, but land again is a portion, only a relatively small portion of the total cost.
But you get the freedom of flexibility to, Run faster once you take control of the asset because you don’t have existing tenants. It’s a beauty and a curse. It’s a different, it’s a different play. And, I’ll add one more comment. This is what I heard about, you know, B two R. I’m not a big expert. We’ve certainly done some B two R investments, but I’ll tell you, it’s a pride of pride of a, Residency or pride of, you know, even if you’re not an owner of the property, but it’s a property feels like home. This is the beauty of, of Billar. Folks actually feel like they’re living in a home environment versus an apartment environment and living in the city apartments, quite often are disliked because you have neighbors left.
The right above you and you have to deal with the building rules and common areas and all that stuff. While if you are in a B two R space, that’s one of the advantages is it feels like home. It’s honestly, like you said, gated back backyard could make a big difference.
Dave Van Horn: It’s also renting by choice in a lot of cases, and I think that’s something a lot of folks aren’t used to, you know?
There are people that wanna move to a warmer climate or you know, like, I know in the Jacksonville area, bill dur rent’s taken off pretty significantly and they’re filling them right up and there’s plenty of retirees willing to go to Florida and instead of buying a home, they might have sold the big home, say in the Northeast or Chicago land or wherever.
And then they move to a place like that. And, hey. They’re on fixed incomes, but you know what? They don’t have maintenance. They don’t have headaches. If they have a bad neighbor, they can pick up and move. They have freedom, flexibility. There’s a lot of positives that I think people, you know, don’t really fully appreciate like that.
and some of these are three and four bedroom homes with two baths or whatever. And if you’re, you know, a couple my age, that could be appealing. And you have the two car garage and a little yard, and you have no maintenance and you have the, all the amenities of the pool and the exercise and the walking trails.
And, there’s something to be said for that. And it can be actually cheaper than owning. Oh, big time. And, One could comment. So I think it’s a, it’s a new asset, newer type of asset class that’s gonna be here to stay,
Mike Zlotnik: I
Dave Van Horn: think.
Mike Zlotnik: Agreed, a hundred percent. The, the higher interest rates, essentially forcing folks to, well, it it’s by choice, maybe they can afford to buy, but the question is why, right?
Why, why commit to an expensive mortgage when you can actually, rent? Yeah. That, that, that issue, would want. There are two factors. Affordability, of course, right. And, and if you are more cost conscious, it’s way, way less expensive to a brand. And as long as the property feels like home, then, then it is by choice.
So I, I, I agree with you a hundred percent.
Dave Van Horn: Yeah.
Mike Zlotnik: any other thoughts on the, on the space opportunities ahead? Is this still, Smooth sailing. I mean, the, these tariffs up and down, it’s a, it is a, a temporary thing. It’ll settle down after 90 days and we’ll have the new norm. Of course. Crystal ball question.
well, it doesn’t matter. It’s like, okay, one way or the other will settle down or something, and the space will still be an attractive space. So you’re proceeding. Like, how do you know something is a great, is is a great project, obviously demographics, all that stuff. is there any other factor that may help helping your decisions, whether to do a project or not?
And yeah. Then we’ll move to any other opportunities like car wash. Just just curious to hear about that.
Dave Van Horn: Yeah, I mean, a lot of what we do is we want best in class operators, best in class property management. And we, we want some type of competitive advantage in what we’re acquiring. So I’ll give you an example of that.
we have a counterparty that we work closely with right now. One of the things that, I call it secret sauce. Like we, like, you know, just like I say, part of our secret sauce is our CIO and as allocation thesis, and having a MarketWatch forecaster on staff, right? That’s a secret sauce for PPR. Well, you know, the one, BTR provider, for example.
One of their secret sauce is in the area of architecture, so they have an architect. and that can be a huge advantage in design that when you approach a project that could, you know, handle maybe X number of units, well, he might be able to get x plus plus 10 number of units, or he might be able to design it in a way that’s more palatable to the tenant or whatever.
So I think there are advantages out there that are often overlooked. We’re always looking for those types of competitive advantage. Even in the NPL business, the, the counterparty that we work closely with, they have a trade desk in New York. They have connections with servicers, they have connections with institutional capital that make them, you know, that’s kind of the special sauce of working with them.
