Tiffany Earl Williams is the CEO of Midwest Equity and a broker at Skogman Commercial Real Estate. Tiffany joins me to discuss the current state of the real estate market in Eastern Iowa, what makes a good real estate investment, and how she got her start in the industry. She also shares the origin story of her company, Midwest Equity, gives us an inside look into their move to an iconic building in downtown Cedar Rapids, and how AI has revolutionized their work.
I learned a lot and I think you will too.
Sponsored by MidWestOne Bank, this is the latest edition of the CBJ’s Real Success with Nate Kaeding and notable Iowa business and cultural leaders.
Real Success with Nate Kaeding was named Best Business Podcast at the 2024 Iowa Podcast Awards.
Nate Kaeding: Can you start by giving us an inside look at what’s happening in the real estate market, particularly here in the Cedar Rapids/Iowa City area?
Tiffany Earl Williams: Sure. One of the benefits of being in Cedar Rapids and Iowa City is that we are not at the forefront of major swings from things that are external. Other markets probably see bigger impact from big jumps in interest rates, which happened in a very quick period of time, or the tariff situation. So I think we have the benefit of not being vulnerable as much as other markets. The cost of money has been significant, which impacts projects, lease rates and lending appraisals. There’s usually an inverse correlation between what’s happening with interest rates and value because as the cost of money goes up, cap rates generally also go up, and so the value of properties can go down. We are a little bit insulated from that.
Beyond just owning your own home, what are some of your key principles in terms of what makes a good real estate investment?
Tiffany: So real estate is one of the unique asset classes that have a significant tax advantage to the underlying investor. You should be diversified in lots of different types of investments, but if you don’t have an allocation in real estate, you probably should. As you receive income from properties, there’s opportunities to use depreciation to shelter the taxable income that you would normally get as an investor. If you’re investing in a stock and they pay a distribution or a dividend, you’re paying income tax on that. So that’s one of the things that I think is unique about real estate.
There’s also the fact that you do preserve the ability, as the value of your assets go up over time, to do what’s called the Step Up in Basis. That allows your heirs to inherit the real estate without actually paying capital gains on the asset that you own.
You were born and raised here in Cedar Rapids. Did you have an interest, even back as a young Cedar Rapidian, to get into real estate?
Tiffany: My family actually owned some limited amount of real estate and it goes all the way back to my grandfather. So I got exposed to it just because we had a family-owned business that owned real estate. Then, as I evolved into my legal profession, I did a lot of transactions that involved real estate and knew that it was important to diversify our assets. So I started acquiring real estate as a lawyer.
It was pretty limited (I was young and whatever), but as I made the decision to move back to Cedar Rapids, I got into the commercial brokerage world and helped other people that wanted to own or sell real estate. Over time, I just got involved in a lot of transactions and gained a lot of knowledge and perspective. I saw behind the curtain of what worked, what didn’t work, what different people’s philosophies were, and what I perceived to be most successful. That really shaped my opinion of what we focus on as an investor in real estate.
Do you have a piece of your portfolio that’s nostalgic or emotional for you?
Tiffany: If real estate’s never emotional for me, that’s good. But I guess the biggest one that’s emotional is that we are moving our Midwest Equity office into the former Wells Fargo building downtown. As part of that, we’re doing a major renovation of the building. We’re going to change the fabric of what’s happening down there. We’re going to have our company there, which is growing and has a lot of vibrancy to it. I just think, and have always thought, that contributing to a downtown’s core can really make a big impact on the community’s health.
What advice do you have for young people that might be considering getting into that as a profession?
Tiffany: It’s a really hard profession to enter out of the gate unless you have some sort of connection or you’re part of a larger team. It is an “eat what you kill” business. You don’t start off normally with a salary. It’s all about performance and work, and then eventually it pays a dividend. Commercial real estate is different than residential in that the sales cycle is long. I remember when I first started in commercial real estate. It took an entire year to earn my first commission. That’s difficult, but you make an investment, you put in the time, and it becomes cumulative. There are opportunities for people to work on teams that might accelerate that. Being surrounded by like-minded people and being in the right company that has more of a team mindset can help.
Was there any point in time during that first year where you were asking yourself “what did I get myself into here?”
Tiffany: No. I’m a super competitive person and I’ve always believed in myself. I knew that I would put the work in and it would be successful. I understood it was going to take time. I lived a little differently the first year. I didn’t eat out as much. I just put the work in.
Diligence and organization is really important. It requires attention to detail and follow-up. The biggest attribute that I think is key to success is really listening to the clients that you work with and trying to understand what their goals are. They often may not know exactly what they want or need. They’re relying on your market knowledge to help them refine what their goals and objectives are, and identify what’s reasonable, even as much as what size space they need. Sometimes, someone’s like, “I need 10,000 square feet,” and then you learn what their programming looks like, and now they actually need way more or even less. You get a lens from looking at enough deals that you can start to hear what they’re saying and know how realistic the expectation is or what it translates into for an outcome.
What are the basic differences between a commercial real estate agent and a residential? How’s the skillset different? How’s the day-to-day different?
