ABOUT THE EPISODE
Recently I had the pleasure to interview Don Wenner (pronounced winner), Founder and CEO of DLP Real Estate Capital, a private company with over $1.2 Billion of Assets Under Management. I enjoyed this ~30 minute interview in which Wenner touched on a variety of topics. Here's his BIO HERE.
DLP has several private funds that can be found HERE. These are accredited investor funds and I am not recommending any of them (as of now). I look forward to meeting Wenner in person and learning more about his company.
Enjoy the interview:
Hello, everyone. This is Brad Thomas. And welcome back to The Ground Up. Today, I'm joined with Don Wenner. Don is the founder and CEO of DLP Real Estate Capital based in Bethlehem, Pennsylvania, and St. Augustine, Florida. So Don, it's good to see you today.
Thanks, Brad. Really, really excited to be here with you.
Great. Well, Don, I know you and I've spoken in the past, but just, if you could tell our audience a little bit about DLP. Obviously, you're in the real estate business, but a little background on DLP and how the company started.
Yeah. Love to, Brad. So, yeah, we're a real estate private equity and financial services company as you said, Brad, here in St. Augustine, Florida, where I'm talking to you from today, as well as Bethlehem, Pennsylvania. And we have a family of businesses that focus around our goals of making an impact in a number of areas and doing that largely through workforce housing, which I can certainly get into, but we didn't start as we are today, a 400-person company in 23 states.
We started from very humble beginnings. I grew up in humble beginnings to two young 16-year-olds who had me when they were of course in high school and grew up in what people call nicely lower middle class in a very much working family to a prison guard and a mom who ran a home daycare. And that was in Bethlehem, Pennsylvania area where we founded the company.
And decided in about eighth grade after having some entrepreneurial experiences selling things like donuts and candy to my classmates and running a landscaping business and on a career day in eighth grade, a gentlemen came in, showed us a chart that financial advisors made more money than doctors, lawyers, accountants, all the jobs your parents tell you to become.
And I was set from that point forward I was going to be a financial advisor, had that goal through high school, into college when I went to Drexel University, studying finance. Worked at some cool companies like BlackRock and McGladrey&Pullen, and got some different experiences, got all my licenses to get into the world of financial planning, financial advisory, and then stumbled into real estate by having a gentleman who came into the restaurant. I would wait tables on the weekends, convinced me to come work for him.
That first job was selling alarm systems. He owned a ADT security dealership. So my job was literally knocking on doors, people's doors in their homes. Everybody's favorite thing. A salesman comes knocking on their door. And knocked on enough doors that I sold a lot of alarm systems. In fact, when I took the job for Nathan, the gentleman who owned the company, he told me I'd make $2,000 a week if I came to work for him selling alarm systems. And my first paycheck was $5,280. That was one of my worst paychecks.
And at 19 years old, that was pretty good. And took off really fast and fortunate for me, Nathan not only owned this security company, but he happened to also be a real estate agent. And one day he told me, "Don, if you can sell alarm systems knocking on doors, you can sell real estate." I was still set I was going to be a financial planner, but again, I said, "All right, I'll give it a try." And got my real estate license.
Flew out to a marketing conference and heard, learned about direct response marketing and developed a marketing message of your home sold guaranteed or I'll buy it. Fortunately for me, it doesn't sound like fortunate, but fortunate for me, October, 2006, when I entered the world of real estate happened to be the peak of the real estate market.
So having a marketing message that you guarantee to sell people's homes when the market's slowing down was a good marketing message at the right time. It led to our real estate sales team brokerage growing really fast and led to me stepping in and just buying people's homes and flipping them. And that bore the beginning of our track record and path we've gone down of growing a real estate investment company.
Did that through the beginning days, flipped homes and helped people sell their homes, built a construction company to service our home flipping business. At the bottom of the market, 2011-ish, we started property management and started building a portfolio. We realized, hey, it was the bottom of the market.
Let's buy as much as we can, but all different asset classes, mainly housing, ground-up development and existing assets. And then around that same time, we started launching private investment funds, taking in investor capital, allowing us to grow further. And by 2014, we were a 100-person company. We owned six, 700 properties.
We were growing fast and we decided that we knew we wanted to stay focused on workforce housing, but we needed a faster and more scalable path. So that's when we started lending money to other real estate investors and started focusing on buying larger assets, mainly multifamily communities. Also started investing equity in partnerships with other great operators and developers.
And that's really led us the path we're on today is now a 400+-person company doing a few hundred million a year in revenue. We own communities in 20 some states, we both develop, manage existing product and lend money, invest equity in partnerships with other operators around the country. So that's a semi-quick story to how we got to where we are today.