So I think we’re always looking for what’s gonna give us a leg up, what can we leverage? Because if you really think about it, it’s all about leverage, right? It’s all about what can we do to leverage the relationship, the capital, you know, what, what have you, the knowledge, the experience. But yes, normally, you know, same way in multi, we, you know, we have one of our counterparties, they’ve been doing it over 30 years.
In fact, our former CFO went to this partner. And, and that’s how we got connected with them. He, he, you know, we’re still friendly with our former CFO and he connected us to a counterparty that’s been in multi well over 30 years. They are phenomenal to work with. Their reporting is stellar, their execution is stellar.
and, you know, that’s the kind of thing we, we look for. Now, can you always find that that’s a whole, that’s a different story, but that’s what we’re striving to do. And I think there’s, you know, there’s a lot of, Potential people that could be your partners, right? So, but you know, if you can get best in class, that’s really where it is.
And if you think about it, PPR is built on company valuation. That’s our focus. Our focus isn’t on sales and revenue. Our focus is on company valuation. Sales and revenue will follow that. So everything we do, there’s one goal Company valuation. Every, the whole team’s working towards that. In fact, our employees are owners of the company, so there’s everybody’s rowing in the same direction.
Everybody’s on the same. Everybody’s focused on the same goals and the same outcomes, right, the same core values. Right. So I think that’s important. And we do look for the similar core values in the counterparties that we work with, the, the various stakeholders, because we think that’s important to, you know, that they share similar values and that they wanna make an impact, especially in the affordable housing space, the workforce housing space.
even in the NPL business, our goal is to keep people in their homes. It’s not to take homes, for example, right? So it’s. It’s all about that. That’s kind of the who we are. That’s kind of the values that we represent, right? So it’s, I think that has a lot to do with it. And then, you know, that’s your, shining star, so to speak, that north star that you’re all going towards and, working towards, you know, if that makes any sense.
Mike Zlotnik: No, it does, it makes great sense. You’re aligning interest of you have no employees, you have all, stakeholders. Makes, makes a big difference. People approach their job differently. quick question. When investors give you a check, do you have one fund that does both? Or you have two different funds with two different strategies, or one being notes, the other one being, built to rent.
Is it a single product with diversification done by you or is it two different products?
Dave Van Horn: Well, we have a, a Reliant income fund, which is NPLS and some commercial real estate in it. we do have a separate fund that is a minority. It’s a small percentage of our portfolio, around 2% is in the car wash space.
there is talk of doing a growth fund that has more tax advantages because, you know, the Reliant Income Fund is more of a income play and it’s really known for diversification income, and it has some level of liquidity to it because it has a six month, one year and three year. Options. Right? So it can, it can give people a little more liquidity than a typical real estate investment.
And I think that’s one of the advantages that PPR has is because right now, like two thirds of our business is this mortgage space. it gives us a level of liquidity that enables us to be a lot more nimble than a lot of other, You know, real estate backed equity funds, you know, they don’t really have liquidity, right?
They go out, they raise some money, they make an acquisition, and then they’re, they’re tied up for a while, so to speak, in that asset until they can sell or refinance. Where in our case, you know, we can actually, recapitalize very quickly. Either through our trade desk, through securitization, and we also have a line of credit.
We can drop mortgages on our line of credit recapitalize, go out and make a purchase, make an opportunistic acquisition. Right? Where I think that gives us a competitive advantage, in the marketplace with, you know, some of our, coopetition, I’ll call it. so I think that is a plus for us, that a lot of other funds don’t have.
And then that diversification piece. So that Reliant Income Fund is a truly passive asset, real estate asset-backed investment. we’re in our 18th year, you know, we started in 2007. We have long track record of doing this. you know, it’s something we’ve done for a very long period of time. You know, I’ve been in real estate going close to 40 years now.
and so have a lot of the team members, you know, a lot of our team members have been at this a long time. Which is good. That’s what you want. You want an experienced team, working for you on your behalf. We take every investor’s money seriously, whether it’s family or friends or not family and friends, we, you know, it’s people’s hard earned money.
