The commercial real estate landscape has shifted dramatically over the past few years. Multifamily — long considered the crown jewel of passive investing — got caught in a perfect storm of rising interest rates, insurance spikes, and oversupply. So where should savvy investors be putting their money right now?
On a recent episode of The Real Estate Investing Club, I sat down with Mike Zlotnik, fund manager at BigMikeFund.com and former tech executive turned full-time real estate investor. Mike has been deploying capital across commercial asset classes since the post-GFC era, and today he’s laser-focused on two: industrial real estate and open-air retail.
His reasoning is sharp, his data is compelling, and his framework for evaluating any deal — regardless of asset class — is something every passive investor needs to hear.
Quick Answer: Industrial real estate and open-air retail are the top passive income investments in 2025 because they offer long-term triple-net leases (5–25 years), positive cap rate spreads of 2%+ over current debt costs, credit-quality tenants, and built-in inflation protection — all with far less operational volatility than multifamily or short-term rentals.
Why Did Multifamily Fall from Grace — and What Can We Learn?
Short answer: Multifamily investors who bought at peak valuations in 2021–2022 with floating-rate debt and razor-thin margins got crushed when interest rates surged, insurance costs spiked, and new supply flooded the market simultaneously.
Mike Zlotnik put it plainly on the episode:
“Buying in ’21, ’22, the market was approaching the peak or at the peak… A lot of aggressive assumptions, obviously interest rates and floating rate debt. So all these projects got devastated for just the financial pressure alone.”
The lesson isn’t that multifamily is dead — it’s that buying right and timing the market cycle matters enormously. As I’ve said many times on this show: the only reason a deal is ever truly lost is because you didn’t buy right. If you’re underwriting on a razor-thin margin with aggressive rent assumptions and variable-rate debt, you’re one rate hike away from a disaster.
Mike cited a separate bright spot even within this tough multifamily environment: he found a distressed deal trading at a 35% discount from peak — $79,000 per door in a market that used to trade at $125,000 per door — with in-place rents of $1,150 per door before any improvements. That’s better than the 1% rule. When you find those kinds of dislocations, you can still transact. But discipline is everything.
For a deeper dive into how to build wealth through cash flow even in uncertain markets, check out our guide on cash flow and wealth building.
What Makes Industrial Real Estate Such a Powerful Investment Right Now?
Short answer: Industrial properties offer long-term leases (5–25 years), triple-net structures where tenants cover operating costs, positive cap rate spreads above current debt rates, and virtually no new supply pressure in most markets — creating a predictable, bond-like income stream.
Industrial real estate has been quietly outperforming most other commercial asset classes for years — and Mike’s team has been investing in it since 2017. Here’s why it stands out:
Long Leases Create Predictable, Bond-Like Cash Flow
The single biggest advantage of industrial investing is lease duration. When a tenant signs a 10, 15, or even 25-year lease, your income becomes highly predictable. That’s not something you get with multifamily (annual leases), self-storage (month-to-month), or short-term rentals (nightly).
Mike shared a concrete example from a deal his team recently closed in Newcastle, Indiana — a sale-leaseback with a 100-year-old stainless steel company acquired by a private equity firm:
“To us, it’s a 25-year fresh lease with a wonderful tenant. Triple net, annual rent growth, 2.75% fixed rate debt, no volatility. It’s like a clockwork. Just like a bond increasing coupon every freaking year.”
A 25-year NNN lease with built-in annual rent bumps is essentially a self-amortizing income machine. And because it’s triple-net, the tenant picks up the tab for taxes, insurance, and maintenance — stripping out most of the operational headaches and inflation exposure that kill other asset classes.
Positive Cap Rate Spreads Make the Math Work
Right now, industrial properties are one of the few commercial asset classes where you can find a positive spread between the cap rate and your cost of debt. That’s a big deal.