Great. Well, there's a lot there, Don. And in fact, that's an amazing success story. I made it through the recession, but probably not as good as you did but we've all learned from those lessons.
Can you talk a little bit, Don, about, so you started in 2006, went through the great recession, of course now we're coming out of this pandemic, this once in a lifetime pandemic for both of us here, any lessons that you've learned, especially as you reflect on the great recession? And really, it sounds like you really grew your company rapidly during that last recession.
Yeah. I'd say a lot of great lessons that come out of coming through recessionary environments, as well as a lot of great lessons that come from growth. And so we had a lot of early success and that success, we were fortunate at the time that we weren't carrying a legacy portfolio.
We weren't dealing with a lot of assets in a portfolio that we bought at the peak of the market and challenges some dealt with as we built our portfolio through the downturn, built our company through the downturn, but we also had the advantage of not knowing better in the beginning and not making excuses and not stuck in habits and approaches that no longer worked.
We got to figure it out in a very tough environment and in a very entrepreneurial way. And that led to a lot of great values and characteristics to how we went about building the organization. And we took a lot of lessons in our beginning days from the greats such as Jim Collins.
And so in the beginning, learning the concepts of Great by Choice and The Flywheel, and were really helpful in us understanding how we wanted to grow. And then as we started having by most people's standards, really great success in a number of different areas, understanding the concepts of How The Mighty Fall which is maybe my favorite Jim Collins book and understanding that hubris is what sets a lot of companies down a path of ultimate failure and understanding the fact that more companies go bankrupt due to indigestion than starvation, meaning too much growth, not a lack of growth. And being in the real estate industry, most real estate operators think their problem is, and developers think their problem is they can't find enough deals or they can't raise enough money. These external issues when very seldom are external issues what's constricting great companies from growing. It's internal operational challenges and so forth.
So we learned early on that those challenges of growth, of communication, of prioritization, of hiring enough great people, developing leadership, we realized early on where our real challenge is. And I believe today strongly that every issue you have in any organization starts and stops with leadership. And every issue we have today going through our growing pains comes down to a lack of leadership in a different area of the organization. So we learned early on and early enough on meaning I hired my first full-time employee a month in the business. I had five employees, two, three months in the business and quickly was willing to hire, but looking back should have hired even faster and should have more quickly looked to delegate and bring in leadership that I could develop and accepted early on that I didn't want to be a time-teller as Jim Collins calls great CEOs, those who the only person who can tell the time is the leader of the organization.
Every issue, every problem has to come back to this one person, because they're the only one who has the answers. And a lot of us, as strong A personalities, we like being the person with the answer. We like be the person who can solve the problems. But the reality is I learned a number of years ago, I needed to be a clock-builder and build other people capable of telling time. And that was the only way we continue to expand into new businesses and avoid the risk of too much being reliant on too few. And as people think about being a real estate developer, real estate operator, or just an entrepreneur, most people again think of risk as external. They think of COVID environments. They think of recessions. They think of competition. They think of these external issues that we can't control as being what is the real risks we face when the reality is most of the risk is within our organization. And we've put a lot of our focus around them.
That's what led me down a path of really realizing we needed to build a very disciplined system to how we went about growing our organizations, how we went about prioritizing, communicating, hiring, and bringing the right people in the organization and avoiding allowing the wrong people in the organization, developing the right leadership and behaviors as we've grown and changed and molded. And that's been a big part of the success we've been able to have to this point.
Right. There's a lot of great information there, Don, and as you were speaking, I was thinking about our company, how we're growing our publishing company and our research business. And very interesting. Of course, we cover in our research all the major and minor property sectors from the higher risk names like malls and shopping centers and hotels down to the lower risk property sectors, which you primarily are playing in, which is the necessity housing, essential affordable housing. So can you talk a little bit, Don, about what led you to become an investor in this particular property sector and what do you see as the primary advantages for investing in affordable housing today?
Yeah, I'd say, in the beginning, I'd love to say that hey, we had this, we scanned the entire sector of every real estate investment asset class and we came to this research conclusion that workforce affordable housing was the absolute best place to invest and which it is in my opinion. But the reality is I started my career in helping home buyers and home sellers buy and sell real estate and then helping real estate investors invest in real estate.
And that meant small multifamily properties, single-family rentals, things like that. It's just how my business started being a residential real estate agent. So I was fortunate that's how my business started. And then as we started looking at how we wanted to grow it, we certainly explored all different sectors and all different strategies and have done every sector and every strategy you could think of from industrial, to office, to malls, to retail, to you name it, hospitality.
We've done all asset classes, but have always had this affection towards workforce housing and growing up in workforce housing and growing up in a lower middle class, it just became so obvious as we expanded. Lehigh Valley Pennsylvania, which is a small market where I grew up, had this tremendous lack of, and still does of affordable workforce housing.