This is their retirement money, that kind of thing. We do have a, a, a freedom fund, which is, for qualified plan capital primarily. So, people can avoid, you know, ubit and that type of thing. so yes. now there is talk of doing a growth fund, which would be primarily more traditional commercial real estate.
they’re looking at into doing that more for creating, you know, a tax advantaged, place for our investors to go to, to be a little more of a one-stop shop, for folks with us. Now our car wash front does have tax advantages. That’s, one of the things about the car wash business. It has some unique advantages as well.
Mike Zlotnik: Yeah. Let’s quickly, quickly cover, we, we’ve covered quite a bit and we have just a couple more minutes. So in the car wash front. so you said you have a couple percentage points of your fund is in the car, car wash business, and then you have a separate car wash fund. So let, let’s just talk about this.
The fund, what acquires land and develops car washes or acquires existing, car washes with land and. I assume the tax benefits you run across SAG and you depreciate, you know, everything you can’t depreciate. something like that.
Dave Van Horn: Yes and yes. so couple of things. whenever we venture into a newer category like car washes or BTR, it’s never with large percentages of the portfolio.
Does that make sense? So it could be 2% or even up to 5% over time. But that’s kind of the way we tiptoe into things. And then if we go heavy, we go heavy, but we go in with eyes, both eyes open when we do this. So it’s very intentional. But with the car wash, it’s a half a dozen car washes in one fund. it is a construction play and it’s pretty much the McDonald’s model, right, where the hamburgers buy the valuable corner.
These car washes are in various states. They have a dozen locations. so there is some diversification that way. They’re always on busy, valuable commercial corners near like Costco type stuff, because they have to be, they have to be near where a lot of cars go by. and in this case, the car wash is by the valuable corner instead of the hamburgers.
but there has, there is some unique characteristics about the space. one of them is that subscription wise, it’s roughly half the customers are subscription, subscription based, you know, private equity likes that, you know, it’s predictable. these are positive cash flow businesses once they’re up and running.
the other thing that’s unique is, a lot of robotics and automation, a lot fewer people. In fact, you know, our current CEO, Steve Meyer. He formerly owned a car wash, for example. A lot of people don’t know that, right? And when he had a car wash, there was like 25, 30 employees. Today these are run with like seven people, you know, it’s dramatically less.
The other thing that’s unique on the depreciation side is that the structure of the car wash the tunnel and all is considered to be part of the machinery. So that also accelerates the depreciation as opposed to the typical commercial real estate depreciation of, what is it, 39 years or whatever. so that kind of quickens that, whether you have bonus depreciation or not.
Now the thing though, the other thing is these things make money if there’s no depreciation, and that’s something else I look at because. I don’t want an investment that only makes money based on after tax implications. I want a profitable business model whether there’s a tax break or not. Does that make sense, Mike?
Like I, you know, that’s all good, all but I get kind of worn out with some of them where whenever I see somebody’s pushing the tax advantages over the actual business model, I get a little concerned. Right. Anyway, you know, these are our franchise. the goal here is to aggregate these up. We’re currently working with folks to build about 70 of these, and we’re gonna partner to basically group a, a couple hundred, hopefully, and sell these off to private equity in the next four or five years, which they’re on track to do that.
So, and the company that we get, the actual. tunnels through, they’ve been around for over 50 years, so our counterparty actually has board members from the OR original company that manufactures them. So we have a lot of, unique advantages in the space, if that makes sense. So it’s not like, you know, we fell outta bed one day and said, Hey, let’s go try this.
That’s not what happened here at all. So we do like the space so far. now whether or not we go heavy into it, that’ll be another story, but that’s okay. It’s, it’s just, It’s an opportunity for the time being that we like. Yeah.
Mike Zlotnik: Yeah. I appreciate the explanation. It’s a great niche. It certainly, has, both characteristics of an operating business and a real estate.
and I, I like anything else, these type of businesses, very much dependent on location, busy location, drives all the traffic. It’s the good old McDonald’s concept. You’re not in a hamburger business, you are in the real estate business.