Mike’s Newcastle deal came in at an 8.6% cap rate with 6.5% fixed-rate debt — a 2.1% positive spread. Compare that to the negative or near-zero spreads you find in self-storage or even some multifamily deals today, and you can see why industrial is attracting serious capital.
“In industrial and open-air shopping, we’re getting 2% or higher positive spreads, which is a margin of safety and strong cash flow.”
That margin of safety isn’t just a nice-to-have — it’s your cushion when things go sideways. And as Mike noted, if interest rates decline from here, that spread only widens, creating a meaningful tailwind on asset values.
For more on how to evaluate deals across asset classes using debt structures and capital stacks, see our post on diversifying your real estate portfolio across asset classes.
Why Is Open-Air Retail Making a Comeback as an Investment?
Short answer: Open-air (outdoor strip and lifestyle) retail centers benefit from long-term leases with credit-quality tenants like Starbucks and Cheesecake Factory, no oversupply in most markets, triple-net lease structures, and strong foot traffic driven by service-based and experiential tenants that can’t be displaced by e-commerce.
While enclosed malls have struggled, open-air retail — think neighborhood strip centers anchored by grocery stores, quick-service restaurants, and service businesses — has demonstrated remarkable resilience. Mike’s team has been investing in this space since 2017, and the thesis has held up.
The key advantages mirror industrial closely:
- Long-term leases: Credit tenants like Starbucks, Cheesecake Factory, or national grocery chains sign 10–15 year NNN leases
- Inflation protection: Triple-net structure means rent bumps are built in and tenants absorb rising operating costs
- Low supply: Unlike multifamily, there’s been very little new open-air retail construction in recent years
- E-commerce resistance: Service, food, and experience-based tenants aren’t going anywhere online
To go even deeper on retail investing as an asset class, check out our comprehensive strip center retail investing guide for 2025 and our analysis on why shopping centers may be the best investment of 2025.
How Does Lease Duration Drive Investment Predictability — and Why Does It Matter?
Short answer: The shorter a lease, the more operational risk and income volatility you inherit. Month-to-month leases (storage, Airbnb) are most volatile; annual leases (multifamily) are better but still require constant re-leasing; long-term NNN leases (industrial, open-air retail) deliver the highest income predictability for passive investors.
Mike uses what he calls a “lease duration as a driver of predictability” framework — and it’s one of the clearest mental models I’ve heard for categorizing commercial real estate risk.
Here’s a simplified way to think about it:
| Asset Class | Typical Lease Length | Operational Intensity | Income Predictability |
|---|---|---|---|
| Short-Term Rental / Airbnb | Nightly | Very High | Very Low |
| Self-Storage | Month-to-Month | Moderate | Low |
| Multifamily | 12 Months | High | Moderate |
| Open-Air Retail (NNN) | 10–15 Years | Very Low | Very High |
| Industrial (NNN) | 5–25 Years | Very Low | Very High |
“We want to be investors and to be investors, we’re going to least classic long-term leases.” — Mike Zlotnik
I can personally speak to the self-storage side of this. I invest in self-storage and I like it — but right now it’s hard to find good deals because a lot of markets have been overbuilt. And when competition moves in nearby, month-to-month tenants can walk across the street for a discount that you can’t afford to match. I had a new facility open two miles from one of mine and it crushed my net rentable per capita metrics.
For a current read on where self-storage really stands in this market, see our post on the self-storage market and recession reality in 2025.
Mobile home parks offer an interesting contrast — while leases aren’t necessarily long, tenant stickiness is extraordinarily high because moving a manufactured home costs upward of $10,000. That creates similar predictability through a different mechanism. If you’re curious about that strategy, explore our deep dive on mobile home park investing.
What Is Mike Zlotnik’s Investment Quadrant Framework — and How Can You Use It?
Short answer: Mike’s four-quadrant investment model maps every deal across two axes — cash flow access and risk level — helping investors instantly identify whether a deal fits their goals. It’s a simple but powerful tool for aligning deals with your personal financial objectives before you ever run the numbers.