And it was such a challenge, not just for rent, but also for, and we're seeing it today, maybe the greatest ever, a lack also for homeowners finding affordable homes to own or rent. And as we expanded our business into Florida and into other states, we realized that this issue was far from exclusive to any area that we were in. It was nearly nationwide, almost every county in America has an under-supply of housing that's affordable for those who live and work in that area.
So, we started digging into the stats and in my career, by around 2014, I think if we all look back, many people started saying at the industry events by maybe '14 or '15, started people saying, "Oh, this growth market's going to turn. The market's got to turn. We're going to see another 2008 again."
And people have been saying that since 2015, then '16, then '17, then '18, then '19, then '20. Everybody's been saying COVID was something that nobody expected, but here we are saying all right, home prices are at the highest they've ever been by far, growing faster than they've ever grown. Rents have gone up 70% in the last decade, 70% in the last decade. And the reality is we're still sitting here faced today with likely the largest under-supply of housing we've ever had.
And that's what I think not enough people understand what's different about this cycle than the last cycle is we have the greatest under-supply of housing and it continues to be more and more constrained versed where we were at in 2007, 2008, we had the greatest over-supply.
So this tremendous under-supply of housing is what makes this asset class such a need and such a safe investment. Every industry at the end of the day comes down to the fundamental supply and demand. And we have a tremendous under-supply and a growing demand, especially in all the areas everybody hears and talks about like the Sunbelt region where COVID is only accelerating this population growth and job growth to under-supplied areas.
So what always this comes back to me though, more than anything is the 70% growth in rents. We went from a $711 was the average rent in America in 2010 to now we're at about $1,200 is the average rent. The incomes for most wage-earners have gone up four to 6%. And the cost of housing went up 70%. And what we see with building supplies and labor costs, so forth, and just the challenge is getting through development in most areas that the cost of new construction just continues to climb and rents continue to grow. And it just fundamentally such a strong place that we feel it's a safe place to be.
We feel it's a place that even in recessionary environments, will be able to generate great cash flow, have great demand, have limited pressure on rents. But also what I think is, as we've grown in our business, I've grown in my career. What's even more exciting is realizing the tremendous good we can do in this asset class. And we take a lot of pride and we like to say it as we invest in workforce housing that is affordable and will remain affordable for the local workforce.
And that's important that people aren't driving an hour to work to afford to live somewhere affordable. It takes away from your quality of life. And so people actually being able to live where they work is really a major challenge and a major opportunity. So what we focus on is buying assets or developing assets where the rents are less than 30% of the local area median income. Generally, we're closer to 20%.
And what's been proven is that when people are spending less than 30% of their income on their cost of housing, then they have enough money for the basic needs of healthcare, of education, of food, and can be comfortable. When people start spending more than 30%, they're sacrificing literally healthcare, food, their children's basic needs because they can't afford. And something has to sacrifice when too much of their income is going to rent.
And we can do a lot of things, not only to keep it affordable, but make it safe, add a lot of amenities and enrichment and do a lot of things to help. We like to say help our residents choose prosperity and introduce them to different career paths, provide them with health education, provide them with access to faith and allowing churches onsite, bringing more amenities and community gatherings, doing a lot of different things that help them move forward. We do unique things like helping our residents.
If they take care of the property living, giving them back two times their security deposit back when they move out, which can be as crazy as that might sound, life-changing to them, and being able to invest in the home they're in, by taking care of and walking away with more money than they put down when they moved in. So a lot of unique things like that, it's incredibly rewarding seeing the impact we can have in these local communities.
That's great, Don. It's like going to the Aldi store and getting that quarter back for your grocery cart, but that's a lot more than a quarter. So we cover the publicly traded multifamily REITs. And what I find is interesting is for the investor, who's looking to get into affordable housing, not in the more volatile public arena, which we play in, and we've done quite well during the pandemic buying shares in companies like Essex and AvalonBay and Equity Residential to name a few, but now shares have really become soundly valued.
We're seeing that normalization impact in the public REIT sector. So how can the individual take advantage of investing in manufactured housing in the private sector, and specifically with your company with DLP, are you able to invest in both the equity and the debt components? Because obviously you've got a large organization with different moving parts. So can you simplify that as how can an investor invest in DLP, privately?
Yeah. Thank you. So, what we do is we invest in this asset class we've been talking about here, workforce housing in a number of ways, that's from single-family, build to rent communities, to multifamily, by the categories that people like to use A, B and C. We've done and do RV parks, we've done manufactured mobile home, but we're focused on our community settings where we can really build and invest in this local community.
