Podcast Summary: How I Invest with David Weisburd

Episode Title: E317: Most Real Estate Investors Optimize the Wrong Return Metric
Date: March 4, 2026
Host: David Weisburd (possibly with guest host, referred to as Jeff in transcript)
Guest: David Kotler (Founder of Arkitel, former AQR)

Overview

This episode tackles the critical mistake that most real estate investors make: optimizing for pre-tax returns rather than after-tax (net) returns. David Kotler, founder of Arkitel and an expert in tax-aware real estate investing, shares lessons from his background at AQR and managing a family office. He breaks down why structural alpha via tax strategy can have a transformative effect on real estate wealth creation, especially for taxable investors.

Key Discussion Points & Insights

1. The Tax-Aware Real Estate Opportunity

• Real estate, due to U.S. tax code benefits, is uniquely positioned for after-tax optimization.
• Most investors—even sophisticated ones—leave substantial wealth on the table by neglecting tax strategy.

“You know, real estate is gifted one of the most advantaged tax codes of any investable asset class in the United States... I don't think most people understand just how much they're leaving on the table unless they approach it in a very intentional manner.”
— David Kotler [00:54]

2. Quantifying the Impact: Doubling After-Tax Returns

• Tax-aware strategy in private real estate can lead to 2x greater after-tax, net-of-fee returns than tax-agnostic approaches.
• Cycling through assets, as many managers do to crystallize their fees, undermines tax efficiency for clients.

“Approaching private real estate investing in a tax focused manner can result in a two times greater after tax net of fee return... compared to a tax agnostic strategy.”
— David Kotler [01:18]

3. Why Most Investors Miss Out

• Managers often optimize for pre-tax returns to show better metrics to a diverse investor base (both taxable and tax-exempt clients).
• Traditional models don’t account for different tax outcomes, misaligning manager/investor interests.

“If you're serving a taxable and tax exempt client base, your mandate to maximize after tax returns falls because you're also trying to cater to maximizing pre tax returns, which by the way is how most managers operate.”
— David Kotler [06:12]

4. What Does Tax-Aware Investing Look Like? (Practical Walkthrough)

For a High Net Worth Investor:

• Use of K-1s for pass-through depreciation.
• Leverage legislation for accelerated/bonus depreciation.
• Favor long hold periods over cycling/selling.
• Use refinancing and careful asset management to extract value without triggering taxable events.
• The 1031 exchange is a powerful but sometimes misused tool—Kotler’s approach is not reliant on it, instead underwriting to 15-year holds and only using 1031 when strategically advantageous.

“Our strategy, specifically, we're not reliant on the 1031 exchange. We're actually underwriting to 15 year hold periods... If it's used incorrectly... you tend to overpay for the replacement property.”
— David Kotler [12:04]

5. Family Offices: In-House vs. Outsourced Tax-Aware Solutions

• Large family offices can internalize direct real estate investing and optimize timing/tax events across portfolios.
• Most family offices lack scale and prefer to outsource; Arkitel was built to address this need for ultra-high-net-worth, taxable clients.

“A significant percentage of family offices, whether it's because they're not of scale... or... don't want to take on the operational complexity... an outsourced solution can be very compelling. And by the way, that's really what arcatelle was founded for.”
— David Kotler [13:29]

6. The Rise of Tax Awareness as a Differentiator

• In a commoditized space where investment alpha is hard to sustain, tax alpha (structural alpha) stands out.
• Most new clients need to be sold on post-tax metrics, but this awareness is growing rapidly, mirroring trends in public markets.

“For us that has allowed us to get into business and to keep growing our business in this really commoditized and competed space. I think we're still in very early innings of the tax story here.”
— David Kotler [14:29]

7. Tax Alpha vs. Traditional Alpha

• Pre-tax return dispersion among managers is surprisingly narrow (typically ~200 basis points for core/core-plus RE), making tax outcomes a higher-leverage strategy.
• Tax is an element investors can control, unlike market returns.

“I think tax is more within your control, certainly I would say than the pre-tax return outcome of an underlying investment. So you know, you focus on those variables that you can at least better control.”
— David Kotler [17:36]

Memorable Quotes & Timestamps

• On eye-opening tax advantages:
  “Real estate is gifted one of the most advantaged tax codes... I don't think most people understand just how much they're leaving on the table unless they approach it in a very intentional manner.” — David Kotler [00:54]

• Structural alpha explained:
  “It's this concept of structural alpha. If you combine an underlying investment strategy and marry it with the right structure, you can get more than a two times after tax total return.” — David Kotler [04:12]

• Why 1031 exchanges aren’t a cure-all:
  “It's a gift. It would be wrong of me to try and say it's not a gift from the IRS, but we find it's overused, it's too prevalent. If it's used incorrectly... you tend to overpay for the replacement property.” — David Kotler [12:04]

• On commoditization and the rise of tax-smart investing:
  “You can talk about again finding a manager that has top quartile, top decile, pre tax returns... but when you layer in the after tax, the after tax component, ideally you marry both.” — David Kotler [16:03]

Key Segments & Timestamps

• Introduction to Tax-Aware Real Estate Strategy – [00:13-01:12]
• Doubling After-Tax Returns – [01:18-02:47]
• Structural Alpha & Investor Mindset Shift – [04:12-05:19]
• Practical Approaches for Tax-Aware Real Estate Investing – [05:20-06:58], [09:39-12:04]
• Family Office Use Cases, Outsourcing, and Industry Trends – [13:19-16:03]
• Tax Alpha vs. Traditional Alpha & Investor Control – [17:01-18:00]

Tone & Style

Kotler’s tone is analytical, pragmatic, and focused on clear financial outcomes. The host presses for real-world examples and practical applications, resulting in a conversation rich in actionable insights and strategic perspective.

Conclusion

The episode powerfully underscores the overlooked importance of after-tax returns in real estate investing. By marrying investment strategy to tax structure, investors—particularly family offices and high-net-worth individuals—can potentially double their wealth creation compared to traditional, tax-agnostic approaches. As alpha is squeezed in a competitive market, tax strategy emerges as a major lever for differentiation and sustainable outperformance.