Mike is writing his second book (available soon at BigMikeFund.com), and one of the core frameworks he’s developed is what he calls investment quadrants — a simple two-dimensional model for categorizing any real estate deal:
- Quadrant 1 (Cash Flow + Lower Risk): Income-focused, conservative deals — think NNN industrial or open-air retail
- Quadrant 2 (Cash Flow + Higher Risk): Income deals with more volatility — certain multifamily or heavy value-add plays
- Quadrant 3 (Growth + Lower Risk): Appreciation-focused but conservative — long-hold residential in strong markets
- Quadrant 4 (Growth + Higher Risk): Ground-up development, speculative plays — highest upside, highest downside
The beauty of this framework is that it forces clarity before you act. Most investors lose money not because the deal was bad, but because it didn’t fit their actual goals, risk tolerance, or time horizon. Before you even analyze the numbers on a deal, ask: which quadrant does this belong to, and is that the quadrant I’m trying to be in?
For investors looking at ground-up strategies (Quadrant 4), we’ve covered that world in depth over at our ground-up development wealth guide and our post on multifamily development from value-add to ground-up.
What Are the Most Critical Lessons for Protecting Capital in Commercial Real Estate?
Short answer: The three biggest capital-protection lessons from Mike Zlotnik are: (1) always overcapitalize — have more reserves than you think you need; (2) use conservative, fixed-rate leverage; and (3) start with downside analysis before modeling upside. These principles, drawn from Charlie Munger and Howard Marks, separate surviving investors from those who get wiped out at market turns.
Mike has seen both sides of the cycle. He’s had conversations this week with investors who lost two-thirds of their net worth in the last cycle — and others who lost 90%. Here’s what he says separated the survivors:
Overcapitalize — Always
“The most fundamental lesson you can have and it’s difficult to do is: overcapitalize projects. Have reserves. Have margin of safety.”
This is something I beat the drum on constantly on this show. You buy a deal, you execute your plan — but you don’t have enough capital in reserve when something goes sideways. And something always goes sideways. Plan for it.
Invert First — Look at Losses Before Upside
Mike invokes Charlie Munger’s famous inversion principle: always invert, always invert. Before you model your returns, model your losses. How can you lose money on this deal? Work backward from there.
This isn’t pessimism — it’s rigorous investing. When you know your downside is protected, you can pursue upside with confidence.
Use Fixed-Rate, Conservative Leverage
Floating-rate debt killed a generation of multifamily operators. The antidote is straightforward: use fixed-rate debt, borrow conservatively, and underwrite to survive, not just to thrive. Mike’s Newcastle industrial deal came in at a fixed 6.5% — not the cheapest, but locked and predictable.
Mike references Howard Marks’ work on market cycles as essential reading for any serious investor. Howard’s framework for understanding where we are in a cycle — and what that means for your bid — is foundational to buying right.
For investors navigating tougher market environments, our post on building a recession-resilient real estate portfolio walks through these principles in depth.
How Does Mike Zlotnik Find and Vet Deals — and What Can Passive Investors Learn?
Short answer: Mike’s team acts as a “super LP” — raising capital and partnering with vertically integrated operators who source and filter deals. Rather than reviewing thousands of properties themselves, they build deep relationships with specialist sponsors, then co-invest alongside them as the majority capital partner. This relationship-driven model delivers pre-vetted, high-quality deal flow.
Mike’s approach to deal sourcing is notably different from most syndicators:
“We work with very established, long-term relationship, vertically integrated operators in different strategies. We are a capital partner. We are super LP, in a matter of speaking.”
His team doesn’t cold-call sellers or run their own marketing. Instead, they’ve built a network of trusted sponsor relationships across industrial, open-air retail, and other asset classes. When a sponsor is about to put a deal under contract, Mike’s team gets a call — and evaluates a curated, pre-filtered subset of opportunities.