We can also get scale and efficiency from an operating standpoint. And we bring investors into our investments in a few ways. We run private discretionary investment funds, reg D style funds is the term often used. We have funds focused on lending money to other real estate operators similar to DLP. And that's the fastest growing sector of what we do is we actually operate as a lender, lending money to other investors doing impact investing.
And everything we do at DLP is impact investing where we're making both a social good in terms of providing great, safe, affordable housing, investing in our residents while producing, most would consider really, really excellent returns, double digit returns with liquidity and monthly distributions. So we do that as a lender to other great operators.
And one of the great parts of doing it as a lender is not only are we then providing capital to other great operators, developers, builders, who are providing safe, affordable housing, they're either preserving it, improving it or building new, but we're also able to then invest in that real estate operator. And we don't just operate as a lender and make loans. What we actually do a lot of is we actually come in and we teach these real estate operators how to scale a business.
And we actually teach them the concepts of what I just published a book on called Building an Elite Organization, The Blueprint to Scaling a High Growth High Profit Business.
And we actually come and help them implement what we call our elite execution system, which is the basis of the book, into their organization and institute and help them learn the lessons of growing leadership, putting the right people in place, building discipline, structure, communication into the organization to both help us as a lender reduce our risk lending them money because we know they're putting right people in place, putting right discipline, that there's less risk that their investment is going to go south. But we're also coming in there and helping them scale, which means then we get to invest more capital with great operators who are scaling, which benefits them and us.
But the core really exciting part about all of that is our first area of impact we're really focused on is this workforce housing crisis that I spoke about. The second big area we're focused at DLP making an impact on is the jobs crisis. And the fact that 30 to 50% of American jobs are at jeopardy of automation in the next 10 to 20 years.
And I believe the technology and automation is a great stimulator of the economy, and it will create lots of opportunities for new jobs, but there need to be small businesses who are coming forward with entrepreneurial opportunities and creating those jobs. Jobs are created through small business, not through the government.
And so our ability to help these operators, help these small business owners scale and create jobs and grow, and then let alone being in the construction industry and doing renovations and building houses is a phenomenal overall economic driver as we all know. So, we do that as a lender, we run funds focused on providing them short-term bridge loans, six to 12 month loans that allow us to pay our investors double digit returns with monthly distributions.
Then we also invest as an equity investor, both as a partner with great operators and builders and developers, meaning we bring them equity, we bring them knowledge, resources, but we're backing guys and gals with deep market knowledge and a strategy to be able to generate great returns and make an impact.
And then we also do so as a sponsor directly as well, where we're doing all the management, all the construction, everything in-house. We're operating as a sponsor, as an equity partner and as a lender all across this asset class of workforce housing and run different funds that allow investors to invest alongside of us and a fund structure that generates these great returns with diversification, very tax efficient and without the volatility of the public markets, which certainly obviously makes sense for at least a portion of anyone's portfolio.
And what I can say I'm proud of here is through COVID and through our 10 years of doing this, we've never missed a return target in any of our funds. We've never had let alone had losses, we've never missed a target in any period with monthly distribution. So we've had virtually no volatility through these multiple cycles, through the way we invest in workforce housing.
Great. Well, Don, this is a terrific interview here in a lot of ways. I think there's some really good takeaways here. Don, where's the best place for people to find your company? And I guess more importantly, direct me to the portal for investing in the fund. I'm sure you've got some perspectives there, but what's the best place to find that?
Yeah, I'd love to. So, DLP Capital Partners is our investment fund management company, and you can see right there are all of our investment vehicles and we have a online portal you can register for. We'll register for you on. It takes literally about one minute and you can access our audits, our fund documents, our past performance, the monthly reporting, where we put out the actual, it's all 100% transparent.
We produce the balance sheets, the asset tapes, the income statements, full commentary reports on all of our funds, all external audits, you name it. So you can access that again, going to dlpcapitalpartners.com. Our parent company is DLP. You can just go to dlpcapital.com and see all the companies and all the different things we do and get there as well.
And then for anybody look serious or wanting to scale a business, you can go to dlpelite.com, which is all the insight and perspective and the book and everything we do in helping small businesses, certainly those in real estate, but we help businesses in all different industries with scaling and creating jobs but you can always go to DLP Real Estate or dlpcapital.com and access and get to all the different sides of DLP.
Great. Well, Don, thank you again. I had a banker years ago who loaned me some money. His last name, believe it or not, was Crook. And I'll tell you what, you got lucky here because you're Don Wenner is your name and congratulations, but really learned a lot here today, Don, and thank you very much for your time. And hopefully people listening will take advantage of this information. So thank you very much again and have a great day and we'll hopefully get you back soon.
Thank you, Brad. Appreciate it very much.