Tiffany: I feel like the biggest difference for a commercial agent is that there are a lot of legal aspects of what you do from a day-to-day business standpoint, including different contracts, leases, and lease terms. Every lease is different on a commercial property. I’ve drafted leases as an attorney. You can say triple net lease and I could show you an infinite number of terms that make one different than another. So definitely, if you’re new in the business, you absolutely should have lawyers that you refer clients to that can help them understand it. You wouldn’t have the background for that.
Also, just the basic negotiation through the process of a commercial transaction is different. If you’re buying something, you start with a letter of intent. That’s not a legally binding document. It’s an outline of basic business terms. Typically the purchase agreement follows that letter of intent and you have to have the knowledge of what terms to negotiate, what’s market, what’s reasonable, what are all the terms that should be laid out, what things are missing, are things added, and even what comes later. A lot of that is probably legal but, through a big enough number of transactions, you gain familiarity, build the knowledge base, and surrounding yourself with someone that can make sure that you are dotting your i’s and crossing your t’s is pretty key.
Are you using much AI in your business? How has that been implemented?
Tiffany: So we have the brokerage business and we also have our investment business, which is Midwest Equity. We use AI on both sides. We don’t rely on it exclusively but, for example, let’s say you’re buying a building with ten tenants. If you sit down and read ten leases that are all 70 pages long, digesting that information and pulling out key terms is a big undertaking. There’s technology out there where you could upload all the leases and you can set your fields of things you want to extract. Normally, that would take someone a couple of weeks but, with AI, it’s pretty instantaneous one you set up the playbook, so to speak. There still has to be a human element and we have another in-house lawyer on our Midwest Equity team that helps with the review of everything.
Another crazy one is just critical dates. So I did a test where I uploaded a purchase agreement. A purchase agreement might state that you have X number of days of due diligence, you have X number of days for title, you have X number of days to close, and all these different timelines. There are probably 10 or 15 different date triggers in there. So I just uploaded the PDF and I asked it, “What are all the critical dates?” and it spit it out. So again, I’m not going to totally rely on that, but that would be a great starting point to make sure you don’t miss a deadline.
What are your core principles when it comes to a good negotiation?
Tiffany: Well, the number one is just understanding fundamental economics of the market and the deal. You have to start with that. Then, from a negotiation standpoint, understanding motivations and having options for either side where it’s not a “die on the sword” deal for anyone is probably an important aspect of it. I’m always mindful of making sure that I do what I say I’m going to do, and I’m always upfront and honest. Then some trust builds through my reputation. Sometimes, it’s training someone that’s on the other side that if they do X or Y, then you won’t deal with them. I guess one other principle for negotiation for me, and what I try and coach my clients to do, is always respond. You always respond, even if it’s a low ball offer and even if you respond back with close to the asking price. Negotiation is communication. If you stop communicating, you have zero chance of getting a deal done. It never hurts to respond. So just don’t be emotional and always respond.
Give us the origin story on how Midwest Equity came to be.
Tiffany: Sure. My husband and I were buying real estate randomly. We bought probably one a year that was of significant size. And about ten years ago we missed out on a deal. It was a Hy-Vee asset in Cedar Rapids. We had made an offer on it and the broker came back to me. He’s like, “We have five Hy-Vees in this portfolio. Can you offer on all five?” Of course we couldn’t.
So we were disappointed we didn’t get that deal. I was mentioning that to Kyle Skogman, who I worked with, and he said, “Next time you have a deal, let us know. We would invest with you. I have a few friends that want to own commercial real estate and we all trust you.” So the next deal came around and about eight investors came along with us. That investment went really well.
Everything that has happened since has all been through word of mouth. We now have about 300 investors and we have assets in 12 states. It’s right around just over a billion dollars of assets under management and we’re still growing. One of the great things in my mind with that has been that we pay quarterly distributions and we’re currently paying, to people in Cedar Rapids, Iowa, about $18.5 million a year in distribution income. So we have properties out of state and income coming into the state of Iowa with our investor base. That’s significant. So I’m very proud of that.
We have an annual fund that has multiple funding dates throughout the year. The investors make their commitment for the year and they set their funding period. We cap our equity collection to match what our acquisition closings are per quarter. Money comes in, we deploy money, and we do it in a disciplined way so we’re not closing on more transactions than we feel like we can handle at any given time. Then they get quarterly distributions. They get a K1 and we allocate depreciation to them so they get all the tax advantages of an individual investor, but they are totally passive and don’t have to do anything other than learn about what we’re doing.
You’ve got a lot on your plate. You’ve built this amazing company and you’ve got the brokerage on the commercial real estate side here in the Corridor. What do you do for fun? How do you balance it all out?
Tiffany: Well, I’m a tennis player, so I personally play tennis. My kids play tennis and my husband plays tennis, so that’s the big sport. I’m a big family person. I have three kids and a big range in ages. I have a son that’s graduating from college who played college tennis, so I would watch him play. He’s competing nationally and already has an endorsement. He’s a good player, but it all depends on work, effort, and dedication. He has the right mindset. I have a 10-year-old that’s going to give him a run for his money, though.