The insight for passive investors? Even if you’re just writing checks, you can learn a tremendous amount by engaging actively with your investments. Read the reports. Ask questions. Understand what’s working and what isn’t. That accumulation of knowledge compounds over time and makes you a sharper evaluator of the next opportunity.
Mike also stresses the value of mentorship and mastermind communities at every stage. As he said on the show, even elite athletes still get coaching at the peak of their careers. If you’re serious about scaling, building relationships with experienced operators is essential. Our post on finding the right real estate mentor covers how to do that effectively.
For passive investors looking at the best asset classes across the risk/return spectrum, see our full breakdown of the best asset classes for passive real estate investors.
Which U.S. Markets Are Best for Industrial and Open-Air Retail Investing in 2025?
Short answer: Mike Zlotnik doesn’t commit to a single metro, but highlights DFW and Florida for long-term demographic tailwinds, the Midwest (Detroit, Indiana) for deep contrarian value plays, and cautions that even strong markets can become oversupplied. The deal matters more than the metro — but buying in markets with inbound migration and population growth gives you structural support.
When I pushed Mike for a single best market, he gave an honest answer:
“I wish I had a single metro. Unfortunately, I don’t have an answer… long-term trends, Texas and Florida seem to have gotten a lot of inbound capital, migration and people moving there.”
But he also flagged something counterintuitive: Midwest markets like Detroit and Indiana have offered remarkable value plays for investors willing to look past the stigma. His team found a 100-year-old industrial company in Newcastle, Indiana and locked in an 8.6% cap rate — the kind of spread you simply cannot find in coastal gateway markets.
The lesson: don’t let geography limit your investment thesis. The best deals are often in markets that coastal investors overlook. DFW offers long-term demographic strength; the Midwest offers deep value. Both can work, depending on your strategy.
If you’re exploring markets and deal types as you build your portfolio, our guide on building a real estate portfolio is a solid starting point.
What Books and Resources Does Mike Recommend for Real Estate Investors?
Mike is a voracious reader, and his recommended reading list reflects the depth of his investment philosophy. Here are the books he mentioned on the episode:
- “Start With Why” by Simon Sinek — Understanding your core motivation before anything else
- “Sometimes You Win, Sometimes You Learn” by John C. Maxwell — Reframing losses as essential learning
- “Richer, Wiser, Happier” by William Green — Deep study of legendary investors including Howard Marks and Charlie Munger
- Ray Dalio’s “Principles” trilogy — Including Principles for Navigating Big Debt Crises and Principles for Dealing with the Changing World Order, highly relevant to the current macro environment
Mike also references the chess-based learning methodology: prepare before the game, analyze after the game, and study the grandmasters. In investing terms: study the greats (Buffett, Munger, Marks, Dalio), be intentional before you enter a deal, and ruthlessly debrief after every experience — win or lose.
The “ready, fire, aim” principle he’s codifying in his book is essential for new investors who over-prepare and never act. You will learn more from your first deal — even if it’s imperfect — than from another six months of analysis paralysis.
Final Takeaways: Why Industrial and Open-Air Retail Deserve a Spot in Your Portfolio
If you’ve been sitting on the sidelines, waiting for the “perfect” asset class or the “perfect” market conditions — this episode is your wake-up call. Mike Zlotnik has seen multiple full cycles, lost money, made money, and come out the other side with a clear philosophy:
Buy conservatively. Use fixed-rate debt. Overcapitalize. Focus on lease duration. Protect downside before chasing upside.
Industrial real estate and open-air retail currently offer a rare combination of positive cap rate spreads, credit-quality long-term tenants, triple-net inflation protection, and low supply pressure. That’s a compelling case — backed not just by theory, but by real deals Mike’s team is closing right now.
As I always say: the best time to start is now. Whether you’re exploring your first deal or diversifying an existing portfolio, start learning, start networking, and start acting.
Connect With Mike Zlotnik
- Website & Book Signup: BigMikeFund.com
- Podcast: Big Mike Fund Podcast
- Deals: Referral-based — reach out through the website and mention who referred you
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