Dave Van Horn: Well, you know, you bring up a great point. There’s like, I’ll give you an example.
There’s states we stay out of there. This actual France, I’ll give you an example of that there. This franchise is actually in Florida, for example, and I, I, you know, I’m, I live in Florida part of the year, right? So I, I, I get it. That’s one of the states we won’t go to. And you might say, well, why won’t you invest in Florida with the same product?
Because it’s too easy to go into business in Florida. Too easy. You don’t have, you don’t have sustainable competitor advantage. You, you go into some other locations. It’s totally, it’s totally different. Right. So I’ll give you an example. Outside Philadelphia, for example, they’re building one in Bucks County, which is just north of Philadelphia.
And there’s like 90,000 people within a mile of this car wash, and there hasn’t been one built in like 25, 30 years, and it takes like couple years to get an approval. Whereas some states, you know, you go to Texas, you get approval in 90 days or something to build whatever you want. So there are situations where it actually makes more sense to go somewhere else.
So it’s just like anything else, you gotta have knowledge, you gotta have experience, you gotta have the right, You know, the right information and really, you know, be strategic and intentional about where you’re going and placing these, regardless of whether that same franchise is somewhere else or not, you know?
Mike Zlotnik: Yeah, yeah. I, I hear you. I hear you. And I can, you know, the only thing I, I can compare to is another business that’s sort of in my head, has some, some similarity, which is both operating business and real estate is self storage. And there are. Places where they overbuilt, the, the protection mechanisms were not there.
So they built a lot more facilities just because it was easy to get a, an approval. And you definitely want to be in a protected area as much as possible. ’cause there’s a lot of cost to build and you don’t want to oversupply the market. So if you, if you are choosing allocation to build either car wash or sell storage.
And you don’t have a protection mechanism. It’s a, it’s a higher risk versus, it’s difficult to get approvals once you get it. You went through all that aggravation before, writing a big check. Yeah, that, that makes a lot of sense. So.
Dave Van Horn: You, you know, it’s funny you say that about like, self storage isn’t on our radar right now and a lot of that is coming from the Economist because, well, you saw the slowdown in real estate and the number of people moving, that kind of thing.
And it’s doesn’t mean nobody’s making money in storage, it’s just we’re holding off for now. It doesn’t mean we won’t expand into other verticals later. ’cause our goal is to have a well diversified portfolio as time goes on. But there’s certain. Market conditions that make some asset classes better than others at certain periods of time.
But I’ll give you an example of competitive advantage though. There’s a gentleman I consult with on the storage side that builds retail. He’s a developer that builds like the Main Street type retail that. Is like the new mall, so to speak, where malls are kind of, you know, outdated, open air
Mike Zlotnik: shopping with different people, open air
Dave Van Horn: shopping.
But he, what he does is he also owns a storage business and his storage, he puts his storage in with the mixed use retail. And because storage doesn’t take much parking, the municipalities love it and he is able to actually increase the tax base for the municipality. And then he just. Puts the entrances in, you know, less strategic, you know, in hidden locations, whether it’s the side or the back of the facilities.
And they take up very little parking. So he found a way to do storage That’s very unique. That’s compelling.
Mike Zlotnik: Yeah. Everything is, is a niche. Yeah, just riches in the niches, right? That there’s an expression. Yeah.
Dave Van Horn: But then again, he has an architect on staff.
Mike Zlotnik: So engineer these, these, these, yeah. What are you, what are, what are you doing?
Right? What
Dave Van Horn: doing that’s different to give you that competitive advantage, even in a space that might be somewhat frowned upon in a particular market or whatever. Yep.
Mike Zlotnik: Dave, thank you for sharing a lot of, great wisdom nuggets. what’s the best way for folks to reach out to you?
Dave Van Horn: Probably the easiest, is on our website, www.pprcapitalmgmt.com or on LinkedIn. I’m always on LinkedIn. I try to answer folks pretty regularly there. So thanks again, Mike.
Mike Zlotnik: Yeah, thank you so much for coming on our podcast. Thank you for sharing. And enjoy. Enjoy the spring.
Dave Van Horn: You too. Take care now.
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